Table	of	Contents

# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

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

# For	the	Fiscal	Year	Ended	December	31,	2004

# ¨ TRANSITION	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	AND	EXCHANGE	ACT	OF 1934

# MARRIOTT	INTERNATIONAL,	INC.

(Exact	name	of	registrant	as	specified	in	its	charter)

Delaware

(State	of	Incorporation)

10400	Fernwood	Road,	Bethesda,	Maryland

(Address	of	Principal	Executive	Offices)

(IRS	Employer	Identification	Number)

(Zip	Code)

Registrant's	Telephone	Number,	Including	Area	Code	(301)	380-3000

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

Title	of	Each	Class

Class	A	Common	Stock,	$0.01	par	value

Name	of	Each	Exchange	on	Which	Registered

New	York	Stock	Exchange Chicago	Stock	Exchange Pacific	Stock	Exchange

Philadelphia	Stock	Exchange

# Securities	registered	pursuant	to	Section	12(g)	of	the	Act:	NONE

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	(or	for	such	shorter	period	that	the	registrant	was	required	to	file	such	reports),	and	(2)	has	been	subject	to	such	filing	requirements	for	the	past	90 days.				Yes		x				No		¨

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

Indicate	by	checkmark	whether	the	registrant	is	an	accelerated	filer	(as	defined	in	Exchange	Act	Rule	12b-2).				Yes		x				No		¨

# DOCUMENTS	INCORPORATED	BY	REFERENCE

Portions	of	the	Proxy	Statement	prepared	for	the	2005	Annual	Meeting	of	Shareholders	are	incorporated	by reference	into	Part	III	of	this	report.

# FORM	10-K	TABLE	OF	CONTENTS

# FISCAL	YEAR	ENDED	DECEMBER	31,	2004

# Page	No.

# Part	I.

| Items	1	and	2. | Business	and	Properties | 3 |
| :--- | :--- | :--- |
| \t\t\t\tItem\t3. | Legal\tProceedings | 16 |
| \t\t\t\tItem\t4. | Submission\tof\tMatters\tto\ta\tVote\tof\tSecurity\tHolders | 17 |
| Part\tII. |  |  |
| \t\t\t\tItem\t5. | Market\tfor\tRegistrant's\tCommon\tEquity,\tRelated\tStockholder\tMatters\tand\tIssuer\tPurchases\tof\tEquity\tSecurities | 18 |
| \t\t\t\tItem\t6. | Selected\tFinancial\tData | 19 |
| \t\t\t\tItem\t7. | Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 20 |
| \t\t\t\tItem\t7A. | Quantitative\tand\tQualitative\tDisclosures\tAbout\tMarket\tRisk | 40 |
| \t\t\t\tItem\t8. | Financial\tStatements\tand\tSupplementary\tData | 42 |
| \t\t\t\tItem\t9. | Changes\tin\tand\tDisagreements\twith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 77 |
| \t\t\t\tItem\t9A. | Controls\tand\tProcedures | 77 |
| \t\t\t\tItem\t9B. | Other\tInformation | 77 |
| Part\tIII. |  |  |
| \t\t\t\tItem\t10. | Directors\tand\tExecutive\tOfficers\tof\tthe\tRegistrant | 78 |
| \t\t\t\tItem\t11. | Executive\tCompensation | 78 |
| \t\t\t\tItem\t12. | Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement\tand\tRelated\tStockholder\tMatters | 78 |
| \t\t\t\tItem\t13. | Certain\tRelationships\tand\tRelated\tTransactions | 78 |
| \t\t\t\tItem\t14. | Principal\tAccountant\tFees\tand\tServices | 78 |
| Part\tIV. |  |  |
| \t\t\t\tItem\t15. | Exhibits\tand\tFinancial\tStatement\tSchedules | 82 |
|  | Signatures | 85 |

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

# Items	1	and	2.	Business	and	Properties.

We	are	a	worldwide	operator	and	franchisor	of	hotels	and	related	lodging	facilities.	Our	operations	are	grouped	into	the	following	five	business	segments:

We	were	organized	as	a	corporation	in	Delaware	in	1997	and	became	a	public	company	in	1998	when	we	were	"spun	off"	as	a	separate	entity	by	the	company formerly	named	"Marriott	International,	Inc."

In	our	Lodging	business,	which	includes	our	Full-Service,	Select-Service,	Extended-Stay	and	Timeshare	segments,	we	develop,	operate	and	franchise	hotels	and corporate	housing	properties	under	13	separate	brand	names,	and	we	develop,	operate	and	market	Marriott	timeshare	properties	under	four	separate	brand	names.

Our	synthetic	fuel	operation	consists	of	our	interest	in	four	coal-based	synthetic	fuel	production	facilities	whose	operations	qualify	for	tax	credits	based	on	Section 29	of	the	Internal	Revenue	Code.

Prior	to	January	3,	2003,	our	operations	included	our	Senior	Living	Services	and	Distribution	Services	businesses,	which	we	now	classify	as	discontinued operations.

Financial	information	by	industry	segment	and	geographic	area	as	of	December	31,	2004,	and	for	the	three	fiscal	years	then	ended	appears	in	the	Business Segments	note	to	our	Consolidated	Financial	Statements	included	in	this	annual	report.

# Lodging

We	operate	or	franchise	2,632	lodging	properties	worldwide,	with	482,186	rooms	as	of	December	31,	2004.	In	addition,	we	provide	2,504	furnished	corporate housing	rental	units.	We	believe	that	our	portfolio	of	lodging	brands	is	the	broadest	of	any	company	in	the	world,	and	that	we	are	the	leader	in	the	quality	tier	of	the vacation	timesharing	business.	Consistent	with	our	focus	on	management	and	franchising,	we	own	very	few	of	our	lodging	properties.	Our	lodging	brands	include:

# Full-Service	Lodging

•	 Horizons	by	Marriott	Vacation	Club	International

# Company-Operated	Lodging	Properties

At	December	31,	2004,	we	operated	968	properties	(255,109	rooms)	under	long-term	management	or	lease	agreements	with	property	owners	(together,	"the Operating	Agreements")	and	six	properties	(1,362	rooms)	as	owned.

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

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

# Franchised	Lodging	Properties

We	have	franchising	programs	that	permit	the	use	of	certain	of	our	brand	names	and	our	lodging	systems	by	other	hotel	owners	and	operators.	Under	these programs,	we	generally	receive	an	initial	application	fee	and	continuing	royalty	fees,	which	typically	range	from	4	percent	to	6	percent	of	room	revenues	for	all	brands, plus	2	percent	to	3	percent	of	food	and	beverage	revenues	for	certain	full-service	hotels.	In	addition,	franchisees	contribute	to	our	national	marketing	and	advertising programs,	and	pay	fees	for	use	of	our	centralized	reservation	systems.	At	December	31,	2004,	we	had	1,658	franchised	properties	(225,715	rooms).

# Summary	of	Properties	by	Brand

As	of	December	31,	2004,	we	operated	or	franchised	the	following	properties	by	brand	(excluding	2,504	corporate	housing	rental	units):

| Brand | Properties | Rooms | Properties | Rooms |
| :--- | :--- | :--- | :--- | :--- |
| Full-Service\tLodging |  |  |  |  |
| Marriott\tHotels\t&\tResorts | 226 | 100,780 | 216 | 59,764 |
| Marriott\tConference\tCenters | 14 | 3,577 | — | — |
| JW\tMarriott\tHotels\t&\tResorts | 30 | 13,833 | 4 | 1,205 |
| The\tRitz-Carlton | 57 | 18,611 | — | — |
| Renaissance\tHotels\t&\tResorts | 88 | 33,596 | 45 | 13,863 |
| Bulgari\tHotel\t&\tResort | 1 | 58 | — | — |
| Ramada\tInternational | 4 | 727 | — | — |
| Select-Service\tLodging |  |  |  |  |
| Courtyard | 299 | 47,344 | 357 | 46,659 |
| Fairfield\tInn | 2 | 855 | 521 | 47,855 |
| SpringHill\tSuites | 23 | 3,597 | 102 | 10,953 |
| Extended-Stay\tLodging |  |  |  |  |
| Residence\tInn | 132 | 17,791 | 331 | 37,268 |
| TownePlace\tSuites | 34 | 3,661 | 81 | 8,049 |
| Marriott\tExecutive\tApartments | 13 | 2,372 | 1 | 99 |
| Timeshare |  |  |  |  |
| Marriott\tVacation\tClub\tInternational | 43 | 8,832 | — | — |
| The\tRitz-Carlton\tClub | 4 | 261 | — | — |
| Marriott\tGrand\tResidence\tClub | 2 | 248 | — | — |
| Horizons\tby\tMarriott\tVacation\tClub\tInternational | 2 | 328 | — | — |
| Total | 974 | 256,471 | 1,658 | 225,715 |

We	currently	have	more	than	55,000	rooms	in	our	development	pipeline	and	expect	to	add	25,000	to	30,000	hotel	rooms	and	timeshare	units	to	our	system	in 2005.	We	believe	that	we	have	access	to	sufficient	financial	resources	to	finance	our	growth,	as	well	as	to	support	our	ongoing	operations	and	meet	debt	service	and other	cash	requirements.	Nonetheless,	our	ability	to	sell	properties	that	we	develop,	and	the	ability	of	hotel	developers	to	build	or	acquire	new

Marriott	properties,	important	parts	of	our	growth	plan,	are	partially	dependent	on	their	access	to	and	the	availability	and	cost	of	capital.	See	"Liquidity	and	Capital Resources"	caption	in	Part	II,	Item	7,	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations."

# Summary	of	Properties	by	Country

As	of	December	31,	2004,	we	operated	or	franchised	properties	in	the	following	66	countries	and	territories:

| Country | Hotels | Rooms |
| :--- | :--- | :--- |
| Americas |  |  |
| Argentina | 1 | 325 |
| Aruba | 4 | 1,586 |
| Brazil | 5 | 1,506 |
| Canada | 42 | 9,850 |
| Cayman\tIslands | 2 | 532 |
| Chile | 2 | 485 |
| Costa\tRica | 3 | 574 |
| Curacao | 1 | 247 |
| Dominican\tRepublic | 2 | 446 |
| Ecuador | 1 | 257 |
| Guatemala | 1 | 385 |
| Honduras | 1 | 157 |
| Jamaica | 1 | 427 |
| Mexico | 9 | 2,583 |
| Panama | 2 | 416 |
| Peru | 1 | 300 |
| Puerto\tRico | 3 | 1,197 |
| Saint\tKitts\tand\tNevis | 1 | 500 |
| Trinidad\tand\tTobago | 1 | 119 |
| United\tStates | 2,264 | 385,845 |
| U.S.\tVirgin\tIslands | 3 | 785 |
| Venezuela | 1 | 269 |
| Total\tAmericas | 2,351 | 408,791 |
| Middle\tEast\tand\tAfrica |  |  |
| Armenia | 1 | 225 |
| Bahrain | 1 | 264 |
| Egypt | 7 | 3,141 |
| Israel | 2 | 960 |
| Jordan | 3 | 609 |
| Kuwait |  | 601 |
| Lebanon | 1 | 174 |
| Qatar |  | 586 |
| Saudi\tArabia | 3 | 735 |
| Tunisia |  | 221 |
| Turkey | 4 | 1,189 |
| United\tArab\tEmirates |  | 935 |
| Total\tMiddle\tEast\tand\tAfrica | 31 | 9,640 |
| Asia |  |  |
| China | 30 | 11,493 |
| Guam | 1 | 357 |
| India | 5 | 1,195 |
| Indonesia | 3 | 1,083 |
| Japan | 9 | 2,875 |
| Malaysia | 6 | 2,757 |
| Pakistan | 2 | 509 |
| Philippines | 2 | 898 |
| Singapore | 2 | 992 |
| South\tKorea | 4 | 1,762 |
| Thailand | 7 | 1,887 |
| Vietnam | 2 | 874 |
| Total\tAsia | 73 | 26,682 |

| Country | Hotels | Rooms |
| :--- | :--- | :--- |
| Australia | 8 | 2,354 |
| Europe |  |  |
| Austria | 6 | 1,569 |
| Belgium | 4 | 721 |
| Czech\tRepublic | 3 | 656 |
| Denmark | 1 | 395 |
| France | 6 | 1,431 |
| Georgia | 2 | 245 |
| Germany | 40 | 8,512 |
| Greece | 1 | 314 |
| Hungary | 2 | 470 |
| Italy | 5 | 944 |
| Netherlands | 3 | 945 |
| Poland | 2 | 748 |
| Portugal | 3 | 933 |
| Romania | 1 | 402 |
| Russia | 6 | 1,559 |
| Spain | 6 | 1,398 |
| Switzerland | 2 | 464 |
| Total\tEurope | 93 | 21,706 |
| United\tKingdom |  |  |
| Ireland | 3 | 506 |
| United\tKingdom\t(England,\tScotland\tand\tWales) | 73 | 12,507 |
| Total\tUnited\tKingdom | 76 | 13,013 |
| Total\t–\tAll\tCountries\tand\tTerritories | 2,632 | 482,186 |

Marriott	Hotels	&	Resorts	(including	JW	Marriott	Hotels	&	Resorts	and	Marriott	Conference	Centers)	is	our	global	flagship	brand,	primarily	serving	business and	leisure	travelers	and	meeting	groups	at	locations	in	downtown,	urban	and	suburban	areas,	near	airports	and	at	resort	locations.	Marriott	full-service	hotels	is	a quality	tier	brand,	with	most	hotels	typically	containing	from	400	to	700	rooms,	high-speed	internet	access,	swimming	pools,	gift	shops,	convention	and	banquet facilities,	a	variety	of	restaurants	and	lounges,	room	service,	concierge	lounges	and	parking	facilities.	Fifteen	hotels	have	over	1,000	rooms.	Many	Marriott	resort	hotels have	additional	recreational	and	entertainment	facilities,	such	as	tennis	courts,	golf	courses,	additional	restaurants	and	lounges,	and	many	have	spa	facilities.	By	the	end of	2005,	hotels	are	required	to	have	a	new,	superior	bedding	package	(offering	better	mattress	quality	and	enhanced	bedding	components).	Unless	otherwise	indicated, our	references	to	Marriott	Hotels	&	Resorts	throughout	this	report	include	JW	Marriott	Hotels	&	Resorts	and	Marriott	Conference	Centers.

JW	Marriott	Hotels	&	Resorts	is	the	Marriott	brand's	luxury	collection	of	distinctive	hotels	that	cater	to	accomplished,	discerning	travelers	seeking	an	elegant environment	and	personal	service.	These	34	hotels	and	resorts	are	primarily	located	in	gateway	cities	and	upscale	locations	throughout	the	world.	In	addition	to	the features	found	in	a	typical	Marriott	full-service	hotel,	the	facilities	and	amenities	at	JW	Marriott	Hotels	&	Resorts	normally	include	larger	guest	rooms,	higher	end	décor and	furnishings,	upgraded	in-room	amenities,	upgraded	business	centers	and	fitness	centers/spas,	and	24-hour	room	service.

We	operate	14	Marriott	Conference	Centers	(3,577	rooms)	throughout	the	United	States.	Some	of	the	centers	are	used	exclusively	by	employees	of	sponsoring organizations,	while	others	are	marketed	to	outside	meeting	groups	and	individuals.	In	addition	to	the	features	found	in	a	typical	Marriott	full-service	hotel,	the	centers typically	include	expanded	meeting	room	space,	banquet	and	dining	facilities,	guest	rooms	and	recreational	facilities.

Rooms	revenue	contributed	the	majority	of	Marriott	Hotels	&	Resorts'	revenues	for	fiscal	year	2004,	with	the	remainder	coming	from	food	and	beverage operations,	recreational	facilities	and	other	services.	Overall	hotel	system	profits	are	usually	relatively	stable	and	include	only	moderate	seasonal	fluctuations.	Business at	resort	properties	may	be	seasonal	depending	on	location.

# Marriott	Hotels	&	Resorts

| United	States	(43	states	and	the	District	of	Columbia) | 318 | (129,831	rooms) |
| :--- | :--- | :--- |
| Non-U.S.\t(51\tcountries\tand\tterritories) |  |  |
| Americas\t(Non-U.S.) | 34 |  |
| Continental\tEurope | 32 |  |
| United\tKingdom | 55 |  |
| Asia | 30 |  |
| The\tMiddle\tEast\tand\tAfrica | 16 |  |
| Australia | \t\t5 |  |
| Total\tNon-U.S. | 172 | (49,328\trooms) |

The	Ritz-Carlton	is	a	leading	global	luxury	brand	of	hotels	and	resorts	renowned	for	their	distinctive	architecture	and	for	the	high	quality	level	of	their	facilities, dining	options	and	exceptional	personalized	guest	service.	Most	Ritz-Carlton	hotels	have	250	to	400	guest	rooms	and	typically	include	meeting	and	banquet	facilities,	a variety	of	restaurants	and	lounges,	a	club	level,	gift	shops,	high-speed	internet	access,	swimming	pools	and	parking	facilities.	Guests	at	most	of	the	Ritz-Carlton	resorts have	access	to	additional	recreational	amenities,	such	as	tennis	courts,	golf	courses	and	health	spas.

# The	Ritz-Carlton

| Geographic	Distribution	at	December	31,	2004 | Hotels |  |
| :--- | :--- | :--- |
| United\tStates\t(16\tstates\tand\tthe\tDistrict\tof\tColumbia) | 35 | (11,629\trooms) |
| Non-U.S.\t(20\tcountries\tand\tterritories) |  |  |
| Americas\t(Non-U.S.) | 6 |  |
| Continental\tEurope | 4 |  |
| Asia | 7 |  |
| The\tMiddle\tEast\tand\tAfrica | 5 |  |
| Total\tNon-U.S. | 22 | (6,982\trooms) |

Renaissance	Hotels	&	Resorts	is	a	distinctive	and	global	quality-tier	brand	that	targets	individual	business	and	leisure	travelers	and	group	meetings	seeking	stylish and	personalized	environments.	Renaissance	hotels	are	generally	located	at	downtown	locations	in	major	cities,	in	suburban	office	parks,	near	major	gateway	airports and	in	destination	resorts.	Most	hotels	contain	from	300	to	500	rooms;	however,	a	few	of	the	convention	oriented	hotels	are	larger,	and	some	hotels	in	non-gateway markets,	particularly	in	Europe,	are	smaller.	Renaissance	products	and	services	typically	include	stylish	décor,	high-speed	internet	access,	restaurants	and	lounges,	room service,	swimming	pools,	gift	shops,	concierge	lounges,	and	meeting	and	banquet	facilities.	By	the	end	of	2005,	hotels	are	required	to	have	a	new,	superior	bedding package	(offering	better	mattress	quality	and	enhanced	bedding	components).	Renaissance	resort	properties	have	additional	recreational	and	entertainment	facilities	and services,	including	golf	courses,	tennis	courts,	water	sports,	additional	restaurants	and	spa	facilities.

# Renaissance	Hotels	&	Resorts

| Geographic	Distribution	at	December	31,	2004 | Hotels |  |
| :--- | :--- | :--- |
| United\tStates\t(26\tstates\tand\tthe\tDistrict\tof\tColumbia) | 67 | (25,473\trooms) |
| Non-U.S.\t(27\tcountries\tand\tterritories) |  |  |
| Americas\t(Non-U.S.) | 8 |  |
| Continental\tEurope | 21 |  |
| United\tKingdom | 8 |  |
| Asia | 21 |  |
| The\tMiddle\tEast\tand\tAfrica | 8 |  |
| Total\tNon-U.S. | 66 | (21,986\trooms) |

Bulgari	Hotels	&	Resorts.	As	part	of	our	ongoing	strategy	to	expand	our	reach	through	partnerships	with	pre-eminent	world-class	companies,	in	early	2001	we entered	into	a	joint	venture	with	Bulgari	SpA	to	create	and	introduce	distinctive	new	luxury	hotel	properties	in	prime	locations	–	Bulgari	Hotels	&	Resorts.	The	first property	(58	rooms),	the	Bulgari	Hotel	Milano,	opened	in	Milan,	Italy,	in	May	2004.	The	second	property	announced	is	the	Bulgari	Resort	Bali,	currently	under construction	and	scheduled	to	open	in	late	2005.	Other	projects	are	currently	in	various	stages	of	development	in	Europe,	Asia,	and	North	America.

Ramada	International.	We	sold	Ramada	International,	a	moderately-priced	and	predominantly	franchised	brand	targeted	at	business	and	leisure	travelers	outside the	United	States,	to	Cendant	Corporation	("Cendant")	during	the	fourth	quarter	of	2004.	We	continue	to	manage	four	Ramada	International	properties	(727	rooms) located	outside	of	the	United	States	at	December	31,	2004.	Additionally,	in	the	second	quarter	of	2004,	Cendant	exercised	its	option	to	redeem	our	interest	in	the	Two Flags	joint	venture,	and	as	a	result,	Cendant	acquired	the	trademarks	and	licenses	for

the	Ramada	and	Days	Inn	lodging	brands	in	the	United	States.	The	Two	Flags	joint	venture	was	originally	formed	in	2002	by	us	and	Cendant	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,	and	Cendant	contributed	the	Days	Inn	license	agreement	and	related	intellectual	property.

# Select-Service	Lodging

Courtyard	is	our	upper-moderate-price	select-service	hotel	product.	Aimed	at	individual	business	and	leisure	travelers	as	well	as	families,	Courtyard	hotels maintain	a	residential	atmosphere	and	typically	contain	90	to	150	rooms.	Well	landscaped	grounds	typically	include	a	courtyard	with	a	pool	and	social	areas.	Most	hotels feature	functionally	designed	quality	guest	rooms	and	meeting	rooms,	free	in-room	high-speed	internet	access,	limited	restaurant	facilities,	a	swimming	pool	and	an exercise	room.	By	the	end	of	2005,	hotels	are	required	to	have	a	new,	superior	bedding	package	(offering	better	mattress	quality	and	enhanced	bedding	components), and	most	hotels	will	also	have	The	Market	(a	self-serve	food	store	open	24	hours	a	day).	In	addition,	our	Courtyard	brand	is	undergoing	a	reinvention	strategy	designed to	meet	the	evolving	needs	of	the	business	traveler.	Reinvented	Courtyards	feature	fresh,	crisp	designs	for	guest	rooms	and	public	spaces	and	24-hour	food	availability. Through	year-end	2004,	87	hotels	have	been	reinvented,	and	reinventions	of	an	additional	71	properties	are	expected	to	be	completed	by	year-end	2005.	The	operating systems	developed	for	these	hotels	allow	Courtyard	to	be	price-competitive	while	providing	better	value	through	superior	facilities	and	guest	service.	At	year-end	2004, there	were	656	Courtyards	operating	in	21	countries.

# Courtyard

| United	States	(45	states	and	the	District	of	Columbia) | 595 | (83,285	rooms) |
| :--- | :--- | :--- |
| Non-U.S.\t(20\tcountries\tand\tterritories) |  |  |
| Americas\t(Non-U.S.) | 17 |  |
| Continental\tEurope | 24 |  |
| United\tKingdom | 11 |  |
| Asia | 5 |  |
| The\tMiddle\tEast\tand\tAfrica | 1 |  |
| Australia | 3 |  |
| Total\tNon-U.S. | 61 | (10,718\trooms) |

Fairfield	Inn	is	our	hotel	brand	that	competes	in	the	lower-moderate-price	tier.	Aimed	at	value-conscious	individual	business	and	leisure	travelers,	a	typical Fairfield	Inn	or	Fairfield	Inn	&	Suites	has	60	to	140	rooms	and	offers	free	in-room	high-speed	internet	access,	a	swimming	pool,	complimentary	continental	breakfast and	free	local	phone	calls.	By	the	end	of	2005,	hotels	are	required	to	have	a	new,	superior	bedding	package	(offering	better	mattress	quality	and	enhanced	bedding components).	At	year-end	2004,	there	were	409	Fairfield	Inns	and	114	Fairfield	Inn	&	Suites	(523	hotels	total),	operating	in	the	United	States,	Canada	and	Mexico.

# Fairfield	Inn

| Geographic	Distribution	at	December	31,	2004 | Hotels |  |
| :--- | :--- | :--- |
| United\tStates\t(49\tstates\tand\tthe\tDistrict\tof\tColumbia) | 519 | (48,258\trooms) |
| Non-U.S.\t(2\tcountries) |  |  |
| Americas\t(Non-U.S.) | 4 | (452\trooms) |

SpringHill	Suites	is	our	all-suite	brand	in	the	upper-moderate-price	tier	targeting	business	travelers,	leisure	travelers	and	families.	SpringHill	Suites	typically	have 90	to	165	studio	suites	that	are	25	percent	larger	than	a	typical	hotel	guest	room.	The	brand	offers	a	broad	range	of	amenities,	including	free	in-room	high-speed	internet access,	complimentary	hot	breakfast	buffet	and	exercise	facilities.	By	the	end	of	2005,	hotels	are	required	to	have	a	new	superior	bedding	package	(offering	better mattress	quality	and	enhanced	bedding	components).	In	2005,	the	brand	will	introduce	The	Market	(a	self-serve	food	store	open	24	hours	a	day).	There	were	125 properties	(14,550	rooms)	located	in	the	United	States	and	Canada	at	December	31,	2004.

# Extended-Stay	Lodging

Residence	Inn,	North	America's	leading	extended-stay	brand,	allows	guests	on	long-term	trips	to	maintain	balance	between	work	and	life	while	away	from	home. Spacious	suites	with	full	kitchens	and	separate	areas	for	sleeping,	working,	relaxing	and	eating	offer	home-like	comfort	with	functionality.	By	the	end	of	2005,	hotels	are required	to	have	a	new,	superior	bedding	package	(offering	better	mattress	quality	and	enhanced	bedding	components).	A	friendly	staff	and	welcome	services	like complimentary	hot	breakfast	and	evening	social	hours	add	to	the	sense	of	community.	There	are	463	Residence	Inn	hotels	across	North	America.

# Residence	Inn

| Geographic	Distribution	at	December	31,	2004 | Hotels |  |
| :--- | :--- | :--- |
| United\tStates\t(47\tstates\tand\tthe\tDistrict\tof\tColumbia) | 449 | (53,172\trooms) |
| Non-U.S.\t(2\tcountries) |  |  |
| Americas\t(Non-U.S.) | 14 | (1,887\trooms) |

TownePlace	Suites	is	a	moderately	priced	extended-stay	hotel	product	that	is	designed	to	appeal	to	business	and	leisure	travelers	who	stay	for	five	nights	or	more. The	typical	TownePlace	Suites	hotel	contains	100	studio,	one-bedroom	and	two-bedroom	suites.	Each	suite	has	a	fully	equipped	kitchen	and	separate	living	area	with	a comfortable,	residential	feel.	Each	hotel	provides	housekeeping	services	and	has	on-site	exercise	facilities,	an	outdoor	pool,	24-hour	staffing,	free	in-room	high-speed internet	access	and	laundry	facilities.	By	the	end	of	2005,	hotels	are	required	to	have	a	new,	superior	bedding	package	(offering	better	mattress	quality	and	enhanced bedding	components).	At	December	31,	2004,	115	TownePlace	Suites	(11,710	rooms)	were	located	in	35	states.

Marriott	ExecuStay	provides	furnished	corporate	apartments	for	stays	of	one	month	or	longer	nationwide.	ExecuStay	owns	no	residential	real	estate	and	provides units	primarily	through	short-term	lease	agreements	with	apartment	owners	and	managers	and	franchise	agreements.	Consistent	with	our	plan	to	shift	the	business toward	franchising,	the	total	number	of	units	leased	by	ExecuStay	decreased	and	more	than	20	franchise	markets	were	added	during	2004.	At	December	31,	2004, Marriott	ExecuStay's	franchise	program,	launched	in	July	2002,	included	14	franchisees	covering	35	U.S.	markets.

Marriott	Executive	Apartments.	We	provide	temporary	housing	("Serviced	Apartments")	for	business	executives	and	others	who	need	quality	accommodations outside	their	home	country,	usually	for	30	or	more	days.	Some	Serviced	Apartments	operate	under	the	Marriott	Executive	Apartments	brand,	which	is	designed specifically	for	the	long-term	international	traveler.	At	December	31,	2004,	four	Serviced	Apartments	properties	and	10	Marriott	Executive	Apartments	(2,471	rooms total)	were	located	in	nine	countries	and	territories.	All	Marriott	Executive	Apartments	are	located	outside	the	United	States.

# Timeshare

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

Many	timesharing	resorts	are	located	adjacent	to	Marriott-operated	hotels,	and	timeshare	owners	have	access	to	certain	hotel	facilities	during	their	vacation. Owners	can	trade	their	annual	interval	for	intervals	at	other	Marriott	timesharing	resorts	or	for	intervals	at	certain	timesharing	resorts	not	otherwise	sponsored	by Marriott	through	a	third-party	exchange	company.	Owners	can	also	trade	their	unused	interval	for	points	in	the	Marriott	Rewards	frequent	stay	program,	enabling	them to	stay	at	over	2,500	Marriott	hotels	worldwide.

Marriott	Vacation	Club	International	("MVCI")	brand	offers	full-service	villas	featuring	living	and	dining	areas,	one-,	two-	and	three-bedroom	options,	full kitchen	and	washer/dryer.	In	43	locations	worldwide,	this	brand	draws	United	States	and	international	customers	who	vacation	regularly	with	a	focus	on	family, relaxation	and	recreational	activities.	In	the	United	States,	MVCI	is	located	in	Las	Vegas,	in	beach	and	golf	communities	in	Arizona,	California,	the	Carolinas,	Florida and	Hawaii,	and	in	ski	resorts	in	California,	Colorado	and	Utah.	Internationally,	MVCI	has	resorts	in	Aruba,	France,	Spain	and	Thailand.

The	Ritz-Carlton	Club	brand	is	a	luxury-tier	real	estate	fractional	brand	that	combines	the	benefits	of	second	home	ownership	with	personalized	services	and amenities.	This	brand	is	designed	as	a	private	club	whose	members	have	access	to	all	Ritz-Carlton	Clubs.	This	brand	is	offered	in	ski,	golf	and	beach	destinations	in Colorado,	St.	Thomas,	U.S.V.I.,	and	Florida.

Marriott	Grand	Residence	Club	is	an	upper-quality-tier	fractional	ownership	brand	for	corporate	and	leisure	customers.	This	brand	is	currently	offering	ownership in	projects	located	in	Lake	Tahoe,	California,	and	London,	England.

Horizons	by	Marriott	Vacation	Club	International	is	Marriott	Vacation	Club's	moderately	priced	timeshare	brand	whose	product	offerings	and	customer	base	are currently	focused	on	facilitating	family	vacations	in	entertainment	communities.	Horizons	resorts	are	located	in	Orlando,	Florida,	and	Branson,	Missouri.

We	expect	that	our	future	timeshare	growth	will	increasingly	reflect	opportunities	presented	by	partnerships,	joint	ventures,	and	other	business	structures.	In	2004, we	initiated	sales	at	our	Las	Vegas	joint	venture,	and	we	expect	to	open	the	Las	Vegas	resort	in	the	third	quarter	of	2005.	Marriott	Vacation	Club	International	opened the	following	three	resorts	in	2004	under	the	MVCI	brand:	Aruba	Surf	Club	in	Aruba,	Canyon	Villas	in	Phoenix,	Arizona,	and	Ocean	Watch	in	Myrtle	Beach,	South Carolina.	Our	project	in	Hilton	Head,	South	Carolina,	opened	for	sales	in	2004,	and	we	expect	that	the	resort	will	open	in	the	second	quarter	of	2005.

Marriott	Vacation	Club	International's	owner	base	continues	to	expand,	with	approximately	281,500	owners	at	year-end	2004,	compared	to	approximately 256,000	at	year-end	2003.

# Timeshare	(all	brands)

| Geographic	Distribution	at	December	31,	2004 | Resorts | Units |
| :--- | :--- | :--- |
| Continental\tUnited\tStates | 38 | 7,001 |
| Hawaii | 4 | 1,060 |
| Caribbean | 3 | 694 |
| Europe | 5 | 812 |
| Asia | 1 | 102 |
| Total | 51 | 9,669 |

# Other	Activities

Marriott	Golf	manages	31	golf	course	facilities	as	part	of	our	management	of	hotels	and	for	other	golf	course	owners.

We	operate	18	systemwide	hotel	reservation	centers,	10	in	the	United	States	and	Canada	and	eight	in	other	countries	and	territories,	that	handle	reservation requests	for	Marriott	lodging	brands	worldwide,	including	franchised	properties.	We	own	one	of	the	U.S.	facilities	and	lease	the	others.	Additionally,	we	focus	on increasing	value	for	the	consumer	and	"selling	the	way	the	customer	wants	to	buy."	Our	Look	No	Further	Best	Rate	Guarantee,	which	gives	customers	access	to	the same	rates	whether	they	book	through	our	telephone	reservation	system,	our	web	site	or	any	other	reservation	channel;	our	strong	Marriott	Rewards	loyalty	program; and	our	information-rich	and	easy	to	use	Marriott.com	web	site	all	encourage	customers	to	make	reservations	using	the	Marriott	web	site.	We	have	complete	control over	our	inventory	and	pricing	and	utilize	online	agents	on	an	as-needed	basis.	The	shift	of	hotel	bookings	to	our	web	site	from	other	online	channels	results	in	higher revenue,	margins	and	profitability.	With	over	2,600	hotels,	economies	of	scale	enable	us	to	reduce	costs	per	occupied	room,	drive	profits	for	our	owners	and	increase	our fee	revenue.

Our	Architecture	and	Construction	("A&C")	division	provides	design,	development,	construction,	refurbishment	and	procurement	services	to	owners	and franchisees	of	lodging	properties	on	a	voluntary	basis	outside	the	scope	of	and	separate	from	their	management	or	franchise	contracts.	Consistent	with	third-party contractors,	A&C	provides	these	services	for	owners	and	franchisees	of	Marriott-branded	properties	on	a	fee	basis.

# Competition

We	encounter	strong	competition	both	as	a	lodging	operator	and	as	a	franchisor.	There	are	approximately	675	lodging	management	companies	in	the	United States,	including	several	that	operate	more	than	100	properties.	These	operators	are	primarily	private	management	firms,	but	also	include	several	large	national	chains that	own	and	operate	their	own	hotels	and	also	franchise	their	brands.	Management	contracts	are	typically	long-term	in	nature,	but	most	allow	the	hotel	owner	to	replace the	management	firm	if	certain	financial	or	performance	criteria	are	not	met.

Affiliation	with	a	national	or	regional	brand	is	prevalent	in	the	U.S.	lodging	industry.	In	2004,	approximately	two-thirds	of	U.S.	hotel	rooms	were	brand-affiliated. Most	of	the	branded	properties	are	franchises,	under	which	the	operator	pays	the	franchisor	a	fee	for	use	of	its	hotel	name	and	reservation	system.	The	franchising business	is	fairly	concentrated,	with	the	three	largest	franchisors	operating	multiple	brands	accounting	for	a	significant	proportion	of	all	U.S.	rooms.

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

Based	on	lodging	industry	data,	we	have	less	than	an	8.4	percent	share	of	the	U.S.	hotel	market	(based	on	number	of	rooms),	and	less	than	a	1	percent	share	of	the lodging	market	outside	the	United	States.	We	believe	that	our	hotel

brands	are	attractive	to	hotel	owners	seeking	a	management	company	or	franchise	affiliation	because	our	hotels	typically	generate	higher	occupancies	and	Revenue	per Available	Room	(REVPAR)	than	direct	competitors	in	most	market	areas.	We	attribute	this	performance	premium	to	our	success	in	achieving	and	maintaining	strong customer	preference.	Approximately	34	percent	of	our	timeshare	ownership	resort	sales	come	from	additional	purchases	by	or	referrals	from	existing	owners.	We	believe that	the	location	and	quality	of	our	lodging	facilities,	our	marketing	programs,	our	reservation	systems	and	our	emphasis	on	guest	service	and	satisfaction	are contributing	factors	across	all	of	our	brands.

Properties	that	we	operate	or	franchise	are	regularly	upgraded	to	maintain	their	competitiveness.	Our	management,	lease	and	franchise	agreements	provide	for	the allocation	of	funds,	generally	a	fixed	percentage	of	revenue,	for	periodic	renovation	of	buildings	and	replacement	of	furnishings.	We	believe	that	these	ongoing refurbishment	programs	are	adequate	to	preserve	the	competitive	position	and	earning	power	of	the	hotels	and	timeshare	properties.	While	service	excellence	is Marriott's	hallmark,	we	continually	look	for	new	ways	to	delight	our	guests.	Currently,	we	are	focused	on	elevating	the	Marriott	experience	beyond	that	of	a	traditional hotel	stay	to	a	total	guest	experience	that	encompasses	exceptional	style,	personal	luxury	and	superior	service.	This	approach	to	hospitality,	"The	New	Look	and	Feel	of Marriott	Now,"	is	influenced	by	the	world's	foremost	innovations	in	design,	technology,	culinary	expertise,	service	and	comfort.

This	evolution	can	begin	to	be	seen	across	all	of	our	brands,	in	new	hotel	designs,	exotic	destinations,	enhanced	fitness	centers,	sumptuous	spas	and	expanded culinary	offerings.	Each	brand,	whether	luxury	or	moderately	priced,	will	be	more	upscale	and	attuned	to	customer	needs	than	ever	before.	We	believe	that	by	operating a	number	of	hotels	among	our	brands,	we	stay	in	direct	touch	with	customers	and	react	to	changes	in	the	marketplace	more	quickly	than	chains	that	rely	exclusively	on franchising.

The	vacation	ownership	industry	is	one	of	the	fastest	growing	segments	in	hospitality	and	is	comprised	of	a	number	of	highly	competitive	companies	including several	branded	hotel	companies.	Since	entering	the	timeshare	industry	in	1984,	we	have	become	a	recognized	leader	in	vacation	ownership	worldwide.	Competition	in the	timeshare	business	is	based	primarily	on	the	quality	and	location	of	timeshare	resorts,	the	pricing	of	timeshare	intervals	and	the	availability	of	program	benefits,	such as	exchange	programs.	We	believe	that	our	focus	on	offering	distinct	vacation	experiences,	combined	with	our	financial	strength,	diverse	market	presence,	strong	brands and	well-maintained	properties,	will	enable	us	to	remain	competitive.

Marriott	Rewards	is	a	frequent	guest	program	with	over	21	million	members	and	nine	participating	Marriott	brands.	The	Marriott	Rewards	program	yields	repeat guest	business	by	rewarding	frequent	stays	with	points	toward	free	hotel	stays	and	other	rewards,	or	airline	miles	with	any	of	26	participating	airline	programs.	We believe	that	Marriott	Rewards	generates	substantial	repeat	business	that	might	otherwise	go	to	competing	hotels.	In	2004,	approximately	40	percent	of	our	room	nights were	purchased	by	Marriott	Rewards	members.	In	addition,	the	ability	of	Marriott	Vacation	Club	International	timeshare	owners	to	convert	unused	intervals	into Marriott	Rewards	points	enhances	the	competitive	position	of	our	timeshare	brand.

# Synthetic	Fuel

# Operations

Our	synthetic	fuel	operation	currently	consists	of	our	interest	in	four	coal-based	synthetic	fuel	production	facilities	(the	"Facilities"),	two	of	which	are	located	at	a coal	mine	in	Saline	County,	Illinois,	with	the	remaining	two	located	at	a	coal	mine	in	Jefferson	County,	Alabama.	Three	of	the	four	plants	are	held	in	one	entity,	and	one of	the	plants	is	held	in	a	separate	entity.	The	synthetic	fuel	produced	at	the	Facilities	through	2007	qualifies	for	tax	credits	based	on	Section	29	of	the	Internal	Revenue Code	(credits	are	not	available	for	fuel	produced	after	2007).	Although	the	Facilities	incur	significant	losses,	these	losses	are	more	than	offset	by	the	tax	credits generated	under	Section	29,	which	reduce	our	income	tax	expense.

At	both	of	the	locations,	the	synthetic	fuel	operation	has	entered	into	long-term	site	leases	at	sites	that	are	adjacent	to	large	underground	mines	as	well	as	barge load-out	facilities	on	navigable	rivers.	In	addition,	the	synthetic	fuel	operation	has	entered	into	long-term	coal	purchase	agreements	with	the	owners	of	the	adjacent	coal mines	and	long-term	synthetic	fuel	sales	contracts	with	the	Tennessee	Valley	Authority	and	with	Alabama	Power	Company,	two	major	utilities.	These	contracts	ensure that	the	operation	has	long-term	agreements	to	purchase	coal	and	sell	synthetic	fuel,	covering	approximately	80	percent	of	the	productive	capacity	of	the	Facilities.	From time	to	time,	the	synthetic	fuel	operation	supplements	these	base	contracts,	as	opportunities	arise,	by	entering	into	spot	contracts	to	buy	coal	from	these	or	other	coal mines	and	sell	synthetic	fuel	to	different	end	users.	The	operation	is	slightly	seasonal	as	the	synthetic	fuel	is	mainly	burned	to	produce	electricity,	and	electricity	use peaks	in	the	summer	in	the	markets	served	by	the	synthetic	fuel	operation.	The	long-term	contracts	can	generally	be	cancelled	by	us	in	the	event	that	we	choose	not	to operate	the	Facilities	or	that	the	synthetic	fuel	produced	at	the	Facilities	does	not	qualify	for	tax	credit	under	Section	29	of	the	Internal	Revenue	Code.

In	addition,	the	synthetic	fuel	operation	has	entered	into	a	long-term	operations	and	maintenance	agreement	with	an	experienced	manager	of	synthetic	fuel facilities.	This	manager	is	responsible	for	staffing	the	Facilities,	operating	and	maintaining	the	machinery	and	conducting	routine	maintenance	on	behalf	of	the	synthetic fuel	operation.

Finally,	the	synthetic	fuel	operation	has	entered	into	a	long-term	license	and	binder	purchase	agreement	with	Headwaters	Incorporated,	which	permits	the operation	to	utilize	a	carboxylated	polystyrene	copolymer	emulsion	patented	by	Headwaters	and	manufactured	by	Dow	Chemical	that	is	mixed	with	coal	to	produce	a qualified	synthetic	fuel.

# Our	Investment

We	acquired	the	Facilities	from	PacifiCorp	Financial	Services	("PacifiCorp")	in	October	2001	for	$46	million	in	cash.	We	began	operating	these	Facilities	in	the first	quarter	of	2002.

On	June	21,	2003,	we	sold	an	approximately	50	percent	ownership	interest	in	the	synthetic	fuel	entities.	We	received	cash	and	promissory	notes	totaling	$25 million	at	closing,	and	we	are	receiving	additional	profits	that	we	expect	will	continue	over	the	life	of	the	ventures	based	on	the	actual	amount	of	tax	credits	allocated	to the	purchaser.

On	November	7,	2003,	the	U.S.	Internal	Revenue	Service	("IRS")	issued	private	letter	rulings	to	the	synthetic	fuel	joint	venture	confirming	that	the	synthetic	fuel produced	by	the	Facilities	is	a	"qualified	fuel"	under	Section	29	of	the	Internal	Revenue	Code	and	that	the	resulting	tax	credit	may	be	allocated	among	the	members	of the	synthetic	fuel	joint	venture.

As	a	result	of	a	put	option	associated	with	the	June	21,	2003,	sale	of	a	50	percent	ownership	interest,	we	consolidated	the	two	synthetic	fuel	joint	ventures	from that	date	through	November	6,	2003.	Effective	November	7,	2003,	because	the	put	option	was	voided,	we	began	accounting	for	the	synthetic	fuel	joint	ventures	using	the equity	method	of	accounting.	Beginning	March	26,	2004,	as	a	result	of	adopting	FIN	46(R),	"Consolidation	of	Variable	Interest	Entities,"	we	have	again	consolidated the	synthetic	fuel	joint	ventures,	and	we	reflect	our	partner's	share	of	the	operating	losses	as	minority	interest.

# Internal	Revenue	Service	Placed-in-Service	Challenge

In	July	2004,	IRS	field	auditors	issued	a	notice	of	proposed	adjustment	and	later	a	Summary	Report	to	PacifiCorp	that	included	a	challenge	to	the	placed-in- service	dates	of	three	of	the	four	synthetic	fuel	facilities	owned	by	one	of	our	synthetic	fuel	joint	ventures.	One	of	the	conditions	to	qualify	for	tax	credits	under	Section 29	of	the	Internal	Revenue	Code	is	that	the	production	facility	must	have	been	placed	in	service	before	July	1,	1998.

We	strongly	believe	that	all	the	Facilities	meet	the	placed-in-service	requirement.	Although	we	are	engaged	in	discussions	with	the	IRS	and	are	confident	this issue	will	be	resolved	in	our	favor	and	not	result	in	a	material	charge	to	us,	we	cannot	assure	you	as	to	the	ultimate	outcome	of	this	matter.	If	ultimately	resolved	against us,	we	could	be	prevented	from	realizing	projected	future	tax	credits	and	cause	us	to	reverse	previously	utilized	tax	credits,	requiring	payment	of	substantial	additional taxes.	Since	acquiring	the	plants,	we	have	recognized	approximately	$435	million	of	tax	credits	from	all	four	plants	through	December	31,	2004.	The	tax	credits recognized	through	December	31,	2004,	associated	with	the	three	facilities	in	question	totaled	approximately	$330	million.

On	October	6,	2004,	we	entered	into	amendment	agreements	with	our	synthetic	fuel	partner	that	result	in	a	shift	in	the	allocation	of	tax	credits	between	us.	On	the synthetic	fuel	facility	that	is	not	being	reviewed	by	the	IRS,	our	partner	increased	its	allocation	of	tax	credits	from	approximately	50	percent	to	90	percent	through	March 31,	2005,	and	pays	a	higher	price	per	tax	credit	to	us	for	that	additional	share	of	tax	credits.	With	respect	to	the	three	synthetic	fuel	facilities	under	IRS	review,	our partner	reduced	its	allocation	of	tax	credits	from	approximately	50	percent	to	an	average	of	roughly	5	percent	through	March	31,	2005.	If	the	IRS'	placed-in-service challenge	regarding	the	three	facilities	is	not	successfully	resolved	by	March	31,	2005,	our	partner	will	have	the	right	to	return	its	ownership	interest	in	those	three facilities	to	us	at	that	time.	We	will	have	the	flexibility	to	continue	to	operate	at	current	levels,	reduce	production	and/or	sell	an	interest	to	another	party.	If	there	is	a successful	resolution	by	March	31,	2005,	our	partner's	share	of	the	tax	credits	from	all	four	facilities	will	return	to	approximately	50	percent.	In	any	event,	on	March	31, 2005,	our	share	of	the	tax	credits	from	the	one	facility	not	under	review	will	return	to	approximately	50	percent.

# Discontinued	Operations

# Senior	Living	Services

On	December	30,	2002,	we	entered	into	definitive	agreements	to	sell	our	senior	living	management	business	to	Sunrise	Senior	Living,	Inc.	("Sunrise")	and	to	sell nine	senior	living	communities	to	CNL	Retirement	Properties,	Inc.	("CNL"),	and	we	recorded	after-tax	charges	of	$131	million	in	2002	associated	with	our	agreement	to sell	our	senior	living	management	business.	We	completed	the	sales	to	Sunrise	and	CNL,	in	addition	to	the	related	sale	of	a	parcel	of	land	to	Sunrise	in	March	2003,	for $266	million.	We	recorded	after-tax	gains	of	$19	million	in	2003.

As	a	result	of	the	above	transactions	we	now	report	this	business	in	discontinued	operations.

# Distribution	Services

In	the	third	quarter	of	2002,	we	completed	a	strategic	review	of	our	Distribution	Services	business	and	decided	to	exit	that	business.	As	of	January	3,	2003, through	a	combination	of	sale	and	transfer	of	nine	facilities	and	the	termination	of	all	operations	at	four	facilities,	we	completed	our	exit	of	the	Distribution	Services business.	We	recorded	after-tax	charges	of	$40	million	in	2002	in	connection	with	the	decision	to	exit	this	business.	Accordingly,	we	now	report	this	business	in discontinued	operations.

# Forward-Looking	Statements

We	make	forward-looking	statements	in	this	report	based	on	the	beliefs	and	assumptions	of	our	management	and	on	information	currently	available	to	us. Forward-looking	statements	include	information	about	our	possible	or	assumed	future	results	of	operations	in	"Management's	Discussion	and	Analysis	of	Financial Condition	and	Results	of	Operations"	under	the	headings	"Business	and	Overview,"	"Liquidity	and	Capital	Resources"	and	other	statements	throughout	this	report 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,	including	risks	described	below	and	other	risks	that	we	describe	from	time	to	time	in our	periodic	filings	with	the	SEC,	and	our	actual	results	may	differ	materially	from	those	expressed	in	our	forward-looking	statements.	We	therefore	caution	you	not	to rely	unduly	on	any	forward-looking	statement.	The	forward-looking	statements	in	this	report	speak	only	as	of	the	date	of	the	report,	and	we	undertake	no	obligation	to update	or	revise	any	forward-looking	statement,	whether	as	a	result	of	new	information,	future	developments	or	otherwise.

# Risks	and	Uncertainties

We	are	subject	to	various	risks	that	could	have	a	negative	effect	on	the	Company	and	its	financial	condition.	You	should	understand	that	these	risks	could	cause results	to	differ	materially	from	those	expressed	in	forward-looking	statements	contained	in	this	report	and	in	other	Company	communications.	Because	there	is	no	way to	determine	in	advance	whether,	or	to	what	extent,	any	present	uncertainty	will	ultimately	impact	our	business,	you	should	give	equal	weight	to	each	of	the	following.

The	lodging	industry	is	highly	competitive,	which	may	impact	our	ability	to	compete	successfully	with	other	hotel	and	timeshare	properties	for	customers.	We generally	operate	in	markets	that	contain	numerous	competitors.	Each	of	our	hotel	and	timeshare	brands	competes	with	major	hotel	chains	in	national	and	international venues	and	with	independent	companies	in	regional	markets.	Our	ability	to	remain	competitive	and	attract	and	retain	business	and	leisure	travelers	depends	on	our success	in	distinguishing	the	quality,	value	and	efficiency	of	our	lodging	products	and	services	from	those	offered	by	others.	If	we	are	unable	to	compete	successfully	in these	areas,	this	could	limit	our	operating	margins,	diminish	our	market	share	and	reduce	our	earnings.

We	are	subject	to	the	range	of	operating	risks	common	to	the	hotel,	timeshare	and	corporate	apartment	industries.	The	profitability	of	the	hotels,	vacation timeshare	resorts	and	corporate	apartments	that	we	operate	or	franchise	may	be	adversely	affected	by	a	number	of	factors,	including:

(1) the	availability	of	and	demand	for	hotel	rooms,	timeshares	and	apartments;

(2) international,	national	and	regional	economic	conditions;

(3) the	desirability	of	particular	locations	and	changes	in	travel	patterns;

(4) taxes	and	government	regulations	that	influence	or	determine	wages,	prices,	interest	rates,	construction	procedures	and	costs;

(5) the	availability	of	capital	to	allow	us	and	potential	hotel	owners	and	joint	venture	partners	to	fund	investments;

(6) regional	and	national	development	of	competing	properties;	and

(7) increases	in	wages	and	other	labor	costs,	energy,	healthcare,	insurance,	transportation	and	fuel,	and	other	expenses	central	to	the	conduct	of	our	business.

Any	one	or	more	of	these	factors	could	limit	or	reduce	the	demand,	and	therefore	the	prices	we	are	able	to	obtain,	for	hotel	rooms,	timeshare	units	and	corporate apartments.	In	addition,	reduced	demand	for	hotels	could	also	give	rise	to	losses	under	loans,	guarantees	and	minority	equity	investments	that	we	have	made	in connection	with	hotels	that	we	manage.

The	uncertain	pace	of	the	lodging	industry's	recovery	will	continue	to	impact	our	financial	results	and	growth.	Both	the	Company	and	the	lodging	industry	were hurt	by	several	events	occurring	over	the	last	few	years,	including	the	global	economic	downturn,	the	terrorist	attacks	on	New	York	and	Washington,	Severe	Acute Respiratory	Syndrome	(SARS)	and	military	action	in	Iraq.	Business	and	leisure	travel	decreased	and	remained	depressed	as	some	potential	travelers	reduced	or	avoided discretionary	travel	in	light	of	increased	delays	and	safety	concerns	and	economic	declines	stemming	from	an	erosion	in	consumer	confidence.	Weaker	hotel performance	reduced	management	and	franchise	fees	and	gave	rise	to	fundings	or	losses	under	loans,	guarantees	and	minority	investments	that	we	have	made	in connection	with	some	hotels	that	we	manage,	which,	in	turn,	has	had	a	material	adverse	impact	on	our	financial	performance.	Although	both	the	lodging	and	travel industries	are	recovering,	the	pace,	duration	and	full	extent	of	that	recovery	remain	unclear.	Accordingly,	our	financial	results	and	growth	could	be	harmed	if	that recovery	stalls	or	is	reversed.

Our	lodging	operations	are	subject	to	international,	national	and	regional	conditions.	Because	we	conduct	our	business	on	a	national	and	international	platform, our	activities	are	susceptible	to	changes	in	the	performance	of	regional	and	global	economies.	In	recent	years,	our	business	has	been	hurt	by	decreases	in	travel	resulting from	recent	economic	conditions,	the	military	action	in	Iraq,	and	the	heightened	travel	security	measures	that	have	resulted	from	the	threat	of	further	terrorism.	Our future	economic	performance	is	similarly	subject	to	the	uncertain	magnitude	and	duration	of	the	economic	recovery	in	the	United	States,	the	prospects	of	improving economic	performance	in	other	regions,	the	unknown	pace	of	any	business	travel	recovery	that	results,	and	the	occurrence	of	any	future	incidents	in	the	countries	in which	we	operate.

Our	growth	strategy	depends	upon	third-party	owners/operators,	and	future	arrangements	with	these	third	parties	may	be	less	favorable.	Our	present	growth strategy	for	development	of	additional	lodging	facilities	entails	entering	into	and	maintaining	various	arrangements	with	property	owners.	The	terms	of	our	management agreements,	franchise	agreements	and	leases	for	each	of	our	lodging	facilities	are	influenced	by	contract	terms	offered	by	our	competitors,	among	other	things.	We cannot	assure	you	that	any	of	our	current	arrangements	will	continue.	Moreover,	we	may	not	be	able	to	enter	into	future	collaborations,	or	to	renew	or	enter	into agreements	in	the	future,	on	terms	that	are	as	favorable	to	us	as	those	under	existing	collaborations	and	agreements.

We	may	have	disputes	with	the	owners	of	the	hotels	that	we	manage	or	franchise.	Consistent	with	our	focus	on	management	and	franchising,	we	own	very	few	of our	lodging	properties.	The	nature	of	our	responsibilities	under	our	management	agreements	to	manage	each	hotel	and	enforce	the	standards	required	for	our	brands under	both	management	and	franchise	agreements	may,	in	some	instances,	be	subject	to	interpretation	and	may	give	rise	to	disagreements.	We	seek	to	resolve	any disagreements	in	order	to	develop	and	maintain	positive	relations	with	current	and	potential	hotel	owners	and	joint	venture	partners,	but	have	not	always	been	able	to	do so.	Failure	to	resolve	such	disagreements	has	in	the	past	resulted	in	litigation,	and	could	do	so	in	the	future.

Our	ability	to	grow	our	management	and	franchise	systems	is	subject	to	the	range	of	risks	associated	with	real	estate	investments.	Our	ability	to	sustain	continued growth	through	management	or	franchise	agreements	for	new	hotels	and	the	conversion	of	existing	facilities	to	managed	or	franchised	Marriott	brands	is	affected,	and may	potentially	be	limited,	by	a	variety	of	factors	influencing	real	estate	development	generally.	These	include	site	availability,	financing,	planning,	zoning	and	other local	approvals,	and	other	limitations	that	may	be	imposed	by	market	and	submarket	factors,	such	as	projected	room	occupancy,	growth	in	demand	opposite	projected supply,	territorial	restrictions	in	our	management	and	franchise	agreements,	costs	of	construction	and	anticipated	room	rate	structure.

We	depend	on	capital	to	buy	and	maintain	hotels,	and	we	may	be	unable	to	access	capital	when	necessary.	In	order	to	fund	new	hotel	investments,	as	well	as refurbish	and	improve	existing	hotels,	both	the	Company	and	current	and	potential	hotel	owners	must	periodically	spend	money.	The	availability	of	funds	for	new investments	and	maintenance	of	existing	hotels	depends	in	large	measure	on	capital	markets	and	liquidity	factors	over	which	we	can	exert	little	control.	Our	ability	to recover	loan	and	guarantee	advances	from	hotel	operations	or	from	owners	through	the	proceeds	of	hotel	sales,	refinancing	of	debt	or	otherwise	may	also	affect	our ability	to	recycle	and	raise	new	capital.

In	the	event	of	damage	to	or	other	potential	losses	involving	properties	that	we	own,	manage	or	franchise,	potential	losses	may	not	be	covered	by	insurance.	We have	comprehensive	property	and	liability	insurance	policies	with	coverage	features	and	insured	limits	that	we	believe	are	customary.	Market	forces	beyond	our	control may	nonetheless	limit	both	the	scope	of	property	and	liability	insurance	coverage	that	we	can	obtain	and	our	ability	to	obtain	coverage	at	reasonable	rates.	There	are certain	types	of	losses,	generally	of	a	catastrophic	nature,	such	as	earthquakes	and	floods	or	terrorist	acts,	that	may	be	uninsurable	or	may	be	too	expensive	to	justify insuring	against.	As	a	result,	we	may	not	be	successful	in	obtaining	insurance	without	increases	in	cost	or	decreases	in	coverage	levels.	In	addition,	we	may	carry insurance	coverage	that,	in	the	event	of	a	substantial	loss,	would	not	be	sufficient	to	pay	the	full	current	market	value	or	current	replacement	cost	of	our	lost	investment or	that	of	hotel	owners,	or	in	some	cases	could	also	result	in	certain	losses	being	totally	uninsured.	As	a	result,	we	could	lose	all,	or	a	portion	of,	the	capital	we	have invested	in	a	property,	as	well	as	the	anticipated	future	revenue	from	the	property,	and	we	could	remain	obligated	for	guarantees,	debt	or	other	financial	obligations related	to	the	property.

Risks	relating	to	acts	of	God,	terrorist	activity	and	war	could	reduce	the	demand	for	lodging,	which	may	adversely	affect	our	revenues.	Acts	of	God,	such	as natural	disasters	and	the	spread	of	contagious	diseases,	in	locations	where	we	own,	manage	or	franchise	significant	properties	and	areas	of	the	world	from	which	we draw	a	large	number	of	customers	can	cause	a	decline	in	the	level	of	business	and	leisure	travel	and	reduce	the	demand	for	lodging.	Wars	(including	the	potential	for war),	terrorist	activity	(including	threats	of	terrorist	activity),	political	unrest	and	other	forms	of	civil	strife	and	geopolitical	uncertainty	can	have	a	similar	effect.	Any one	or	more	of	these	events	may	reduce	the	overall	demand	for	hotel	rooms,	timeshare	units	and	corporate	apartments,	or	limit	the	prices	that	we	are	able	to	obtain	for them,	both	of	which	could	adversely	affect	our	revenues.

Increasing	use	of	internet	reservation	services	may	adversely	impact	our	revenues.	Some	of	our	hotel	rooms	are	booked	through	internet	travel	intermediaries serving	both	the	leisure,	and	increasingly,	the	corporate	travel	sectors.	While	Marriott's	Look	No	Further	Best	Rate	Guarantee	has	greatly	reduced	the	ability	of	these internet	travel	intermediaries	to	undercut	the	published	rates	of	Marriott	hotels,	these	internet	travel	intermediaries	continue	their	attempts	to	commoditize	hotel	rooms, by	aggressively	marketing	to	price-sensitive	travelers	and	corporate	accounts	and	increasing	the	importance	of	general	indicators	of	quality	(such	as	"three-star downtown	hotel")	at	the	expense	of	brand	identification.	These	agencies	hope	that	consumers	will	eventually	develop	brand	loyalties	to	their	travel	services	rather	than to	our	lodging	brands.	Although	we	expect	to	continue	to	maintain	and	even	increase	the	strength	of	our	brands	in	the	online	marketplace,	if	the	amount	of	sales	made through	internet	intermediaries	increases	significantly,	our	business	and	profitability	may	be	harmed.

Changes	in	privacy	law	could	adversely	affect	our	ability	to	market	our	products	effectively.	Our	timeshare	business,	and	to	a	lesser	extent	our	lodging	segments, rely	on	a	variety	of	direct	marketing	techniques,	including	telemarketing	and	mass	mailings.	Recent	initiatives,	such	as	the	National	Do	Not	Call	Registry	and	various state	laws	regarding	marketing	and	solicitation,	including	anti-spam	legislation,	have	created	some	concern	about	the	continuing	effectiveness	of	telemarketing	and	mass mailing	techniques	and	could	force	further	changes	in	our	marketing	strategy.	If	this	occurs,	we	may	not	be	able	to	develop	adequate	alternative	marketing	strategies, which	could	impact	the	amount	and	timing	of	our	sales	of	timeshare	units	and	other	products.	We	also	obtain	lists	of	potential	customers	from	travel	service	providers with	whom	we	have	substantial	relationships	and	market	to	some	individuals	on	these	lists	directly.	If	the	acquisition	of	these	lists	were	outlawed	or	otherwise	restricted, our	ability	to	develop	new	customers	and	introduce	them	to	our	products	could	be	impaired.

Activities	relating	to	our	synthetic	fuel	operations	could	increase	our	tax	liabilities.	The	Company	earns	revenues	and	generates	tax	credits	from	its	synthetic	fuel operations,	which	create	a	fuel	that	qualifies	for	tax	credits	pursuant	to	Section	29	of	the	Internal	Revenue	Code.	The	performance	of	the	synthetic	fuel	operations depends	in	part	on	our	ability	to	utilize	the	tax	credits,	which	in	turn	is	dependent	on	our	financial	performance.	If	our	businesses	do	not	generate	sufficient	profits,	we might	suffer	losses	associated	with	generating	tax	credits	that	we	were	unable	to	utilize.	In	addition,	the	IRS	field	audit	team's	challenge	to	whether	three	of	our	synthetic fuel	facilities	satisfy	statutory	placed-in-service	requirements	could,	if	ultimately	resolved	against	us,	prevent	us	from	realizing	projected	future	tax	credits	and	cause	us to	reverse	previously	utilized	credits,	requiring	payment	of	substantial	additional	taxes.	The	ability	of	our	synthetic	fuel	operations	to	generate	tax	credits	could	also	be adversely	impacted	by	the	productivity	of	these	operations,	which	may	be	diminished	by	problems	related	to	supply,	production	and	demand	at	any	of	the	synthetic	fuel facilities,	the	power	plants	that	buy	synthetic	fuel	from	the	joint	venture	or	the	coal	mines	where	the	joint	venture	buys	coal,	and	by	the	reduction	or	elimination	of projected	future	tax	credits	for	synthetic	fuel	if	average	crude	oil	prices	in	2005	and	beyond	exceed	certain	statutory	thresholds,	which	could	affect	our	ongoing production	decisions.

Obligations	associated	with	our	exit	from	the	Senior	Living	Services	business	may	be	larger	than	expected.	Our	agreement	to	sell	the	Senior	Living	Services business	provides	for	indemnification	of	Sunrise	Senior	Living,	Inc.	based	on	pre-closing	events	and	liabilities	resulting	from	the	consummation	of	the	transaction.	The amount	of	the	indemnification	obligations	depends,	in	large	part,	on	actions	of	third	parties	that	are	outside	of	our	control.	As	a	result,	it	is	difficult	to	predict	the	ultimate impact	of	the	indemnities,	and	the	amount	of	these	adjustments	and	indemnities	could	be	larger	than	expected.

# Employee	Relations

At	December	31,	2004,	we	had	approximately	133,000	employees.	Approximately	9,000	employees	were	represented	by	labor	unions.	We	believe	relations	with our	employees	are	positive.

# Other	Properties

In	addition	to	the	operating	properties	discussed	above,	we	lease	five	office	buildings	with	combined	space	of	approximately	1.3	million	square	feet	in	Maryland and	Florida	where	our	corporate,	Ritz-Carlton	and	Marriott	Vacation	Club	International	headquarters	are	located.

We	believe	our	properties	are	in	generally	good	physical	condition	with	the	need	for	only	routine	repairs	and	maintenance	and	periodic	capital	improvements.

# Internet	Address	and	Company	SEC	Filings

Our	internet	address	is	www.marriott.com.	On	the	investor	relations	portion	of	our	web	site,	www.marriott.com/investor,	we	provide	a	link	to	our	electronic	SEC filings,	including	our	annual	report	on	Form	10-K,	our	quarterly	reports	on	Form	10-Q,	our	current	reports	on	Form	8-K	and	any	amendments	to	these	reports.	All	such filings	are	available	free	of	charge	and	are	available	as	soon	as	reasonably	practicable	after	filing.

# Executive	Officers	of	the	Registrant

See	Item	10	on	page	78	of	this	report	for	information	about	our	executive	officers.

# Item	3.	Legal	Proceedings.

The	CTF/HPI	arbitration	and	litigation	is	described	under	the	caption	heading	"Litigation	and	Arbitration"	in	Footnote	18	of	the	Notes	to	Consolidated	Financial Statements	set	forth	in	Part	II,	Item	8,	of	this	annual	report	and	is	hereby	incorporated	by	reference.

In	addition,	on	December	22,	2004,	P.T.	Karang	Mas	Sejahtera,	the	owner	of	The	Ritz-Carlton	Bali	Resort	and	Spa,	filed	an	action	against	the	Company	and	The Ritz-Carlton	Hotel	Company,	LLC	in	the	Superior	Court	of	the	State	of	California	for	the	County	of	Los	Angeles	alleging	breach	of	the	operating	agreement	governing the	hotel,	breach	of	fiduciary	duty,	fraudulent	concealment,	interference	with	contract	and	conspiracy	to	breach	fiduciary	duty.	The	complaint	seeks	unspecified damages,	an	accounting	and	a	declaration	that	the	owner	has	a	right	to	terminate	the	operating	agreement	governing	the	hotel.	On	January	21,	2005,	we	removed	the action	to	the	U.S.	District	Court	for	the	Central	District	of	California,	filed	an	answer	and	moved	to	transfer	the	action	to	the	District	of	Maryland.	No	scheduling	order has	been	entered	at	this	time.

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

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	the	aggregate,	a	material	adverse	effect	on	our	business,	financial	condition	or	operating	results.

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

None.

# Part	II

# Item	5.	Market	for	Registrant's	Common	Equity,	Related	Stockholder	Matters	and	Issuer	Purchases	of	Equity	Securities.

# Market	Information	and	Dividends

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

|  | High | Low | Share |
| :--- | :--- | :--- | :--- |
| 2003 |  |  |  |
| First\tQuarter | $34.89 | $28.55 | $0.070 |
| Second\tQuarter | \t 40.44 | \t 31.23 | 0.075 |
| Third\tQuarter | \t 41.59 | \t 37.66 | 0.075 |
| Fourth\tQuarter | \t 47.20 | \t 40.04 | 0.075 |

| 2004 | High | Low | Share |
| :--- | :--- | :--- | :--- |
| First\tQuarter | $46.80 | $40.64 | $0.075 |
| Second\tQuarter | \t 51.50 | \t 41.82 | 0.085 |
| Third\tQuarter | \t 50.48 | \t 44.95 | 0.085 |
| Fourth\tQuarter | \t 63.99 | \t 48.15 | 0.085 |

At	February	10,	2005,	there	were	225,768,576	shares	of	Class	A	Common	Stock	outstanding	held	by	48,282	shareholders	of	record.	Our	Class	A	Common	Stock is	traded	on	the	New	York	Stock	Exchange,	Chicago	Stock	Exchange,	Pacific	Stock	Exchange	and	Philadelphia	Stock	Exchange.	The	year-end	closing	price	for	our stock	was	$62.98	on	December	31,	2004,	and	$46.15	on	January	2,	2004.	All	prices	are	reported	on	the	consolidated	transaction	reporting	system.

# Fourth	Quarter	2004	Issuer	Purchases	of	Equity	Securities

|  |  |  | Total	Number	of | Total	Number	of | Number	of	Shares | Number	of	Shares |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| (in\tmillions,\texcept\tper\tshare\tamounts) | Total |  | Shares\tPurchased | Shares\tPurchased | That\tMay\tYet\tBe | That\tMay\tYet\tBe |
|  | Number\tof | Average | as\tPart\tof\tPublicly | as\tPart\tof\tPublicly | Purchased\tUnder | Purchased\tUnder |
|  | Shares | Price\tper | Announced\tPlans | Announced\tPlans | the\tPlans\tor | the\tPlans\tor |
| Period | Purchased | Share | or\tPrograms | (1) | Programs | (1) |
| September\t11,\t2004\t–\tOctober\t8,\t2004 | 0.1 | $ 48.64 |  | 0.1 | 19.6 | 19.6 |
| October\t9,\t2004\t–\tNovember\t5,\t2004 | — | — |  | — |  | 19.6 |
| November\t6,\t2004\t–\tDecember\t3,\t2004 | 0.8 | 56.59 |  | 0.8 | 18.8 | 18.8 |
| December\t4,\t2004\t–\tDecember\t31,\t2004 | 0.2 | 61.55 |  | 0.2 |  | 18.6 |

(1) On	April	30,	2004,	we	announced	that	our	Board	of	Directors	increased	by	20	million	shares	the	authorization	to	repurchase	our	common	stock	for	a	total outstanding	authorization	of	approximately	25	million	shares	on	that	date.	That	authorization	is	ongoing	and	does	not	have	an	expiration	date.	We	repurchase shares	in	the	open-market	and	in	privately	negotiated	transactions.

# Item	6.	Selected	Financial	Data.

The	following	table	presents	a	summary	of	selected	historical	financial	data	for	the	Company	derived	from	our	financial	statements	as	of	and	for	the	five	fiscal years	ended	December	31,	2004.

Since	the	information	in	this	table	is	only	a	summary	and	does	not	provide	all	of	the	information	contained	in	our	financial	statements,	including	the	related	notes, you	should	read	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations"	and	our	Consolidated	Financial	Statements.

| ($	in	millions,	except	per	share	data) | 2004 | 2003 | 2002 | 2001 | 2000 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Income\tStatement\tData: |  |  |  |  |  |
| Revenues\t1 | $10,099 | $9,014 | $8,415 | $7,768 | $7,911 |
| Operating\tincome\t1 | $477 | $377 | $321 | $420 | $762 |
| Income\tfrom\tcontinuing\toperations | $594 | $476 | $439 | $269 | $490 |
| Discontinued\toperations | 2 | 26 | (162) | (33) | (11) |
| Net\tincome | $596 | $502 | $277 | $236 | $479 |
| Per\tShare\tData: |  |  |  |  |  |
| Diluted\tearnings\tper\tshare\tfrom\tcontinuing\toperations | $2.47 | $1.94 | $1.74 | $1.05 | $1.93 |
| Diluted\tearnings\t(loss)\tper\tshare\tfrom\tdiscontinued\toperations | .01 | .11 | (.64) | (.13) | (.04) |
| Diluted\tearnings\tper\tshare | $2.48 | $2.05 | $1.10 | $.92 | $1.89 |
| Cash\tdividends\tdeclared\tper\tshare | $.330 | $.295 | $.275 | $.255 | $.235 |
| Balance\tSheet\tData\t(at\tend\tof\tyear): |  |  |  |  |  |
| Total\tassets | $8,668 | $8,177 | $8,296 | $9,107 | $8,237 |
| Long-term\tdebt\t1 | 836 | \t 1,391 | \t 1,553 | \t 2,708 | \t 1,908 |
| Shareholders'\tequity | 4,081 | \t 3,838 | \t 3,573 | \t 3,478 | \t 3,267 |
| Other\tData: |  |  |  |  |  |
| Base\tmanagement\tfees\t1 | 435 | 388 | 379 | 372 | 383 |
| Incentive\tmanagement\tfees\t1 | 142 | 109 | 162 | 202 | 316 |
| Franchise\tfees\t1 | 296 | 245 | 232 | 220 | 208 |

1 Balances	reflect	our	Senior	Living	Services	and	Distribution	Services	businesses	as	discontinued	operations.

2 All	fiscal	years	included	52	weeks,	except	for	2002,	which	included	53	weeks.

# Item	7.	Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations.

# BUSINESS	AND	OVERVIEW

We	are	a	worldwide	operator	and	franchisor	of	2,632	hotels	and	related	facilities.	Our	operations	are	grouped	into	five	business	segments,	Full-Service	Lodging, Select-Service	Lodging,	Extended-Stay	Lodging,	Timeshare	and	Synthetic	Fuel.	In	our	Lodging	business,	we	operate,	develop	and	franchise	under	13	separate	brand names	in	66	countries	and	territories.	We	also	operate	and	develop	Marriott	timeshare	properties	under	four	separate	brand	names.

We	earn	base,	incentive	and	franchise	fees	based	upon	the	terms	of	our	management	and	franchise	agreements.	Revenues	are	also	generated	from	the	following sources	associated	with	our	timeshare	business:	(1)	selling	timeshare	intervals,	(2)	operating	the	resorts,	and	(3)	financing	customer	purchases	of	timesharing	intervals.	In addition,	we	earn	revenues	and	generate	tax	credits	from	our	synthetic	fuel	joint	ventures.

We	evaluate	the	performance	of	our	segments	based	primarily	on	the	results	of	the	segment	without	allocating	corporate	expenses,	interest	expense	and	interest income.	With	the	exception	of	our	Synthetic	Fuel	segment,	we	do	not	allocate	income	taxes	to	our	segments.	As	timeshare	note	sales	are	an	integral	part	of	the	timeshare business,	we	include	timeshare	note	sale	gains	in	our	timeshare	segment	results,	and	we	allocate	other	gains	as	well	as	equity	income	(losses)	from	our	joint	ventures	to each	of	our	segments.

Lodging	supply	growth	in	the	United	States	was	low	during	2004,	while	demand	growth	was	high.	In	the	United	States,	demand	was	strong	in	the	Eastern	and Western	regions,	while	the	Midwestern	and	South	Central	regions	experienced	more	moderate	increases	in	demand.	Demand	associated	with	business	travel	improved steadily	in	2004,	and	leisure	demand	remained	high.	The	weak	U.S.	dollar	in	relation	to	other	currencies,	particularly	the	euro,	resulted	in	increased	travel	into	the	U.S. as	overseas	trips	for	many	international	travelers	were	less	expensive.	Conversely,	many	U.S.	vacationers	who	might	have	traveled	abroad,	traveled	domestically	instead, as	the	weak	dollar	made	overseas	trips	more	costly.

Outside	of	the	U.S.	we	experienced	stronger	demand	versus	the	prior	year,	particularly	in	Asia	and	the	Middle	East.	While	demand	in	Latin	America	and	the Caribbean	was	also	good,	Europe	remains	a	challenge,	as	some	economies	have	been	slow	to	rebound.

We	focus	on	increasing	value	for	the	consumer	and	"selling	the	way	the	customer	wants	to	buy."	Our	Look	No	Further	Best	Rate	Guarantee,	strong	Marriott Rewards	loyalty	program,	and	information-rich,	easy	to	use	web	site	encourage	customers	to	make	reservations	through	Marriott.com.	We	have	complete	control	over our	inventory	and	pricing	and	utilize	online	agents	on	an	as	needed	basis.	The	shift	of	hotel	bookings	to	our	web	site	from	other	online	channels	results	in	higher revenue,	margins	and	profitability.

By	the	end	of	2004,	we	had	high-speed	internet	access	available	in	over	2,400	hotels,	far	outpacing	our	competition,	and	we	had	wireless	internet	access	in lobbies,	meeting	rooms	and	public	spaces	in	more	than	1,900	hotels.

# CONSOLIDATED	RESULTS

The	following	discussion	presents	an	analysis	of	results	of	our	operations	for	fiscal	years	ended	December	31,	2004,	January	2,	2004	(which	we	refer	to	as "2003"),	and	January	3,	2003	(which	we	refer	to	as	"2002").

# Continuing	Operations

# Revenues

Revenues	increased	12	percent	to	$10,099	million	in	2004,	primarily	reflecting	higher	fees	related	to	increased	demand	for	hotel	rooms	and	unit	expansion,	as well	as	strong	sales	in	our	Timeshare	segment.

Revenues	increased	7	percent	to	$9,014	million	in	2003,	reflecting	revenue	from	new	lodging	properties,	partially	offset	by	lower	demand	for	hotel	rooms	and consequently	lower	fees	to	us.

# Operating	Income

Operating	income	increased	$100	million	to	$477	million	in	2004.	The	increase	is	primarily	due	to	higher	fees,	which	are	related	both	to	stronger	REVPAR, driven	by	increased	occupancy	and	average	daily	rate,	and	to	the

growth	in	the	number	of	rooms,	and	strong	timeshare	results,	which	are	mainly	attributable	to	strong	demand	and	improved	margins,	partially	offset	by	higher	general and	administrative	expenses.	General,	administrative	and	other	expenses	increased	$84	million	in	2004	to	$607	million,	primarily	reflecting	higher	administrative expenses	in	both	our	lodging	($55	million)	and	timeshare	businesses	($24	million),	primarily	associated	with	increased	overhead	costs	related	to	the	Company's	unit growth	and	increased	development	costs	primarily	associated	with	our	Timeshare	segment,	and	a	$10	million	reduction	in	foreign	exchange	gains,	offset	by	$6	million of	lower	litigation	expenses.

Operating	income	increased	17	percent	to	$377	million	in	2003.	The	favorable	comparisons	to	2002	include	the	impact	of	the	$50	million	write	down	of	goodwill recorded	in	2002	associated	with	our	ExecuStay	business,	the	2003	receipt	of	$36	million	of	insurance	proceeds	associated	with	lost	management	fees	resulting	from	the destruction	of	the	Marriott	World	Trade	Center	hotel	and	lower	2003	operating	losses	from	our	synthetic	fuel	operation.	In	2003,	the	synthetic	fuel	business	generated operating	losses	of	$104	million,	compared	to	$134	million	in	2002.	Operating	income	in	2003	was	hurt	by	$53	million	of	lower	incentive	fees,	which	resulted	from	the weak	operating	environment	in	domestic	lodging.	General,	administrative	and	other	expenses	increased	$13	million	in	2003	to	$523	million,	reflecting	higher	litigation expenses	related	to	two	continuing	and	previously	disclosed	lawsuits,	partially	offset	by	the	impact	of	the	additional	week	in	2002	(our	2002	fiscal	year	included	53 weeks	compared	to	52	weeks	in	2003).	The	expenses	also	reflect	foreign	exchange	gains	of	$7	million,	compared	to	losses	of	$6	million	in	2002.

# Gains	and	Other	Income

The	following	table	shows	our	gains	and	other	income	for	the	fiscal	years	ended	December	31,	2004,	January	2,	2004,	and	January	3,	2003.

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Timeshare\tnote\tsale\tgains | $64 | $64 | $60 |
| Synthetic\tfuel\tearn-out\tpayments\treceived,\tnet | 28 | \t — | \t — |
| Gains\ton\tsales\tof\treal\testate | 44 | 21 | 28 |
| Gains\ton\tsales\tof\tjoint\tventure\tinvestments | 19 | 21 | 44 |
| Other | 9 | \t — | \t — |
|  | $164 | $106 | $132 |

# Interest	Expense

Interest	expense	decreased	$11	million	to	$99	million,	reflecting	the	repayment	of	$234	million	of	senior	debt	in	the	fourth	quarter	of	2003	and	other	subsequent debt	reductions,	partially	offset	by	lower	capitalized	interest	resulting	from	fewer	projects	under	construction,	primarily	related	to	our	Timeshare	segment.

Interest	expense	increased	$24	million	to	$110	million,	reflecting	interest	on	the	mortgage	debt	assumed	in	the	fourth	quarter	of	2002	associated	with	the acquisition	of	14	senior	living	communities,	and	lower	capitalized	interest	resulting	from	fewer	projects	under	construction,	primarily	related	to	our	Timeshare	segment. In	the	fourth	quarter	of	2003,	$234	million	of	senior	debt	was	repaid.	The	weighted	average	interest	rate	on	the	repaid	debt	was	7	percent.

# Interest	Income,	Provision	for	Loan	Losses,	and	Income	Tax

Interest	income,	before	the	provision	for	loan	losses,	increased	$17	million	(13	percent)	to	$146	million,	reflecting	higher	loan	balances,	including	the	$200 million	note	collected	in	the	third	quarter	of	2004	related	to	the	acquisition	by	Cendant	Corporation	of	our	interest	in	the	Two	Flags	joint	venture	and	higher	interest rates.	We	recognized	$9	million	of	interest	income	associated	with	the	$200	million	note,	which	was	issued	early	in	the	2004	second	quarter.	Our	provision	for	loan losses	for	2004	was	a	benefit	of	$8	million	and	includes	$3	million	of	reserves	for	loans	deemed	uncollectible	at	three	hotels,	offset	by	the	reversal	of	$11	million	of reserves	no	longer	deemed	necessary.

Income	from	continuing	operations	before	income	taxes	generated	a	tax	provision	of	$100	million	in	2004,	compared	to	a	tax	benefit	of	$43	million	in	2003.	The difference	is	primarily	attributable	to	the	impact	of	the	synthetic	fuel	joint	venture,	which	generated	a	tax	benefit	and	tax	credits	of	$165	million	in	2004,	compared	to $245	million	in	2003	and	to	higher	pre-tax	income.	In	the	third	quarter	of	2003,	we	sold	a	50	percent	interest	in	our	synthetic	fuel	joint	ventures,	and	we	currently consolidate	the	joint	ventures.

Interest	income	increased	$7	million	(6	percent)	to	$129	million.	Our	provision	for	loan	losses	for	2003	was	$7	million	and	includes	$15	million	of	reserves	for loans	deemed	uncollectible	at	six	hotels,	offset	by	the	reversal	of	$8	million	of	reserves	no	longer	deemed	necessary.

Income	from	continuing	operations	before	income	taxes	and	minority	interest	generated	a	tax	benefit	of	$43	million	in	2003,	compared	to	a	tax	provision	of	$32 million	in	2002.	The	difference	is	primarily	attributable	to	the	impact	of	our	synthetic	fuel	operation,	which	generated	a	tax	benefit	and	tax	credits	of	$245	million	in 2003,	compared	to	$208	million	in	2002.	Excluding	the	impact	of	the	synthetic	fuel	operation,	our	pre-tax	income	was	lower	in	2003,	which	also	contributed	to	the favorable	tax	impact.

Our	effective	tax	rate	for	discontinued	operations	increased	from	15.7	percent	to	39	percent	due	to	the	impact	of	the	taxes	in	2002	associated	with	the	sale	of	stock in	connection	with	the	disposal	of	our	Senior	Living	Services	business.

# Minority	Interest

Minority	interest	increased	from	an	expense	of	$55	million	in	2003	to	a	benefit	of	$40	million	in	2004,	primarily	as	a	result	of	the	change	in	the	ownership structure	of	the	synthetic	fuel	joint	ventures	following	our	sale	of	50	percent	of	our	interest	in	the	joint	ventures.	Due	to	the	purchaser's	put	option,	which	expired	on November	6,	2003,	minority	interest	for	2003	reflected	our	partner's	share	of	the	synthetic	fuel	operating	losses	and	their	share	of	the	associated	tax	benefit,	along	with their	share	of	the	tax	credits	from	the	June	21,	2003,	sale	date	through	the	put	option's	expiration	date,	when	we	began	accounting	for	the	ventures	under	the	equity method	of	accounting.	For	2004,	minority	interest	reflects	our	partner's	share	of	the	synthetic	fuel	losses	from	March	26,	2004,	(when	we	began	consolidating	the ventures	due	to	the	adoption	of	FIN	46(R))	through	year-end.	For	additional	information,	see	the	discussion	relating	to	our	"Synthetic	Fuel"	segment	on	page	31.

# Income	from	Continuing	Operations

Income	from	continuing	operations	increased	25	percent	to	$594	million,	and	diluted	earnings	per	share	from	continuing	operations	increased	27	percent	to	$2.47. The	favorable	results	were	primarily	driven	by	strong	hotel	demand,	new	unit	growth,	strong	timeshare	results,	higher	interest	income	reflecting	higher	balances	and rates,	lower	interest	expense	due	to	debt	reductions,	lower	loan	loss	provisions,	stronger	synthetic	fuel	results	and	increased	gains	of	$58	million,	partially	offset	by higher	income	taxes	excluding	the	synthetic	fuel	impact,	and	higher	general	and	administrative	expenses.

Income	from	continuing	operations	increased	8	percent	to	$476	million,	and	diluted	earnings	per	share	from	continuing	operations	advanced	11	percent	to	$1.94. Synthetic	fuel	operations	contributed	$96	million	in	2003	compared	to	$74	million	in	2002.	Our	lodging	financial	results	declined	$5	million	to	$702	million	in	2003. The	comparisons	from	2002	benefit	from	the	$50	million	pre-tax	charge	to	write	down	acquisition	goodwill	for	ExecuStay	in	2002,	offset	by	the	$44	million	pre-tax gain	on	the	sale	of	our	investment	in	Interval	International	in	2002,	and	further	benefit	from	our	2003	receipt	of	a	$36	million	insurance	settlement	for	lost	management fees	associated	with	the	New	York	Marriott	World	Trade	Center	hotel,	which	was	destroyed	in	the	2001	terrorist	attacks.

# Marriott	Lodging

We	consider	lodging	revenues	and	lodging	financial	results	to	be	meaningful	indicators	of	our	performance	because	they	measure	our	growth	in	profitability	as	a lodging	company	and	enable	investors	to	compare	the	sales	and	results	of	our	lodging	operations	to	those	of	other	lodging	companies.

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Full-Service | $6,611 | $5,876 | $5,508 |
| Select-Service | 1,118 | \t 1,000 | 967 |
| Extended-Stay | 547 | 557 | 600 |
| Timeshare | 1,502 | \t 1,279 | \t 1,147 |
| Total\tlodging | 9,778 | \t 8,712 | \t 8,222 |
| Synthetic\tFuel | 321 | 302 | 193 |
|  | $10,099 | $9,014 | $8,415 |

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Full-Service | $426 | $407 | $397 |
| Select-Service | 140 | 99 | 130 |
| Extended-Stay | 66 | 47 | (3) |
| Timeshare | 203 | 149 | 183 |
| Total\tlodging\tfinancial\tresults | 835 | 702 | 707 |
| Synthetic\tFuel\t(after-tax) | 107 | 96 | 74 |
| Unallocated\tcorporate\texpenses | (138) | (132) | (126) |
| Interest\tincome,\tprovision\tfor\tloan\tlosses\tand\tinterest\texpense | 55 | 12 | 24 |
| Income\ttaxes\t(excluding\tSynthetic\tFuel) | (265) | (202) | (240) |
|  | $594 | $476 | $439 |

Lodging,	which	includes	our	Full-Service,	Select-Service,	Extended-Stay	and	Timeshare	segments,	reported	financial	results	of	$835	million	in	2004,	compared to	$702	million	in	2003,	and	revenues	of	$9,778	million	in	2004,	a	12	percent	increase	from	revenues	of	$8,712	million	in	2003.	The	results	reflect	an	18	percent increase	in	base,	franchise	and	incentive	fees	from	$742	million	in	2003	to	$873	million	in	2004,	favorable	timeshare	results	and	increased	gains	and	joint	venture	results of	$36	million.	The	increase	in	base	and	franchise	fees	was	driven	by	higher	REVPAR	for	comparable	rooms,	primarily	resulting	from	both	domestic	and	international occupancy	and	average	daily	rate	increases	and	new	unit	growth.	Systemwide	REVPAR	for	comparable	North	American	properties	increased	8.5	percent,	and	REVPAR for	our	comparable	North	American	company-operated	properties	increased	8.6	percent.	Systemwide	REVPAR	for	comparable	international	properties,	including	The Ritz-Carlton,	increased	14.2	percent,	and	REVPAR	for	comparable	international	company-operated	properties,	including	The	Ritz-Carlton,	increased	16.6	percent.	The increase	in	incentive	management	fees	during	the	year	primarily	reflects	the	impact	of	increased	international	demand,	particularly	in	Asia	and	the	Middle	East,	and increased	business	at	properties	throughout	North	America.	We	have	added	166	properties	(27,038	rooms)	and	deflagged	42	properties	(7,335	rooms)	since	year-end 2003.	Most	of	the	deflagged	properties	were	Fairfield	Inns.	In	addition,	210	properties	(28,081	rooms)	exited	our	system	as	a	result	of	the	sale	of	our	Ramada International	Hotels	&	Resorts	franchised	brand.	Worldwide	REVPAR	for	comparable	company-operated	properties	increased	10.5	percent,	while	worldwide	REVPAR for	comparable	systemwide	properties	increased	9.6	percent.

Lodging,	which	includes	our	Full-Service,	Select-Service,	Extended-Stay	and	Timeshare	segments,	reported	financial	results	of	$702	million	in	2003,	compared to	$707	million	in	2002,	and	revenues	of	$8,712	million	in	2003,	a	6	percent	increase,	compared	to	revenues	of	$8,222	million	in	2002.	The	2003	lodging	revenue	and financial	results	include	the	receipt	of	a	$36	million	insurance	settlement	for	lost	revenues	associated	with	the	New	York	World	Trade	Center	hotel.	Our	revenues	from base	management	fees	totaled	$388	million,	an	increase	of	2	percent,	reflecting	3	percent	growth	in	the	number	of	managed	rooms	and	a	1.9	percent	decline	in	REVPAR for	our	North	American	managed	hotels.	Incentive	management	fees	were	$109	million,	a	decline	of	33	percent,	reflecting	lower	property-level	house	profit.	House profit	margins	declined	2.7	percentage	points,	largely	due	to	lower	average	room	rates,	higher	wages,	insurance	and	utility	costs,	and	lower	telephone	profits,	offset	by continued	productivity	improvements.	Franchise	fees	totaled	$245	million,	an	increase	of	6	percent.	The	comparison	to	2002	includes	the	impact	of	the	$50	million	pre- tax	write	down	of	ExecuStay	goodwill	recorded	in	2002,	partially	offset	by	a	$44	million	pre-tax	gain	related	to	the	sale	of	our	investment	in	Interval	International.

# Lodging	Development

We	opened	144	properties	totaling	24,380	rooms,	excluding	Ramada	International,	across	our	brands	in	2004,	and	42	properties	(7,335	rooms)	were	deflagged and	exited	the	system.	In	addition,	210	properties	(28,081	rooms)	exited	our	system	as	a	result	of	the	sale	of	our	Ramada	International	Hotels	&	Resorts	franchised	brand in	2004.	Highlights	of	the	year	included:

•	 We	converted	64	properties	(10,565	rooms),	or	39	percent	of	our	total	room	additions	for	the	year,	from	other	brands.

•	 We	opened	over	30	percent	of	new	rooms	outside	the	United	States.

•	 We	added	109	properties	(12,859	rooms)	to	our	Select-Service	and	Extended-Stay	brands.

•	 We	opened	our	first	Bulgari	Hotel	&	Resort	in	Milan,	Italy,	in	May	2004.	The	second	property	is	expected	to	open	in	Bali	in	2005.

•	 We	opened	three	new	Marriott	Vacation	Club	International	properties	in	Aruba;	Phoenix,	Arizona;	and	Myrtle	Beach,	South	Carolina.

We	currently	have	more	than	55,000	rooms	in	our	development	pipeline	and	expect	to	add	25,000	to	30,000	hotel	rooms	and	timeshare	units	to	our	system	in 2005.	We	expect	to	deflag	approximately	4,000	rooms	during	2005.	These	growth	plans	are	subject	to	numerous	risks	and	uncertainties,	many	of	which	are	outside	of our	control.	See	"Forward-Looking	Statements"	above	and	"Liquidity	and	Capital	Resources"	below.

# REVPAR

We	consider	Revenue	per	Available	Room	(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.

The	following	table	shows	occupancy,	average	daily	rate	and	REVPAR	for	each	of	our	comparable	principal	established	brands.	We	have	not	presented	statistics for	company-operated	North	American	Fairfield	Inn	and	SpringHill	Suites	properties	here	(or	in	the	comparable	information	for	the	prior	years	presented	later	in	this report)	because	we	operate	only	a	limited	number	of	properties,	as	both	of	these	brands	are	predominantly	franchised	and	such	information	would	not	be	meaningful	for those	brands	(identified	as	"nm"	in	the	tables	below).	Systemwide	statistics	include	data	from	our	franchised	properties,	in	addition	to	our	owned,	leased	and	managed properties.

For	North	American	properties	(except	for	The	Ritz-Carlton,	which	includes	January	through	December),	the	occupancy,	average	daily	rate	and	REVPAR statistics	used	throughout	this	report	for	the	fiscal	year	ended	December	31,	2004,	include	the	period	from	January	3,	2004,	through	December	31,	2004,	while	the statistics	for	the	fiscal	year	ended	January	2,	2004,	include	the	period	from	January	4,	2003,	through	January	2,	2004.

| Occupancy | 72.0% | 2.8%pts. | 70.1% | 2.8%pts. |
| :--- | :--- | :--- | :--- | :--- |
| Average\tdaily\trate | $143.70 | 3.3% | $135.15 | 3.3% |
| REVPAR | $103.46 | 7.4% | $94.77 | 7.6% |
| The\tRitz-Carlton\t(2) |  |  |  |  |
| Occupancy | 69.2% | 4.3%pts. | 69.2% | 4.3%pts. |
| Average\tdaily\trate | $257.16 | 5.9% | $257.16 | 5.9% |
| REVPAR | $177.96 | 12.9% | $177.96 | 12.9% |
| Renaissance\tHotels\t&\tResorts |  |  |  |  |
| Occupancy | 69.6% | 4.3%pts. | 69.1% | 4.2%pts. |
| Average\tdaily\trate | $135.54 | 1.7% | $128.67 | 2.3% |
| REVPAR | $94.30 | 8.4% | $88.92 | 8.9% |
| Composite\t–\tFull-Service\t(3) |  |  |  |  |
| Occupancy | 71.3% | 3.2%pts. | 69.9% | 3.1%pts. |
| Average\tdaily\trate | $153.66 | 3.6% | $142.80 | 3.6% |
| REVPAR | $109.62 | 8.4% | $99.82 | 8.4% |
| Residence\tInn |  |  |  |  |
| Occupancy | 79.0% | 2.7%pts. | 78.6% | 2.9%pts. |
| Average\tdaily\trate | $99.49 | 3.8% | $97.33 | 3.2% |
| REVPAR | $78.59 | 7.4% | $76.52 | 7.1% |
| Courtyard |  |  |  |  |
| Occupancy | 70.3% | 3.2%pts. | 71.4% | 3.3%pts. |
| Average\tdaily\trate | $96.30 | 4.6% | $97.18 | 4.9% |
| REVPAR | $67.66 | 9.6% | $69.35 | 10.0% |
| Fairfield\tInn |  |  |  |  |
| Occupancy | nm | nm | 66.6% | 1.9%pts. |
| Average\tdaily\trate | nm | nm | $67.97 | 3.1% |
| REVPAR | nm | nm | $45.29 | 6.2% |
| TownePlace\tSuites |  |  |  |  |
| Occupancy | 74.1% | 3.7%pts. | 74.9% | 4.3%pts. |
| Average\tdaily\trate | $65.77 | 4.0% | $65.18 | 2.7% |
| REVPAR | $48.71 | 9.5% | $48.81 | 9.0% |
| SpringHill\tSuites |  |  |  |  |
| Occupancy | nm | nm | 71.5% | 4.2%pts. |
| Average\tdaily\trate | nm | nm | $83.97 | 4.2% |
| REVPAR | nm | nm | $60.04 | 10.6% |
| Composite\t–\tSelect-Service\tand\tExtended-Stay\t(4) |  |  |  |  |
| Occupancy | 72.6% | 3.1%pts. | 72.2% | 3.0%pts. |
| Average\tdaily\trate | $94.52 | 4.4% | $87.89 | 4.0% |
| REVPAR | $68.66 | 9.1% | $63.42 | 8.5% |

(1) Marriott	Hotels	&	Resorts	includes	our	JW	Marriott	Hotels	&	Resorts	brand.

(2) Statistics	for	The	Ritz-Carlton	are	for	January	through	December.

(3) Full-Service	composite	statistics	include	properties	for	the	Marriott	Hotels	&	Resorts,	Renaissance	Hotels	&	Resorts	and	The	Ritz-Carlton	brands.

(4) Select-Service	and	Extended-Stay	composite	statistics	include	properties	for	the	Courtyard,	Residence	Inn,	TownePlace	Suites,	Fairfield	Inn	and	SpringHill	Suites brands.

(5) Composite	–	All	statistics	include	properties	for	the	Marriott	Hotels	&	Resorts,	Renaissance	Hotels	&	Resorts,	The	Ritz-Carlton,	Courtyard,	Residence	Inn, TownePlace	Suites,	Fairfield	Inn	and	SpringHill	Suites	brands.

Systemwide	international	statistics	by	region	are	based	on	comparable	worldwide	units,	excluding	North	America.	The	following	table	shows	occupancy,	average daily	rate	and	REVPAR	for	international	properties	by	region/brand.

|  | Year	Ended<br>December	31,	2004 | Change	vs.	2003 | Year	Ended<br>December	31,	2004 | Change	vs.	2003 |
| :--- | :--- | :--- | :--- | :--- |
| Caribbean\tand\tLatin\tAmerica |  |  |  |  |
| Occupancy | 71.2% | 4.3%pts. | 69.7% | 4.3%pts. |
| Average\tdaily\trate | $138.98 | 8.0% | $131.61 | 7.7% |
| REVPAR | $98.91 | 14.9% | $91.76 | 14.7% |
| Continental\tEurope |  |  |  |  |
| Occupancy | 70.8% | 2.8%pts. | 68.8% | 3.7%pts. |
| Average\tdaily\trate | $130.49 | 2.6% | $130.74 | 2.2% |
| REVPAR | $92.38 | 6.8% | $89.91 | 8.0% |
| United\tKingdom |  |  |  |  |
| Occupancy | 76.9% | 2.0%pts. | 74.4% | 2.3%pts. |
| Average\tdaily\trate | $173.48 | 7.8% | $142.47 | 3.1% |
| REVPAR | $133.37 | 10.7% | $106.01 | 6.4% |
| Middle\tEast\tand\tAfrica |  |  |  |  |
| Occupancy | 73.2% | 8.1%pts. | 73.2% | 8.1%pts. |
| Average\tdaily\trate | $83.44 | 13.8% | $83.44 | 13.8% |
| REVPAR | $61.10 | 28.1% | $61.10 | 28.1% |
| Asia\tPacific\t(3) |  |  |  |  |
| Occupancy | 75.5% | 9.8%pts. | 76.4% | 9.0%pts. |
| Average\tdaily\trate | $96.67 | 10.5% | $99.61 | 8.2% |
| REVPAR | $72.98 | 27.0% | $76.11 | 22.6% |
| The\tRitz-Carlton\tInternational |  |  |  |  |
| Occupancy | 71.0% | 10.3%pts. | 71.0% | 10.3%pts. |
| Average\tdaily\trate | $205.06 | 3.8% | $205.06 | 3.8% |
| REVPAR | $145.68 | 21.3% | $145.68 | 21.3% |
| Total\tComposite\tInternational\t(4) |  |  |  |  |
| Occupancy | 73.3% | 6.6%pts. | 72.9% | 6.0%pts. |
| Average\tdaily\trate | $129.35 | 6.0% | $128.44 | 4.8% |
| REVPAR | $94.75 | 16.6% | $93.61 | 14.2% |
| Total\tWorldwide\t(5) |  |  |  |  |
| Occupancy | 72.2% | 4.0%pts. | 71.5% | 3.6%pts. |
| Average\tdaily\trate | $131.58 | 4.3% | $114.61 | 4.1% |
| REVPAR | $94.97 | 10.5% | $81.93 | 9.6% |

(1) International	financial	results	are	reported	on	a	period-end	basis,	while	international	statistics	are	reported	on	a	month-end	basis.

(2) The	comparison	to	2003	is	on	a	currency-neutral	basis	and	includes	results	for	January	through	December.

(3) Excludes	Hawaii.

(4) Includes	Hawaii.

(5) Includes	international	statistics	for	the	twelve	months	ended	December	31,	2004	and	December	31,	2003	and	North	American	statistics	for	the	fifty-two	weeks ended	December	31,	2004	and	January	2,	2004.

The	following	table	shows	occupancy,	average	daily	rate	and	REVPAR	for	each	of	our	principal	established	brands.

| Occupancy | 69.3% | -0.5%pts. | 67.6% | -0.4%pts. |
| :--- | :--- | :--- | :--- | :--- |
| Average\tdaily\trate | $135.42 | -2.1% | $128.53 | -1.8% |
| REVPAR | $93.81 | -2.8% | $86.87 | -2.4% |
| The\tRitz-Carlton\t(2) |  |  |  |  |
| Occupancy | 65.7% | 1.1%pts. | 65.7% | 1.1%pts. |
| Average\tdaily\trate | $231.12 | -0.8% | $231.12 | -0.8% |
| REVPAR | $151.85 | 1.0% | $151.85 | 1.0% |
| Renaissance\tHotels\t&amp;\tResorts |  |  |  |  |
| Occupancy | 65.8% | 0.9%pts. | 65.3% | 1.5%pts. |
| Average\tdaily\trate | $132.12 | -1.8% | $123.97 | -2.2% |
| REVPAR | $86.99 | -0.4% | $80.92 | 0.1% |
| Composite\t–\tFull-Service\t(3) |  |  |  |  |
| Occupancy | 68.4% | -0.1%pts. | 67.1% | 0.0%pts. |
| Average\tdaily\trate | $144.17 | -1.6% | $134.92 | -1.6% |
| REVPAR | $98.65 | -1.8% | $90.57 | -1.6% |
| Residence\tInn |  |  |  |  |
| Occupancy | 77.0% | -0.3%pts. | 76.2% | 0.2%pts. |
| Average\tdaily\trate | $94.94 | -1.9% | $93.85 | -1.4% |
| REVPAR | $73.09 | -2.3% | $71.47 | -1.1% |
| Courtyard |  |  |  |  |
| Occupancy | 67.6% | -1.0%pts. | 68.5% | -0.6%pts. |
| Average\tdaily\trate | $93.16 | -1.2% | $92.90 | -0.6% |
| REVPAR | $63.01 | -2.7% | $63.65 | -1.4% |
| Fairfield\tInn |  |  |  |  |
| Occupancy | nm | nm | 64.1% | -0.3%pts. |
| Average\tdaily\trate | nm | nm | $64.28 | 0.2% |
| REVPAR | nm | nm | $41.22 | -0.4% |
| TownePlace\tSuites |  |  |  |  |
| Occupancy | 70.3% | -2.0%pts. | 70.9% | 0.0%pts. |
| Average\tdaily\trate | $63.24 | 1.8% | $63.34 | -0.2% |
| REVPAR | $44.48 | -1.0% | $44.89 | -0.1% |
| SpringHill\tSuites |  |  |  |  |
| Occupancy | nm | nm | 68.4% | 1.3%pts. |
| Average\tdaily\trate | nm | nm | $80.38 | 1.3% |
| REVPAR | nm | nm | $54.94 | 3.2% |
| Composite\t–\tSelect-Service\tand\tExtended-Stay\t(4) |  |  |  |  |
| Occupancy | 70.0% | -0.8%pts. | 69.2% | -0.2%pts. |
| Average\tdaily\trate | $90.98 | -1.1% | $83.70 | -0.6% |
| REVPAR |  |  |  |  |
|  | $63.64 | -2.2% | $57.95 | -0.8% |
| Composite\t–\tAll\t(5) |  |  |  |  |
| Occupancy | 69.0% | -0.4%pts. | 68.3% | -0.1%pts. |
| Average\tdaily\trate | $124.45 | -1.4% | $105.86 | -1.1% |
| REVPAR | $85.85 | -1.9% | $72.31 | -1.3% |

Occupancy,	average	daily	rate,	and	REVPAR	by	region/brand	for	international	properties	are	shown	in	the	following	table.

|  | Year	Ended<br>December	31,	2003 | Change	vs.	2002 | Year	Ended<br>December	31,	2003 | Change	vs.	2002 |
| :--- | :--- | :--- | :--- | :--- |
| Caribbean\tand\tLatin\tAmerica |  |  |  |  |
| Occupancy | 67.5% | 4.2%pts. | 65.3% | 3.8%pts. |
| Average\tdaily\trate | $126.45 | 2.7% | $121.64 | 2.2% |
| REVPAR | $85.32 | 9.5% | $79.49 | 8.5% |
| Continental\tEurope |  |  |  |  |
| Occupancy | 67.9% | 0.3%pts. | 64.9% | 0.3%pts. |
| Average\tdaily\trate | $117.79 | -5.4% | $119.40 | -4.0% |
| REVPAR | $79.92 | -4.9% | $77.50 | -3.5% |
| United\tKingdom |  |  |  |  |
| Occupancy | 76.6% | -0.7%pts. | 72.3% | -0.8%pts. |
| Average\tdaily\trate | $148.14 | -1.5% | $125.44 | -3.2% |
| REVPAR | $113.48 | -2.4% | $90.71 | -4.2% |
| Middle\tEast\tand\tAfrica |  |  |  |  |
| Occupancy | 66.5% | 0.4%pts. | 64.3% | 0.6%pts. |
| Average\tdaily\trate | $71.39 | 14.9% | $71.58 | 14.6% |
| REVPAR | $47.49 | 15.7% | $46.00 | 15.8% |
| Asia\tPacific\t(3) |  |  |  |  |
| Occupancy | 65.5% | -6.7%pts. | 67.8% | -5.3%pts. |
| Average\tdaily\trate | $85.25 | -1.4% | $93.13 | 0.5% |
| REVPAR | $55.86 | -10.5% | $63.10 | -6.8% |
| The\tRitz-Carlton\tInternational |  |  |  |  |
| Occupancy | 60.8% | -5.9%pts. | 60.8% | -5.9%pts. |
| Average\tdaily\trate | $188.91 | -0.2% | $188.91 | -0.2% |
| REVPAR | $114.88 | -9.0% | $114.88 | -9.0% |
| Total\tComposite\tInternational\t(4) |  |  |  |  |
| Occupancy | 66.9% | -1.8%pts. | 67.0% | -1.4%pts. |
| Average\tdaily\trate | $117.27 | -0.4% | $117.54 | -0.3% |
| REVPAR | $78.46 | -3.0% | $78.73 | -2.4% |
| Total\tWorldwide\t(5) |  |  |  |  |
| Occupancy | 68.4% | -0.7%pts. | 68.1% | -0.4%pts. |
| Average\tdaily\trate | $122.62 | -1.1% | $108.03 | -1.0% |
| REVPAR | $83.93 | -2.2% | $73.52 | -1.5% |

(5) Includes	international	statistics	for	the	twelve	months	ended	December	31,	2003	and	December	31,	2002	and	North	American	statistics	for	the	fifty-two	and	fifty- three	weeks	ended	January	2,	2004	and	January	3,	2003,	respectively.

| ($	in	millions) | 2004 | 2003 | 2002 | 2004/2003 | 2003/2002 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Revenues | $6,611 | $5,876 | $5,508 | 13% | 7% |
| Segment\tresults | $426 | $407 | $397 | 5% | 3% |

Full-Service	Lodging	includes	our	Marriott	Hotels	&	Resorts,	The	Ritz-Carlton,	Renaissance	Hotels	&	Resorts,	Ramada	International	and	Bulgari	Hotels	&

Resorts	brands.	The	2004	segment	results	reflect	an	$85	million	increase	in	base	management,	incentive	management	and	franchise	fees,	partially	offset	by	$46	million of	increased	administrative	costs,	including	costs	related	to	unit	growth	and	development,	and	the	receipt	in	2003	of	$36	million	of	insurance	proceeds.	The	increase	in fees	is	largely	due	to	stronger	REVPAR,	driven	by	occupancy	and	rate	increases,	and	the	growth	in	the	number	of	rooms.	Since	year-end	2003,	across	our	Full-Service Lodging	segment,	we	have	added	33	hotels	(10,212	rooms),	and	deflagged	six	hotels	(2,860	rooms)	excluding	Ramada	International.	As	a	result	of	the	sale	of	our Ramada	International	Hotels	&	Resorts	franchised	brand,	210	properties	(28,081	rooms)	exited	our	system	in	2004.	The	ongoing	impact	of	this	sale	is	not	expected	to	be material	to	the	Company.

Gains	were	up	$7	million,	primarily	due	to	the	exercise	by	Cendant	of	its	option	to	redeem	our	interest	in	the	Two	Flags	joint	venture,	which	generated	a	gain	of $13	million	and	a	note	receivable,	which	was	repaid,	generating	a	gain	of	$5	million.	Joint	venture	results	were	up	$2	million	compared	to	the	prior	year.	For	2003,	our equity	earnings	included	$24	million,	attributable	to	our	interest	in	the	Two	Flags	joint	venture,	while	our	equity	in	earnings	for	2004	reflects	only	a	$6	million	impact due	to	the	redemption	of	our	interest.	The	improved	business	environment	contributed	to	the	improvement	in	joint	venture	results	for	2004,	offsetting	the	decline attributable	to	the	Two	Flags	joint	venture.

REVPAR	for	Full-Service	Lodging	comparable	company-operated	North	American	hotels	increased	8.4	percent	to	$109.62.	Occupancy	for	these	hotels	increased to	71.3	percent,	while	average	daily	rates	increased	3.6	percent	to	$153.66.

Demand	associated	with	our	international	operations	was	strong	across	most	regions,	generating	a	16.6	percent	REVPAR	increase	for	comparable	company- operated	hotels	including	The	Ritz-Carlton.	Occupancy	increased	6.6	percentage	points,	while	average	daily	rates	increased	to	$129.35.	Financial	results	increased	37 percent	to	$140	million,	due	to	stronger	demand,	particularly	in	China,	Hong	Kong,	Brazil	and	Egypt.	The	European	markets	generally	remain	challenging	as	the economies	have	been	slow	to	rebound.

The	3	percent	increase	in	the	Full-Service	segment	results	includes	the	$36	million	insurance	payment	received	for	lost	management	fees	in	connection	with	the loss	of	the	New	York	Marriott	World	Trade	Center	hotel	in	the	September	11,	2001,	terrorist	attacks.	The	2003	results	also	reflect	an	$18	million	increase	in	base management	and	franchise	fees,	largely	due	to	the	growth	in	the	number	of	rooms.	Across	our	Full-Service	Lodging	segment,	we	added	88	hotels	(18,442	rooms)	and deflagged	15	hotels	(3,152	rooms).	We	typically	earn	incentive	fees	only	after	a	managed	hotel	achieves	a	minimum	level	of	owner	profitability.	As	a	result,	lower revenue	and	lower	property-level	margins	have	reduced	the	number	of	hotels	from	which	we	earn	incentive	management	fees.	As	a	result,	full-service	incentive	fees declined	$41	million	in	2003.

REVPAR	for	Full-Service	Lodging	North	American	systemwide	hotels	declined	1.6	percent	to	$90.57.	Occupancy	for	these	hotels	was	flat	at	67.1	percent,	while average	daily	rates	declined	1.6	percent	to	$134.92.

Financial	results	for	our	international	operations	increased	9	percent	to	$102	million,	reflecting	$21	million	of	gains	associated	with	the	sale	of	our	interests	in three	joint	ventures	and	favorable	foreign	exchange	rates,	partially	offset	by	an	$8	million	charge	for	guarantee	fundings	related	to	a	hotel	in	Istanbul,	a	$7	million charge	to	write	down	our	investment	in	a	joint	venture	that	sold	a	hotel	at	a	loss	in	January	2004,	and	the	impact	of	the	war	and	Severe	Acute	Respiratory	Syndrome (SARS)	on	international	travel	earlier	in	the	year.	REVPAR	for	our	international	systemwide	hotels	declined	2.4	percent.	Occupancy	declined	1.4	percentage	points, while	average	daily	rates	remained	relatively	flat	at	$117.54.

| ($	in	millions) | 2004 | 2003 | 2002 | 2004/2003 | 2003/2002 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Revenues | $1,118 | $1,000 | $967 | 12% | 3% |
| Segment\tresults | $140 | $99 | $130 | 41% | -24% |

Select-Service	Lodging	includes	our	Courtyard,	Fairfield	Inn	and	SpringHill	Suites	brands.	The	increase	in	revenues	over	the	prior	year	reflects	stronger REVPAR,	driven	by	occupancy	and	rate	increases,	and	the	growth	in	the	number	of	rooms	across	our	select-service	brands.	Base	management,	incentive	management and	franchise	fees	increased	$31	million,	and	gains	were	$19	million	higher	than	the	prior	year,	reflecting	land	sales	during	the	year	as	well	as	recognition	of	deferred gains	associated	with	properties	we	previously	owned.	Joint	venture	results	increased	by	$5	million	as	a	result	of	the	strong	business	environment.	These	increases	were partially	offset	by	an	increase	in	administrative	costs	of	$13	million.	Most	of	the	increase	in	administrative	costs	is	associated	with	a	transaction	related	to	our	Courtyard joint	venture	(discussed	more	fully	below	in	"Liquidity	and	Capital	Resources"	under	the	heading	"Courtyard	Joint	Venture").	We	expect	to	enter	into	a	new	long-term management	agreement	with	the	joint	venture	in	early	2005.	As	the	termination	of	the	existing	management	agreement	is	probable,	in	2004	we	wrote	off	our	deferred contract	acquisition	costs	related	to	the	existing	contract,	resulting	in	a	charge	of	$13	million.	Across	our	Select-Service	Lodging	segment,	we	have	added	89	hotels (10,556	rooms)	and	deflagged	35	hotels	(4,395	rooms)	since	year-end	2003.

The	$31	million	decrease	in	the	Select-Service	Lodging	segment	results	reflects	the	impact	of	a	$9	million	reduction	in	base	management,	incentive	management and	franchise	fees.	The	results	also	include	$14	million	of	higher	equity	losses,	primarily	from	our	Courtyard	joint	venture,	formed	in	2000,	which	owns	120	Courtyard hotels.

In	2003,	across	our	Select-Service	Lodging	segment,	we	added	66	hotels	(8,054	rooms)	and	deflagged	four	hotels	(731	rooms).	Over	90	percent	of	the	gross	room additions	were	franchised.

| ($	in	millions) | 2004 | 2003 | 2002 | 2004/2003 | 2003/2002 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Revenues | $547 | $557 | $600 | -2% | -7% |
| Segment\tresults | $66 | $47 | $(3) | 40% | nm |

Extended-Stay	Lodging	includes	our	Residence	Inn,	TownePlace	Suites,	Marriott	Executive	Apartments	and	Marriott	ExecuStay	brands.	The	decline	in	revenue is	primarily	attributable	to	the	shift	in	the	ExecuStay	business	from	management	to	franchising.	We	entered	into	more	than	20	new	franchise	markets	in	2004,	and	only five	managed	markets	remain	at	the	end	of	2004.	Our	base	management	fees	increased	$4	million,	and	our	incentive	management	fees	were	essentially	flat	with	last	year, while	our	franchise	fees,	principally	associated	with	our	Residence	Inn	brand,	increased	$9	million.	The	increase	in	franchise	fees	is	largely	due	to	the	growth	in	the number	of	rooms	and	an	increase	in	REVPAR.	Since	year-end	2003,	we	have	added	20	hotels	(2,303	rooms)	and	deflagged	one	hotel	(80	rooms)	across	our	Extended- Stay	segment.	In	addition,	gains	of	$10	million	in	2004	were	favorable	to	the	prior	year	by	$4	million.	ExecuStay	experienced	improved	results	compared	to	the	prior year,	resulting	from	increased	occupancy,	primarily	in	the	New	York	market,	coupled	with	lower	operating	costs	associated	with	the	shift	in	business	towards franchising.	The	$2	million	increase	in	general	and	administrative	costs	associated	with	supporting	the	segment's	hotel	brands	was	more	than	offset	by	the	$6	million decline	in	ExecuStay's	general	and	administrative	costs	associated	with	the	shift	toward	franchising.

REVPAR	for	Select-Service	and	Extended-Stay	Lodging	comparable	company-operated	North	American	hotels	increased	9.1	percent	to	$68.66.	Occupancy	for these	hotels	increased	to	72.6	percent	from	70.0	percent	in	2003,	while	average	daily	rates	increased	4.4	percent	to	$94.52.

								In	2002,	we	recorded	a	$50	million	charge	in	our	Extended-Stay	Lodging	segment	to	write	down	the	acquisition	goodwill	for	ExecuStay.	Our	base	and	incentive management	fees	decreased	$7	million	and	our	franchise	fees	increased	$6	million.	In	2003,	we	added	31	hotels	(3,837	rooms)	across	our	Extended-Stay	Lodging segment.	Over	80	percent	of	the	gross	room	additions	were	franchised.	We	deflagged	one	property	(104	rooms),	and	we	decreased	our	ExecuStay	brand	by	1,300	units.

REVPAR	for	Select-Service	and	Extended-Stay	Lodging	comparable	company-operated	North	American	hotels	decreased	2.2	percent	to	$63.64.	Occupancy	for these	hotels	decreased	to	70.0	percent,	while	average	daily	rates	decreased	1.1	percent	to	$90.98.

| ($	in	millions) | 2004 | 2003 | 2002 | 2004/2003 | 2003/2002 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Revenues | $1,502 | $1,279 | $1,147 | 17% | 12% |
| Segment\tresults | $203 | $149 | $183 | 36% | -19% |

Timeshare	includes	our	Marriott	Vacation	Club	International,	The	Ritz-Carlton	Club,	Marriott	Grand	Residence	Club	and	Horizons	by	Marriott	Vacation	Club International	brands.	Timeshare	revenues	of	$1,502	million	and	$1,279	million,	in	2004	and	2003,	respectively,	include	interval	sales,	base	management	fees	and	cost reimbursements.	Including	our	three	joint	ventures,	contract	sales,	which	represent	sales	of	timeshare	intervals	before	adjustment	for	percentage	of	completion accounting,	increased	31	percent,	primarily	due	to	strong	demand	in	South	Carolina,	Florida,	Hawaii,	California,	St.	Thomas	and	Aruba.	The	favorable	segment	results reflect	a	9	percent	increase	in	timeshare	interval	sales	and	services,	higher	margins,	primarily	resulting	from	lower	marketing	and	selling	costs,	and	the	mix	of	units	sold, partially	offset	by	$24	million	of	higher	administrative	expenses.	Our	note	sales	gain	of	$64	million	was	flat	compared	to	the	prior	year.	In	addition,	we	adjusted	the discount	rate	used	in	determining	the	fair	value	of	our	residual	interests	due	to	current	trends	in	interest	rates	and	recorded	a	$7	million	charge	in	2004.	Reported	revenue growth	trailed	contract	sales	growth	because	of	a	higher	proportion	of	sales	in	joint	venture	projects	and	projects	with	lower	average	construction	completion.

Our	Timeshare	segment	results	decreased	19	percent	to	$149	million,	while	revenues	increased	12	percent.	Note	sale	gains	in	2003	were	$64	million	compared	to $60	million	in	2002.	Contract	sales	increased	16	percent	and	were	strong	at	timeshare	resorts	in	the	Caribbean,	Hawaii,	and	South	Carolina	and	soft	in	Lake	Tahoe, Orlando	and	Williamsburg.	The	comparison	to	2002	reflects	the	$44	million	gain	in	2002	on	the	sale	of	our	investment	in	Interval	International.	Timeshare	revenues	of $1,279	million	and	$1,147	million,	in	2003	and	2002,	respectively,	includes	interval	sales,	base	management	fees	and	cost	reimbursements.

For	2004,	the	synthetic	fuel	operation	generated	revenue	of	$321	million	and	income	from	continuing	operations	of	$107	million,	comprised	of:	operating	losses of	$98	million;	and	equity	losses	of	$28	million	(which	included	net	earn-out	payments	made	of	$6	million);	entirely	offset	by	net	earn-out	payments	received	of	$28 million;	a	$21	million	tax	benefit;	tax	credits	which	amounted	to	$144	million;	and	a	minority	interest	benefit	of	$40	million	reflecting	our	partner's	share	of	the operating	losses.

For	2003,	the	synthetic	fuel	operation	generated	revenue	of	$302	million	and	income	from	continuing	operations	of	$96	million,	comprised	of:	operating	losses	of $104	million	(which	included	net	earn-out	payments	made	of	$14	million);	minority	interest	expense	of	$55	million,	reflecting	our	partner's	share	of	the	tax	credits,	tax benefits,	and	operating	losses;	entirely	offset	by	equity	income	of	$10	million;	a	$34	million	tax	benefit;	and	tax	credits	which	amounted	to	$211	million.

The	$11	million	increase	in	income	from	continuing	operations	attributable	to	the	synthetic	fuel	operation	to	$107	million	from	$96	million	is	primarily	due	to slightly	higher	production	in	2004.

In	July	2004,	Internal	Revenue	Service	("IRS")	field	auditors	issued	a	notice	of	proposed	adjustment	and	later	a	Summary	Report	to	PacifiCorp,	the	previous owner	of	the	synthetic	fuel	facilities,	that	included	a	challenge	to	the	placed-in-service	dates	of	three	of	the	four	synthetic	fuel	facilities	owned	by	one	of	our	synthetic fuel	joint	ventures.	One	of	the	conditions	to	qualify	for	tax	credits	under	Section	29	of	the	Internal	Revenue	Code	is	that	the	production	facility	must	have	been	placed- in-service	before	July	1,	1998.

# Impact	of	Future	Adoption	of	Accounting	Standards

# Statement	of	Position	04-2,	"Accounting	for	Real	Estate	Time-sharing	Transactions"

In	December	2004,	the	American	Institute	of	Certified	Public	Accountants	issued	Statement	of	Position	("SOP")	04-2,	"Accounting	for	Real	Estate	Time-sharing Transactions,"	and	the	Financial	Accounting	Standards	Board	("FASB")	amended	Financial	Accounting	Standards	("FAS")	No.	66,	"Accounting	for	Sales	of	Real Estate,"	and	FAS	No.	67,	"Accounting	for	Costs	and	Initial	Rental	Operations	of	Real	Estate	Projects,"	to	exclude	accounting	for	real	estate	time-sharing	transactions from	these	statements.	The	SOP	will	be	effective	for	fiscal	years	beginning	after	June	15,	2005.

Under	the	SOP,	the	majority	of	the	costs	incurred	to	sell	timeshares	will	be	charged	to	expense	when	incurred.	In	regards	to	notes	receivable	issued	in	conjunction with	a	sale,	an	estimate	of	uncollectibility	that	is	expected	to	occur	must	be	recorded	as	a	reduction	of	revenue	at	the	time	that	profit	is	recognized	on	a	timeshare	sale. Rental	and	other	operations	during	holding	periods	must	be	accounted	for	as	incidental	operations,	which	require	that	any	excess	costs	be	recorded	as	a	reduction	of inventory	costs.

We	estimate	that	the	initial	adoption	of	the	SOP,	which	will	be	reported	as	a	cumulative	effect	of	a	change	in	accounting	principle	in	our	Fiscal	Year	2006 financial	statements,	will	result	in	a	non-cash	one-time	pre-tax	charge	of	approximately	$150	million,	consisting	primarily	of	the	write-off	of	deferred	selling	costs	and establishing	the	required	reserve	on	notes.	We	estimate	that	the	ongoing	impact	of	adoption	will	not	be	significant.

In	December	2004,	the	FASB	issued	FAS	No.	123	(revised	2004),	"Share-Based	Payment"	("FAS	No.	123R"),	which	is	a	revision	of	FAS	No.	123,	"Accounting for	Stock-Based	Compensation."	FAS	No.	123R	supersedes	APB	Opinion	No.	25,	"Accounting	for	Stock	Issued	to	Employees,"	and	amends	FAS	No.	95,	"Statement	of Cash	Flows."	We	will	adopt	FAS	No.	123R	at	the	beginning	of	our	2005	third	quarter.

FAS	No.	123R	requires	all	share-based	payments	to	employees,	including	grants	of	employee	stock	options,	to	be	recorded	as	an	expense	based	on	their	fair values.	The	grant-date	fair	value	of	employee	share	options	and	similar	instruments	will	be	estimated	using	an	option-pricing	model	adjusted	for	any	unique characteristics	of	a	particular	instrument.	If	an	equity	award	is	modified	after	the	grant	date,	incremental	compensation	cost	will	be	recognized	in	an	amount	equal	to	the excess	of	the	fair	value	of	the	modified	award	over	the	fair	value	of	the	original	award	immediately	before	the	modification.

We	estimate	that	adoption	of	FAS	No.	123R,	using	the	modified	prospective	method,	will	result	in	incremental	pre-tax	expense	in	fiscal	year	2005	of approximately	$20	million,	based	on	our	current	share-based	payment	compensation	plans	and	a	mid-year	adoption.

On	December	30,	2002,	we	entered	into	a	definitive	agreement	to	sell	our	senior	living	management	business	to	Sunrise	and	to	sell	nine	senior	living	communities to	CNL.	We	recorded	after-tax	charges	of	$131	million	in	2002	associated	with	our	agreement	to	sell	our	senior	living	management	business.	We	completed	the	sales	to Sunrise	and	CNL	and	a	related	sale	of	a	parcel	of	land	to	Sunrise	in	March	2003	for	$266	million.	We	recorded	after-tax	gains	of	$19	million	in	2003.

In	the	third	quarter	of	2002,	we	completed	a	previously	announced	strategic	review	of	our	Distribution	Services	business	and	decided	to	exit	that	business.	We completed	that	exit	during	the	fourth	quarter	of	2002	through	a	combination	of	transferring	certain	facilities,	closing	other	facilities	and	other	suitable	arrangements.	We recorded	after-tax	charges	of	$40	million	in	2002	in	connection	with	the	decision	to	exit	this	business.

# LIQUIDITY	AND	CAPITAL	RESOURCES

# Cash	Requirements	and	Our	Credit	Facilities

We	are	party	to	two	multicurrency	revolving	credit	agreements	that	provide	for	borrowings	of	up	to	$2	billion,	expiring	in	2006	($1.5	billion	expiring	in	July	and $500	million	expiring	in	August),	which	support	our	commercial	paper	program	and	letters	of	credit.	At	December	31,	2004,	we	had	no	loans	outstanding	under	these facilities.	Fluctuations	in	the	availability	of	the	commercial	paper	market	do	not	affect	our	liquidity	because	of	the	flexibility	provided	by	our	credit	facilities. Borrowings	under	these	facilities	bear	interest	at	LIBOR	plus	a	spread	based	on	our	public	debt	rating.	At	December	31,	2004,	our	cash	balances	combined	with	our available	borrowing	capacity	under	the	credit	facilities	amounted	to	approximately	$2.7	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,	including	the	repayment	of	our	Series	D	senior	notes	totaling	$275	million	and	our	Series	B	senior	notes	totaling	$200	million,	both	of	which	mature	in 2005.

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,	or	if	disruptions	in	the	commercial	paper	market	take	place	as	they	did	in	the	immediate aftermath	of	September	11,	2001,	we	may	be	unable	to	place	some	or	all	of	our	commercial	paper	on	a	temporary	or	extended	basis,	and	may	have	to	rely	more	on borrowings	under	the	credit	facilities,	which	may	carry	a	higher	cost	than	commercial	paper.

# Cash	from	Operations

Cash	from	operations,	depreciation	expense	and	amortization	expense	for	the	last	three	fiscal	years	are	as	follows:

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Cash\tfrom\toperations | $891 | $403 | $516 |
| Depreciation\texpense | \t 133 | \t 132 | \t 145 |
| Amortization\texpense | 33 | 28 | 42 |

While	our	timeshare	business	generates	strong	operating	cash	flow,	the	timing	of	both	cash	outlays	for	the	acquisition	and	development	of	new	resorts	and	cash received	from	purchaser	financing	affects	annual	amounts.	We	include	timeshare	interval	sales	we	finance	in	cash	from	operations	when	we	collect	cash	payments	or	the notes	are	sold	for	cash.	The	following	table	shows	the	net	operating	activity	from	our	timeshare	business	(which	excludes	the	portion	of	net	income	from	our	timeshare business,	as	that	number	is	a	component	of	income	from	continuing	operations):

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Timeshare\tdevelopment,\tless\tthe\tcost\tof\tsales | $93 | $(94) | $(102) |
| New\ttimeshare\tmortgages,\tnet\tof\tcollections | (459) | (247) | (218) |
| Loan\trepurchases | (18) | (19) | (16) |
| Note\tsale\tgains | (64) | (64) | (60) |
| Financially\treportable\tsales\tless\tthan\t(in\texcess\tof)\tclosed\tsales | 129 | (4) | (13) |
| Note\tsale\tproceeds | 312 | 231 | 341 |
| Collection\ton\tretained\tinterests\tin\tnotes\tsold\tand\tservicing\tfees | 94 | 50 | 31 |
| Other\tcash\tinflows\t(outflows) | 26 | 36 | (26) |
| Net\tcash\tinflows\t(outflows)\tfrom\ttimeshare\tactivity | $113 | $(111) | $(63) |

Our	ability	to	sell	timeshare	notes	depends	on	the	continued	ability	of	the	capital	markets	to	provide	financing	to	the	special	purpose	entities	that	buy	the	notes. We	might	have	increased	difficulty	or	be	unable	to	consummate	such	sales	if	the	underlying	quality	of	the	notes	receivable	we	originate	were	to	deteriorate,	although	we do	not	expect	such	a	deterioration.

Our	ratio	of	current	assets	to	current	liabilities	was	0.8	to	1	at	both	December	31,	2004,	and	January	2,	2004.	Each	of	our	businesses	minimizes	working	capital through	cash	management,	strict	credit-granting	policies,	aggressive	collection	efforts	and	high	inventory	turnover.	We	also	have	significant	borrowing	capacity	under our	revolving	credit	facilities	should	we	need	additional	working	capital.

# Investing	Activities	Cash	Flows

Capital	Expenditures	and	Other	Investments.	Capital	expenditures	of	$181	million	in	2004,	$210	million	in	2003	and	$292	million	in	2002	primarily	included expenditures	related	to	the	development	and	construction	of	new	hotels	and	acquisitions	of	hotel	properties,	as	well	as	improvement	to	existing	properties	and	systems initiatives.	Over	time,	we	have	sold	lodging	properties	under	development,	subject	to	long-term	management	agreements.	The	ability	of	third-party	purchasers	to	raise the	necessary	debt	and	equity	capital	depends	in	part	on	the	perceived	risks	inherent	in	the	lodging	industry	and	other	constraints	inherent	in	the	capital	markets	as	a whole.	Although	we	expect	to	continue	to	consummate	such	real	estate	sales,	if	we	were	unable	to	do	so,	our	liquidity	could	decrease	and	we	could	have	increased exposure	to	the	operating	risks	of	owning	real	estate.	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	also	expect	to	continue	to	make	other	investments	in	connection	with	adding	units	to	our lodging	business.	These	investments	include	loans	and	minority	equity	investments.

Fluctuations	in	the	values	of	hotel	real	estate	generally	have	little	impact	on	the	overall	results	of	our	Lodging	segments	because	(1)	we	own	less	than	1	percent	of the	total	number	of	hotels	that	we	operate	or	franchise;	(2)	management	and	franchise	fees	are	generally	based	upon	hotel	revenues	and	profits	versus	current	hotel property	values;	and	(3)	our	management	agreements	generally	do	not	terminate	upon	hotel	sale.

Dispositions.	Property	and	asset	sales	generated	cash	proceeds	of	$402	million	in	2004,	$494	million	in	2003	and	$729	million	in	2002.	In	2004,	we	closed	on	the sales	of	two	hotels,	and	we	continue	to	operate	both	of	the	hotels	under	long-term	management	agreements.	We	also	disposed	of	30	land	parcels,	our	Ramada International	Hotels	&	Resorts	franchised	brand,	our	interest	in	the	Two	Flags	joint	venture,	two	other	minority	interests	in	joint	ventures	and	other	miscellaneous	assets.

Loan	Activity.	We	have	made	loans	to	owners	of	hotels	that	we	operate	or	franchise,	typically	to	facilitate	the	development	of	a	new	hotel.	Over	time	we	expect these	owners	to	repay	the	loans	in	accordance	with	the	loan	agreements,	or	earlier	as	the	hotels	mature	and	capital	markets	permit.	We	have	also	made	loans	to	the synthetic	fuel	joint	venture	partner	and	to	the	purchaser	of	our	senior	living	business.	Loan	collections,	net	of	advances	during	2004,	amounted	to	$147	million.	Loans outstanding,	excluding	timeshare	notes,	totaled	$942	million	at	December	31,	2004,	$996	million	at	January	2,	2004,	and	$944	million	at	January	3,	2003.	Unfunded commitments	aggregating	$42	million	were	outstanding	at	December	31,	2004,	of	which	we	expect	to	fund	$12	million	in	2005	and	$26	million	in	total.

# Other	Investing	Activities

A	summary	of	our	other	investing	outflows	is	shown	in	the	table	below.

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Equity\tinvestments | $ (75) | $ (22) | $(26) |
| Investment\tin\tcorporate-owned\tlife\tinsurance | (8) | (12) | (11) |
| Other\tnet\tcash\tinflows\t(outflows) | 2 | 22 | (33) |
| Cash\tproceeds\ton\tsale\tof\tinvestment\tin\tInterval\tInternational | \t — | \t — | 63 |
| Other\tinvesting\toutflows | $ (81) | $ (12) | $(7) |

# Cash	from	Financing	Activities

Debt	decreased	$130	million	in	2004,	from	$1,455	million	to	$1,325	million,	due	to	the	repurchase	of	all	of	our	remaining	zero-coupon	convertible	senior	Liquid Yield	Option	Notes	due	2021,	also	known	as	LYONs	("the	LYONs")	totaling	$62	million,	the	maturity	of	$46	million	of	senior	notes	and	other	debt	reductions	of	$22 million.	Debt	decreased	by	$319	million	in	2003,	due	to	the	$200	million	repayment,	at	maturity,	of	Series	A	debt	in	November	2003	and	the	net	pay	down	of	$161 million	of	commercial	paper	and	other	debt.

Our	financial	objectives	include	diversifying	our	financing	sources,	optimizing	the	mix	and	maturity	of	our	long-term	debt	and	reducing	our	working	capital.	At year-end	2004,	our	long-term	debt	had	an	average	interest	rate	of	7.5	percent	and	an	average	maturity	of	approximately	2.5	years.	The	ratio	of	fixed-rate	long-term	debt to	total	long-term	debt	was	slightly	lower	than	one	as	of	December	31,	2004.	At	December	31,	2004,	we	had	long-term	public	debt	ratings	of	BBB+	from	Standard	and Poor's	and	Baa2	from	Moody's.

We	have	$500	million	available	for	future	offerings	under	"universal	shelf"	registration	statements	we	have	filed	with	the	SEC.

Share	Repurchases.	We	purchased	14.0	million	of	our	shares	in	2004	at	an	average	price	of	$46.65	per	share,	10.5	million	of	our	shares	in	2003	at	an	average price	of	$36.07	per	share,	and	7.8	million	of	our	shares	in	2002	at	an	average	price	of	$32.52	per	share.	As	of	December	31,	2004,	18.6	million	shares	remained available	for	repurchase	under	authorizations	from	our	Board	of	Directors.

Dividends.	In	May	2004,	our	Board	of	Directors	increased	the	quarterly	cash	dividend	by	13	percent	to	$0.085	per	share.

# Pending	Transaction

# Courtyard	Joint	Venture

In	December	2004,	we	and	Host	Marriott	announced	the	signing	of	a	purchase	and	sale	agreement	by	which	an	institutional	investor	would	obtain	a	75	percent interest	in	the	Courtyard	Joint	Venture.	We	expect	the	transaction,	which	is	subject	to	certain	closing	conditions,	to	close	in	early	2005,	although	we	cannot	assure	you that	the	sale	will	be	completed.	Currently,	we	and	Host	Marriott	own	equal	shares	in	the	120	property	joint	venture,	and	with	the	addition	of	the	new	equity,	our percentage	interest	in	the	joint	venture	will	decline	from	50	percent	to	21	percent.	As	a	result	of	the	transaction,	the	pace	of	the	Courtyard	hotel	reinventions,	a	program that	renovates	and	upgrades	Courtyard	hotels,	will	be	accelerated.

# Upon	closing	of	the	transaction:

•	 We	expect	that	our	existing	mezzanine	loan	to	the	joint	venture	(including	accrued	interest)	totaling	approximately	$249	million	at	December	31, 2004,	will	be	repaid;

•	 We	expect	to	make	available	to	the	joint	venture	a	seven-year	subordinated	loan	of	approximately	$144	million	to	be	funded	as	reinventions	are completed	in	2005	and	2006;

•	 We	expect	to	enter	into	a	new	long-term	management	agreement	with	the	joint	venture.	As	the	termination	of	the	existing	management	agreement	is probable,	we	have	written	off	our	deferred	contract	costs	related	to	the	existing	contract	in	the	2004	fourth	quarter,	resulting	in	a	charge	of	$13 million;	and

•	 Upon	closing	of	the	transaction,	we	expect	to	record	a	gain	associated	with	the	repayment	of	the	mezzanine	loan,	which	will	be	substantially	offset by	our	portion	of	the	joint	venture's	costs	of	prepaying	an	existing	senior	loan.

On	an	ongoing	basis,	we	expect	our	interest	income	will	decline	as	a	result	of	the	repayment	of	the	mezzanine	loan,	and	we	expect	lower	book	losses	from	the joint	venture	due	to	the	reduction	of	our	equity	interest	and	improved	performance	at	the	hotels.	On	a	long-term	basis,	we	expect	that	the	Courtyard	reinventions	will promote	continued	growth	and	maintain	and	enhance	customer	preference.

# Contractual	Obligations	and	Off	Balance	Sheet	Arrangements

The	following	table	summarizes	our	contractual	obligations	as	of	December	31,	2004:

| Contractual	Obligations |  | Less	Than |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | Total | 1\tYear | 1-3\tYears | 3-5\tYears | After\t5\tYears |
| Debt\t1 | $1,723 | $575 | $147 | $702 | $299 |
| Capital\tlease\tobligations\t1 | 16 | 1 | 2 | 2 | 11 |
| Operating\tleases |  |  |  |  |  |
| Recourse | \t 1,035 | 93 | 195 | 205 | 542 |
| Non-recourse | 544 | 28 | 38 | 31 | 447 |
| Other\tlong-term\tliabilities | 56 | — | 6 | 6 | 44 |
| Total\tcontractual\tcash\tobligations | $3,374 | $697 | $388 | $946 | $1,343 |

1 Includes	principal	as	well	as	interest	payments.

The	following	table	summarizes	our	commitments	as	of	December	31,	2004:

| Other	Commercial	Commitments | Total	Amounts | Less	Than |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
| ($\tin\tmillions) | Committed | 1\tYear | 1-3\tYears | 3-5\tYears | After\t5\tYears |
| Total\tguarantees\twhere\tMarriott\tInternational\tis\tthe\tprimary\tobligor | $601 | $64 | $203 | $121 | $213 |
| Total\tguarantees\twhere\tMarriott\tInternational\tis\tsecondarily\tliable | 1,909 | 108 | 209 | 211 | 1,381 |
| Total\tother\tcommercial\tcommitments | $2,510 | $172 | $412 | $332 | $1,594 |

Our	guarantees	listed	above	include	$91	million	for	guarantees	that	will	not	be	in	effect	until	the	underlying	hotels	are	open	and	we	begin	to	manage	the properties.	Our	guarantee	fundings	to	lenders	and	hotel	owners	are	generally	recoverable	as	loans	and	are	generally	repayable	to	us	out	of	future	hotel	cash	flows	and/or proceeds	from	the	sale	of	hotels.

The	guarantees	above	include	$349	million	related	to	Senior	Living	Services	lease	obligations	and	lifecare	bonds	for	which	we	are	secondarily	liable.	Sunrise	is the	primary	obligor	of	the	leases	and	a	portion	of	the	lifecare	bonds,	and	CNL	is	the	primary	obligor	of	the	remainder	of	the	lifecare	bonds.	Prior	to	the	sale	of	the	Senior Living	Services	business	at	the	end	of	the	first	quarter	of	2003,	these	pre-existing	guarantees	were	guarantees	by	the	Company	of	obligations	of	consolidated	Senior Living	Services	subsidiaries.	Sunrise	and	CNL	have	indemnified	us	for	any	guarantee	fundings	we	may	be	called	on	to	make	in	connection	with	these	lease	obligations and	lifecare	bonds.	We	do	not	expect	to	fund	under	these	guarantees.

The	guarantees	above	also	include	lease	obligations	for	which	we	became	secondarily	liable	when	we	acquired	the	Renaissance	Hotel	Group	N.V.	in	1997, consisting	of	annual	rent	payments	of	approximately	$63	million	and	total	remaining	rent	payments	through	the	initial	term	plus	available	extensions	of	approximately $1.56	billion.	We	are	also	secondarily	obligated	for	real	estate	taxes	and	other	charges	associated	with	the	leases.	Third	parties	have	severally	indemnified	us	for	all payments	we	may	be	required	to	make	in	connection	with	these	obligations.	Since	we	assumed	these	guarantees,	we	have	not	funded	any	amounts,	and	we	do	not	expect to	fund	any	amounts	under	these	guarantees	in	the	future.

In	addition	to	the	guarantees	noted	above,	as	of	December	31,	2004,	our	total	unfunded	loan	commitments	amounted	to	$42	million	at	December	31,	2004.	We expect	to	fund	$12	million	of	those	commitments	within	one	year	and	$14	million	in	the	following	year.	We	do	not	expect	to	fund	the	remaining	$16	million	of commitments,	which	expire	as	follows:	$14	million	within	one	year	and	$2	million	after	five	years.

At	December	31,	2004,	we	also	have	commitments	to	invest	$37	million	of	equity	for	a	minority	interest	in	two	partnerships,	which	plan	to	purchase	both	full- service	and	select-service	hotels	in	the	United	States.

At	December	31,	2004,	we	also	had	$96	million	of	letters	of	credit	outstanding	on	our	behalf,	the	majority	of	which	related	to	our	self-insurance	programs.	Surety bonds	issued	on	our	behalf	as	of	December	31,	2004,	totaled	$486	million,	the	majority	of	which	were	requested	by	federal,	state	or	local	governments	related	to	our timeshare	and	lodging	operations	and	self-insurance	programs.

As	part	of	the	normal	course	of	business,	we	enter	into	purchase	commitments	to	manage	the	daily	operating	needs	of	our	hotels.	Since	we	are	reimbursed	by	the hotel	owners,	these	obligations	have	minimal	impact	on	our	net	income	and	cash	flow.

# RELATED	PARTY	TRANSACTIONS

We	have	equity	method	investments	in	entities	that	own	properties	for	which	we	provide	management	and/or	franchise	services	and	receive	a	fee.	In	addition,	in some	cases	we	provide	loans,	preferred	equity	or	guarantees	to	these	entities.	The	following	tables	present	financial	data	resulting	from	transactions	with	these	related parties:

# Income	Statement	Data

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| \t\t\t\t\t\t\t\t\t\t\t\t\t\t($\tin\tmillions) |  |  |  |
| Base\tmanagement\tfees | $72 | $56 | $48 |
| Incentive\tmanagement\tfees | 8 | 4 | 4 |
| Cost\treimbursements | 802 | 699 | 557 |
| Owned,\tleased,\tcorporate\thousing\tand\tother\trevenue | 29 | 28 | 26 |
| Total\trevenue | $911 | $787 | $635 |
| General,\tadministrative\tand\tother | $(33) | $(11) | $(11) |
| Reimbursed\tcosts | (802) | (699) | (557) |
| Gains\tand\tother\tincome | 19 | 21 | 44 |
| Interest\tincome | 74 | 77 | 66 |
| Reversal\tof\t(provision\tfor)\tloan\tlosses | 3 | (2) | (5) |
| Equity\tin\tearnings\t(losses)\t–\tSynthetic\tfuel | (28) | (10) | \t — |
| Equity\tin\tearnings\t(losses)\t–\tOther | (14) | (17) | (6) |

# Balance	Sheet	Data

|  | 2004 | 2003 |
| :--- | :--- | :--- |
| \t\t\t\t\t\t\t\t\t\t\t\t\t\t($\tin\tmillions) |  |  |
| Current\tassets\t-\taccounts\tand\tnotes\treceivable | $72 | $118 |
| Contract\tacquisition\tcosts | 24 | 42 |
| Equity\tmethod\tinvestments | 249 | 468 |
| Loans\tto\tequity\tmethod\tinvestees | 526 | 558 |
| Other\tlong-term\treceivables | 3 | \t — |
| Other\tlong-term\tassets | 38 | 30 |
| Current\tliabilities: |  |  |
| Accounts\tpayable | (3) | (2) |
| Other\tpayables\tand\taccruals | (4) | (1) |
| Other\tlong-term\tliabilities | (11) | (10) |

# CRITICAL	ACCOUNTING	ESTIMATES

The	preparation	of	financial	statements	in	accordance	with	U.S.	generally	accepted	accounting	principles	(GAAP)	requires	management	to	make	estimates	and assumptions	that	affect	reported	amounts	and	related	disclosures.	Management	considers	an	accounting	estimate	to	be	critical	if:

•it	requires	assumptions	to	be	made	that	were	uncertain	at	the	time	the	estimate	was	made;	and

•changes	in	the	estimate	or	different	estimates	that	could	have	been	selected	could	have	a	material	effect	on	our	consolidated	results	of	operations	or financial	condition.

Management	has	discussed	the	development	and	selection	of	its	critical	accounting	estimates	with	the	Audit	Committee	of	the	Board	of	Directors,	and	the	Audit Committee	has	reviewed	the	disclosure	presented	below	relating	to	them.

# Marriott	Rewards

Marriott	Rewards	is	our	frequent	guest	loyalty	program.	Marriott	Rewards	members	earn	points	based	on	their	monetary	spending	at	our	lodging	operations, purchases	of	timeshare	intervals,	and,	to	a	lesser	degree,	through	participation	in	affiliated	partners'	programs,	such	as	those	offered	by	airlines	and	credit	card companies.

We	defer	revenue	received	from	managed,	franchised	and	Marriott-owned/leased	hotels	and	program	partners	equal	to	the	fair	value	of	our	future	redemption obligation.	We	determine	the	fair	value	of	the	future	redemption	obligation	based	on	statistical	formulas	which	project	timing	of	future	point	redemption	based	on historical	levels,	including	an	estimate	of	the	"breakage"	for	points	that	will	never	be	redeemed,	and	an	estimate	of	the	points	that	will	eventually	be	redeemed.	These judgmental	factors	determine	the	required	liability	for	outstanding	points.

Our	management	and	franchise	agreements	require	that	we	be	reimbursed	currently	for	the	costs	of	operating	the	program,	including	marketing,	promotion, communication	with,	and	performing	member	services	for	the	Marriott	Rewards	members.	Due	to	the	requirement	that	hotels	reimburse	us	for	program	operating	costs as	incurred,	we	receive	and	recognize	the	balance	of	the	revenue	from	hotels	in	connection	with	the	Marriott	Rewards	program	at	the	time	such	costs	are	incurred	and expensed.	We	recognize	the	component	of	revenue	from	program	partners	that	corresponds	to	program	maintenance	services	over	the	expected	life	of	the	points awarded.

Upon	the	redemption	of	points,	we	recognize	as	revenue	the	amounts	previously	deferred,	and	recognize	the	corresponding	expense	relating	to	the	costs	of	the awards	redeemed.

# Valuation	of	Goodwill

We	evaluate	the	fair	value	of	goodwill	to	assess	potential	impairments	on	an	annual	basis,	or	during	the	year	if	an	event	or	other	circumstance	indicates	that	we may	not	be	able	to	recover	the	carrying	amount	of	the	asset.	We	evaluate	the	fair	value	of	goodwill	at	the	reporting	unit	level	and	make	that	determination	based	upon future	cash	flow	projections	which	assume	certain	growth	projections	which	may	or	may	not	occur.	We	record	an	impairment	loss	for	goodwill	when	the	carrying	value of	the	intangible	asset	is	less	than	its	estimated	fair	value.

# Loan	Loss	Reserves

We	measure	loan	impairment	based	on	the	present	value	of	expected	future	cash	flows	discounted	at	the	loan's	original	effective	interest	rate	or	the	estimated	fair value	of	the	collateral.	For	impaired	loans,	we	establish	a	specific	impairment	reserve	for	the	difference	between	the	recorded	investment	in	the	loan	and	the	present value	of	the	expected	future	cash	flows,	which	assumes	certain	growth	projections	which	may	or	may	not	occur,	or	the	estimated	fair	value	of	the	collateral.	We	apply our	loan	impairment	policy	individually	to	all	loans	in	the	portfolio	and	do	not	aggregate	loans	for	the	purpose	of	applying	such	policy.	Where	we	determine	that	a	loan is	impaired,	we	recognize	interest	income	on	a	cash	basis.	At	December	31,	2004,	our	recorded	investment	in	impaired	loans	was	$181	million.	We	have	a	$92	million allowance	for	credit	losses,	leaving	$89	million	of	our	investment	in	impaired	loans	for	which	there	is	no	related	allowance	for	credit	losses.

# Legal	Contingencies

We	are	subject	to	various	legal	proceedings	and	claims,	the	outcomes	of	which	are	subject	to	significant	uncertainty.	We	record	an	accrual	for	loss	contingencies when	a	loss	is	probable	and	the	amount	of	the	loss	can	be	reasonably	estimated.	We	review	these	accruals	each	reporting	period	and	make	revisions	based	on	changes	in facts	and	circumstances.

# Income	Taxes

We	record	the	current	year	amounts	payable	or	refundable,	as	well	as	the	consequences	of	events	that	give	rise	to	deferred	tax	assets	and	liabilities	based	on differences	in	how	those	events	are	treated	for	tax	purposes.	We	base	our	estimate	of	deferred	tax	assets	and	liabilities	on	current	tax	laws	and	rates	and,	in	certain	cases, business	plans	and	other	expectations	about	future	outcomes.

Changes	in	existing	laws	and	rates,	and	their	related	interpretations,	and	future	business	results	may	affect	the	amount	of	deferred	tax	liabilities	or	the	valuation	of deferred	tax	assets	over	time.	Our	accounting	for	deferred	tax	consequences	represents	management's	best	estimate	of	future	events	that	can	be	appropriately	reflected	in the	accounting	estimates.

# OTHER	MATTERS

# Audit	Services

Our	independent	registered	public	accounting	firm,	Ernst	&	Young	LLP	("E&Y"),	recently	notified	the	Securities	and	Exchange	Commission	("SEC"),	the	Public Company	Accounting	Oversight	Board	and	the	Audit	Committee	of	our	Board	of	Directors	that	certain	non-audit	services	E&Y	performed	in	China	and	Japan	for	a large	number	of	public	companies,	including	Marriott,	have	raised	questions	regarding	E&Y's	independence	in	its	performance	of	audit	services.

With	respect	to	Marriott,	from	2001	through	2004,	E&Y	performed	tax	calculation	and	preparation	services	for	Marriott	employees	located	in	China	and	Japan, and	affiliates	of	E&Y	made	payment	of	the	relevant	taxes	on	behalf	of	Marriott.	The	payment	of	those	taxes	involved	handling	of	Company-related	funds,	which	is	not permitted	under	SEC	auditor	independence	rules.	These	actions	by	affiliates	of	E&Y	have	been	discontinued,	and	both	the	amount	of	the	taxes	and	the	fees	paid	to	E&Y in	connection	with	these	services	are	de	minimis.

The	Audit	Committee	and	E&Y	discussed	E&Y's	independence	with	respect	to	the	Company	in	light	of	the	foregoing	facts.	E&Y	informed	the	Audit	Committee that	it	does	not	believe	that	the	holding	and	paying	of	those	funds	impaired	E&Y's	independence	with	respect	to	the	Company.	The	Company,	based	on	its	own	review, also	is

not	aware	of	any	additional	non-audit	services	that	may	compromise	E&Y's	independence	in	performing	audit	services	for	the	Company.

# Inflation

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

# Item	7A.	Quantitative	and	Qualitative	Disclosures	About	Market	Risk.

We	are	exposed	to	market	risk	from	changes	in	interest	rates	and	foreign	exchange	rates.	We	manage	our	exposure	to	these	risks	by	monitoring	available financing	alternatives,	through	development	and	application	of	credit	granting	policies	and	by	entering	into	derivative	arrangements.	We	do	not	foresee	any	significant changes	in	either	our	exposure	to	fluctuations	in	interest	rates	or	foreign	exchange	rates	or	in	how	such	exposure	is	managed	in	the	future.

We	are	exposed	to	interest	rate	risk	on	our	floating-rate	timeshare	and	notes	receivable,	our	residual	interests	retained	in	connection	with	the	sale	of	timeshare intervals,	and	the	fair	value	of	our	fixed-rate	notes	receivable.

Changes	in	interest	rates	also	impact	our	floating-rate	long-term	debt	and	the	fair	value	of	our	fixed-rate	long-term	debt.

We	use	derivative	instruments	as	part	of	our	overall	strategy	to	manage	our	exposure	to	market	risks	associated	with	fluctuations	in	interest	rates	and	foreign currency	exchange	rates.	As	a	matter	of	policy,	we	do	not	use	derivatives	for	trading	or	speculative	purposes.

At	December	31,	2004,	we	were	party	to	the	following	derivative	instruments:

•	 An	interest	rate	swap	agreement	under	which	we	receive	a	floating	rate	of	interest	and	pay	a	fixed	rate	of	interest.	The	swap	modifies	our	interest	rate	exposure	by effectively	converting	a	note	receivable	with	a	fixed	rate	to	a	floating	rate.	The	aggregate	notional	amount	of	the	swap	is	$92	million	and	it	matures	in	2010.

•	 Six	outstanding	interest	rate	swap	agreements	to	manage	interest	rate	risk	associated	with	the	residual	interests	we	retain	in	conjunction	with	our	timeshare	note sales.	We	are	required	by	purchasers	and/or	rating	agencies	to	utilize	interest	rate	swaps	to	protect	the	excess	spread	within	our	sold	note	pools.	The	aggregate notional	amount	of	the	swaps	is	$535	million,	and	they	expire	through	2022.

•	 Forward	foreign	exchange	and	option	contracts	to	hedge	the	potential	volatility	of	earnings	and	cash	flows	associated	with	variations	in	foreign	exchange	rates during	fiscal	year	2005.	The	aggregate	dollar	equivalent	of	the	notional	amounts	of	the	contracts	is	approximately	$36	million,	and	they	expire	throughout	2005.

•	 Forward	foreign	exchange	contracts	to	manage	the	foreign	currency	exposure	related	to	certain	monetary	assets	denominated	in	pounds	sterling.	The	aggregate dollar	equivalent	of	the	notional	amounts	of	the	forward	contracts	is	$36	million	at	December	31,	2004.

The	following	table	sets	forth	the	scheduled	maturities	and	the	total	fair	value	of	our	derivatives	and	other	financial	instruments	as	of	December	31,	2004:

| ($	in	millions) | 2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | Total<br>Carrying<br>Amount | Total<br>Fair<br>Value |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Assets\t-\tMaturities\trepresent\tprincipal\treceipts,\tfair\tvalues\trepresent\tassets. |  |  |  |  |  |  |  |  |
| Timeshare\tnotes\treceivable | $26 | $31 | $28 | $26 | $26 | $178 | $315 | $315 |
| Average\tinterest\trate |  |  |  |  |  |  | 12.79% |  |
| Fixed-rate\tnotes\treceivable | $12 | $ 230 | $20 | $26 | $1 | $300 | $589 | $641 |
| Average\tinterest\trate |  |  |  |  |  |  | 12.21% |  |
| Floating-rate\tnotes\treceivable | $30 | $53 | $86 | $24 | $4 | $156 | $353 | $353 |
| Average\tinterest\trate |  |  |  |  |  |  | 7.15% |  |
| Residual\tinterests | $63 | $47 | $28 | $20 | $13 | $19 | $190 | $190 |
| Average\tinterest\trate |  |  |  |  |  |  | 7.77% |  |
| Liabilities\t-\tMaturities\trepresent\tprincipal\tpayments,\tfair\tvalues\trepresent\tliabilities. |  |  |  |  |  |  |  |  |
| Fixed-rate\tdebt | $(488) | $(14) | $(12) | $(306) | $(311) | $(192) | $(1,323) | $(1,348) |
| Average\tinterest\trate |  |  |  |  |  |  | 7.44% |  |
| Floating-rate\tdebt | $(1) | $(1) | $\t— | $ — | $ — | $— | $(2) | $(2) |
| Average\tinterest\trate |  |  |  |  |  |  | 2.08% |  |
| Derivatives\t-\tMaturities\trepresent\tnotional\tamounts,\tfair\tvalues\trepresent\tassets\n(liabilities). |  |  |  |  |  |  |  |  |
| Interest\tRate\tSwaps: |  |  |  |  |  |  |  |  |
| Fixed\tto\tvariable | $ — | $\t— | $ — | $ — | $ — | $468 | $(2) | $(2) |
| Average\tpay\trate |  |  |  |  |  |  | 4.36% |  |
| Average\treceive\trate |  |  |  |  |  |  | 2.64% |  |
| Variable\tto\tfixed | $ — | $ — | $ — | $ — | $ — | $159 | $2 | $2 |
| Average\tpay\trate |  |  |  |  |  |  | 2.96% |  |
| Average\treceive\trate |  |  |  |  |  |  | 5.23% |  |
| Forward\tForeign\tExchange\tContracts: |  |  |  |  |  |  |  |  |
| Fixed\t(Euro)\tto\tFixed\t($U.S.) | $21 | $ — | $ — | $ — | $ — | $— | $— | $— |
| Average\texchange\trate |  |  |  |  |  |  | 1.30 |  |
| Fixed\t(GPB)\tto\tFixed\t($U.S.) | $51 | $ — | $ — | $ — | $ — | $— | $— | $— |

# Item	8.	Financial	Statements	and	Supplementary	Data.

The	following	financial	information	is	included	on	the	pages	indicated:

| Management's	Report	on	Internal	Control	Over	Financial	Reporting | 43 |
| :--- | :--- |
| Report\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm\ton\tInternal\tControl\tOver\tFinancial\tReporting | 44 |
| Report\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 45 |
| Consolidated\tStatement\tof\tIncome | 46 |
| Consolidated\tBalance\tSheet | 47 |
| Consolidated\tStatement\tof\tCash\tFlows | 48 |
| Consolidated\tStatement\tof\tComprehensive\tIncome | 49 |
| Consolidated\tStatement\tof\tShareholders'\tEquity | 50 |
| Notes\tto\tConsolidated\tFinancial\tStatements | 51 |

# MANAGEMENT'S	REPORT	ON

# INTERNAL	CONTROL	OVER	FINANCIAL	REPORTING

Management	of	Marriott	International,	Inc.	(the	"Company")	is	responsible	for	establishing	and	maintaining	adequate	internal	control	over	financial	reporting	and for	the	assessment	of	the	effectiveness	of	internal	control	over	financial	reporting.	As	defined	by	the	Securities	and	Exchange	Commission,	internal	control	over	financial reporting	is	a	process	designed	by,	or	under	the	supervision	of	the	Company's	principal	executive	and	principal	financial	officers	and	effected	by	the	Company's	Board of	Directors,	management	and	other	personnel,	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the	preparation	of	the	consolidated financial	statements	in	accordance	with	U.S.	generally	accepted	accounting	principles.

The	Company's	internal	control	over	financial	reporting	is	supported	by	written	policies	and	procedures	that	(1)	pertain	to	the	maintenance	of	records	that,	in reasonable	detail,	accurately	and	fairly	reflect	the	Company's	transactions	and	dispositions	of	the	Company's	assets;	(2)	provide	reasonable	assurance	that	transactions are	recorded	as	necessary	to	permit	preparation	of	the	consolidated	financial	statements	in	accordance	with	generally	accepted	accounting	principles,	and	that	receipts and	expenditures	of	the	Company	are	being	made	only	in	accordance	with	authorizations	of	the	Company's	management	and	directors;	and	(3)	provide	reasonable assurance	regarding	prevention	or	timely	detection	of	unauthorized	acquisition,	use	or	disposition	of	the	Company's	assets	that	could	have	a	material	effect	on	the consolidated	financial	statements.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.	Also,	projections	of	any	evaluation	of effectiveness	to	future	periods	are	subject	to	the	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the policies	or	procedures	may	deteriorate.

In	connection	with	the	preparation	of	the	Company's	annual	consolidated	financial	statements,	management	has	undertaken	an	assessment	of	the	effectiveness	of the	Company's	internal	control	over	financial	reporting	as	of	December	31,	2004,	based	on	criteria	established	in	Internal	Control	–	Integrated	Framework	issued	by	the Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(the	COSO	Framework).	Management's	assessment	included	an	evaluation	of	the	design	of	the Company's	internal	control	over	financial	reporting	and	testing	of	the	operational	effectiveness	of	those	controls.

Based	on	this	assessment,	management	has	concluded	that	as	of	December	31,	2004,	the	Company's	internal	control	over	financial	reporting	was	effective	to provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the	preparation	of	financial	statements	for	external	purposes	in	accordance	with	U.S. generally	accepted	accounting	principles.

Ernst	&	Young	LLP,	the	independent	registered	public	accounting	firm	that	audited	the	Company's	consolidated	financial	statements	included	in	this	report,	have issued	an	attestation	report	on	management's	assessment	of	internal	control	over	financial	reporting,	a	copy	of	which	appears	on	the	next	page	of	this	annual	report.

# REPORT	OF	INDEPENDENT	REGISTERED	PUBLIC	ACCOUNTING	FIRM

# ON	INTERNAL	CONTROL	OVER	FINANCIAL	REPORTING

The	Board	of	Directors	and	Shareholders	of	Marriott	International,	Inc.:

We	have	audited	management's	assessment,	included	in	the	accompanying	Management's	Report	on	Internal	Control	Over	Financial	Reporting,	that	Marriott International,	Inc.	maintained	effective	internal	control	over	financial	reporting	as	of	December	31,	2004,	based	on	criteria	established	in	Internal	Control-Integrated Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	("the	COSO	criteria").	Marriott	International,	Inc.'s	management	is responsible	for	maintaining	effective	internal	control	over	financial	reporting	and	for	its	assessment	of	the	effectiveness	of	internal	control	over	financial	reporting.	Our responsibility	is	to	express	an	opinion	on	management's	assessment	and	an	opinion	on	the	effectiveness	of	the	company's	internal	control	over	financial	reporting	based on	our	audit.

We	conducted	our	audit	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we plan	and	perform	the	audit	to	obtain	reasonable	assurance	about	whether	effective	internal	control	over	financial	reporting	was	maintained	in	all	material	respects.	Our audit	included	obtaining	an	understanding	of	internal	control	over	financial	reporting,	evaluating	management's	assessment,	testing	and	evaluating	the	design	and operating	effectiveness	of	internal	control,	and	performing	such	other	procedures	as	we	considered	necessary	in	the	circumstances.	We	believe	that	our	audit	provides	a reasonable	basis	for	our	opinion.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the preparation	of	financial	statements	for	external	purposes	in	accordance	with	generally	accepted	accounting	principles.	A	company's	internal	control	over	financial reporting	includes	those	policies	and	procedures	that	(1)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and dispositions	of	the	assets	of	the	company;	(2)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in accordance	with	generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in	accordance	with	authorizations	of management	and	directors	of	the	company;	and	(3)	provide	reasonable	assurance	regarding	prevention	or	timely	detection	of	unauthorized	acquisition,	use,	or disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial	statements.

In	our	opinion,	management's	assessment	that	Marriott	International,	Inc.	maintained	effective	internal	control	over	financial	reporting	as	of	December	31,	2004, is	fairly	stated,	in	all	material	respects,	based	on	the	COSO	criteria.	Also,	in	our	opinion,	Marriott	International,	Inc.	maintained,	in	all	material	respects,	effective internal	control	over	financial	reporting	as	of	December	31,	2004,	based	on	the	COSO	criteria.

We	also	have	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	consolidated	balance	sheet	of Marriott	International,	Inc.	as	of	December	31,	2004	and	January	2,	2004,	and	the	related	consolidated	statements	of	income,	cash	flows,	comprehensive	income	and shareholders'	equity	for	each	of	the	three	fiscal	years	in	the	period	ended	December	31,	2004	of	Marriott	International,	Inc.	and	our	report	dated	February	21,	2005 expressed	an	unqualified	opinion	thereon.

/s/	Ernst	&	Young	LLP

McLean,	Virginia

# To	the	Shareholders	of	Marriott	International,	Inc.:

We	have	audited	the	accompanying	consolidated	balance	sheet	of	Marriott	International,	Inc.	as	of	December	31,	2004	and	January	2,	2004,	and	the	related consolidated	statements	of	income,	cash	flows,	comprehensive	income	and	shareholders'	equity	for	each	of	the	three	fiscal	years	in	the	period	ended	December	31,	2004. These	financial	statements	are	the	responsibility	of	the	Company's	management.	Our	responsibility	is	to	express	an	opinion	on	these	financial	statements	based	on	our audits.

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

In	our	opinion,	the	financial	statements	referred	to	above	present	fairly,	in	all	material	respects,	the	consolidated	financial	position	of	Marriott	International,	Inc. as	of	December	31,	2004	and	January	2,	2004,	and	the	consolidated	results	of	its	operations	and	its	cash	flows	for	each	of	the	three	fiscal	years	in	the	period	ended December	31,	2004,	in	conformity	with	U.S.	generally	accepted	accounting	principles.

We	also	have	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	effectiveness	of	Marriott International,	Inc.'s	internal	control	over	financial	reporting	as	of	December	31,	2004,	based	on	criteria	established	in	Internal	Control—Integrated	Framework	issued	by the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	and	our	report	dated	February	21,	2005	expressed	an	unqualified	opinion	thereon.

# CONSOLIDATED	STATEMENT	OF	INCOME

# ($	in	millions,	except	per	share	amounts)

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| REVENUES |  |  |  |
| Base\tmanagement\tfees1 | $435 | $388 | $379 |
| Franchise\tfees | 296 | 245 | 232 |
| Incentive\tmanagement\tfees1 | 142 | 109 | 162 |
| Owned,\tleased,\tcorporate\thousing\tand\tother\trevenue1 | 730 | 633 | 651 |
| Timeshare\tinterval\tsales\tand\tservices | 1,247 | \t 1,145 | \t 1,059 |
| Cost\treimbursements1 | 6,928 | \t 6,192 | \t 5,739 |
| Synthetic\tfuel | 321 | 302 | 193 |
|  | \t 10,099 | \t 9,014 | \t 8,415 |
| OPERATING\tCOSTS\tAND\tEXPENSES |  |  |  |
| Owned,\tleased\tand\tcorporate\thousing\t-\tdirect | 629 | 505 | 580 |
| Timeshare\t-\tdirect | 1,039 | \t 1,011 | 938 |
| Reimbursed\tcosts1 | 6,928 | \t 6,192 | \t 5,739 |
| General,\tadministrative\tand\tother1 | 607 | 523 | 510 |
| Synthetic\tfuel | 419 | 406 | 327 |
|  | 9,622 | \t 8,637 | \t 8,094 |
| OPERATING\tINCOME | 477 | 377 | 321 |
| Gains\tand\tother\tincome1 | 164 | 106 | 132 |
| Interest\texpense | (99) | (110) | (86) |
| Interest\tincome1 | 146 | 129 | 122 |
| Benefit\tfrom\t(provision\tfor)\tloan\tlosses1 | 8 | (7) | (12) |
| Equity\tin\tearnings\t(losses)\t-\tSynthetic\tfuel1 | (28) | 10 | — |
| \t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t-\tOther1 | (14) | (17) | (6) |
| INCOME\tFROM\tCONTINUING\tOPERATIONS\tBEFORE\tINCOME\tTAXES\tAND\tMINORITY\tINTEREST | 654 | 488 | 471 |
| (Provision)\tbenefit\tfor\tincome\ttaxes | (100) | 43 | (32) |
| INCOME\tFROM\tCONTINUING\tOPERATIONS\tBEFORE\tMINORITY\tINTEREST | 554 | 531 | 439 |
| Minority\tinterest | 40 | (55) | — |
| INCOME\tFROM\tCONTINUING\tOPERATIONS | 594 | 476 | 439 |
| Discontinued\tOperations |  |  |  |
| Income\t(loss)\tfrom\tSenior\tLiving\tServices,\tnet\tof\ttax | — | 26 | (108) |
| Income\t(loss)\tfrom\tDistribution\tServices,\tnet\tof\ttax | 2 | — | (54) |
| NET\tINCOME | $596 | $502 | $277 |
| EARNINGS\tPER\tSHARE\t–\tBasic |  |  |  |
| Earnings\tfrom\tcontinuing\toperations | $2.62 | $2.05 | $1.83 |
| Earnings\t(loss)\tfrom\tdiscontinued\toperations | .01 | .11 | (.68) |
| Earnings\tper\tshare | $2.63 | $2.16 | $1.15 |
| EARNINGS\tPER\tSHARE\t–\tDiluted |  |  |  |
| Earnings\tfrom\tcontinuing\toperations | $2.47 | $1.94 | $1.74 |
| Earnings\t(loss)\tfrom\tdiscontinued\toperations | .01 | .11 | (.64) |
| Earnings\tper\tshare | $2.48 | $2.05 | $1.10 |
| DIVIDENDS\tDECLARED\tPER\tSHARE | $0.330 | $0.295 | $0.275 |

1 See	Footnote	20,	"Related	Party	Transactions,"	of	the	Notes	to	Consolidated	Financial	Statements	for	disclosure	of	related	party	amounts.

# CONSOLIDATED	BALANCE	SHEET

# ($	in	millions)

|  | December	31,<br>2004 | January	2,<br>2004 |
| :--- | :--- | :--- |
| ASSETS |  |  |
| Current\tassets |  |  |
| Cash\tand\tequivalents | $770 | $229 |
| Accounts\tand\tnotes\treceivable1 | 797 | 728 |
| Current\tdeferred\ttaxes,\tnet | 162 | 215 |
| Other | 217 | 175 |
|  | 1,946 | 1,347 |
| Property\tand\tequipment | 2,389 | 2,513 |
| Intangible\tassets |  |  |
| Goodwill | 923 | 923 |
| Contract\tacquisition\tcosts1 | 513 | 526 |
|  | 1,436 | 1,449 |
| Equity\tmethod\tinvestments1 | 249 | 468 |
| Notes\treceivable |  |  |
| Loans\tto\tequity\tmethod\tinvestees1 | 526 | 558 |
| Loans\tto\ttimeshare\towners | 289 | 152 |
| Other\tnotes\treceivable | 374 | 389 |
|  | 1,189 | 1,099 |
| Other\tlong-term\treceivables1 | 326 | 387 |
| Deferred\ttaxes,\tnet | 397 | 251 |
| Other1 | 736 | 663 |
|  | $8,668 | $8,177 |
| LIABILITIES\tAND\tSHAREHOLDERS'\tEQUITY |  |  |
| Current\tliabilities |  |  |
| Current\tportion\tof\tlong-term\tdebt | $489 | $64 |
| Accounts\tpayable1 | 570 | 584 |
| Accrued\tpayroll\tand\tbenefits | 508 | 412 |
| Self-insurance\treserves | 71 | 43 |
| Other\tpayables\tand\taccruals1 | 416 | 385 |
| Liability\tfor\tguest\tloyalty\tprogram | 302 | 282 |
|  | 2,356 | 1,770 |
| Long-term\tdebt | 836 | 1,391 |
| Self-insurance\treserves | 163 | 169 |
| Liability\tfor\tguest\tloyalty\tprogram | 640 | 502 |
| Other\tlong-term\tliabilities1 | 580 | 501 |
| Minority\tinterest | 12 | 6 |
| Shareholders'\tequity |  |  |
| Class\tA\tcommon\tstock | 3 | 3 |
| Additional\tpaid-in\tcapital |  |  |
|  | 3,423 | 3,317 |
| Retained\tearnings | 1,951 | 1,505 |
| Deferred\tcompensation | (108) | (81) |
| Treasury\tstock,\tat\tcost | (1,197) | (865) |
| Accumulated\tother\tcomprehensive\tincome\t(loss) | 9 | (41) |
|  | 4,081 | 3,838 |
|  | $8,668 | $8,177 |

See	Notes	to	Consolidated	Financial	Statements

# CONSOLIDATED	STATEMENT	OF	CASH	FLOWS

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| OPERATING\tACTIVITIES |  |  |  |
| Income\tfrom\tcontinuing\toperations | $594 | $476 | $439 |
| Adjustments\tto\treconcile\tto\tcash\tprovided\tby\toperating\tactivities: |  |  |  |
| Income\tfrom\tdiscontinued\toperations | 2 | 7 | 9 |
| Discontinued\toperations\t–\tgain\t(loss)\ton\tsale/exit | \t — | 19 | (171) |
| Depreciation\tand\tamortization | 166 | 160 | 187 |
| Minority\tinterest\tin\tresults\tof\tsynthetic\tfuel\toperation | (40) | 55 | — |
| Income\ttaxes | (63) | (171) | (105) |
| Timeshare\tactivity,\tnet | 113 | (111) | (63) |
| Other | (77) | (73) | 223 |
| Working\tcapital\tchanges: |  |  |  |
| Accounts\treceivable | (6) | (81) | (31) |
| Other\tcurrent\tassets | (16) | 11 | 60 |
| Accounts\tpayable\tand\taccruals | 218 | 111 | (32) |
| Net\tcash\tprovided\tby\toperating\tactivities | 891 | 403 | 516 |
| INVESTING\tACTIVITIES |  |  |  |
| Capital\texpenditures | (181) | (210) | (292) |
| Dispositions | 402 | 494 | 729 |
| Loan\tadvances | (129) | (241) | (237) |
| Loan\tcollections\tand\tsales | 276 | 280 | 124 |
| Other | (81) | (12) | (7) |
| Net\tcash\tprovided\tby\tinvesting\tactivities | 287 | 311 | 317 |
| FINANCING\tACTIVITIES |  |  |  |
| Commercial\tpaper,\tnet | \t — | (102) | 102 |
| Issuance\tof\tlong-term\tdebt | 20 | 14 | 26 |
| Repayment\tof\tlong-term\tdebt | (99) | (273) | (946) |
| Redemption\tof\tconvertible\tdebt | (62) | \t — | (347) |
| Issuance\tof\tClass\tA\tcommon\tstock | 206 | 102 | 35 |
| Dividends\tpaid | (73) | (68) | (65) |
| Purchase\tof\ttreasury\tstock | (664) | (373) | (252) |
| Earn-outs\treceived,\tnet | 35 | 17 | — |
| Net\tcash\tused\tin\tfinancing\tactivities | (637) | (683) | (1,447) |
| INCREASE\t(DECREASE)\tIN\tCASH\tAND\tEQUIVALENTS | 541 | 31 | (614) |
| CASH\tAND\tEQUIVALENTS,\tbeginning\tof\tyear | 229 | 198 | 812 |
| CASH\tAND\tEQUIVALENTS,\tend\tof\tyear | $770 | $229 | $198 |

# CONSOLIDATED	STATEMENT	OF	COMPREHENSIVE	INCOME

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Net\tincome | $596 | $502 | $277 |
| Other\tcomprehensive\tincome\t(loss),\tnet\tof\ttax: |  |  |  |
| Foreign\tcurrency\ttranslation\tadjustments | 43 | 37 | (7) |
| Other | 7 | (8) | (13) |
| Total\tother\tcomprehensive\tincome\t(loss) | 50 | 29 | (20) |
| Comprehensive\tincome | $646 | $531 | $257 |

# CONSOLIDATED	STATEMENT	OF	SHAREHOLDERS'	EQUITY

|  | Class	A<br>Common<br>Stock | Additional<br>Paid-in<br>Capital | Deferred<br>Compensation | Retained<br>Earnings | Unearned<br>ESOP<br>Shares | Treasury<br>Stock,	at<br>Cost | Other<br>Comprehensive<br>(Loss)	Income |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Balance\tat\tDecember\t29,\t2001 | $3 | $3,427 | $(49) | $941 | $(291) | $(503) | $(50) |
| Net\tincome | — | — | — | 277 | — | — | — |
| Dividends\t($0.275\tper\tshare) | — | — | — | (67) | — | — | — |
| Employee\tstock\tplan\tissuance\tand\tother | — | (203) | 6 | (25) | 291 | 90 | (20) |
| Purchase\tof\ttreasury\tstock | — | — | — | — | — | (254) | — |
| Balance\tat\tJanuary\t3,\t2003 | 3 | 3,224 | (43) | 1,126 | — | (667) | (70) |
| Net\tincome | — | — | — | 502 | — | — | — |
| Dividends\t($0.295\tper\tshare) | — | — | — | (68) | — | — | — |
| Employee\tstock\tplan\tissuance\tand\tother | — | 93 | (38) | (55) | — | 182 | 29 |
| Purchase\tof\ttreasury\tstock | — | — | — | — | — | (380) | — |
| Balance\tat\tJanuary\t2,\t2004 | 3 | 3,317 | (81) | 1,505 | — | (865) | (41) |
| Net\tincome | — | — | — | 596 | — | — | — |
| Dividends\t($0.330\tper\tshare) | — | — | — | (75) | — | — | — |
| Employee\tstock\tplan\tissuance\tand\tother | — | 106 | (27) | (75) | — | 322 | 50 |
| Purchase\tof\ttreasury\tstock | — | — | — | — | — | (654) | — |
| Balance\tat\tDecember\t31,\t2004 | $3 | $3,423 | $(108) | $ 1,951 | $— | $(1,197) | $9 |

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

# 1.	SUMMARY	OF	SIGNIFICANT	ACCOUNTING	POLICIES

# Basis	of	Presentation

The	consolidated	financial	statements	present	the	results	of	operations,	financial	position	and	cash	flows	of	Marriott	International,	Inc.	(together	with	its subsidiaries,	we,	us	or	the	Company).

The	preparation	of	financial	statements	in	conformity	with	U.S.	generally	accepted	accounting	principles	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	periods and	the	disclosures	of	contingent	liabilities.	Accordingly,	ultimate	results	could	differ	from	those	estimates.	We	have	reclassified	certain	prior	year	amounts	to	conform to	our	2004	presentation.

As	a	result	of	the	sale	of	our	Senior	Living	Services	communities	and	management	business	and	the	discontinuation	of	our	Distribution	Services	business,	the balances	and	activities	of	two	reportable	segments,	Senior	Living	Services	and	Distribution	Services,	have	been	segregated	and	reported	as	discontinued	operations	for all	periods	presented.

In	our	opinion,	the	accompanying	consolidated	financial	statements	reflect	all	normal	and	recurring	adjustments	necessary	to	present	fairly	our	financial	position as	of	December	31,	2004,	and	January	2,	2004,	and	the	results	of	our	operations	and	cash	flows	for	the	fiscal	years	ended	December	31,	2004,	January	2,	2004,	and January	3,	2003.	We	have	eliminated	all	material	intercompany	transactions	and	balances	between	entities	consolidated	in	these	financial	statements.

# Fiscal	Year

Our	fiscal	year	ends	on	the	Friday	nearest	to	December	31.	The	2004	and	2003	fiscal	years	included	52	weeks,	while	the	2002	fiscal	year	included	53	weeks.

# Revenue	Recognition

Our	revenues	include	(1)	base	and	incentive	management	fees,	(2)	franchise	fees,	(3)	revenues	from	lodging	properties	and	other	businesses	owned	or	leased	by us,	(4)	timeshare	interval	sales	and	services,	(5)	cost	reimbursements,	and	(6)	sales	made	by	the	synthetic	fuel	operation	while	consolidated.	Management	fees	comprise	a base	fee,	which	is	a	percentage	of	the	revenues	of	hotels,	and	an	incentive	fee,	which	is	generally	based	on	hotel	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.	Cost reimbursements	include	direct	and	indirect	costs	that	are	reimbursed	to	us	by	lodging	properties	that	we	manage	or	franchise.

Base	and	Incentive	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.

Franchise	Fee	Revenue:	We	recognize	franchise	fees	as	revenue	in	each	accounting	period	as	fees	are	earned	and	become	receivable	from	the	franchisee.

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

Timeshare	Intervals:	We	recognize	sales	when	(1)	we	have	received	a	minimum	of	10	percent	of	the	purchase	price	for	the	timeshare	interval,	(2)	the	purchaser's	period to	cancel	for	a	refund	has	expired,	(3)	we	deem	the	receivables	to	be	collectible,	and	(4)	we	have	attained	certain	minimum	sales	and	construction	levels.	We	defer	all revenue	using	the	deposit	method	for	sales	that	do	not	meet	all	four	of	these	criteria.	For	sales	that	do	not	qualify	for	full	revenue	recognition	as	the	project	has progressed	beyond	the	preliminary	stages	but	has	not	yet	reached	completion,	all	revenue	and	profit	are	deferred	and	recognized	in	earnings	using	the	percentage	of completion	method.

Cost	Reimbursements:	We	recognize	cost	reimbursements	from	managed,	franchised	and	timeshare	properties	when	we	incur	the	related	reimbursable	costs.

Synthetic	Fuel:	Prior	to	November	7,	2003	and	after	March	25,	2004,	we	accounted	for	the	synthetic	fuel	operation	by	consolidating	the	joint	ventures.	We	recognize revenue	from	the	synthetic	fuel	operation	when	the	synthetic	fuel	is	produced	and	sold.	From	November	7,	2003,	through	March	25,	2004	we	accounted	for	the	synthetic fuel	operation	using	the	equity	method	of	accounting.	See	Footnote	7	"Synthetic	Fuel"	for	additional	information.

Other	Revenue	includes	land	rent	income	and	other	revenue.	In	2003,	we	recorded	a	$36	million	insurance	settlement	for	lost	management	fees	associated	with	the	New York	Marriott	World	Trade	Center	hotel,	which	was	destroyed	in	the	2001	terrorist	attacks.

# Ground	Leases

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

# Real	Estate	Sales

We	account	for	the	sales	of	real	estate	in	accordance	with	Financial	Accounting	Standards	("FAS")	No.	66	"Accounting	for	Sales	of	Real	Estate."	We	reduce gains	on	sales	of	real	estate	by	the	maximum	exposure	to	loss	if	we	have	continuing	involvement	with	the	property	and	do	not	transfer	substantially	all	of	the	risks	and rewards	of	ownership.	We	reduced	gains	on	sales	of	real	estate	due	to	maximum	exposure	to	loss	by	$1	million	in	2004,	$4	million	in	2003	and	$51	million	in	2002.	In sales	transactions	where	we	retain	a	management	contract,	the	terms	and	conditions	of	the	management	contract	are	comparable	to	the	terms	and	conditions	of	the management	contracts	obtained	directly	with	third-party	owners	in	competitive	bid	processes.

# Profit	Sharing	Plan

We	contribute	to	a	profit	sharing	plan	for	the	benefit	of	employees	meeting	certain	eligibility	requirements	and	electing	participation	in	the	plan.	Contributions	are determined	based	on	a	specified	percentage	of	salary	deferrals	by	participating	employees.	Excluding	the	discontinued	Senior	Living	Services	and	Distribution	Services businesses,	we	recognized	compensation	cost	from	profit	sharing	of	$70	million	in	2004,	$53	million	in	2003	and	$54	million	in	2002.	We	recognized	compensation	cost from	profit	sharing	of	$1	million	in	2003	and	$8	million	in	2002,	related	to	the	discontinued	Senior	Living	Services	and	Distribution	Services	businesses.

# Self-Insurance	Programs

We	are	self-insured	for	certain	levels	of	property,	liability,	workers'	compensation	and	employee	medical	coverage.	We	accrue	estimated	costs	of	these	self- insurance	programs	at	the	present	value	of	projected	settlements	for	known	and	incurred	but	not	reported	claims.	We	use	a	discount	rate	of	4.8	percent	to	determine	the present	value	of	the	projected	settlements,	which	we	consider	to	be	reasonable	given	our	history	of	settled	claims,	including	payment	patterns	and	the	fixed	nature	of	the individual	settlements.

Marriott	Rewards	is	our	frequent	guest	loyalty	program.	Marriott	Rewards	members	earn	points	based	on	their	monetary	spending	at	our	lodging	operations, purchases	of	timeshare	intervals,	and,	to	a	lesser	degree,	through	participation	in	affiliated	partners'	programs,	such	as	those	offered	by	airlines	and	credit	card companies.	Points,	which	we	accumulate	and	track	on	the	members'	behalf,	can	be	redeemed	for	hotel	stays	at	most	of	our	lodging	operations,	airline	tickets,	airline frequent	flier	program	miles,	rental	cars	and	a	variety	of	other	awards.	Points	cannot	be	redeemed	for	cash.

We	provide	Marriott	Rewards	as	a	marketing	program	to	participating	hotels.	We	charge	the	cost	of	operating	the	program,	including	the	estimated	cost	of	award redemption,	to	hotels	based	on	members'	qualifying	expenditures.

We	defer	revenue	received	from	managed	and	franchised	properties,	Marriott-owned/leased	hotels	and	program	partners	equal	to	the	fair	value	of	our	future redemption	obligation.	We	determine	the	fair	value	of	the	future	redemption	obligation	based	on	statistical	formulas	which	project	timing	of	future	point	redemption based	on	historical	levels,	including	an	estimate	of	the	"breakage"	for	points	that	will	never	be	redeemed	and	an	estimate	of	the	points	that	will	eventually	be	redeemed. These	judgmental	factors	determine	the	required	liability	for	outstanding	points.

Our	management	and	franchise	agreements	require	that	we	be	reimbursed	currently	for	the	costs	of	operating	the	program,	including	marketing,	promotion, communication	with,	and	performing	member	services	for	the	Marriott	Rewards	members.	Due	to	the	requirement	that	properties	reimburse	us	for	program	operating costs	as	incurred,	we	receive	and	recognize	the	balance	of	the	revenue	from	properties	in	connection	with	the	Marriott	Rewards	program	at	the	time	such	costs	are incurred	and	expensed.	We	recognize	the	component	of	revenue	from	program	partners	that	corresponds	to	program	maintenance	services	over	the	expected	life	of	the points	awarded.

Upon	the	redemption	of	points,	we	recognize	as	revenue	the	amounts	previously	deferred,	and	recognize	the	corresponding	expense	relating	to	the	costs	of	the awards	redeemed.	Our	liability	for	the	Marriott	Rewards	program	was	$942	million	at	December	31,	2004,	and	$784	million	at	January	2,	2004.

# Guarantees

We	record	a	liability	for	the	fair	value	of	a	guarantee	on	the	date	a	guarantee	is	issued	or	modified.	The	offsetting	entry	depends	on	the	circumstances	in	which	the guarantee	was	issued.	Funding	under	the	guarantee	reduces	the	recorded	liability.	When	no	funding	is	forecasted,	the	liability	is	amortized	into	income	on	a	straight-line basis	over	the	remaining	term	of	the	guarantee.

# Rebates	and	Allowances

We	participate	in	various	vendor	rebate	and	allowance	arrangements	as	a	manager	of	hotel	properties.	There	are	three	types	of	programs	that	are	common	in	the hotel	industry	that	are	sometimes	referred	to	as	"rebates"	or	"allowances,"	including	unrestricted	rebates,	marketing	(restricted)	rebates	and	sponsorships.	The	primary business	purpose	of	these	arrangements	is	to	secure	favorable	pricing	for	our	hotel	owners	for	various	products	and	services	or	enhance	resources	for	promotional campaigns	co-sponsored	by	certain	vendors.	More	specifically,	unrestricted	rebates	are	funds	returned	to	the	buyer,	generally	based	upon	volumes	or	quantities	of	goods purchased.	Marketing	(restricted)	allowances	are	funds	allocated	by	vendor	agreements	for	certain	marketing	or	other	joint	promotional	initiatives.	Sponsorships	are funds	paid	by	vendors,	generally	used	by	the	vendor	to	gain	exposure	at	meetings	and	events,	which	are	accounted	for	as	a	reduction	of	the	cost	of	the	event.

We	account	for	rebates	and	allowances	as	adjustments	of	the	prices	of	the	vendors'	products	and	services	in	accordance	with	EITF	02-16,	"Accounting	by	a Customer	(Including	a	Reseller)	for	Certain	Consideration	Received	from	a	Vendor."	We	show	vendor	costs	and	the	reimbursement	of	those	costs	as	reimbursed	costs and	cost	reimbursements	revenue,	respectively;	therefore,	rebates	are	reflected	as	a	reduction	of	these	line	items.

# Cash	and	Equivalents

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

# Restricted	Cash

Restricted	cash,	totaling	$105	million	and	$139	million	at	December	31,	2004	and	January	2,	2004	respectively,	is	recorded	in	other	long-term	assets	in	the accompanying	Consolidated	Balance	Sheet.	Restricted	cash	primarily	consists	of	deposits	received	on	timeshare	interval	sales	that	are	held	in	escrow	until	the	contract	is closed.

# Loan	Loss	Valuation

We	measure	loan	impairment	based	on	the	present	value	of	expected	future	cash	flows	discounted	at	the	loan's	original	effective	interest	rate	or	the	estimated	fair value	of	the	collateral.	For	impaired	loans,	we	establish	a	specific	impairment	reserve	for	the	difference	between	the	recorded	investment	in	the	loan	and	the	present value	of	the	expected	future	cash	flows	or	the	estimated	fair	value	of	the	collateral.	We	apply	our	loan	impairment	policy	individually	to	all	loans	in	the	portfolio	and	do not	aggregate	loans	for	the	purpose	of	applying	such	policy.	For	loans	that	we	have	determined	to	be	impaired,	we	recognize	interest	income	on	a	cash	basis.

We	evaluate	the	fair	value	of	goodwill	to	assess	potential	impairments	on	an	annual	basis,	or	during	the	year	if	an	event	or	other	circumstance	indicates	that	we may	not	be	able	to	recover	the	carrying	amount	of	the	asset.	We	evaluate	the	fair	value	of	goodwill	at	the	reporting	unit	level	and	make	that	determination	based	upon future	cash	flow	projections.	We	record	an	impairment	loss	for	goodwill	when	the	carrying	value	of	the	intangible	asset	is	less	than	its	estimated	fair	value.

# Assets	Held	for	Sale

We	consider	properties	to	be	assets	held	for	sale	when	management	approves	and	commits	to	a	formal	plan	to	actively	market	a	property	for	sale.	Upon designation	as	an	asset	held	for	sale,	we	record	the	carrying	value	of	each	property	at	the	lower	of	its	carrying	value	or	its	estimated	fair	value,	less	estimated	costs	to sell,	and	we	stop	recording	depreciation	expense.

# Investments

Except	as	otherwise	required	by	FIN	46(R),	"Consolidation	of	Variable	Interest	Entities,"	we	consolidate	entities	that	we	control.	We	account	for	investments	in joint	ventures	using	the	equity	method	of	accounting	when	we	exercise	significant	influence	over	the	venture.	If	we	do	not	exercise	significant	influence,	we	account	for the	investment	using	the	cost	method	of	accounting.	We	account	for	investments	in	limited	partnerships	and	limited	liability	companies	using	the	equity	method	of accounting	when	we	own	more	than	a	minimal	investment.	Our	ownership	interest	in	these	equity	method	investments	varies	generally	from	10	percent	to	50	percent.

# Costs	Incurred	to	Sell	Real	Estate	Projects

We	capitalize	direct	costs	incurred	to	sell	real	estate	projects	attributable	to	and	recoverable	from	the	sales	of	timeshare	interests	until	the	sales	are	recognized. Costs	eligible	for	capitalization	follow	the	guidelines	of	FAS	No.	67,	"Accounting	for	Costs	and	Initial	Rental	Operations	of	Real	Estate	Projects."	Selling	and	marketing costs	capitalized	under	this	approach	were	approximately	$89	million	and	$69	million	at	December	31,	2004,	and	January	2,	2004,	respectively,	and	are	included	in property	and	equipment	in	the	accompanying	Consolidated	Balance	Sheet.	If	a	contract	is	canceled,	we	charge	unrecoverable	direct	selling	and	marketing	costs	to expense	and	record	deposits	forfeited	as	income.

# Residual	Interests

We	periodically	sell	notes	receivable	originated	by	our	timeshare	segment	in	connection	with	the	sale	of	timeshare	intervals.	We	retain	servicing	assets	and	other interests	in	the	assets	transferred	to	entities	that	are	accounted	for	as	residual	interests.	We	treat	the	residual	interests,	excluding	servicing	assets,	as	"trading"	securities under	the	provisions	of	FAS	No.	115,	"Accounting	for	Certain	Investments	in	Debt	and	Equity	Securities."	At	the	end	of	each	reporting	period,	we	estimate	the	fair	value of	the	residual	interests,	excluding	servicing	assets,	using	a	discounted	cash	flow	model.	We	report	changes	in	the	fair	values	of	these	residual	interests,	excluding servicing	assets,	through	the	accompanying	Consolidated	Statement	of	Income.	Servicing	assets	are	classified	as	held	to	maturity	under	the	provisions	of	FAS	No.	115 and	are	recorded	at	amortized	cost.

# Derivative	Instruments

We	record	all	derivatives	at	fair	value	either	as	assets	or	liabilities.	We	recognize,	currently	in	earnings,	changes	in	fair	value	of	derivatives	not	designated	as hedging	instruments	and	of	derivatives	designated	as	fair	value	hedging	instruments.	Changes	in	the	fair	value	of	the	hedged	item	in	a	fair	value	hedge	are	recorded	as	an adjustment	to	the	carrying	amount	of	the	hedged	item	and	recognized	in	earnings	in	the	same	income	statement	line	item	as	the	change	in	the	fair	value	of	the	derivative.

We	record	the	effective	portion	of	changes	in	fair	value	of	derivatives	designated	as	cash	flow	hedging	instruments	as	a	component	of	other	comprehensive income	and	report	the	ineffective	portion	currently	in	earnings.	We	reclassify	amounts	included	in	other	comprehensive	income	into	earnings	in	the	same	period	during which	the	hedged	item	affects	earnings.

# Foreign	Operations

The	U.S.	dollar	is	the	functional	currency	of	our	consolidated	and	unconsolidated	entities	operating	in	the	United	States.	The	functional	currency	for	our consolidated	and	unconsolidated	entities	operating	outside	of	the	United	States	is	generally	the	currency	of	the	environment	in	which	the	entity	primarily	generates	and expends	cash.	For	consolidated	entities	whose	functional	currency	is	not	the	U.S.	dollar,	we	translate	their	financial	statements	into	U.S.	dollars,	and	we	do	the	same,	as needed,	for	unconsolidated	entities	whose	functional	currency	is	not	the	U.S.	dollar.	Assets	and	liabilities	are	translated	at	the	exchange	rate	in	effect	as	of	the	financial statement	date,	and	income	statement	accounts	are	translated	using	the	weighted	average	exchange	rate	for	the	period.	Translation	adjustments	from	foreign	exchange and	the	effect	of	exchange	rate	changes	on	intercompany	transactions	of	a	long-term	investment	nature	are	included	as	a	separate	component	of	shareholder's	equity.	We report	gains	and	losses	from	foreign	exchange	rate	changes	related	to	intercompany	receivables	and	payables	that	are	not	of	a	long-term	investment	nature,	as	well	as gains	and	losses	from	foreign	currency	transactions,	currently	in	operating	costs	and	expenses,	and	those	amounted	to	a	$3	million	loss	in	2004,	a	$7	million	gain	in 2003,	and	a	$6	million	loss	in	2002.

# New	Accounting	Standards

In	December	2004,	the	American	Institute	of	Certified	Public	Accountants	issued	Statement	of	Position	("SOP")	04-2,	"Accounting	for	Real	Estate	Time-sharing Transactions,"	and	the	Financial	Accounting	Standards	Board	("FASB")	amended	FAS	No.	66,	"Accounting	for	Sales	of	Real	Estate,"	and	FAS	No.	67	"Accounting	for Costs	and	Initial	Rental	Operations	of	Real	Estate	Projects,"	to	exclude	accounting	for	real	estate	time-sharing	transactions	from	these	statements.	The	SOP	will	be effective	for	fiscal	years	beginning	after	June	15,	2005.

We	estimate	that	the	initial	adoption	of	the	SOP,	which	will	be	reported	as	a	cumulative	effect	of	a	change	in	accounting	principle	in	our	Fiscal	Year	2006 financial	statements,	will	result	in	a	one-time	non-cash	pre-tax	charge	of	approximately	$150	million,	consisting	primarily	of	the	write-off	of	deferred	selling	costs	and establishing	the	required	reserve	on	notes.	We	estimate	that	the	ongoing	impact	of	adoption	will	not	be	significant.

We	estimate	that	the	adoption	of	FAS	No.	123R,	using	the	modified	prospective	method,	will	result	in	incremental	pre-tax	expense	in	fiscal	year	2005	of approximately	$20	million,	based	on	our	current	share-based	payment	compensation	plans	and	a	mid-year	adoption.

# 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	Accounting	Principles	Board	(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	Employee	Stock	Purchase	Plan.	We	recognized stock-based	employee	compensation	cost	of	$31	million,	$19	million	and	$9	million,	net	of	tax,	for	deferred	share	grants,	restricted	share	grants	and	restricted	stock units	(2004	and	2003	only)	for	2004,	2003	and	2002,	respectively.

The	following	table	illustrates	the	effect	on	net	income	and	earnings	per	share	as	if	we	had	applied	the	fair	value	recognition	provisions	of	FAS	No.	123, "Accounting	for	Stock-Based	Compensation,"	to	stock-based	employee	compensation.	We	have	included	the	impact	of	measured	but	unrecognized	compensation	cost and	excess	tax	benefits	credited	to	additional	paid-in-capital	in	the	calculation	of	the	diluted	pro	forma	shares	for	all	years	presented.	In	addition,	we	have	included	the estimated	impact	of	reimbursements	from	third	parties.

| ($	in	millions,	except	per	share	amounts) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Net\tincome,\tas\treported | $ 596 | $ 502 | $ 277 |
| Add:\tStock-based\temployee\tcompensation\texpense\tincluded\tin\treported\tnet\tincome,\tnet\tof\trelated\ttax\teffects | 31 | 19 | 9 |
| Deduct:\tTotal\tstock-based\temployee\tcompensation\texpense\tdetermined\tunder\tfair\tvalue-based\tmethod\tfor\tall\tawards,\tnet\tof\trelated\ttax |  |  |  |
| effects\tand\testimated\treimbursed\tcosts | (58) | (48) | (37) |
| Pro\tforma\tnet\tincome | $ 569 | $ 473 | $ 249 |
| Earnings\tper\tshare: |  |  |  |
| Basic\t–\tas\treported | $2.63 | $2.16 | $1.15 |
| Basic\t–\tpro\tforma | $2.51 | $2.03 | $1.04 |
| Diluted\t–\tas\treported | $2.48 | $2.05 | $1.10 |
| Diluted\t–\tpro\tforma | $2.35 | $1.94 | $0.99 |

# 2.	RELATIONSHIP	WITH	MAJOR	CUSTOMER

As	of	year-end	2004,	Host	Marriott	Corporation	("Host	Marriott")	owned	or	leased	167	lodging	properties	operated	by	us	under	long-term	agreements.	The revenues	and	income	from	continuing	operations	before	income	taxes	and	minority	interest	we	recognized	from	lodging	properties	owned/leased	by	Host	Marriott	for the	last	three	fiscal	years	are	shown	in	the	following	table:

Additionally,	Host	Marriott	is	a	general	partner	in	several	unconsolidated	partnerships	that	own	lodging	properties	operated	by	us	under	long-term	agreements. As	of	year-end	2004,	Host	Marriott	was	affiliated	with	121	such	properties	operated	by	us	(including	the	properties	in	the	Courtyard	Joint	Venture	discussed	below).	The sales	and	income	from	continuing	operations	before	income	taxes	and	minority	interest	recognized	by	the	Company	for	the	last	three	fiscal	years	are	shown	in	the following	table:

In	December	2000,	we	acquired	120	Courtyard	by	Marriott	hotels	through	an	unconsolidated	joint	venture	("the	Courtyard	Joint	Venture")	with	an	affiliate	of Host	Marriott.	Prior	to	the	formation	of	the	Courtyard	Joint	Venture,	Host	Marriott	was	a	general	partner	in	the	unconsolidated	partnerships	that	owned	the	120 Courtyard	by	Marriott	hotels.	Amounts	recognized	from	lodging	properties	owned	by	unconsolidated	partnerships	discussed	above	include	the	following	amounts related	to	these	120	Courtyard	hotels:

In	connection	with	the	formation	of	the	Courtyard	Joint	Venture,	we	made	a	loan	to	the	joint	venture.	The	balance	on	our	mezzanine	loan	to	the	Courtyard	Joint Venture	was	$249	million	and	$215	million	as	of	December	31,	2004	and	January	2,	2004,	respectively.	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.

•	 We	expect	to	enter	into	a	new	long-term	management	agreement	with	the	joint	venture.	As	the	termination	of	the	existing	management	agreement	is probable,	we	have	written	off	our	deferred	contract	costs	related	to	the	existing	contract	in	the	2004	fourth	quarter,	resulting	in	a	charge	of	$13	million;	and •	 Upon	closing	of	the	transaction	we	expect	to	record	a	gain	associated	with	the	repayment	of	the	mezzanine	loan,	which	will	be	substantially	offset	by	our portion	of	the	joint	venture's	costs	of	prepaying	an	existing	senior	loan.

We	lease	land	to	the	Courtyard	Joint	Venture	that	had	an	aggregate	book	value	of	$184	million	at	December	31,	2004.	This	land	has	been	pledged	to	secure	debt of	the	lessees.	We	are	currently	deferring	receipt	of	rentals	on	this	land	to	permit	the	lessees	to	meet	their	debt	service	requirements.

We	have	provided	Host	Marriott	with	financing	for	a	portion	of	the	cost	of	acquiring	properties	to	be	operated	or	franchised	by	us,	and	may	continue	to	provide financing	to	Host	Marriott	in	the	future.	The	outstanding	principal	balance	of	these	loans	was	$2	million	and	$3	million	at	December	31,	2004,	and	January	2,	2004, respectively,	and	we	recognized	less	than	$1	million	in	each	of	2004	and	2003	and	$1	million	in	2002	in	interest	and	fee	income	under	these	credit	agreements	with	Host Marriott.

We	have	guaranteed	the	performance	of	Host	Marriott	and	certain	of	its	affiliates	to	lenders	and	other	third	parties.	These	guarantees	were	limited	to	$8	million	at December	31,	2004.	We	have	made	no	payments	pursuant	to	these	guarantees.

# 3.	NOTES	RECEIVABLE

| ($	in	millions) | 2004 | 2003 |
| :--- | :--- | :--- |
| Loans\tto\ttimeshare\towners | $315 | $167 |
| Lodging\tsenior\tloans | 75 | 110 |
| Lodging\tmezzanine\tand\tother\tloans | 867 | 886 |
|  | \t 1,257 | \t 1,163 |
| Less\tcurrent\tportion | (68) | (64) |
|  | $1,189 | $1,099 |

Amounts	due	within	one	year	are	classified	as	current	assets	in	the	caption	accounts	and	notes	receivable	in	the	accompanying	Consolidated	Balance	Sheet, including	$26	million	and	$15	million,	respectively,	as	of	December	31,	2004,	and	January	2,	2004,	related	to	the	loans	to	timeshare	owners.

At	December	31,	2004,	our	recorded	investment	in	impaired	loans	was	$181	million.	We	have	a	$92	million	allowance	for	credit	losses,	leaving	$89	million	of our	investment	in	impaired	loans	for	which	there	is	no	related	allowance	for	credit	losses.

The	following	table	summarizes	the	activity	related	to	our	notes	receivable	reserve	for	the	years	ended	January	3,	2003,	January	2,	2004,	and	December	31,	2004:

# 4.	PROPERTY	AND	EQUIPMENT

| ($	in	millions) | 2004 | 2003 |
| :--- | :--- | :--- |
| Land | $371 | $424 |
| Buildings\tand\tleasehold\timprovements | 642 | 606 |
| Furniture\tand\tequipment | 771 | 680 |
| Timeshare\tproperties | \t 1,186 | \t 1,286 |
| Construction\tin\tprogress | 100 | 74 |
|  | \t 3,070 | \t 3,070 |
| Accumulated\tdepreciation | (681) | (557) |
|  | $2,389 | $2,513 |

We	record	property	and	equipment	at	cost,	including	interest,	rent	and	real	estate	taxes	incurred	during	development	and	construction.	Interest	capitalized	as	a	cost of	property	and	equipment	totaled	$16	million	in	2004,	$25	million	in	2003	and	$43	million	in	2002.	We	capitalize	the	cost	of	improvements	that	extend	the	useful	life of	property	and	equipment	when	incurred.	These	capitalized	costs	may	include	structural	costs,	equipment,	fixtures,	floor	and	wall	coverings	and	paint.	All	repair	and maintenance	costs	are	expensed	as	incurred.	We	compute	depreciation	using	the	straight-line	method	over	the	estimated	useful	lives	of	the	assets	(three	to	40	years). Depreciation	expense,	including	amounts	related	to	discontinued	operations,	totaled	$133	million	in	2004,	$132	million	in	2003,	and	$145	million	in	2002.	We	amortize leasehold	improvements	over	the	shorter	of	the	asset	life	or	lease	term.

# 5.	DISPOSITIONS

We	sold	two	lodging	properties	for	$79	million	in	cash,	net	of	transaction	costs,	recognized	pre-tax	gains	totaling	$6	million	and	deferred	recognition	of	gains totaling	$1	million	due	to	our	continuing	involvement	with	the	two	properties.	We	accounted	for	both	sales	under	the	full	accrual	method	in	accordance	with	FAS	No.	66 "Accounting	for	Sales	of	Real	Estate,"	and	will	continue	to	operate	the	properties	under	long-term	management	agreements.	We	also	sold	30	land	parcels	for	$55	million in	cash,	net	of	transaction	costs,	and	we	recorded	pre-tax	gains	of	$12	million.

Additionally,	we	sold	our	Ramada	International	Hotels	&	Resorts	franchised	brand,	which	consisted	primarily	of	investments	in	franchise	contracts	and trademarks	and	licenses	outside	of	the	United	States,	to	Cendant	Corporation's	Hotel	Group	for	$33	million	in	cash,	net	of	transaction	costs,	and	recorded	a	pre-tax	gain of	$4	million.

Cendant	exercised	its	option	to	redeem	our	interest	in	the	Two	Flags	joint	venture,	and	as	a	result	Cendant	acquired	the	trademarks	and	licenses	for	the	Ramada and	Days	Inn	lodging	brands	in	the	United	States.	We	recorded	a	pre-tax	gain	of	approximately	$13	million	in	connection	with	this	transaction.	We	also	sold	our interests	in	two	joint	ventures	for	$13	million	in	cash	and	recognized	pre-tax	gains	of	$6	million.

We	sold	three	lodging	properties	for	$138	million	in	cash,	net	of	transaction	costs.	We	accounted	for	the	three	property	sales	under	the	full	accrual	method	in accordance	with	FAS	No.	66,	and	we	will	continue	to	operate	the	properties	under	long-term	management	agreements.	The	buyer	of	one	property	leased	the	property	for a	term	of	20	years	to	a	consolidated	joint	venture	between	the	buyer	and	us.	The	lease	payments	are	fixed	for	the	first	five	years	and	variable	thereafter.	Our	gain	on	the sale	of	$5	million	will	be	recognized	on	a	straight-line	basis	in	proportion	to	the	gross	rental	charged	to	expense,	and	we	recognized	$1	million	of	pre-tax	gains	in	both 2003	and	2004.	We	recognized	a	$1	million	gain	in	2003	associated	with	the	sale	of	the	other	two	properties	and	there	are	no	remaining	deferred	gains.	During	the	year, we	also	sold	three	parcels	of	land	for	$10	million	in	cash,	net	of	transaction	costs,	and	recognized	a	pre-tax	loss	of	$1	million.	Additionally,	we	sold	our	interests	in	three international	joint	ventures	for	approximately	$25	million	and	recorded	pre-tax	gains	of	approximately	$21	million.

During	the	third	quarter	of	2003,	we	completed	the	sale	of	an	approximately	50	percent	interest	in	the	synthetic	fuel	operation.	We	received	cash	and	promissory notes	totaling	$25	million	at	closing,	and	we	are	receiving	additional	profits	that	are	expected	to	continue	over	the	life	of	the	venture	based	on	the	actual	amount	of	tax credits	allocated	to	the	purchaser.	See	Footnote	7,	"Synthetic	Fuel"	for	further	discussion.

We	sold	three	lodging	properties	and	six	pieces	of	undeveloped	land	for	$330	million	in	cash.	We	will	continue	to	operate	two	of	the	hotels	under	long-term management	agreements.	We	accounted	for	two	of	the	three	property	sales	under	the	full	accrual	method	in	accordance	with	FAS	No.	66.	The	buyer	did	not	make adequate	minimum	initial	investments	in	the	remaining	property,	which	we	accounted	for	under	the	cost	recovery	method.	The	sale	of	one	of	the	properties	was	to	a	joint venture	in	which	we	have	a	minority	interest	and	was	sold	at	a	loss.	We	recognized	no	pre-tax	gains	in	either	2004	or	2003	and	$6	million	of	pre-tax	gains	in	2002.	We will	recognize	the	remaining	$50	million	of	pre-tax	gains	in	subsequent	years,	provided	certain	contingencies	in	the	sales	contracts	expire.

We	also	sold	our	11	percent	investment	in	Interval	International,	a	timeshare	exchange	company,	for	approximately	$63	million	and	recorded	a	pre-tax	gain	of $44	million.

# 6.	TIMESHARE	NOTE	SALES

We	periodically	sell,	with	limited	recourse,	through	special	purpose	entities,	notes	receivable	originated	by	our	timeshare	business	in	connection	with	the	sale	of timeshare	intervals.	We	continue	to	service	the	notes,	and	transfer	all	proceeds	collected	to	special	purpose	entities.	We	retain	servicing	assets	and	other	interests	in	the notes	which	are	accounted	for	as	residual	interests.	The	interests	are	limited	to	the	present	value	of	cash	available	after	paying	financing	expenses	and	program	fees,	and absorbing	credit	losses.	We	have	included	gains	from	the	sales	of	timeshare	notes	receivable	totaling	$64	million	in	each	of	2004	and	2003	and	$60	million	in	2002	in gains	and	other	income	in	the	accompanying	Consolidated	Statement	of	Income.	We	had	residual	interests	of	$190	million	and	$203	million,	respectively,	at	December 31,	2004	and	January	2,	2004,	which	are	recorded	in	the	accompanying	Consolidated	Balance	Sheet	as	other	long-term	receivables	of	$127	million	and	$120	million, respectively,	and	other	current	assets	of	$63	million	and	$83	million,	respectively.

At	the	date	of	sale	and	at	the	end	of	each	reporting	period,	we	estimate	the	fair	value	of	residual	interests,	excluding	servicing	assets,	using	a	discounted	cash	flow model.	These	transactions	may	utilize	interest	rate	swaps	to	protect	the	net	interest	margin	associated	with	the	beneficial	interest.	We	report	in	income	changes	in	the	fair value	of	residual	interests,	excluding	servicing	assets,	as	they	are	considered	trading	securities	under	the	provisions	of	FAS	No.	115	"Accounting	for	Certain	Investments in	Debt	and	Equity	Securities."	We	used	the	following	key	assumptions	to	measure	the	fair	value	of	the	residual	interests,	excluding	servicing	assets,	at	the	date	of	sale during	the	years	ended	December	31,	2004,	January	2,	2004,	and	January	3,	2003:	average	discount	rate	of	7.80	percent,	4.95	percent	and	5.69	percent,	respectively; average	expected	annual	prepayments,	including	defaults,	of	18.61	percent,	17.00	percent	and	16.41	percent,	respectively;	expected	weighted	average	life	of	prepayable notes	receivable,	excluding	prepayments	and	defaults,	of	83	months,	85	months	and	69	months,	respectively;	and	expected	weighted	average	life	of	prepayable	notes receivable,	including	prepayments	and	defaults,	of	42	months,	44	months	and	42	months,	respectively.	Our	key	assumptions	are	based	on	experience.

We	used	the	following	key	assumptions	in	measuring	the	fair	value	of	the	residual	interests,	excluding	servicing	assets,	for	our	six	outstanding	note	sales	at December	31,	2004:	an	average	discount	rate	of	7.77	percent;	an	average	expected	annual	prepayment	rate,	including	defaults,	of	15.89	percent;	an	expected	weighted average	life	of	prepayable	notes	receivable,	excluding	prepayments	and	defaults,	of	63	months;	and	an	expected	weighted	average	life	of	prepayable	notes	receivable, including	prepayments	and	defaults	of	38	months.

At	the	date	of	sale,	we	measure	servicing	assets	at	their	allocated	previous	carrying	amount	based	on	relative	fair	value.	Servicing	assets	are	classified	as	held	to maturity	under	the	provisions	of	FAS	No.	115	and	are	recorded	at	amortized	cost.

Cash	flows	between	us	and	third-party	purchasers	during	the	years	ended	December	31,	2004,	January	2,	2004,	and	January	3,	2003,	were	as	follows:	net proceeds	to	us	from	new	timeshare	note	sales	of	$312	million,	$231	million	and	$341	million,	respectively;	repurchases	by	us	of	defaulted	loans	(over	150	days overdue)	of	$18	million,	$19	million	and	$16	million,	respectively;	servicing	fees	received	by	us	of	$4	million,	$3	million	and	$3	million,	respectively;	and	cash	flows received	from	our	retained	interests	of	$90	million,	$47	million	and	$28	million,	respectively.

At	December	31,	2004,	$810	million	of	principal	remains	outstanding	in	all	sales	in	which	we	have	a	retained	residual	interest.	Delinquencies	of	more	than	90 days	at	December	31,	2004,	amounted	to	$4	million.	Net	of	recoveries,	we	incurred	no	losses	on	defaulted	loans	that	were	resolved	during	the	year	ended	December	31, 2004.	We	have	been	able	to	resell	timeshare	units	underlying	defaulted	loans	without	incurring	material	losses.

On	November	21,	2002,	we	repurchased	notes	receivable	with	a	principal	balance	of	$381	million	and	immediately	sold	$365	million	of	those	notes,	along	with $135	million	of	additional	notes,	in	a	$500	million	sale	to	an	investor	group.	We	have	included	net	proceeds	from	these	transactions	of	$89	million,	including repayments	of	interest	rate	swaps	on	the	$381	million	of	repurchased	notes	receivable,	in	the	net	proceeds	from	new	timeshare	note	sales	disclosed	above.	We	realized	a gain	of	$14	million,	primarily	associated	with	the	$135	million	of	additional	notes	sold,	which	is	included	in	the	$60	million	gain	on	the	sales	of	notes	receivable	for fiscal	year	2002	disclosed	above.

We	have	completed	a	stress	test	on	the	fair	value	of	the	residual	interests	with	the	objective	of	measuring	the	change	in	value	associated	with	independent	changes in	individual	key	variables.	The	methodology	used	applied	unfavorable	changes	that	would	be	considered	statistically	significant	for	the	key	variables	of	prepayment rate,	discount	rate	and	weighted	average	remaining	term.	The	fair	value	of	the	residual	interests	was	$190	million	at	December	31,	2004,	before	any	stress	test	changes were	applied.	An	increase	of	100	basis	points	in	the	prepayment	rate	would	decrease	the	year-end	valuation	by	$3	million,	or	1.7	percent,	and	an	increase	of	200	basis points	in	the	prepayment	rate	would	decrease	the	year-end	valuation	by	$7	million,	or	3.4	percent.	An	increase	of	100	basis	points	in	the	discount	rate	would	decrease the	year-end	valuation	by	$4	million,	or	2.2	percent,	and	an	increase	of	200	basis	points	in	the	discount	rate	would	decrease	the	year-end	valuation	by	$8	million,	or	4.4 percent.	A	decline	of	two	months	in	the	weighted-average	remaining	term	would	decrease	the	year-end	valuation	by	$2	million,	or	1	percent,	and	a	decline	of	four months	in	the	weighted-average	remaining	term	would	decrease	the	year-end	valuation	by	$4	million,	or	2.1	percent.

At	both	of	the	locations,	the	synthetic	fuel	operation	has	entered	into	long-term	site	leases	at	sites	that	are	adjacent	to	large	underground	mines	as	well	as	barge load-out	facilities	on	navigable	rivers.	In	addition,	the	synthetic	fuel	operation	has	entered	into	long-term	coal	purchase	agreements	with	the	owners	of	the	adjacent	coal mines	and	long-term	synthetic	fuel	sales	contracts	with	the	Tennessee	Valley	Authority	and	with	Alabama	Power	Company,	two	major	utilities.	These	contracts	ensure that	the	operation	has	long-term	agreements	to	purchase	coal	and	sell	synthetic	fuel,	covering	approximately	80	percent	of	the	productive	capacity	of	the	facilities.	From time	to	time,	the	synthetic	fuel	operation	supplements	these	base	contracts,	as	opportunities	arise,	by	entering	into	spot	contracts	to	buy	coal	from	these	or	other	coal mines	and	sell	synthetic	fuel	to	different	end	users.	The	operation	is	slightly	seasonal	as	the	synthetic	fuel	is	mainly	burned	to	produce	electricity	and	electricity	use	peaks in	the	summer	in	the	markets	served	by	the	synthetic	fuel	operation.	These	long-term	contracts	can	generally	be	cancelled	by	us	in	the	event	that	we	choose	not	to	operate the	Facilities	or	that	the	synthetic	fuel	produced	at	the	Facilities	does	not	qualify	for	tax	credits	under	Section	29	of	the	Internal	Revenue	Code.

The	synthetic	fuel	operation	has	entered	into	a	long-term	operations	and	maintenance	agreement	with	an	experienced	manager	of	synthetic	fuel	facilities.	This manager	is	responsible	for	staffing	the	facilities,	operating	and	maintaining	the	machinery	and	conducting	routine	maintenance	on	behalf	of	the	synthetic	fuel	operation.

As	a	result	of	a	put	option	associated	with	the	June	21,	2003,	sale	of	a	50	percent	ownership	interest	in	the	synthetic	fuel	entities,	we	consolidated	the	two	synthetic fuel	joint	ventures	from	that	date	through	November	6,	2003.	Effective	November	7,	2003,	because	the	put	option	was	voided,	we	began	accounting	for	the	synthetic	fuel joint	ventures	using	the	equity	method	of	accounting.	Beginning	March	26,	2004,	as	a	result	of	adopting	FIN	46(R),	we	have	again	consolidated	the	synthetic	fuel	joint ventures,	and	we	reflect	our	partner's	share	of	the	operating	losses	as	minority	interest.

# Internal	Revenue	Service	("IRS")	Placed-in-Service	Challenge

In	July	2004,	IRS	field	auditors	issued	a	notice	of	proposed	adjustment	and	later	a	Summary	Report	to	PacifiCorp,	the	previous	owner	of	the	Facilities,	that included	a	challenge	to	the	placed-in-service	dates	of	three	of	the	four	synthetic	fuel	facilities	owned	by	one	of	our	synthetic	fuel	joint	ventures.	One	of	the	conditions	to qualify	for	tax	credits	under	Section	29	of	the	Internal	Revenue	Code	is	that	the	production	facility	must	have	been	placed	in	service	before	July	1,	1998.

During	2002,	we	completed	the	sale	of	41	properties	for	$210	million	and	recorded	an	after-tax	loss	of	$2	million.	On	December	30,	2002,	we	entered	into	a definitive	agreement	to	sell	our	senior	living	management	business	to	Sunrise	Senior	Living,	Inc.	("Sunrise")	and	to	sell	nine	senior	living	communities	to	CNL Retirement	Properties,	Inc.	("CNL")	and	recorded	an	after-tax	charge	of	$131	million.	We	completed	the	sales	to	Sunrise	and	CNL,	in	addition	to	the	related	sale	of	a parcel	of	land	to	Sunrise	in	March	2003,	for	$266	million.	We	recorded	after-tax	gains	of	$19	million	in	2003.

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 approved	and	committed	to	a	plan	to	sell	these	communities	within	12	months.	As	part	of	that	plan,	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.	In	the	2003	third	quarter,	we	sold	the	14	communities	to	CNL	for	approximately	$184	million.	We	provided	a	$92	million	acquisition	loan	to	CNL	in	connection with	the	sale.	Sunrise	currently	operates,	and	will	continue	to	operate,	the	14	communities	under	long-term	management	agreements.	We	recorded	a	gain,	net	of	taxes,	of $1	million.

The	operating	results	of	our	senior	living	segment	are	reported	in	discontinued	operations	during	the	years	ended	January	2,	2004,	and	January	3,	2003	and	the remaining	assets	and	liabilities	were	classified	as	assets	held	for	sale	and	liabilities	of	businesses	held	for	sale,	respectively,	on	the	accompanying	Consolidated	Balance Sheet	at	January	3,	2003.

The	following	table	provides	additional	income	statement	and	balance	sheet	information	relating	to	the	Senior	Living	Services	business:

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Income\tStatement\tSummary\nSales | $— | $184 | $802 |
| Pre-tax\tincome\ton\toperations | $— | $11 | $37 |
| Tax\tprovision | \t — | (4) | (14) |
| Income\ton\toperations,\tnet\tof\ttax | $— | $7 | $23 |
| Pre-tax\tgain\t(loss)\ton\tdisposal | $— | $31 | $(141) |
| Tax\t(provision)\tbenefit | \t — | (12) | 10 |
| Gain\t(loss)\ton\tdisposal,\tnet\tof\ttax | $— | $19 | $(131) |
| Balance\tSheet\tSummary |  |  |  |
| Property,\tplant\tand\tequipment | $— | $— | $434 |
| Goodwill | \t — | \t — | 115 |
| Other\tassets | \t — | \t — | 54 |
| Liabilities | \t — | \t — | 317 |

The	tax	benefit	in	2002	of	$10	million	associated	with	the	loss	on	disposal	includes	$45	million	of	additional	taxes	related	to	goodwill	with	no	tax	basis.

In	the	third	quarter	of	2002,	we	completed	a	previously	announced	strategic	review	of	our	Distribution	Services	business	and	decided	to	exit	that	business.	We completed	that	exit	during	the	fourth	quarter	of	2002	through	a	combination	of	transferring	certain	facilities,	closing	other	facilities	and	other	suitable	arrangements.	In the	year	ended	January	3,	2003,	we	recognized	a	pre-tax	charge	of	$65	million	in	connection	with	the	decision	to	exit	this	business.	The	charge	includes	(1)	$15	million for	payments	to	third	parties	to	subsidize	their	assumption	of,	or	in	some	cases	to	terminate,	existing	distribution	or	warehouse	lease	contracts;	(2)	$9	million	for severance	costs;	(3)	$10	million	related	to	the	adjusting	of	fixed	assets	to	net	realizable	values;	(4)	$2	million	related	to	inventory	losses;	(5)	$15	million	for	losses	on equipment	leases;	(6)	$10	million	for	losses	on	warehouse	leases;	and	(7)	$4	million	of	other	associated	charges.

The	following	table	provides	additional	income	statement	and	balance	sheet	information	relating	to	the	Distribution	Services	business:

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Income\tStatement\tSummary\nSales | $— | $— | $1,376 |
| Pre-tax\tincome\t(loss) | $3 | $— | $(24) |
| Tax\t(provision)\tbenefit | (1) | \t — | 10 |
| Income\t(loss),\tnet\tof\ttax | $2 | $— | $(14) |
| Pre-tax\texit\tcosts | $— | $— | $(65) |
| Tax\tbenefit | \t — | \t — | 25 |
| Exit\tcosts,\tnet\tof\ttax | $— | $— | $(40) |
| Balance\tSheet\tSummary |  |  |  |
| Property,\tplant\tand\tequipment | $— | $— | $9 |
| Other\tassets | \t — | \t — | 21 |
| Liabilities | \t — | \t — | 49 |

# 9.	GOODWILL	AND	INTANGIBLE	ASSETS

| ($	in	millions) | 2004 | 2003 |
| :--- | :--- | :--- |
| Contract\tacquisition\tcosts | $738 | $730 |
| Accumulated\tamortization | (225) | (204) |
|  | $513 | $526 |
| Goodwill | $1,051 | $1,051 |
| Accumulated\tamortization | (128) | (128) |
|  | $923 | $923 |

We	capitalize	costs	incurred	to	acquire	management,	franchise,	and	license	agreements	that	are	both	direct	and	incremental.	We	amortize	these	costs	on	a	straight- line	basis	over	the	initial	term	of	the	agreements,	typically	15	to	30	years.	Amortization	expense,	including	amounts	related	to	discontinued	operations,	totaled	$33 million	in	2004,	$28	million	in	2003	and	$42	million	in	2002.

# 10.	SHAREHOLDERS'	EQUITY

Eight	hundred	million	shares	of	our	Class	A	Common	Stock,	with	a	par	value	of	$.01	per	share,	are	authorized.	Ten	million	shares	of	preferred	stock,	without	par value,	are	authorized,	200,000	shares	have	been	issued,	100,000	of	which	were	for	the	Employee	Stock	Ownership	Plan	(ESOP)	and	100,000	of	which	were	for	Capped Convertible	Preferred	Stock.	As	of	December	31,	2004,	there	were	no	outstanding	shares	of	the	ESOP	stock,	and	all	the	shares	of	the	Capped	Convertible	Preferred Stock	shares	were	retired	and	cancelled.

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

During	the	second	quarter	of	2000,	we	established	an	employee	stock	ownership	plan	solely	to	fund	employer	contributions	to	the	profit	sharing	plan.	The	ESOP acquired	100,000	shares	of	special-purpose	Company	convertible	preferred	stock	(ESOP	Preferred	Stock)	for	$1	billion.	The	ESOP	Preferred	Stock	had	a	stated	value and	liquidation	preference	of	$10,000	per	share,	paid	a	quarterly	dividend	of	1	percent	of	the	stated	value,	and	was	convertible	into	our	Class	A	Common	Stock	at	any time	based	on	the	amount	of	our	contributions	to	the	ESOP	and	the	market	price	of	the	common	stock	on	the	conversion	date,	subject	to	certain	caps	and	a	floor	price. We	held	a	note	from	the	ESOP,	which	was	eliminated	upon	consolidation,	for	the	purchase	price	of	the	ESOP	Preferred	Stock.	The	shares	of	ESOP	Preferred	Stock	were pledged	as	collateral	for	the	repayment	of	the	ESOP's	note,	and	those	shares	were	released	from	the	pledge	as	principal	on	the	note	was	repaid.	Shares	of	ESOP Preferred	Stock	released	from	the	pledge	were	redeemable	for	cash	based	on	the	value	of	the	common	stock	into	which	those	shares	could	be	converted.	Principal	and interest	payments	on	the	ESOP's	debt	were	forgiven	periodically	to	fund	contributions	to	the	ESOP	and	release	shares	of	ESOP	Preferred	Stock.	Unearned	ESOP	shares were	reflected	within	shareholders'	equity	and	amortized	as	shares	of	ESOP	Preferred	Stock	were	released	and	cash	was	allocated	to	employees'	accounts.	The	fair market	value	of	the	unearned	ESOP	shares	at	December	28,	2001,	was	$263	million.	The	last	of	the	shares	of	ESOP	Preferred	Stock	were	released	to	fund	contributions as	of	July	18,	2002,	at	which	time	the	remainder	of	the	principal	and	interest	due	on	the	ESOP's	note	was	forgiven.	As	of	December	31,	2004,	there	were	no	outstanding shares	of	ESOP	Preferred	Stock.

Our	accumulated	other	comprehensive	income	of	$9	million	and	our	accumulated	other	comprehensive	loss	of	$41	million	at	December	31,	2004,	and	January	2, 2004,	respectively,	consists	primarily	of	fair	value	changes	of	certain	financial	instruments	and	foreign	currency	translation	adjustments.

Total	deferred	tax	assets	and	liabilities	as	of	December	31,	2004	and	January	2,	2004,	were	as	follows:

| ($	in	millions) | 2004 | 2003 |
| :--- | :--- | :--- |
| Deferred\ttax\tassets | $834 | $698 |
| Deferred\ttax\tliabilities | (275) | (232) |
| Net\tdeferred\ttaxes | $559 | $466 |

The	tax	effect	of	each	type	of	temporary	difference	and	carryforward	that	gives	rise	to	a	significant	portion	of	deferred	tax	assets	and	liabilities	as	of	December 31,	2004,	and	January	2,	2004,	were	as	follows:

| ($	in	millions) | 2004 | 2003 |
| :--- | :--- | :--- |
| Self-insurance | $24 | $35 |
| Employee\tbenefits | 194 | 166 |
| Deferred\tincome | 35 | 45 |
| Other\treserves | 78 | 83 |
| Frequent\tguest\tprogram | 65 | 54 |
| Tax\tcredits | 269 | 203 |
| Net\toperating\tloss\tcarryforwards | 51 | 48 |
| Timeshare\tfinancing | (22) | (8) |
| Property,\tequipment\tand\tintangible\tassets | (123) | (127) |
| Other,\tnet | 3 | 4 |
| Deferred\ttaxes | 574 | 503 |
| Less:\tvaluation\tallowance | (15) | (37) |
| Net\tdeferred\ttaxes | $559 | $466 |

At	December	31,	2004,	we	had	approximately	$51	million	of	tax	credits	that	expire	through	2024,	$218	million	of	tax	credits	that	do	not	expire	and	$210	million of	net	operating	losses,	of	which	$139	million	expire	through	2023.	The	valuation	allowance	related	to	foreign	net	operating	losses	decreased	as	a	result	of	our	forecast of	the	realizability	of	the	deferred	tax	asset,	including	the	implementation	of	tax	planning	strategies.

We	have	made	no	provision	for	U.S.	income	taxes	or	additional	foreign	taxes	on	the	cumulative	unremitted	earnings	of	non-U.S.	subsidiaries	($402	million	as	of December	31,	2004)	because	we	consider	these	earnings	to	be	permanently	invested.	These	earnings	could	become	subject	to	additional	taxes	if	remitted	as	dividends, loaned	to	us	or	a	U.S.	affiliate	or	if	we	sold	our	interests	in	the	affiliates.	We	cannot	practically	estimate	the	amount	of	additional	taxes	that	might	be	payable	on	the unremitted	earnings.

The	American	Jobs	Creation	Act	of	2004	("the	Jobs	Act"),	enacted	on	October	22,	2004,	provides	for	a	temporary	85	percent	dividends	received	deduction	on certain	foreign	earnings	repatriated	during	a	one-year	period.	The	deduction	would	result	in	an	approximate	5.25	percent	federal	tax	rate	on	the	repatriated	earnings.	To qualify	for	the	deduction,	the	earnings	must	be	reinvested	in	the	United	States	pursuant	to	a	domestic	reinvestment	plan	established	by	a	company's	chief	executive officer	and	approved	by	the	company's	board	of	directors.	Certain	other	criteria	in	the	Jobs	Act	must	be	satisfied	as	well.	For	Marriott,	the	one-year	period	during	which the	qualifying	distributions	can	be	made	is	fiscal	2005.

We	are	in	the	process	of	evaluating	whether	we	will	repatriate	foreign	earnings	under	the	repatriation	provisions	of	the	Jobs	Act,	and	if	so,	the	amount	that	will	be repatriated.	The	range	of	reasonably	possible	amounts	that	we	are	considering	for	repatriation,	which	would	be	eligible	for	the	temporary	deduction,	is	zero	to	$500 million.	We	are	awaiting	the	issuance	of	further	regulatory	guidance	and	passage	of	statutory	technical	corrections	with	respect	to	certain	provisions	in	the	Jobs	Act	prior to	determining	the	amounts	we	will	repatriate.	We	expect	to	determine	the	amounts	and	sources	of	foreign	earnings	to	be	repatriated,	if	any,	during	the	fourth	quarter	of fiscal	2005.	The	income	tax	effects	of	repatriation,	if	any,	cannot	be	reasonably	estimated	at	this	time.

We	are	not	yet	in	a	position	to	determine	the	impact	of	a	qualifying	repatriation,	should	we	choose	to	make	one,	on	our	income	tax	expense	for	fiscal	2005,	the amount	of	our	indefinitely	reinvested	foreign	earnings,	or	the	amount	of	our	deferred	tax	liability	with	respect	to	foreign	earnings.

The	benefit	(provision)	for	income	taxes	consists	of:

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Current\t-\tFederal | $(153) | $5 | $(129) |
| \t\t\t\t-\tState | (34) | (28) | (42) |
| \t\t\t\t-\tForeign | (29) | (25) | (31) |
|  | (216) | (48) | (202) |
| Deferred\t-\tFederal | 90 | 73 | 146 |
| \t\t\t\t\t\t-\tState | 5 | 2 | 24 |
| \t\t\t\t\t\t-\tForeign | 21 | 16 | \t — |
|  | 116 | 91 | 170 |
|  | $(100) | $43 | $(32) |

The	current	tax	provision	does	not	reflect	the	benefits	attributable	to	us	relating	to	our	ESOP	of	$70	million	in	2002	or	the	exercise	of	employee	stock	options	of $79	million	in	2004,	$40	million	in	2003	and	$25	million	in	2002.	Included	in	the	above	amounts	are	tax	credits	of	$148	million	in	2004,	$214	million	in	2003	and	$164 million	in	2002.	The	taxes	applicable	to	other	comprehensive	income	are	not	material.

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

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| U.S.\tstatutory\ttax\trate | 35.0% | 35.0% | 35.0% |
| State\tincome\ttaxes,\tnet\tof\tU.S.\ttax\tbenefit | 2.9 | 3.8 | 4.0 |
| Minority\tinterest | 2.4 | — | — |
| Reduction\tin\tdeferred\ttaxes | 2.2 | — | — |
| Change\tin\tvaluation\tallowance | (3.3) | (3.2) | — |
| Foreign\tincome | (1.4) | (1.1) | (1.5) |
| Tax\tcredits | (22.6) | (43.9) | (34.8) |
| Goodwill | — | — | 3.6 |
| Other,\tnet | 0.1 | 0.6 | 0.5 |
| Effective\trate | 15.3% | (8.8)% | 6.8% |

We	have	summarized	our	future	obligations	under	operating	leases	at	December	31,	2004,	below:

| 2005 | $121 |
| :--- | :--- |
| 2006 | 112 |
| 2007 | 121 |
| 2008 | 121 |
| 2009 | 115 |
| Thereafter | 989 |
| Total\tminimum\tlease\tpayments | $1,579 |

Most	leases	have	initial	terms	of	up	to	20	years	and	contain	one	or	more	renewal	options,	generally	for	five-	or	10-year	periods.	These	leases	provide	for minimum	rentals	and	additional	rentals	based	on	our	operations	of	the	leased	property.	The	total	minimum	lease	payments	above	include	$544	million,	representing obligations	of	consolidated	subsidiaries	that	are	non-recourse	to	Marriott	International,	Inc.

Rent	expense	consists	of:

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Minimum\trentals | $216 | $201 | $222 |
| Additional\trentals | 93 | 68 | 75 |
|  | $309 | $269 | $297 |

The	totals	above	exclude	minimum	rent	expenses	of	$8	million	and	$34	million,	and	additional	rent	expenses	of	$1	million	and	$4	million,	for	2003	and	2002, respectively,	related	to	the	discontinued	Senior	Living	Services	business.	The	totals	also	do	not	include	minimum	rent	expenses	of	$42	million	for	2002	related	to	the discontinued	Distribution	Services	business.

# 13.	LONG-TERM	DEBT

Our	long-term	debt	at	December	31,	2004,	and	January	2,	2004,	consisted	of	the	following:

| ($	in	millions) | 2004 | 2003 |
| :--- | :--- | :--- |
| Senior\tNotes: |  |  |
| Series\tB,\tinterest\trate\tof\t6.875%,\tmaturing\tNovember\t15,\t2005 | $200 | $200 |
| Series\tC,\tinterest\trate\tof\t7.875%,\tmaturing\tSeptember\t15,\t2009 | 299 | 299 |
| Series\tD,\tinterest\trate\tof\t8.125%,\tmaturing\tApril\t1,\t2005 | 275 | 275 |
| Series\tE,\tinterest\trate\tof\t7.0%,\tmaturing\tJanuary\t15,\t2008 | 293 | 293 |
|  | — | 46 |
|  | 174 | 178 |
| Other | 84 | 102 |
| LYONs | — | 62 |
|  | \t 1,325 | \t 1,455 |
| Less\tcurrent\tportion | (489) | (64) |
|  | $836 | $1,391 |

As	of	December	31,	2004,	all	debt,	other	than	mortgage	debt	and	$10	million	of	other	debt,	is	unsecured.

We	are	party	to	two	multicurrency	revolving	credit	facilities	that	provide	for	aggregate	borrowings	of	up	to	$2	billion;	a	$1.5	billion	facility	entered	into	in	July 2001	that	expires	in	July	2006;	and	a	$500	million	facility	entered	into	in	August	2003	that	expires	in	August	2006.	Borrowings	under	the	facilities	bear	interest	at	the London	Interbank	Offered	Rate	(LIBOR)	plus	a	spread,	based	on	our	public	debt	rating.	Additionally,	we	pay	annual	fees	on	the	facilities	at	a	rate	also	based	on	our public	debt	rating.

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

Cash	paid	for	interest	(including	discontinued	operations),	net	of	amounts	capitalized,	was	$105	million	in	2004,	$94	million	in	2003	and	$71	million	in	2002.

On	April	7,	2004,	we	sent	notice	to	the	holders	of	our	Liquid	Yield	Option	Notes	due	2021	("Notes")	that,	subject	to	the	terms	of	the	indenture	governing	the Notes,	we	would	purchase	for	cash,	at	the	option	of	each	holder,	any	Notes	tendered	by	the	Holder	and	not	withdrawn	on	May	10,	2004,	at	a	purchase	price	of	$880.50 per	$1,000	principal	amount	at	maturity.

On	May	11,	2004,	Marriott	repurchased	all	of	the	outstanding	Notes	for	aggregate	cash	consideration	of	approximately	$62	million.

# 14.	EARNINGS	PER	SHARE

The	following	table	illustrates	the	reconciliation	of	the	earnings	and	number	of	shares	used	in	the	basic	and	diluted	earnings	per	share	calculations.

| (in	millions,	except	per	share	amounts) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Computation\tof\tBasic\tEarnings\tPer\tShare |  |  |  |
| Income\tfrom\tcontinuing\toperations | $594 | $476 | $439 |
| Weighted\taverage\tshares\toutstanding | \t 226.6 | \t 232.5 | \t 240.3 |
| Basic\tearnings\tper\tshare\tfrom\tcontinuing\toperations | $2.62 | $2.05 | $1.83 |
| Computation\tof\tDiluted\tEarnings\tPer\tShare |  |  |  |
| Income\tfrom\tcontinuing\toperations | $594 | $476 | $439 |
| After-tax\tinterest\texpense\ton\tconvertible\tdebt | — | — | 4 |
| Income\tfrom\tcontinuing\toperations\tfor\tdiluted\tearnings\tper\tshare | $594 | $476 | $443 |
| Weighted\taverage\tshares\toutstanding | \t 226.6 | \t 232.5 | \t 240.3 |
| Effect\tof\tdilutive\tsecurities |  |  |  |
| Employee\tstock\toption\tplan | 8.4 | 6.6 | 6.2 |
| Deferred\tstock\tincentive\tplan | 4.3 | 4.8 | 5.2 |
| Restricted\tstock\tunits | 0.9 | 0.6 | — |
| Convertible\tdebt | 0.3 | 0.9 | 2.9 |
| Shares\tfor\tdiluted\tearnings\tper\tshare | \t 240.5 | \t 245.4 | \t 254.6 |
| Diluted\tearnings\tper\tshare\tfrom\tcontinuing\toperations | $2.47 | $1.94 | $1.74 |

We	compute	the	effect	of	dilutive	securities	using	the	treasury	stock	method	and	average	market	prices	during	the	period.	We	determine	dilution	based	on earnings	from	continuing	operations.

In	accordance	with	FAS	No.	128,	"Earnings	per	Share,"	we	do	not	include	the	following	stock	options	in	our	calculation	of	diluted	earnings	per	share	because	the option	exercise	prices	are	greater	than	the	average	market	price	for	our	Class	A	Common	Stock	for	the	applicable	period:

# 15.	EMPLOYEE	STOCK	PLANS

We	issue	stock	options,	deferred	shares,	restricted	shares	and	restricted	stock	units	under	our	2002	Comprehensive	Stock	and	Cash	Incentive	Plan	(the "Comprehensive	Plan").	Under	the	Comprehensive	Plan,	we	may	award	to	participating	employees	(1)	options	to	purchase	our	Class	A	Common	Stock	(Stock	Option Program	and	Supplemental	Executive	Stock	Option	awards),	(2)	deferred	shares	of	our	Class	A	Common	Stock,	(3)	restricted	shares	of	our	Class	A	Common	Stock,	and (4)	restricted	stock	units	of	our	Class	A	Common	Stock.	In	addition,	in	2004	we	had	an	employee	stock	purchase	plan	(Stock	Purchase	Plan).	In	accordance	with	the provisions	of	Opinion	No.	25	of	the	Accounting	Principles	Board,	we	recognize	no	compensation	cost	for	the	Stock	Option	Program,	the	Supplemental	Executive	Stock Option	awards	or	the	Stock	Purchase	Plan.	We	recognize	compensation	cost	for	the	restricted	stock,	deferred	shares	and	restricted	stock	unit	awards.

Deferred	shares	granted	to	directors,	officers	and	key	employees	under	the	Comprehensive	Plan	generally	vest	over	5	to	10	years	in	annual	installments commencing	one	year	after	the	date	of	grant.	We	granted	six	thousand	deferred	shares	during	2004.	Compensation	cost,	net	of	tax,	recognized	during	2004,	2003	and 2002	was	$4	million,	$7	million	and	$6	million,	respectively.	At	December	31,	2004,	there	was	approximately	$14	million	in	deferred	compensation	related	to	deferred shares.

								Restricted	shares	under	the	Comprehensive	Plan	are	issued	to	officers	and	key	employees	and	distributed	over	a	number	of	years	in	annual	installments,	subject	to certain	prescribed	conditions,	including	continued	employment.	We	recognize	compensation	expense	for	the	restricted	shares	over	the	restriction	period	equal	to	the	fair market	value	of	the	shares	on	the	date	of	issuance.	We	awarded	no	restricted	shares	under	this	plan	during	2004.	We	recognized	compensation	cost,	net	of	tax,	of	$4 million	in	2004,	$4	million	in	2003	and	$3	million	in	2002.	At	December	31,	2004,	there	was	approximately	$10	million	in	deferred	compensation	related	to	restricted shares.

Restricted	stock	units	under	the	Comprehensive	Plan	are	issued	to	certain	officers	and	key	employees	and	vest	over	four	years	in	annual	installments	commencing one	year	after	the	date	of	grant.	We	recognize	compensation	expense	for	the	fair	market	value	of	the	shares	over	the	vesting	period.	Included	in	the	2004	and	2003 compensation	costs	is	$23	million	and	$8	million,	respectively,	net	of	tax,	related	to	the	grant	of	approximately	1.6	million	units	and	1.9	million	units,	respectively, under	the	restricted	stock	unit	plan,	which	was	started	in	the	first	quarter	of	2003.	At	December	31,	2004,	there	was	approximately	$84	million	in	deferred	compensation related	to	unit	grants.	Under	the	unit	plan,	fixed	grants	will	be	awarded	annually	to	certain	employees.

Under	the	Stock	Purchase	Plan	in	2004,	eligible	employees	were	able	to	purchase	our	Class	A	Common	Stock	through	payroll	deductions	at	the	lower	of	the market	value	at	the	beginning	or	end	of	each	plan	year.

Employee	stock	options	may	be	granted	to	officers	and	key	employees	at	exercise	prices	equal	to	the	market	price	of	our	Class	A	Common	Stock	on	the	date	of grant.	Nonqualified	options	expire	10	years	after	the	date	of	grant,	except	those	issued	from	1990	through	2000,	which	expire	15	years	after	the	date	of	the	grant.	Most options	under	the	Stock	Option	Program	are	exercisable	in	cumulative	installments	of	one	quarter	at	the	end	of	each	of	the	first	four	years	following	the	date	of	grant.	In February	1997,	2.2	million	Supplemental	Executive	Stock	Option	awards	were	awarded	to	certain	of	our	officers.	The	options	vest	after	eight	years	but	could	vest	earlier if	our	stock	price	meets	certain	performance	criteria.	None	of	these	options,	which	have	an	exercise	price	of	$25,	were	exercised	during	2004,	2003	or	2002,	and	1.9 million	remained	outstanding	at	December	31,	2004.

For	the	purposes	of	the	disclosures	required	by	FAS	No.	123,	"Accounting	for	Stock-Based	Compensation,"	the	fair	value	of	each	option	granted	during	2004, 2003	and	2002	was	$17,	$11	and	$14,	respectively.	We	estimated	the	fair	value	of	each	option	granted	on	the	date	of	grant	using	the	Black-Scholes	option-pricing method,	using	the	assumptions	noted	in	the	following	table:

|  | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Annual\tdividends | $0.32 | $0.30 | $0.28 |
| Expected\tvolatility | 31% | 32% | 32% |
| Risk-free\tinterest\trate | 3.7% | 3.5% | 3.6% |
| Expected\tlife\t(in\tyears) | 7 | 7 | 7 |

Pro	forma	compensation	cost	for	the	Stock	Option	Program,	the	Supplemental	Executive	Stock	Option	awards	and	employee	purchases	pursuant	to	the	Stock Purchase	Plan	subsequent	to	December	30,	1994,	would	reduce	our	net	income	as	described	in	the	"Summary	of	Significant	Accounting	Policies"	as	required	by	FAS No.	148,	"Accounting	for	Stock-Based	Compensation-Transition	and	Disclosure,	an	amendment	of	Financial	Accounting	Standards	Board	("FASB")	Statement	No. 123."

A	summary	of	our	Stock	Option	Program	activity	during	2004,	2003	and	2002	is	presented	below:

|  | Number	of<br>Options<br>(in	millions) | Weighted<br>Average	Exercise<br>Price |
| :--- | :--- | :--- |
| Outstanding\tat\tDecember\t29,\t2001 | 38.3 | $29 |
| Granted\tduring\tthe\tyear | 1.4 | 37 |
| Exercised\tduring\tthe\tyear | (1.6) | 22 |
| Forfeited\tduring\tthe\tyear | (0.6) | 37 |
| Outstanding\tat\tJanuary\t3,\t2003 | 37.5 | 29 |
| Granted\tduring\tthe\tyear | 4.0 | 30 |
| Exercised\tduring\tthe\tyear | (4.6) | 22 |
| Forfeited\tduring\tthe\tyear | (0.7) | 37 |
| Outstanding\tat\tJanuary\t2,\t2004 | 36.2 | 29 |
| Granted\tduring\tthe\tyear | 1.8 | 46 |
| Exercised\tduring\tthe\tyear | (7.3) | 30 |
| Forfeited\tduring\tthe\tyear | (0.3) | 38 |
| Outstanding\tat\tDecember\t31,\t2004 | 30.4 | $31 |

There	were	22.0	million,	25.1	million	and	24.9	million	exercisable	options	under	the	Stock	Option	Program	at	December	31,	2004,	January	2,	2004,	and	January 3,	2003,	respectively,	with	weighted	average	exercise	prices	of	$29,	$28	and	$25,	respectively.

At	December	31,	2004,	47.0	million	shares	were	reserved	under	the	Comprehensive	Plan	(including	32.3	million	shares	under	the	Stock	Option	Program	and Supplemental	Executive	Stock	Option	awards),	and	5.5	million	shares	were	reserved	under	the	Stock	Purchase	Plan.

Stock	options	issued	under	the	Stock	Option	Program	outstanding	at	December	31,	2004,	were	as	follows:

| Range	of<br>Exercise<br>Prices | Number	of<br>Options<br>(in	millions) | Weighted<br>Average<br>Remaining	Life<br>(in	Years) | Weighted<br>Average<br>Exercise<br>Price | Number	of<br>Options<br>(in	millions) | Weighted<br>Average<br>Exercise<br>Price |
| :--- | :--- | :--- | :--- | :--- | :--- |
| $3\t\t\t\tto\t\t\t\t5 | 0.4 | 1 | $3 | 0.4 | $3 |
| \t\t6\t\t\t\tto\t\t\t\t9 | 1.2 | 3 | 7 | 1.2 | 7 |
| 10\t\t\t\tto\t\t15 | 1.6 | 5 | 13 | 1.6 | 13 |
| 16\t\t\t\tto\t\t24 | 1.1 | 6 | 17 | 1.1 | 17 |
| 25\t\t\t\tto\t\t37 | 18.7 | 8 | 31 | 13.8 | 31 |
| 38\t\t\t\tto\t\t49 | 7.4 | 8 | 45 | 3.9 | 44 |
| $3\t\t\t\tto\t\t49 | 30.4 | 8 | $31 | 22.0 | $29 |

# 16.	FAIR	VALUE	OF	FINANCIAL	INSTRUMENTS

We	believe	that	the	fair	values	of	current	assets	and	current	liabilities	approximate	their	reported	carrying	amounts.	The	fair	values	of	noncurrent	financial	assets, liabilities	and	derivatives	are	shown	below.

| ($	in	millions) | Carrying<br>Amount | Fair<br>Value | Carrying<br>Amount | Fair<br>Value |
| :--- | :--- | :--- | :--- | :--- |
| Notes\tand\tother\tlong-term\tassets | $ 1,702 | $1,770 | $ 1,740 | $1,778 |
| Long-term\tdebt\tand\tother\tlong-term\tliabilities | $848 | $875 | $ 1,373 | $1,487 |
| Derivative\tinstruments | $— | $— | $(1) | $(1) |

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

During	the	year	ended	January	2,	2004,	we	entered	into	an	interest	rate	swap	agreement	under	which	we	receive	a	floating	rate	of	interest	and	pay	a	fixed	rate	of interest.	The	swap	modifies	our	interest	rate	exposure	by	effectively	converting	a	note	receivable	with	a	fixed	rate	to	a	floating	rate.	The	aggregate	notional	amount	of the	swap	is	$92	million,	and	it	matures	in	2010.	The	swap	is	classified	as	a	fair	value	hedge,	and	the	change	in	the	fair	value	of	the	swap,	as	well	as	the	change	in	the	fair value	of	the	underlying	note	receivable,	is	recognized	in	interest	income.	The	fair	value	of	the	swap	was	a	liability	of	approximately	$3	million	at	December	31,	2004, and	January	2,	2004.	The	hedge	is	highly	effective,	and	therefore,	no	net	gain	or	loss	was	reported	in	earnings	during	the	years	ended	December	31,	2004,	and	January	2, 2004.

At	December	31,	2004,	we	had	six	outstanding	interest	rate	swap	agreements	to	manage	interest	rate	risk	associated	with	the	residual	interests	we	retain	in conjunction	with	our	timeshare	note	sales.	We	are	required	by	purchasers	and/or	rating	agencies	to	utilize	interest	rate	swaps	to	protect	the	excess	spread	within	our	sold note	pools.	The	aggregate	notional	amount	of	the	swaps	is	$535	million,	and	they	expire	through	2022.	These	swaps	are	not	accounted	for	as	hedges	under	FAS	No.	133, "Accounting	for	Derivative	Instruments	and	Hedging	Activities."	The	fair	value	of	the	swaps	is	a	net	asset	of	approximately	$3	million	at	December	31,	2004,	a	net	asset of	approximately	$1	million	at	January	2,	2004,	and	a	net	liability	of	$2	million	at	January	3,	2003.	We	recorded	a	$2	million	net	gain,	$3	million	net	gain	and	$21 million	net	loss	during	the	years	ended	December	31,	2004,	January	2,	2004	and	January	3,	2003,	respectively.	These	expenses	were	largely	offset	by	income	resulting from	the	change	in	fair	value	of	the	retained	interests	and	note	sale	gains	in	response	to	changes	in	interest	rates.

During	the	years	ended	December	31,	2004,	and	January	2,	2004,	we	entered	into	interest	rate	swaps	to	manage	interest	rate	risk	associated	with	forecasted timeshare	note	sales.	These	swaps	were	not	accounted	for	as	hedges	under	FAS	No.	133.	The	swaps	were	terminated	upon	the	sale	of	the	notes	and	resulted	in	a	gain	of $2	million	during	the	year	ended	December	31,	2004	and	a	loss	of	$4	million	during	the	year	ended	January	2,	2004.	These	amounts	were	largely	offset	by	changes	in the	note	sale	gains	and	losses.

During	the	years	ended	December	31,	2004	and	January	2,	2004,	we	entered	into	forward	foreign	exchange	contracts	to	manage	the	foreign	currency	exposure related	to	certain	monetary	assets	denominated	in	pounds	sterling.	The	aggregate	dollar	equivalent	of	the	notional	amount	of	the	contracts	is	$36	million	at	December	31, 2004.	The	forward	exchange	contracts	are	not	accounted	for	as	hedges	in	accordance	with	FAS	No.	133.	The	fair	value	of	the	forward	contracts	is	approximately	zero	at December	31,	2004,	and	January	2,	2004.	We	recorded	a	$3	million	and	$2	million	net	loss	relating	to	these	forward	foreign	exchange	contracts	for	the	years	ended December	31,	2004	and	January	2,	2004,	respectively.	The	net	losses	for	both	years	were	offset	by	income	recorded	from	translating	the	related	monetary	assets denominated	in	pounds	sterling	into	U.S.	dollars.

During	fiscal	years	2004	and	2003,	we	entered	into	foreign	exchange	option	and	forward	contracts	to	hedge	the	potential	volatility	of	earnings	and	cash	flows associated	with	variations	in	foreign	exchange	rates.	The	aggregate	dollar	equivalent	of	the	notional	amounts	of	the	contracts	is	$36	million	at	December	31,	2004.	These contracts	have	terms	of	less	than	a	year	and	are	classified	as	cash	flow	hedges.	Changes	in	their	fair	values	are	recorded	as	a	component	of	other	comprehensive	income. The	fair	value	of	the	forward	contracts	is	approximately	zero	and	$1	million	at	December	31,	2004,	and	January	2,	2004,	respectively.	During	2004,	it	was	determined that	certain	derivatives	were	no	longer	effective	in	offsetting	the	hedged	item.	Thus,	cash	flow	hedge	accounting	treatment	was	discontinued	and	the	ineffective	contracts resulted	in	a	loss	of	$1	million,	which	was	reported	in	earnings	for	fiscal	year	2004.	The	remaining	hedges	were	highly	effective	and	there	was	no	net	gain	or	loss reported	in	earnings	for	the	fiscal	years	2004	and	2003.	As	of	December	31,	2004,	there	were	no	deferred	gains	or	losses	accumulated	in	other	comprehensive	income that	we	expect	to	reclassify	into	earnings	over	the	next	12	months.

# 18.	CONTINGENCIES

We	issue	guarantees	to	certain	lenders	and	hotel	owners	primarily	to	obtain	long-term	management	contracts.	The	guarantees	generally	have	a	stated	maximum amount	of	funding	and	a	term	of	five	years	or	less.	The	terms	of	guarantees	to	lenders	generally	require	us	to	fund	if	cash	flows	from	hotel	operations	are	inadequate	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	the	hotels	do	not	attain specified	levels	of	operating	profit.

We	also	enter	into	project	completion	guarantees	with	certain	lenders	in	conjunction	with	hotels	and	timeshare	units	that	we	or	our	joint	venture	partners	are building.

The	maximum	potential	amount	of	future	fundings	for	guarantees	where	we	are	the	primary	obligor	and	the	carrying	amount	of	the	liability	for	expected	future fundings	at	December	31,	2004,	are	as	follows:

| Guarantee	Type | Maximum<br>Potential	Amount<br>of	Future	Fundings | Liability	for	Future<br>Fundings	at<br>December	31,	2004 |
| :--- | :--- | :--- |
| Debt\tservice | $227 | $4 |
| Operating\tprofit | 276 | 14 |
| Project\tcompletion | 52 | — |
| Other | 46 | 5 |
| Total\tguarantees\twhere\tMarriott\tInternational\tis\tthe\tprimary\tobligor | $601 | $23 |

Our	guarantees	of	$601	million	listed	above	include	$91	million	for	guarantees	that	will	not	be	in	effect	until	the	underlying	hotels	open	and	we	begin	to	manage the	properties.	The	$91	million	of	guarantees	not	in	effect	is	comprised	of	$72	million	of	operating	profit	guarantees	and	$19	million	of	debt	service	guarantees. Guarantee	fundings	to	lenders	and	hotel	owners	are	generally	recoverable	as	loans	and	are	generally	repayable	to	us	out	of	future	hotel	cash	flows	and/or	proceeds	from the	sale	of	hotels.

In	addition	to	the	guarantees	noted	above,	in	conjunction	with	financing	obtained	for	specific	projects	or	properties	owned	by	joint	ventures	in	which	we	are	a party,	we	may	provide	industry	standard	indemnifications	to	the	lender	for	loss,	liability	or	damage	occurring	as	a	result	of	the	actions	of	the	other	joint	venture	owner	or our	own	actions,	in	each	case	limited	to	the	lesser	of	(i)	our	ownership	interest	in	the	entity	or	(ii)	the	actual	loss,	liability	or	damage	occurring	as	a	result	of	our	actions.

The	guarantees	above	do	not	include	$349	million	related	to	Senior	Living	Services	lease	obligations	and	lifecare	bonds	for	which	we	are	secondarily	liable. Sunrise	is	the	primary	obligor	of	the	leases	and	a	portion	of	the	lifecare	bonds,	and	CNL	is	the	primary	obligor	of	the	remainder	of	the	lifecare	bonds.	Prior	to	the	sale	of the	Senior	Living	Services	business	at	the	end	of	the	first	quarter	of	2003,	these	pre-existing	guarantees	were	guarantees	by	the	Company	of	obligations	of	consolidated Senior	Living	Services	subsidiaries.	Sunrise	and	CNL	have	indemnified	us	for	any	guarantee	fundings	we	may	be	called	on	to	make	in	connection	with	these	lease obligations	and	lifecare	bonds.	We	do	not	expect	to	fund	under	the	guarantees.

The	guarantees	above	also	do	not	include	lease	obligations	for	which	we	became	secondarily	liable	when	we	acquired	the	Renaissance	Hotel	Group	N.V.	in	1997, consisting	of	annual	rent	payments	of	approximately	$63	million	and	total	remaining	rent	payments	through	the	initial	term	plus	available	extensions	of	approximately $1.56	billion.	We	are	also	secondarily	obligated	for	real	estate	taxes	and	other	charges	associated	with	the	leases.	Third	parties	have	severally	indemnified	us	for	all payments	we	may	be	required	to	make	in	connection	with	these	obligations.	Since	we	assumed	these	guarantees,	we	have	not	funded	any	amounts,	and	we	do	not	expect to	fund	any	amounts	under	these	guarantees	in	the	future.

# Commitments	and	Letters	of	Credit

In	addition	to	the	guarantees	noted	above,	as	of	December	31,	2004,	we	had	extended	approximately	$42	million	of	loan	commitments	to	owners	of	lodging properties,	under	which	we	expect	to	fund	approximately	$12	million	by	December	30,	2005,	and	$14	million	over	the	following	year.	We	do	not	expect	to	fund	the remaining	$16	million	of	commitments,	which	expire	as	follows:	$14	million	within	one	year	and	$2	million	after	five	years.	At	December	31,	2004,	we	also	have commitments	to	invest	$37	million	of	equity	for	a	minority	interest	in	two	partnerships	that	plan	to	purchase	both	full-service	and	select-service	hotels	in	the	U.S.

# Litigation	and	Arbitration

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	and	other	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	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	seeks	various	remedies,	including	a	stay	of	the	arbitration	proceedings	against	CTF	and	unspecified	actual,	treble	and punitive	damages.	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	that	ruling.	The	arbitration	panel	hearing	on	the	matter	began	on	April	6,	2004	and	concluded	on	June	11, 2004.	Briefing	has	been	concluded.

In	a	decision	dated	August	23,	2004	a	panel	of	the	Third	Circuit	affirmed	the	district	court's	stay	of	the	arbitration	as	to	CTF	but	reversed	the	district	court's	stay of	the	trial.	On	September	7,	2004,	we	filed	with	the	Third	Circuit	a	petition	for	rehearing	en	banc	in	which	we	asked	the	court	to	reconsider	its	decision	vacating	the	stay of	the	trial.	The	petition	was	denied	on	September	24,	2004.	No	scheduling	order	has	been	entered	by	the	district	court.

We	believe	that	CTF's	and	HPI's	claims	against	us	are	without	merit,	and	we	intend	to	vigorously	defend	against	them.	However,	we	cannot	assure	you	as	to	the outcome	of	the	arbitration	or	the	related	litigation;	nor	can	we	currently	estimate	the	range	of	any	potential	losses	to	the	Company.

# 19.	BUSINESS	SEGMENTS

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

•	 Full-Service	Lodging,	which	includes	Marriott	Hotels	&	Resorts,	The	Ritz-Carlton,	Renaissance	Hotels	&	Resorts	and	Bulgari	Hotels	&	Resorts;

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

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

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

•	 Synthetic	Fuel,	which	includes	our	interest	in	the	operation	of	coal-based	synthetic	fuel	production	facilities.

In	addition	to	the	segments	above,	in	2002	we	announced	our	intent	to	sell,	and	subsequently	did	sell,	our	Senior	Living	Services	business	segment	and	exited	our Distribution	Services	business	segment.

We	evaluate	the	performance	of	our	segments	based	primarily	on	the	results	of	the	segment	without	allocating	corporate	expenses,	interest	expense	and	interest income.	With	the	exception	of	the	Synthetic	Fuel	segment,	we	do	not	allocate	income	taxes	to	our	segments.	The	synthetic	fuel	operation	generated	a	tax	benefit	and credits	of	$165	million,	$245	million	and	$208	million,	respectively,	for	the	years	ended	December	31,	2004,	January	2,	2004,	and	January	3,	2003,	from	our	synthetic fuel	joint	venture.	As	timeshare	note	sales	are	an	integral	part	of	the	timeshare	business,	we	include	timeshare	note	sale	gains	in	our	timeshare	segment	results,	and	we allocate	other	gains	as	well	as	equity	in	earnings	(losses)	from	our	joint	ventures	to	each	of	our	segments.

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.

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Full-Service | $6,611 | $5,876 | $5,508 |
| Select-Service | 1,118 | \t 1,000 | 967 |
| Extended-Stay | 547 | 557 | 600 |
| Timeshare | 1,502 | \t 1,279 | \t 1,147 |
| Total\tlodging | 9,778 | \t 8,712 | \t 8,222 |
| Synthetic\tFuel | 321 | 302 | 193 |
|  | $10,099 | $9,014 | $8,415 |

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Full-Service | $426 | $407 | $397 |
| Select-Service | 140 | 99 | 130 |
| Extended-Stay | 66 | 47 | (3) |
| Timeshare | 203 | 149 | 183 |
| Total\tlodging\tfinancial\tresults | 835 | 702 | 707 |
| Synthetic\tFuel\t(after-tax) | 107 | 96 | 74 |
| Unallocated\tcorporate\texpenses | (138) | (132) | (126) |
| Interest\tincome,\tprovision\tfor\tloan\tlosses\tand\tinterest\texpense | 55 | 12 | 24 |
| Income\ttaxes\t(excluding\tSynthetic\tFuel) | (265) | (202) | (240) |
|  | $594 | $476 | $439 |

# Equity	in	Earnings	(Losses)	of	Equity	Method	Investees

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Full-Service | $10 | $8 | $5 |
| Select-Service | (17) | (22) | (8) |
| Timeshare | (7) | (4) | (2) |
| Synthetic\tFuel | (28) | 10 | — |
| Corporate | — | 1 | (1) |
|  | $(42) | $(7) | $(6) |

# Depreciation	and	Amortization

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Full-Service | $64 | $54 | $54 |
| Select-Service | 12 | 10 | 9 |
| Extended-Stay | 9 | 10 | 10 |
| Timeshare | 49 | 49 | 38 |
| Total\tLodging | 134 | 123 | 111 |
| Corporate | 24 | 29 | 31 |
| Synthetic\tFuel | 8 | 8 | 8 |
| Discontinued\toperations | — | — | 37 |
|  | $166 | $160 | $187 |

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Full-Service | $3,230 | $3,436 | $3,423 |
| Select-Service | 817 | 833 | 771 |
| Extended-Stay | 241 | 286 | 274 |
| Timeshare | \t 2,321 | \t 2,350 | \t 2,225 |
| Total\tLodging | \t 6,609 | \t 6,905 | \t 6,693 |
| Corporate | \t 1,943 | \t 1,189 | 911 |
| Synthetic\tFuel | 116 | 83 | 59 |
| Discontinued\toperations | — | — | 633 |
|  | $8,668 | $8,177 | $8,296 |

# Equity	Method	Investments

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Full-Service | $120 | $310 | $327 |
| Select-Service | 77 | 95 | 114 |
| Timeshare | 31 | 22 | 13 |
| Total\tLodging | 228 | 427 | 454 |
| Corporate | 21 | 41 | 21 |
|  | $249 | $468 | $475 |

# Goodwill

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Full-Service | $851 | $851 | $851 |
| Select-Service | — | — | — |
| Extended-Stay | 72 | 72 | 72 |
| Timeshare | — | — | — |
| Total\tLodging | $923 | $923 | $923 |

# Capital	Expenditures

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Full-Service | $95 | $93 | $138 |
| Select-Service | 16 | 38 | 23 |
| Extended-Stay | 1 | 3 | 39 |
| Timeshare | 38 | 45 | 36 |
| Total\tlodging | \t 150 | \t 179 | \t 236 |
| Corporate | 31 | 16 | 20 |
| Synthetic\tFuel | \t — | \t — | 7 |
| Discontinued\toperations | \t — | 15 | 29 |
|  | $181 | $210 | $292 |

Segment	expenses	include	selling	expenses	directly	related	to	the	operations	of	the	businesses,	aggregating	$454	million	in	2004,	$452	million	in	2003	and	$421 million	in	2002.	Approximately	94	percent	of	the	selling	expenses	are	related	to	our	Timeshare	segment.

The	consolidated	financial	statements	include	the	following	related	to	international	operations:	sales	of	$968	million	in	2004,	$711	million	in	2003	and	$584 million	in	2002;	financial	results	of	$140	million	in	2004,	$102	million	in	2003	and	$94	million	in	2002;	and	fixed	assets	of	$358	million	in	2004,	$336	million	in	2003 and	$256	million	in	2002.	No	individual	country,	other	than	the	United	States,	constitutes	a	material	portion	of	our	sales,	financial	results	or	fixed	assets.

# 20.	RELATED	PARTY	TRANSACTIONS

We	have	equity	method	investments	in	entities	that	own	properties	where	we	provide	management	and/or	franchise	services	and	receive	a	fee.	In	addition,	in some	cases	we	provide	loans,	preferred	equity	or	guarantees	to	these	entities.	Our	ownership	interest	in	these	equity	method	investments	generally	varies	from	10	to	50 percent.	The	following	tables	present	financial	data	resulting	from	transactions	with	these	related	parties:

| ($	in	millions) | 2004 | 2003 | 2002 |
| :--- | :--- | :--- | :--- |
| Base\tmanagement\tfees | $72 | $56 | $48 |
| Incentive\tmanagement\tfees | 8 | 4 | 4 |
| Cost\treimbursements | 802 | 699 | 557 |
| Owned,\tleased,\tcorporate\thousing\tand\tother\trevenue | 29 | 28 | 26 |
| Total\trevenue | $911 | $787 | $635 |
| General,\tadministrative\tand\tother | $(33) | $(11) | $(11) |
| Reimbursed\tcosts | (802) | (699) | (557) |
| Gains\tand\tother\tincome | 19 | 21 | 44 |
| Interest\tincome | 74 | 77 | 66 |
| Reversal\tof\t(provision\tfor)\tloan\tlosses | 3 | (2) | (5) |
| Equity\tin\tearnings\t(losses)\t–\tSynthetic\tfuel | (28) | (10) | \t — |
| Equity\tin\tearnings\t(losses)\t–\tOther | (14) | (17) | (6) |

| ($	in	millions) | 2004 | 2003 |
| :--- | :--- | :--- |
| Current\tassets\t-\taccounts\tand\tnotes\treceivable | $72 | $118 |
| Contract\tacquisition\tcosts | 24 | 42 |
| Equity\tmethod\tinvestments | 249 | 468 |
| Loans\tto\tequity\tmethod\tinvestees | 526 | 558 |
| Other\tlong-term\treceivables | 3 | \t — |
| Other\tlong-term\tassets | 38 | 30 |
| Current\tliabilities: |  |  |
| Accounts\tpayable | (3) | (2) |
| Other\tpayables\tand\taccruals | (4) | (1) |
| Other\tlong-term\tliabilities | (11) | (10) |

Summarized	information	relating	to	the	entities	in	which	we	have	equity	method	investments	is	as	follows:

# 21.	VARIABLE	INTEREST	ENTITIES

FIN	46,	"Consolidation	of	Variable	Interest	Entities"	("the	Interpretation"),	was	effective	for	all	enterprises	with	variable	interests	in	variable	interest	entities created	after	January	31,	2003.	FIN	46(R),	which	was	revised	in	December	2003,	was	effective	for	all	entities	to	which	the	provisions	of	FIN	46	were	not	applied	as	of December	24,	2003.	We	applied	the	provisions	of	FIN	46(R)	to	all	entities	subject	to	the	Interpretation	as	of	March	26,	2004.	Under	FIN	46(R),	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,	receives	a	majority	of	the entity's	expected	residual	returns,	or	both,	the	"primary	beneficiary."

As	a	result	of	adopting	FIN	46(R),	we	consolidated	our	two	synthetic	fuel	joint	ventures	as	of	March	26,	2004.	At	December	31,	2004,	the	ventures	had	working capital	of	$6	million,	and	the	book	value	of	the	synthetic	fuel	facilities	("the	Facilities")	was	$29	million.	The	ventures	have	no	long-term	debt.	See	Footnote	No.	7, "Synthetic	Fuel,"	of	the	Notes	to	Consolidated	Financial	Statements	for	additional	disclosure	related	to	our	synthetic	fuel	operation,	including	the	nature,	purpose	and size	of	the	two	synthetic	fuel	joint	ventures,	as	well	as	the	nature	of	our	involvement	and	the	timing	of	when	our	involvement	began.

We	currently	consolidate	four	other	entities	that	are	variable	interest	entities	under	FIN	46(R).	These	entities	were	established	with	the	same	partner	to	lease	four Marriott-branded	hotels.	The	combined	capital	in	the	four	variable	interest	entities	is	$3	million,	which	is	used	primarily	to	fund	hotel	working	capital.	Our	equity	at	risk is	$2	million,	and	we	hold	55	percent	of	the	common	equity	shares.

We	have	one	other	significant	interest	in	an	entity	that	is	a	variable	interest	entity	under	FIN	46(R).	In	February	2001,	we	entered	into	a	shareholders'	agreement with	an	unrelated	third	party	to	form	a	joint	venture	to	own	and	lease	luxury	hotels	to	be	managed	by	us.	In	February	2002,	the	joint	venture	signed	its	first	lease	with	a third-party	landlord.	The	initial	capital	structure	of	the	joint	venture	is	$4	million	of	debt	and	$4	million	of	equity.	We	hold	35	percent	of	the	equity,	or	$1	million,	and 65	percent	of	the	debt,	or	$3	million,	for	a	total	investment	of	$4	million.	In	addition,	each	equity	partner	entered	into	various	guarantees	with	the	landlord	to	guarantee lease	payments.	Our	total	exposure	under	these	guarantees	is	$17	million.	Our	maximum	exposure	to	loss	is	$21	million.	We	do	not	consolidate	the	joint	venture	since we	do	not	bear	the	majority	of	the	expected	losses	or	expected	residual	returns.

# QUARTERLY	FINANCIAL	DATA	–	UNAUDITED

| ($	in	millions,	except	per	share	data) | First<br>Quarter | Second<br>Quarter | Third<br>Quarter | Fourth<br>Quarter | Fiscal<br>Year |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Revenues\t2 | $2,252 | $2,402 | $2,304 | $3,141 | $10,099 |
| Operating\tincome\t2 | $151 | $118 | $99 | $109 | $477 |
| Income\tfrom\tcontinuing\toperations | $114 | $160 | $132 | $188 | $594 |
| Discontinued\toperations,\tafter\ttax | — | — | 1 | 1 | 2 |
| Net\tincome | $114 | $160 | $133 | $189 | $596 |
| Diluted\tearnings\tper\tshare\tfrom\tcontinuing\toperations | $.47 | $.67 | $.55 | $.79 | $2.47 |
| Diluted\tearnings\t(losses)\tper\tshare\tfrom\tdiscontinued\toperations | — | — | .01 | — | .01 |
| Diluted\tearnings\tper\tshare | $.47 | $.67 | $.56 | $.79 | $2.48 |

| ($	in	millions,	except	per	share	data) | First<br>Quarter | Second<br>Quarter | Third<br>Quarter | Fourth<br>Quarter | Fiscal<br>Year |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Revenues\t2 | $2,023 | $2,016 | $2,109 | $2,866 | $9,014 |
| Operating\tincome\t2 | $58 | $68 | $90 | $161 | $377 |
| Income\tfrom\tcontinuing\toperations | $87 | $126 | $93 | $170 | $476 |
| Discontinued\toperations,\tafter\ttax | 29 | (1) | (1) | (1) | 26 |
| Net\tincome\t(loss) | $116 | $125 | $92 | $169 | $502 |
| Diluted\tearnings\tper\tshare\tfrom\tcontinuing\toperations | $.36 | $.52 | $.38 | $.69 | $1.94 |
| Diluted\tearnings\t(losses)\tper\tshare\tfrom\tdiscontinued\toperations | .12 | (.01) | (.01) | — | .11 |
| Diluted\tearnings\t(losses)\tper\tshare | $.48 | $.51 | $.37 | $.69 | $2.05 |

1 The	quarters	consisted	of	12	weeks,	except	for	the	fourth	quarter,	which	consisted	of	16	weeks.

2 Balances	reflect	Senior	Living	Services	and	Distribution	Services	businesses	as	discontinued	operations.

3 The	sum	of	the	earnings	per	share	for	the	four	quarters	differs	from	annual	earnings	per	share	due	to	the	required	method	of	computing	the	weighted	average shares	in	interim	periods.

# Item	9.	Changes	in	and	Disagreements	With	Accountants	on	Accounting	and	Financial	Disclosure.

# Item	9A.	Controls	and	Procedures.

# Disclosure	Controls	and	Procedures

As	of	the	end	of	the	period	covered	by	this	annual	report,	we	carried	out	an	evaluation,	under	the	supervision	and	with	the	participation	of	the	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	(as	such	term	is	defined	in	Rules	13a-15(e)	and	15d-15(e)	of	the	Exchange	Act),	and	management	necessarily	applied	its	judgment	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.	You	should	note	that the	design	of	any	system	of	controls	is	based	in	part	upon	certain	assumptions	about	the	likelihood	of	future	events,	and	we	cannot	assure	you	that	any	design	will succeed	in	achieving	its	stated	goals	under	all	potential	future	conditions,	regardless	of	how	remote.	Based	upon	the	foregoing	evaluation,	our	Chief	Executive	Officer and	the	Chief	Financial	Officer	concluded	that	our	disclosure	controls	and	procedures	are	effective	to	ensure	that	information	required	to	be	disclosed	by	the	Company in	the	reports	that	it	files	or	submits	under	the	Exchange	Act	is	recorded,	processed,	summarized	and	reported	within	the	time	periods	specified	in	the	rules	and	forms	of the	Securities	and	Exchange	Commission.

See	"Management's	Report	on	Internal	Control	Over	Financial	Reporting"	included	in	Part	II,	Item	8	"Financial	Statements	and	Supplementary	Data."

# Item	9B.	Other	Information.

# PART	III

As	described	below,	we	incorporate	certain	information	appearing	in	the	Proxy	Statement	we	will	furnish	to	our	shareholders	in	connection	with	the	2005	Annual Meeting	of	Shareholders	by	reference	in	this	Form	10-K	Annual	Report.

ITEM	11. We	incorporate	this	information	by	reference	to	the	"Executive	Compensation"	section	of	our	Proxy	Statement.

ITEM	12. We	incorporate	this	information	by	reference	to	the	"Securities	Authorized	for	Issuance	Under	Equity Compensation	Plans"	and	the	"Stock	Ownership"	sections	of	our	Proxy	Statement.

ITEM	13. We	incorporate	this	information	by	reference	to	the	"Certain	Relationships	and	Related	Transactions"	section	of our	Proxy	Statement.

ITEM	14. We	incorporate	this	information	by	reference	to	the	"Principal	Independent	Auditor	Fee	Disclosure"	and	the	"Pre- Approval	of	Independent	Auditor	Fees	and	Services	Policy"	sections	of	our	Proxy	Statement.

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

Name	and	Title Age Business	Experience J.W.	Marriott,	Jr. Chairman	of	the	Board	and Chief	Executive	Officer 72 Mr.	Marriott	joined	Marriott	Corporation	(now	known	as	Host	Marriott Corporation)	in	1956,	became	President	and	a	director	in	1964,	Chief Executive	Officer	in	1972	and	Chairman	of	the	Board	in	1985.	Mr.	Marriott also	is	a	director	of	the	National	Geographic	Society	and	the	Naval	Academy Endowment	Trust.	He	serves	on	the	Board	of	Trustees	of	the	National	Urban League	and	The	J.	Willard	&	Alice	S.	Marriott	Foundation,	and	is	a	member of	the	Executive	Committee	of	the	World	Travel	&	Tourism	Council	and	the Business	Council.	In	addition,	he	is	also	Chairman	of	the	President's	Export Council,	a	presidential	advisory	committee	on	export	trade,	and	serves	as Chairman	of	the	Leadership	Council	of	the	Laura	Bush	Foundation	for America's	Libraries.	Mr.	Marriott	has	served	as	Chairman	and	Chief Executive	Officer	of	the	Company	since	its	inception,	and	served	as Chairman	and	Chief	Executive	Officer	of	the	company	formerly	known	as Marriott	International,	Inc.	("Old	MI")	(subsequently	named	Sodexho,	Inc. and	now	a	wholly	owned	subsidiary	of	Sodexho	Alliance)	from	October 1993	until	the	Company's	spin-off	from	Old	MI	in	March	1998.	Mr.	Marriott has	served	as	a	director	of	the	Company	since	March	1998.	J.W.	Marriott,	Jr. is	the	father	of	John	W.	Marriott	III.

# Code	of	Ethics

The	Company	has	long	maintained	and	enforced	an	Ethical	Conduct	Policy	that	applies	to	all	Marriott	associates,	including	our	Chief	Executive	Officer,	Chief Financial	Officer	and	Principal	Accounting	Officer.	We	have	posted	our	Ethical	Conduct	Policy,	which	has	been	in	substantially	its	current	form	since	the	mid-1980s,	in the	Corporate	Governance	section	of	our	Investor	Relations	web	site,	http://ir.shareholder.com/mar/corporategovernance.cfm.	Any	future	changes	or	amendments	to	our Ethical	Conduct	Policy,	and	any	waiver	of	our	Ethical	Conduct	Policy	that	applies	to	our	Chief	Executive	Officer,	Chief	Financial	Officer	and	Principal	Accounting Officer,	will	be	posted	to	http://ir.shareholder.com/mar/corporategovernance.cfm.

# PART	IV

# Item	15.	Exhibits	and	Financial	Statement	Schedules.

# LIST	OF	DOCUMENTS	FILED	AS	PART	OF	THIS	REPORT

# (1) FINANCIAL	STATEMENTS

The	response	to	this	portion	of	Item	15	is	submitted	under	Item	8	of	this	Report	on	Form	10-K.

# (2) FINANCIAL	STATEMENT	SCHEDULES

Information	relating	to	schedules	for	which	provision	is	made	in	the	applicable	accounting	regulations	of	the	SEC	is	included	in	the	notes	to	the financial	statements	and	is	incorporated	herein	by	reference.

# (3) EXHIBITS

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

# Incorporation	by	Reference

(where	a	report	or	registration	statement	is

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	we	have	duly	caused	this	Form	10-K	to	be	signed	on	our	behalf	by	the undersigned,	thereunto	duly	authorized,	on	this	22nd	day	of	February,	2005.

# 	Chief	Executive	Officer

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

# PRINCIPAL	EXECUTIVE	OFFICER:

J.W.	Marriott,	Jr.

PRINCIPAL	FINANCIAL	OFFICER:

PRINCIPAL	ACCOUNTING	OFFICER:

/s/				Carl	T.	Berquist Carl	T.	Berquist

DIRECTORS:

/s/				Richard	S.	Braddock Richard	S.	Braddock,	Director /s/				Lawrence	W.	Kellner Lawrence	W.	Kellner,	Director /s/				Debra	L.	Lee Debra	L.	Lee,	Director /s/				John	W.	Marriott	III John	W.	Marriott	III,	Director /s/				Floretta	Dukes	McKenzie

Floretta	Dukes	McKenzie,	Director

	 Chairman	of	the	Board,	Chief	Executive	Officer and	Director

Executive	Vice	President	and Chief	Financial	Officer

Executive	Vice	President,	Financial Information	and	Enterprise	Risk	Management

/s/				George	Muñoz George	Muñoz,	Director /s/				Harry	J.	Pearce Harry	J.	Pearce,	Director /s/				Roger	W.	Sant Roger	W.	Sant,	Director /s/				William	J.	Shaw William	J.	Shaw,	Director /s/				Lawrence	M.	Small

Lawrence	M.	Small,	Director



Question: what is the difference of between the carrying amount and the fair value of notes and other long-term assets in 2004?
Answer: 68