<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED SEPTEMBER 3, 1999

                                       OR

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


                           Commission File No. 1-12188

                         SODEXHO MARRIOTT SERVICES, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

           DELAWARE                                     52-0936594
    ------------------------             ---------------------------------------
    (State of Incorporation)             (I.R.S. Employer Identification Number)


    9801 WASHINGTONIAN BOULEVARD, GAITHERSBURG, MARYLAND            20878
    ----------------------------------------------------           -------
          (Address of principal executive offices)                (Zip Code)

                                 (301) 987-4431
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

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

        TITLE OF EACH CLASS           NAME OF EACH EXCHANGE ON WHICH REGISTERED
    -----------------------------     -----------------------------------------
    Common Stock, $1.00 par value               New York Stock Exchange
                                                Chicago Stock Exchange
                                                Pacific Stock Exchange
                                                Philadelphia Stock Exchange


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 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. [X]

As of October 26, 1999, the number of shares of common stock outstanding was
62,339,533. The aggregate market value of shares of common stock held by
non-affiliates at October 26, 1999 was $430,400,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive annual proxy statement to be filed
within 120 days of the Registrant's fiscal year ended September 3, 1999 are
incorporated by reference into Part III of this report.

Index to Exhibits is located on pages 63 through 67 of this report.


<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED SEPTEMBER 3, 1999


                                TABLE OF CONTENTS


                                                                         PAGE
                                                                         ----

                                    INTRODUCTION

Overview and Glossary of Terms                                             2
Forward-Looking Statements                                                 4
Pro Forma Unaudited Financial Information                                  5


                                    PART I

Item 1.           Business                                                13
Item 2.           Properties                                              19
Item 3.           Legal Proceedings                                       19
Item 4.           Submission of Matters to a Vote of Security Holders     19


                                    PART II

Item 5.           Market for the Company's Common Stock and Related
                    Shareholder Matters                                   20
Item 6.           Selected Historical Financial Data                      20
Item 7.           Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                   22
Item 8.           Financial Statements and Supplementary Data             30
Item 9.           Changes in and Disagreements with Accountants on
                    Accounting and Financial Disclosure                   60


                                    PART III

Item 10.          Directors and Executive Officers of the Registrant      60
Item 11.          Executive Compensation                                  60
Item 12.          Security Ownership of Certain Beneficial
                    Owners and Management                                 60
Item 13.          Certain Relationships and Related Transactions          60


                                    PART IV

Item 14.          Exhibits, Financial Statement Schedules, and
                    Reports on Form 8-K                                   63




                                      -1-

<PAGE>


                                  INTRODUCTION

OVERVIEW AND GLOSSARY OF TERMS

Sodexho Marriott Services, Inc. (the "Company") is the leading provider in North
America of outsourced food and facilities management services to businesses,
health care facilities, colleges and universities, and primary and secondary
schools. Food services include food and beverage procurement, preparation and
menu planning, as well as the operation and maintenance of food service and
catering facilities, generally on a client's premises. Facilities management
services include plant maintenance, energy management, grounds keeping, and
housekeeping and custodial services.

The Company was formerly named Marriott International, Inc. Upon the
consummation of the distribution of its lodging, senior living and distribution
services businesses to existing shareholders (see "Distributed Operations"
below), which occurred on March 27, 1998 (the last day of the first quarter of
1998), the Company then acquired the North American operations of Sodexho
Alliance, S.A., and the combined operations were renamed Sodexho Marriott
Services, Inc. The subsidiaries listed below represent the current direct
subsidiaries of the Company. Each of these direct subsidiaries, in turn, has one
or more subsidiaries.

o     Sodexho Marriott Operations, Inc., with two main operating
      subsidiaries: Sodexho Marriott Management, Inc. (formerly Marriott
      Management Services Corp.) and its subsidiaries, and International
      Catering Corporation and its subsidiaries;
o     Sodexho Financiere du Canada, Inc. (acquired in the Transactions
      described in Note 1 to the Consolidated Financial Statements); and
o     Sodexho MS Canada, Ltd. (formerly Marriott Corporation of Canada,
      Ltd.).

Sodexho Financiere du Canada, Inc. and subsidiaries and International Catering
Corporation and subsidiaries are collectively referred to as "Sodexho North
America." Similarly, the former Marriott Corporation of Canada, Ltd. and
subsidiaries and the former Marriott Management Services Corp. and subsidiaries
are collectively referred to as "MMS."

THE TRANSACTIONS

As of March 27, 1998, the assets, liabilities and business operations of the
Company changed substantially due to the Distribution to shareholders, the
Acquisition of Sodexho North America and the Refinancing of debt (the
"Transactions"). Below is an overview of the Transactions.

DISTRIBUTED OPERATIONS. On March 27, 1998, the Company distributed to its
shareholders the lodging segment and two of the three lines of business in the
contract services segment - Marriott Senior Living Services ("MSLS") and
Marriott Distribution Services ("MDS"). The lodging, MSLS and MDS businesses are
collectively referred to as the Distributed Operations. The third line of
business in the contract services segment, MMS, has become the principal
business of the Company. The lodging segment distributed to shareholders is
presented as Discontinued Operations in the historical financial statements of
the Company.

ACQUISITION. Immediately after the Distribution, on March 27, 1998, Sodexho
transferred to the Company the operations of Sodexho North America having a fair
market value of approximately $278 million, combined with a cash payment of $304
million in exchange for 29.9 million shares of the Company's common stock, after
giving effect to a one-for-four reverse stock split. The purchase price included
approximately $3 million in transaction costs. As a result of the issuance of
new shares of the Company's common stock to Sodexho in connection with the
Acquisition, the shareholders who owned 100 percent of the Company immediately
prior to the Distribution owned approximately 51% immediately thereafter.

THE REFINANCING. On March 27, 1998, the Company borrowed $615 million and $620
million under the Secured SMS Facility and Guaranteed SMS Facility, respectively
(see Note 8 to the Consolidated Financial Statements). The proceeds were used to
reduce the Company's previously existing debt outstanding. Also, the Company
repaid debt of $73 million assumed in the Acquisition.


                                      -2-

<PAGE>




Due to the extensive changes in the Company's business that resulted from the
Transactions, the Company is providing the following glossary of significant
terms used in this report for informational purposes. In certain places in this
document, where deemed meaningful for the reader's understanding, these
definitions may be repeated.

THE ACQUISITION. On March 27, 1998, the Company acquired Sodexho North America,
and Sodexho paid the Company $304 million, in exchange for approximately 48% of
the shares of the Company's common stock that were issued and outstanding
immediately after the Transactions.

ADJUSTED NET TANGIBLE ASSETS. The amount by which stockholders' equity exceeds
intangible assets with certain adjustments.

THE COMPANY. Sodexho Marriott Services, Inc. (together with its consolidated
subsidiaries), formerly Marriott International, Inc.

DISCONTINUED OPERATIONS.  The Company's lodging business segment.

DISTRIBUTED OPERATIONS. The lodging, senior living services, and distribution
services businesses taken collectively.

THE DISTRIBUTION. On March 27, 1998, the Company distributed the stock of New
Marriott MI, Inc., which contained all of the assets and liabilities of the
Company's lodging, senior living services, and distribution services businesses,
to its shareholders in a tax-free transaction.

FISCAL YEAR 1999.  The 53-week period ended September 3, 1999.

FISCAL YEAR 1997.  The 52-week period ended January 2, 1998.

FISCAL YEAR 1996.  The 53-week period ended January 3, 1997.

ICC. International Catering Corporation, and subsidiaries, combined with Sodexho
Financiere du Canada, Inc. and subsidiaries, collectively referred to as Sodexho
North America.

I&R COSTS.  Integration and Restructuring costs related to the Transactions.

MI. New Marriott MI, Inc. (together with its subsidiaries) was subsequently
renamed Marriott International, Inc.

MDS. Marriott Distribution Services, the Company's distribution services
business.

MMS. Marriott Management Services Corp., the remaining line of business in the
contract services segment, consisting of food service and facilities management,
which has become the principal business of the Company.

MMS- UK OPERATION. Marriott Management Services Corp.'s United Kingdom
operations sold in October 1997 to a subsidiary of Sodexho Alliance, S.A. in
anticipation of the Transactions.

MSLS. Marriott Senior Living Services, the Company's senior living services
business.

NEW MARRIOTT MI, INC. Subsequently renamed Marriott International, Inc. ("MI"),
conducts business in the lodging segment, MDS and MSLS.

OTHER CONTRACT SERVICES. MDS and MSLS, which for the first quarter of the 1998
Transition Period and prior fiscal years were part of the Company's continuing
operations.

PRO FORMA FISCAL YEAR 1999. The pro forma 53-week period ending September 3,
1999.

PRO FORMA FISCAL YEAR 1998. The pro forma 52-week period ended August 28, 1998.

PRO FORMA FISCAL YEAR 1997. The pro forma 52-week period ended August 29, 1997.


                                      -3-

<PAGE>




THE REFINANCING. On March 27, 1998, the Company and its indirect subsidiary, RHG
Finance Corporation, tendered for a total of $720 million principal amount of
their respective outstanding publicly held debt. In addition, the Company
refinanced its commercial paper and indebtedness outstanding under its revolving
credit facility, which totaled $950 million on March 27, 1998.

RETAINED BUSINESS. All operations not distributed.

REVERSE STOCK SPLIT. On March 27, 1998, the Company's common stock underwent a
one-for-four reverse stock split.

SODEXHO. Sodexho Alliance, S.A., a worldwide food and management services
organization headquartered in France and a 48% shareholder of the Company.

SODEXHO NORTH AMERICA. Sodexho Financiere du Canada and subsidiaries, and
International Catering Corporation and subsidiaries (also known as Sodexho USA)
taken collectively.

STUB PERIOD. The 22-week period beginning March 27, 1998, the date of the
Transactions, and ending on August 28, 1998.

THE TRANSACTIONS. The Distribution, Acquisition, and Refinancing taken
collectively.

TRANSITION PERIOD. On April 15, 1998, the Board of Directors of the Company
approved the change of the fiscal year of the Company to the Friday nearest to
August 31 of each year. Prior to this change in fiscal year, the Company's
fiscal year ended on the Friday nearest to December 31 of each year. Thus, the
1998 fiscal year, which began on January 3, 1998, ended on August 28, 1998, and
is considered the Transition Period. The 1999 fiscal year, which began on August
29, 1998 and ended on September 3, 1999, was a 53-week period.

TRANSITION REPORT. The Company's Transition Report on Form 10-K for the 34-week
period ended August 28, 1998.


FORWARD-LOOKING STATEMENTS

This report by the Company contains forward-looking statements within the
meaning of the federal securities laws. These statements are based on the
Company's current expectations and relate to anticipated future events that are
not historical facts, such as the Company's business strategies and their
intended results.

The forward-looking statements included in this report are subject to numerous
risks and uncertainties that could cause the Company's future activities and
results of operations to differ materially from those expressed or implied in
the forward-looking statements. These risks and uncertainties, which are further
discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this report, include: (i) the ability
of the Company to adapt to various changes, including changes in its structure,
senior management and in its relationship with its largest shareholder--Sodexho
Alliance, (ii) the potential adverse impact of the Company's substantial
indebtedness, (iii) the ability of the Company to attract, hire, train and
retain competent management personnel, (iv) competition in the food services and
facilities management industries, (v) the effects of general economic
conditions, (vi) the ability of the Company to retain clients and obtain new
clients on satisfactory terms, (vii) the ability of the Company to remedy any
computer-related issues that may result from the advent of the Year 2000, and
other factors described from time to time in the Company's filings with the
Securities and Exchange Commission including those set forth in Exhibit 99 filed
herein.

As a result of these risks and uncertainties, readers are cautioned not to place
undue reliance on the forward-looking statements included in this report or that
may be made elsewhere from time to time by, or on behalf of, the Company. The
Company assumes no obligation to update any forward-looking statements.




                                      -4-

<PAGE>



PRO FORMA UNAUDITED FINANCIAL INFORMATION

As of March 27, 1998, the assets, liabilities and business operations of the
Company changed substantially due to the Transactions described fully in Notes 1
through 5 to the Consolidated Financial Statements. As a result of these
changes, there are substantial differences in the comparability of the Company's
historical operating results prior to March 27, 1998, presented in Parts I and
II of this document and the Company's ensuing and ongoing operations. To assist
readers in understanding the present operations of the Company, management
believes it is meaningful and relevant to set forth in this report not only the
results for the fiscal year ended September 3, 1999 compared with the historical
results of operations for the thirty-four weeks ended August 28, 1998 and the
historical fiscal years 1997 and 1996 (presented in Item 8 of this report), but
also the pro forma operating results and pro forma cash flow for the full fiscal
years ended September 3, 1999, August 28, 1998 and August 29, 1997, as well as
the condensed balance sheet as of September 3, 1999 and August 28, 1998. The pro
forma operating results and cash flow information were prepared as if the
Transactions occurred at the beginning of each period and only include the
Company's Retained Business and the acquired operations of Sodexho North
America.

Prior to March 27, 1998, pro forma sales and managed volume include the combined
actual activity of the food and facilities management services business of MMS
and Sodexho North America. Managed Volume represents the Company's measurement
of gross revenues associated with all services the Company manages on behalf of
its clients. Similarly, pro forma corporate expenses include the combined
corporate overhead of both businesses. No synergies are assumed for periods
presented prior to March 27, 1998. Management estimates that approximately $25
million in synergies were realized in pro forma fiscal year 1999. Integration
and restructuring charges of $15.6 million and $31.1 million were excluded for
pro forma fiscal years 1999 and 1998, respectively. However, an estimate of $6.4
million in annual costs were included on a pro rata basis in all periods
presented prior to March 27, 1998, representing incremental costs to operate the
Company as a separate public entity. Pro forma net income reflects approximately
$15.9 million of amortization expense for each year for the intangible assets
related to the Acquisition.

Pro forma interest expense, net, represents the estimated costs as if the
Refinancing and the interest rate agreements had been in place on the first day
of all periods presented. Effective income tax rates of 44.8%, 48% and 54% were
used for pro forma fiscal years 1999, 1998 and 1997, respectively. Pro forma
results do not include any extraordinary charges related to the Refinancing, the
loss in 1997 from the sale of MMS- UK operations to Sodexho or any operating
results from the MMS- UK operations prior to its sale.

Pro forma basic earnings per share was calculated with total weighted-average
shares outstanding of 62.1 million for pro forma fiscal 1999. For pro forma
fiscal years 1998 and 1997, a base of 61.9 million shares was included in pro
forma basic earning per share, which represents the number of shares outstanding
at August 28, 1998. Pro forma diluted earnings per share were calculated on a
base of 63.9 million shares for pro forma fiscal 1999 and 62.5 million shares
for fiscal 1998 and 1997. The dilutive shares are the result of the Company's
convertible debt, stock option plans and deferred stock incentive plans.














                                      -5-

<PAGE>



PRO FORMA UNAUDITED CONDENSED STATEMENT OF INCOME BY SEGMENT
FOR FISCAL YEARS ENDED SEPTEMBER 3, 1999, AUGUST 28, 1998 AND AUGUST 29, 1997
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>

                                                           1999                1998               1997
                                                     ------------------ ------------------- ------------------
                                                        (53 WEEKS)          (52 WEEKS)         (52 WEEKS)
<S>                                                            <C>                 <C>                <C>

SALES
         Corporate Services                                    $1,380              $1,336             $1,243
         Health Care                                            1,323               1,277              1,249
         Education                                              1,221               1,150              1,083
         Schools                                                  358                 333                302
         Canada                                                   143                 145                153
         Laundries/Other                                           77                  65                 59
                                                     ------------------ ------------------- ------------------
TOTAL SALES                                                     4,502               4,306              4,089

OPERATING COSTS AND EXPENSES
         Corporate Services                                     1,289               1,253              1,169
         Health Care                                            1,214               1,182              1,156
         Education                                              1,148               1,093              1,034
         Schools                                                  337                 317                288
         Canada                                                   136                 140                149
         Laundries/Other                                           72                  61                 56
                                                     ------------------ ------------------- ------------------
TOTAL OPERATING COSTS AND EXPENSES                              4,196               4,046              3,852
                                                     ------------------ ------------------- ------------------

OPERATING PROFIT BEFORE
   CORPORATE ITEMS
         Corporate Services                                        91                  83                 74
         Health Care                                              109                  95                 93
         Education                                                 73                  57                 49
         Schools                                                   21                  16                 14
         Canada                                                     7                   5                  4
         Laundries/Other                                            5                   4                  3
                                                     ------------------ ------------------- ------------------
TOTAL OPERATING PROFIT                                            306                 260                237
                                                     ------------------ ------------------- ------------------

CORPORATE ITEMS:
  Amortization of Intangible Assets                               (38)                (37)               (38)
  Corporate Expenses                                              (81)                (73)               (74)
  Interest Expense, Net                                           (87)                (87)               (87)
  Gain on Sale of Investment                                        8                  --                 --
                                                     ------------------ ------------------- ------------------

INCOME BEFORE INCOME TAXES                                        108                  63                 38

Provision for Income Taxes                                        (48)                (30)               (20)
                                                     ------------------ ------------------- ------------------

PRO FORMA NET INCOME                                           $   60              $   33             $   18
                                                     ================== =================== ==================

PRO FORMA BASIC EARNINGS PER SHARE                             $ 0.96              $ 0.53             $ 0.28
                                                     ================== =================== ==================

PRO FORMA DILUTED EARNINGS PER SHARE                           $ 0.94              $ 0.52             $ 0.28
                                                     ================== =================== ==================
</TABLE>


                                      -6-

<PAGE>



PRO FORMA UNAUDITED SUPPLEMENTAL INFORMATION ON MANAGED VOLUME*
FOR FISCAL YEARS ENDED SEPTEMBER 3, 1999 AND AUGUST 28, 1998
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)




<TABLE>
<CAPTION>

                                                                                             FISCAL
                                  FIRST          SECOND         THIRD          FOURTH         YEAR
                                 QUARTER        QUARTER        QUARTER        QUARTER         ENDED      % INC./
SEGMENT                           NOV-98         FEB-99         MAY-99         SEP-99        SEP-99       (DEC.)
                            -----------------------------------------------------------------------------------------
                                (13 weeks)     (13 weeks)     (13 weeks)     (14 weeks)    (53 weeks)

<S>                                 <C>            <C>            <C>            <C>           <C>        <C>
Corporate Services                  $  335         $  323         $  350         $  372        $1,380      3 %
Health Care                            699            705            708            758         2,870      9
Education                              421            320            343            239         1,323      6
Schools                                194            174            195             84           647      8
Canada                                  63             56             59             57           235     (1)
Laundries/Other                         33             33             35             38           139     20
                            --------------------------------------------------------------------------

Total                               $1,745         $1,611         $1,690         $1,548        $6,594      7 %
                            ==========================================================================




                                                                                             FISCAL
                                  FIRST          SECOND         THIRD          FOURTH         YEAR
                                 QUARTER        QUARTER        QUARTER        QUARTER         ENDED
SEGMENT                           NOV-97         FEB-98         MAY-98         AUG-98        AUG-98
                            --------------------------------------------------------------------------
                                (13 weeks)     (13 weeks)     (13 weeks)     (13 weeks)    (52 weeks)

Corporate Services                  $  329         $  320         $  344         $  346        $1,339
Health Care                            650            650            657            671         2,628
Education                              399            307            337            203         1,246
Schools                                180            165            182             75           602
Canada                                  67             59             60             51           237
Laundries/Other                        N/A            N/A            N/A            N/A           116
                            --------------------------------------------------------------------------

Total                               $1,625         $1,501         $1,580         $1,346        $6,168
                            ==========================================================================


<FN>

* Managed Volume represents the Company's measurement of gross revenues
associated with all services the Company manages on behalf of its clients.
</FN>
</TABLE>


                                      -7-

<PAGE>



DISCUSSION OF PRO FORMA FISCAL YEAR 1999 COMPARED WITH PRO FORMA
 FISCAL YEAR 1998 RESULTS OF OPERATIONS

Total sales for pro forma fiscal year 1999 ("1999") were $4.5 billion, an
increase of $196 million, or 4.6%, over $4.3 billion for pro forma fiscal year
1998 ("1998"). Excluding the estimated $76 million impact of the extra week in
fiscal year 1999, sales increased $120 million, or 2.8%. This growth was mostly
attributable to solid performance in the Education and Schools divisions that
was the result of sales growth at existing clients partially offset by an
overall lower retention rate for the Company in 1998. The Corporate Services
division had lower growth in sales for 1999, resulting from strong competition
in this mature market, the overall impact of corporate restructurings and a
lower retention rate going into 1999 from 1998. Growth in the Health Care
division was impacted by the challenging environment for the health care
industry in 1999, including decreased government reimbursements, consolidation
in the industry and several bankruptcies of health care institutions. Despite
these challenges, the Health Care division has grown sales at existing clients
and sold new business to largely offset a lower retention rate going into 1999
from 1998. As with other divisions, retention in Health Care improved in 1999,
which will favorably impact next year's sales growth. Management believes that
these challenges present an opportunity to gain new business, as the Company
works with new and existing clients to seek cost-effective outsourcing
solutions.

The Company believes managed volume is the more complete measure of its overall
level of business activity. Managed volume is the Company's measurement of gross
revenues associated with all services the Company manages on behalf of its
clients. Pro forma managed volume for fiscal year 1999 was $6.6 billion, up 7%
over pro forma fiscal 1998. Pro forma sales were up 5% to $4.5 billion, from
$4.3 billion a year ago. Excluding the estimated effect of the 53rd week in
fiscal 1999, pro forma managed volume and sales increased 5% and 3%,
respectively, over fiscal 1998.

Pro forma operating profit before corporate items (corporate administrative
expenses, interest expense, fees to Marriott International and Sodexho Alliance,
and amortization of intangible assets) totaled $306 million for 1999, an
increase of $46 million, or 17.7%, over $260 million in operating profit for
1998. This increase was driven by improved operating margins, particularly in
the Education and Schools divisions, the result of efficiencies achieved in the
procurement of food-related products and administrative synergies gained during
the year. Operating profit for the Health Care division was unfavorably impacted
by several bankruptcies at hospital clients in 1999, as this industry continues
to experience consolidation and restructuring issues. Excluding $3 million in
charges related to bankruptcies in 1999, Health Care's operating profit would
have totaled $112 million, or a 16.7% increase over a comparably adjusted 1998
operating profit of $96 million. Operating profit in the Canada and
Laundries/Other divisions collectively totaled $12 million in 1999, an increase
of $3 million or 33% over 1998. This double-digit increase was driven by
improved margins in the both divisions. The 53rd week did not have a material
impact of the Company's operating profit for the current year.

Corporate expenses and amortization of intangible assets in pro forma fiscal
1999 totaled $119 million, an increase of $9 million, or 8%, compared with pro
forma fiscal 1998. Included in corporate expenses are a one-time, $3.4 million
charge ($1.9 million after-tax, or $0.03 per diluted share) related to the
resignation of the former Chief Executive Officer and $5 million of Year 2000
related costs (see "Year 2000"). Excluding the one-time resignation charge and
the Year 2000 costs, total corporate expenses were level with Pro Forma Fiscal
1998. Administrative synergies were achieved as planned during 1999, but were
partially offset by consulting expenses and other reinvestments in the Company's
corporate infrastructure.

Pro Forma Fiscal 1999 included the favorable impact from the sale of the
Company's Bright Horizons Family Solutions ("BFAM") investment, resulting in a
gain of $8.3 million ($4.6 million after-tax, or $0.07 per diluted share).

Excluding the Year 2000 costs and the one-time resignation charge, total
operating costs, corporate expenses and amortization of intangible assets
represented, in the aggregate, 95.7% of total sales for Pro Forma Fiscal Year
1999 compared with Pro Forma Fiscal Year 1998's comparable period ratio of
96.5%. The Company anticipates this margin will continue to improve in the
periods ahead, as the Company continues to realize purchasing synergies.
Together with the synergies from administrative actions, these savings are
anticipated to reach $60 million annually by fiscal year 2001. Synergies from
both purchasing and administrative actions are estimated to be $25 million in
the current year. Anticipated incremental synergies generated in fiscal year
2000 are expected to be reinvested during fiscal year 2000. The reinvestments,
which are targeted primarily for additional sales and management personnel, have
already begun.







                                      -8-

<PAGE>



DISCUSSION OF PRO FORMA FISCAL YEAR 1999 COMPARED WITH PRO FORMA
 FISCAL YEAR 1998 RESULTS OF OPERATIONS, CONTINUED

In addition, the Company has undertaken an information systems strategy study to
evaluate the current state of its information systems, and consider information
technology options. Among the options under consideration is the adoption of
certain elements of the technology platform adopted by Sodexho Alliance. This
evaluation will require additional time to study and review alternatives and
their impact on capital investments, earnings, shareholder value and the
provisions of the Company's debt agreements. Strategic developments in this area
are expected to be finalized during fiscal year 2000. See Item 7.--Liquidity and
Capital Resources.

The growth in operating profit increased pretax income to $108 million, a 71% or
$45 million increase when compared with $63 million for 1998. The effective tax
rate for 1999 was 44.8%, a decrease from 48% for 1998, mostly due to the
proportion of nondeductible intangible amortization expense in relation to total
operating profit between the years. Net income almost doubled in 1999 to $60
million, or $0.94 per diluted share, compared with $33 million, or $0.52 per
diluted share for 1998. Excluding the one-time resignation charge and the BFAM
gain, pro forma earnings per diluted share would have been approximately $0.90.


DISCUSSION OF PRO FORMA 1998 COMPARED WITH PRO FORMA 1997 RESULTS OF OPERATIONS

Total sales for Pro Forma Fiscal 1998 were $4.3 billion, an increase of $217
million, or 5.3%, over $4.1 billion for 1997. This growth was mostly
attributable to solid performance in the Corporate Services and Education
divisions. Increases in the Corporate Services and Education divisions were the
result of high retention of existing clients (approximately 95% for 1998), and
strong new sales growth. Corporate Services division's sales were also favorably
impacted by the continued implementation of the Crossroads Cuisines retail
strategy. Lower growth in the Health Care division in 1998 was mostly the result
of the challenging environment for the health care industry in 1998, including
decreased government reimbursements, consolidation in the industry and several
bankruptcies of health care institutions. Despite these challenges, the Health
Care division increased sales by $28 million, or 2.2%, over the prior year.
Management believes that these challenges present an opportunity for the Company
to gain new business, as client organizations are likely to seek cost-effective
outsourcing solutions. The Schools, Canada and Laundries/Other divisions' sales
collectively totaled $543 million for 1998, an increase of $29 million, or 5.6%,
over the $514 million in aggregate sales for 1997.

Operating profit before corporate items (corporate expenses, interest expense,
and amortization of intangible assets) totaled $260 million for 1998, an
increase of $23 million, or 9.7%, over the $237 million in operating profit for
1997. This increase was driven by solid sales growth in the Corporate Services
and Education divisions in 1998. Operating margins, particularly in the
Education division, improved as the result of efficiencies in labor costs and
increased efficiencies in the procurement of food-related products gained during
the year. Operating profit in the Schools, Canada and Laundries/Other divisions
collectively totaled $25 million in 1998, an increase of $4 million or 19% over
1997. This double-digit increase was driven by strong growth in new business in
the Schools division.

Corporate expenses in 1998 were about even with the prior year, reflecting the
elimination of certain positions after the Transactions and the timing of
filling certain employee positions. Had the Company fully completed the
consolidation of the MMS and Sodexho North America processing systems and
related hiring of certain personnel, additional costs of approximately $5
million pretax would have been incurred during the 22 week Stub Period. Total
operating costs, corporate expenses and amortization of intangible assets
represent, in the aggregate, 96.5% of total sales for the year, compared with
1997's ratio of 96.9%. The Company anticipates this margin will continue to
improve in the periods ahead, as the Company continues the integration of the
MMS and Sodexho North America operations resulting in savings realized from
purchasing and administrative actions. These savings are anticipated to reach
$60 million annually by fiscal year 2001.

The growth in operating profit combined with relatively flat corporate items
contributed to an increase in pretax income of $25 million, or 66%, to $63
million for 1998. The effective tax rate for 1998 was 48%, a decrease from 54%
for 1997, mostly due to the proportion of nondeductible intangible amortization
expense in relation to total operating profit between the years. Net income
almost doubled in 1998 to $33 million, or $0.52 per diluted share, compared with
$18 million, or $0.28 per diluted share for 1997.


                                      -9-

<PAGE>



DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES

The Company continues to capitalize on its combined market presence as well as
focusing on attracting new accounts and enhancing services to sustain growth.
The Company is highly leveraged and anticipates that it would have long-term
unsecured debt ratings, if obtained, below investment grade based on its pro
forma financial statements. The debt resulting from the Refinancing contains
restrictive covenants and requires grants of security and guarantees by
subsidiaries of the Company, which limit the Company's ability to incur
additional debt and engage in certain other activities. Additionally, these debt
covenants limit the Company's ability to pay dividends.

Capital requirements are funded from a combination of existing cash balances and
operating cash flow. Additionally, the Company anticipates achieving annual cost
savings of approximately $60 million pretax by the end of fiscal year 2001,
resulting from purchasing and administrative synergies. The anticipated cost
savings, which the Company estimates were approximately $25 million in Fiscal
Year 1999, will be available to pay down debt and reinvest in the Company to
fund activities to enhance its competitive position. Anticipated incremental
synergies generated in fiscal year 2000 are expected to be reinvested during
fiscal year 2000. These reinvestments, which are targeted primarily for
additional sales and management personnel, have already begun. In addition, the
Company has undertaken an information systems strategy study to evaluate the
current state of its information systems, and consider information technology
options. Among the options under consideration is the adoption of certain
elements of the technology platform adopted by Sodexho Alliance. This evaluation
will require additional time to study and review alternatives and their impact
on capital investments, earnings, shareholder value and the provisions of the
Company's debt agreements. Strategic developments in this area are expected to
be finalized during Fiscal Year 2000. See Item 1.--Integration and Restructuring
and Item 7.--Liquidity and Capital Resources. Subject to the foregoing, the
Company believes that current cash flow generated from operations and cash
balances will be adequate to finance ongoing capital needs, meet debt service
requirements and fund the Company's planned growth initiatives.

As of September 3, 1999, the Company had a $235 million revolving credit
facility available at an interest rate of 7.55% to provide funds for liquidity,
seasonal borrowing needs and other general corporate purposes. At September 3,
1999, $52 million of this facility was outstanding, while an additional $33
million of this revolving credit facility was utilized by letters of credit
outstanding, principally related to insurance programs.

Prior to the Transactions, the Company paid regular quarterly dividends. On
October 13, 1999, the Board of Directors declared an $0.08 per common share
dividend for Fiscal Year 1999, payable on December 10, 1999 to shareholders of
record on November 22, 1999. The Company may pay dividends in the future,
subject to the restrictive covenants contained in the Company's credit facility
agreements and other relevant considerations. In general, the restrictive
covenants do not permit the Company to pay dividends to shareholders in an
amount greater than 40 percent of the Company's net income, or 45 percent when
the ratio of the Company's consolidated debt to Earnings Before Interest, Taxes,
Depreciation and Amortization ratio ("EBITDA", as defined in the documentation
for the credit facility agreements) is less than 4 but not less than 3. This
restriction will no longer apply when such ratio is less than 3. The payment and
amount of cash dividends on the Company's common stock will be subject to the
sole discretion of the Company's Board, which will review the Company's dividend
policy at such times as may be deemed appropriate. The Board will continue to
closely monitor the results of the Company's operations, capital requirements,
and other considerations to determine the extent to which a dividend may be
declared in future periods.

The Company is required to make quarterly cash interest payments on its term and
guaranteed facilities, as well as scheduled principal repayments on its Senior
Secured Credit Facility (as detailed in Note 8 to Consolidated Financial
Statements). Annual interest expense was $88 million for the 53-week period
ended September 3, 1999 ($87 million on an annualized basis). Principal
repayments totaled $70 million in fiscal year 1999; with scheduled repayments of
approximately $80 million in 2000; $80 million in 2001; $90 million in 2002;
$115 million in 2003 and $65 million in 2004.

On October 7, 1999, Marriott International notified all holders of the Liquid
Yield Option(TM) Notes ("LYONs"), that Marriott International had elected to
redeem all of the LYONs at a price of $619.65 for each $1,000 principal amount
at maturity of the LYONs, with a redemption date of November 8, 1999. Conversion
is available at any time until the close of business on the redemption date. The
maximum amount of funds that the Company would be obligated to pay to Marriott
International if all the LYONs were redeemed for cash is approximately $30
million. This amount would be paid to Marriott International in the first
quarter of fiscal year 2000--See Note 8 to Consolidated Financial Statements.


                                      -10-

<PAGE>



CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 3, 1999 AND AUGUST 28, 1998
($ IN MILLIONS)

<TABLE>
<CAPTION>
                                                                            SEPTEMBER 3,        AUGUST 28,
                                                                                1999               1998
                                                                         ------------------ ------------------

                            ASSETS
<S>                                                                               <C>                <C>
Current assets
     Cash and equivalents                                                         $    48            $    79
     Accounts and notes receivable                                                    445                374
     Inventories                                                                       60                 54
     Other                                                                             89                 98
                                                                         ------------------ ------------------
                  Total current assets                                                642                605
                                                                         ------------------ ------------------

Property and equipment, net                                                            85                 82
Intangible assets                                                                     535                569
Other                                                                                  85                 85
                                                                         ------------------ ------------------
                                                                                  $ 1,347            $ 1,341
                                                                         ================== ==================

            LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
     Current portion of long-term debt                                            $   133            $    96
     Accounts payable                                                                 238                222
     Other current liabilities                                                        347                377
                                                                         ------------------ ------------------
                  Total current liabilities                                           718                695

Long-term debt                                                                        980              1,062
Other long-term liabilities                                                           113                110
Convertible subordinated debt                                                          30                 29

Stockholders' deficit
     Preferred stock, no par value, 1 million shares
       authorized; no shares issued                                                     -                  -
     Common stock, $1 par value; 300 million shares
       authorized, 62 million shares issued and outstanding                            62                 62
     Additional paid-in capital                                                     1,326              1,322
     Accumulated deficit                                                           (1,884)            (1,946)
     Accumulated other comprehensive income                                             2                  7
                                                                         ------------------ ------------------
         Total stockholders' deficit                                                 (494)              (555)
                                                                         ------------------ ------------------
        Total liabilities and stockholders' deficit                               $ 1,347            $ 1,341
                                                                         ================== ==================
</TABLE>




                                      -11-

<PAGE>



DISCUSSION OF PRO FORMA CASH FLOW

CASH FLOW FROM OPERATING ACTIVITIES

The Company's cash flow from operations is affected by a predictable seasonal
pattern. Cash flow from operations is strongest during the fall and spring, as
the demand for services fluctuates in the Education and Schools divisions.

Cash flow from operations, before the impact of changes in working capital, was
$145 million in 1999, $115 million in 1998, and $102 million in 1997. The
increase in the adjusted operating cash flow in pro forma fiscal years 1999 and
1998 was mostly the result of higher net income in both years. Working capital,
defined as the net of current assets and current liabilities, is favorable to
the Company when current liabilities exceed current assets. This negative
working capital position is primarily the result of the timing of cash payments
in relationship to the timing of cash received. Higher accounts and notes
receivable in 1999 reflect the impact of the 53rd week and a lengthening of the
average billing cycle compared to last year. The Company anticipates it will
improve its negative working capital position in future periods.

CASH FLOW FROM INVESTING ACTIVITIES

The Company invests cash primarily for capital expenditures related to new or
existing client relationships. Total capital expenditures were $72 million, $60
million and $57 million for 1999, 1998 and 1997, respectively. The Company
anticipates expending approximately $70 to $75 million for capital investments
for fiscal year 2000. In addition, the Company intends to make, from time to
time, investments for business acquisitions.

CASH FLOW FROM FINANCING ACTIVITIES

The Company's financing activities reflects the Company's management of its debt
and other long-term liabilities, in addition to the Company's receipt of funds
from stock sales, as part of the Company's overall management of its cost of
capital. Pro forma cash flow from financing activities represents cash flow as
if the Refinancing had been in place on the first day of all periods presented.
In 1999, net cash used in financing activities totaled $40 million, mostly due
to the $70 million repayment of long-term debt, partially offset by increases in
short-term debt and other liabilities. Net cash provided by financing activities
in 1998 totaled $49 million. Other cash provided by financing activities totaled
$106 million, reflecting the transfer of insurance-related liabilities from MI,
and was partially offset by repayments of long-term debt totaling $57 million in
1998. Net cash provided by financing activity was unchanged for 1997.

PRO FORMA UNAUDITED CONDENSED CASH FLOW
FOR THE FISCAL YEARS ENDED 1999, 1998 AND 1997
 ($ IN MILLIONS)
<TABLE>
<CAPTION>
                                                                        YEAR ENDED         YEAR ENDED         YEAR ENDED
                                                                       SEPTEMBER 3,        AUGUST 28,         AUGUST 29,
                                                                           1999               1998               1997
                                                                   ------------------- ------------------ ------------------
                                                                        (53 WEEKS)         (52 WEEKS)         (52 WEEKS)
CASH PROVIDED BY OPERATING ACTIVITIES
-------------------------------------
<S>                                                                             <C>                <C>                <C>
Net income                                                                      $ 60               $ 33               $ 18
Adjust to reconcile net income to net cash:
   Depreciation expense                                                           47                 45                 46
   Amortization of intangible assets                                              38                 37                 38
   Net changes in certain working capital items                                  (40)               (39)               (12)
                                                                   ------------------- ------------------ ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                        105                 76                 90
                                                                   ------------------- ------------------ ------------------

CASH FLOW FROM INVESTING ACTIVITIES
-----------------------------------
Capital expenditures                                                             (72)               (60)               (57)
Other                                                                            (24)               (27)               (30)
                                                                   ------------------- ------------------ ------------------
NET CASH USED IN INVESTING ACTIVITIES                                            (96)               (87)               (87)
                                                                   ------------------- ------------------ ------------------

CASH FLOW FROM FINANCING ACTIVITIES
-----------------------------------
Repayments of long-term debt                                                     (70)               (57)                 -
Other                                                                             30                106                  -
                                                                   ------------------- ------------------ ------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                              (40)                49                  -
                                                                   ------------------- ------------------ ------------------

NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS                              $(31)              $ 38                $ 3
                                                                   =================== ================== ==================
</TABLE>


                                      -12-

<PAGE>


                                     PART I

ITEM 1.           BUSINESS

GENERAL

The Company is the leading provider in North America of outsourced food and
facilities management services to businesses, health care facilities, colleges
and universities, primary and secondary schools and other clients. Food services
include food and beverage procurement, preparation and menu planning, as well as
the operation and maintenance of food service and catering facilities, generally
on a client's premises. Facilities management services include plant operations
and maintenance, energy management, grounds keeping, and housekeeping and
custodial services.

The Company was formerly named Marriott International, Inc. Upon consummation of
the Distribution, Acquisition, and Refinancing (the "Transactions"), which
occurred on March 27, 1998 (the last day of the first quarter of 1998), Marriott
International, Inc. was renamed Sodexho Marriott Services, Inc. As of March 27,
1998, the principal business of the Company changed from lodging and contract
services to food and facilities management services. This change was the result
of the Distribution and the Acquisition. In connection with the Distribution and
Acquisition, the Company refinanced its debt. The Transactions are explained in
more detail below and in the Company's Notes 1 through 5 of the Consolidated
Financial Statements included in this report. Due to the extensive changes in
the Company's business that resulted from the Transactions, the Company is
providing for informational purposes the following description of its business.

INDUSTRY AND MARKETPLACE

The food and facilities management services industry is rapidly changing. Major
industry dynamics are:

o    Continued growth in the outsourcing of food service and facilities
     management as a result of: focus by customers on core competencies and
     outsourcing of their non-core services, general economic growth, and
     increasing cost pressures.
o    Increasing market penetration by large, well-capitalized participants due
     to their ability to provide more cost-effective services as a result of
     economies of scale, a broader range of services than local and regional
     participants, and national and international coverage to large clients.
o    An increase in the retail orientation of contract catering due to the
     proliferation of alternative retail outlets, including quick serve
     restaurants.
o    Strong industry dynamics towards a "one-stop shopping" alternative for all
     outsourcing needs, including food service and facilities management.
o    Minimal capital requirements due to several factors, including low capital
     expenditures because operations are generally conducted at client sites
     using client equipment; low fixed costs, permitting rapid response to
     market conditions; and predictable cash flow from client payments, reducing
     or eliminating working capital needs.
o    Stable industry revenues from an existing client base.

MARKET POSITION

The Company has its origins in two well-established food service providers, MMS
and Sodexho North America. The Company is the market leader in the North
American contract food services industry, which the Company's management
believes is generally underpenetrated by large contractors. Market leadership
makes the Company well positioned to grow faster than the overall market. The
Company has a unique opportunity to leverage its position as the market leader
in food service by cross-selling its facilities management services to existing
food-service-only clients. Management of the Company believes that the
facilities management industry remains even more underpenetrated by large
contractors than the contract food services industry.


                                      -13-

<PAGE>



ITEM 1.           BUSINESS, CONTINUED

The Company operates primarily in four business segments as discussed below
(also see Note 14 to the Consolidated Financial Statements):

         CORPORATE SERVICES. Although the market for food service in business
and industry is relatively highly penetrated, customers are responding favorably
to the growth in retail orientation by food service contractors. The market for
multi-service national providers (food and facilities) is growing as large
corporations are moving toward outsourcing all of their non-core services on a
multi-site and multi-service basis. This represents an opportunity to leverage
from food contracting to the less developed facilities management market. The
government market is expected to increase as federal departments and agencies
implement large-scale outsourcing of non-core functions. The Corporate Services
segment represents approximately 31% of the Company's current revenues.

         HEALTH CARE. The health care industry continues its transformation from
a fee-for-service to a managed care and capitated rate environment. This market
dynamic has shifted the risk and burden of cost control from insurance providers
to the health care institutions themselves, forcing them to focus not only on
the cost component of clinical care, but also on the cost of all services
including food and facilities management. These cost pressures are driving the
trend toward consolidation of health care institutions and guaranteed cost
contracts for hospital services, and have contributed to several institutional
bankruptcies. While management of the Company recognizes the challenges of these
trends, it also believes that there are opportunities for growth, as the health
care market remains significantly underpenetrated. The Health Care segment
represents approximately 29% of the Company's current revenues.

EDUCATION. The campus dining marketplace, principally in colleges and
universities, continues to shift from residential board plans to more
retail-oriented operations driven by (i) the growing proportion of non-resident
day and evening students on campuses, (ii) the taste and service preferences of
today's young consumers and (iii) colleges' and universities' desire to provide
their students with greater flexibility. Traditional straight-line cafeterias
are being replaced by scatter systems and food courts. These trends, coupled
with cost pressures, are causing public and private institutions to consider
outsourcing as a viable choice. The Education segment represents approximately
27% of the Company's current revenues.

         SCHOOLS. The current fiscal climate is forcing school districts
(kindergarten through Grade 12) to minimize costs while improving the
performance of non-instructional areas. Over the last several years, 150-200
school systems per year have decided to begin outsourcing their food services.
Also, new federal regulations require that school meals meet more stringent food
specifications and production techniques to comply with "Nutrient Standards"
guidelines. Some school districts may turn to contractors to help comply with
these guidelines. The Schools segment represents approximately 8% of the
Company's current revenues.

The Company also operates two additional segments-- Canada and Laundry Services.
These two segments collectively represent approximately 5% of the Company's
current revenues.

COMPETITION

The food and facilities management services business in North America is
comprised of a large number of local, regional and national service providers.
The Company's strongest competition comes from larger, well-capitalized
participants due to their ability to provide (i) cost-effective services as a
result of economies of scale, (ii) a broader range of services than local and
regional participants and (iii) national coverage to large clients.

Many educational institutions, health care providers and businesses consider
cost to be an important factor when selecting companies to provide food and
facilities management services. The Company expects to continue being a
successful low-cost services provider due to its (i) significant purchasing
economies of scale for food service and facilities management supplies, (ii)
sophisticated site labor management controls, (iii) low administrative overhead,
and (iv) strong information and accounting systems which allow clients to
monitor costs more closely in tandem with the Company's management team.

Clients also consider the quality of food and facilities management services to
be an important factor in addition to price. Accordingly, the Company's ability
to maintain a level of quality in keeping with client expectations will continue
to be an important competitive factor.

                                      -14-

<PAGE>



ITEM 1.           BUSINESS, CONTINUED

THE TRANSACTIONS

DISTRIBUTED OPERATIONS. On March 27, 1998, the Company distributed to its
shareholders, on a pro rata basis, all outstanding shares of New Marriott MI,
Inc., a wholly owned subsidiary of the Company, in a tax-free distribution (the
"Distribution"). New Marriott MI, Inc., subsequently renamed Marriott
International, Inc. (together with subsidiaries, "MI") conducts business in the
lodging segment and in two of the three lines of business previously in the
Company's contract services segment - MSLS and MDS. The lodging, MSLS and MDS
business are collectively referred to as the Distributed Operations. The third
line of business in the contract services segment, MMS, is now the principal
business of the Company.

ACQUISITION. Immediately after the Distribution, on March 27, 1998, Sodexho
transferred to the Company the operations of Sodexho North America having a fair
market value of approximately $278 million, and simultaneously made a cash
payment of $304 million in exchange for 29.9 million shares of the Company's
common stock, after giving effect to the one-for-four reverse stock split, as
detailed in Note 9 to the Consolidated Financial Statements. The purchase price
included approximately $3 million in transaction costs. As a result of the
issuance of new shares of the Company's common stock to Sodexho in connection
with the Acquisition, the shareholders who owned 100 percent of the Company
immediately prior to the Distribution owned approximately 51% immediately
thereafter.

The Acquisition was accounted for using the purchase method of accounting. The
purchase price was allocated to the fair market value of assets acquired and
liabilities assumed as follows:

<TABLE>
<CAPTION>
                                                                                        ($ in millions)
                                                                                        -----------------
<S>                                                                                               <C>
                   Current assets                                                                 $ 142
                   Other assets                                                                      56
                   Customer relationships                                                           122
                   Current liabilities                                                             (137)
                   Payable to Sodexho for excess net tangible assets                                (17)
                   Other liabilities                                                                (46)
                   Debt                                                                             (73)
                   Deferred taxes, net                                                               (8)
                   Goodwill                                                                         239
                                                                                        -----------------

                             Subtotal                                                               278
                   Cash contributed to the Company                                                  304
                                                                                        -----------------

                             Total purchase price                                                 $ 582
                                                                                        =================
</TABLE>

Immediately after the Acquisition, the Company refinanced the $73 million of
debt assumed, as detailed in Note 3 to the Consolidated Financial Statements.

REFINANCING. On March 27, 1998, the Company borrowed $615 million and $620
million under the Secured Facility and Guaranteed Facility, respectively, both
of which are described below. The proceeds were used to repurchase $713 million
of the Company's publicly held debt, as discussed in the following paragraph,
and to repay its $950 million outstanding obligations under the Company's
existing $1.5 billion credit facility, which was cancelled immediately after
such repayment. Also, the Company repaid debt of $73 million assumed in the
Acquisition. The $304 million received from Sodexho (see Note 3 to the
Consolidated Financial Statements) was used together with the proceeds of the
new debt to fund the debt repayments. The Company also received letters of
credit for $13 million under the Secured Facility on March 27, 1998.


                                      -15-

<PAGE>



ITEM 1.           BUSINESS, CONTINUED

The Secured Facility consists of a $235 million revolving credit facility and a
$500 million six year term loan facility. It bears interest at rates based on a
bank prime rate, the Federal funds rate, or the London interbank offered rate
for Eurodollar deposits ("LIBOR"), payable in arrears quarterly. The Company is
currently paying interest at an aggregate 6.88%. Of the revolving credit
facility, up to $100 million may be used to cover letters of credit. As of
September 3, 1999, the Company had letters of credit outstanding of $33 million.
The facility is collateralized by liens on the inventory, accounts receivable,
and stock of the principal subsidiaries of Sodexho Marriott Operations, Inc. As
of September 3, 1999, $150 million of borrowing capacity was available under
this facility.

The Guaranteed Facility is a $620 million seven-year term loan. It bears
interest at rates based on a bank prime rate, the Federal funds rate, or LIBOR,
payable in arrears quarterly. The Company is currently paying interest at 6.85%,
after adjusting for the impact of hedging activities and miscellaneous fees
associated with this facility, which includes a 0.5% annual fee ($3 million)
based on the Guaranteed Facility balance that the Company pays Sodexho to serve
as guarantor of the loan.

In connection with the Distribution, the Company tendered for $720 million
principal amount of its outstanding publicly held debt, $600 million related to
the Series A through D Senior Notes and $120 million related to the Renaissance
Hotel Group (RHG) Financing. Approximately $593 million of the Series A through
D Senior Notes were tendered at a premium of $45 million (pretax). The
untendered Series A through D Senior Notes remain a liability of the Company.


<TABLE>
<CAPTION>
                                 Face Amount Prior to       Untendered Debt at       Untendered Debt at
                                Tender March 27, 1998         March 27, 1998          September 3, 1999
                               ------------------------- ------------------------- ------------------------
                                                             ($ in millions)
<S>                                 <C>                        <C>                       <C>
                Series A            $           150            $          2              $          2
                Series B                        200                       1                         1
                Series C                        150                       3                         2
                Series D                        100                       1                         1
                               ------------------------- ------------------------- ------------------------
                                    $           600            $          7              $          6
                               ========================= ========================= ========================
</TABLE>


Approximately $117 million of the $120 million in RHG Finance outstanding
Guaranteed Notes were tendered at a premium of $20 million (pretax). The Company
paid an additional $3.5 million in cash to MI representing the untendered RHG
debt that became a liability of MI. The debt extinguishment was financed through
the Secured Facility and the Guaranteed Facility discussed above, as well as the
$304 million received from Sodexho in connection with the Acquisition.

As part of the Distribution, the Company and MI agreed that total indebtedness
retained by the Company after the Distribution would equal $1.444 billion.
Because the Company's indebtedness totaled $1.698 billion after effecting the
Distribution, MI paid the Company the difference of $254 million, which the
Company used to repay debt as detailed above.

As a result of the foregoing, the Company incurred an extraordinary charge for
costs associated with the early extinguishment of debt of $71 million, $44
million after-tax, or $0.85 per diluted share for the 34-week period ended
August 28, 1998.

The Company's borrowing agreements contain various covenants, which, among other
things, require the Company to meet certain financial ratios and tests. Each of
the borrowing agreements is described generally in pages 121 through 123 of the
Proxy Statement for the Special Meeting of Stockholders of Marriott
International, Inc. dated March 17, 1998, which is incorporated by reference
into this report and is included as an exhibit to this report.

                                      -16-

<PAGE>



ITEM 1.           BUSINESS, CONTINUED

INTEGRATION AND RESTRUCTURING

Integration and restructuring actions, such as those taken in the past two years
and which may be taken in future years, reflect the Company's efforts to change
in anticipation of marketplace trends. These actions are intended to integrate
and realign resources for more effective and efficient execution of operating
strategies. The integration costs recorded in the Transition Period and in
Fiscal Year 1999 include, among other items, training and relocating employees,
incremental overhead during the integration phase, systems modifications, and
other one-time costs related to the integration of MMS and Sodexho North
America. Integration costs totaling $16 million pretax were included in the
results of operations for Fiscal Year 1999 and $24 million pretax were reflected
in the results of operations for the Transition Period.

Restructuring actions totaling approximately $37 million were recorded in the
first quarter of the 1998 Transition Period, $7 million of which was recorded as
a charge to operations related to termination benefits for approximately 50
employees and office closure costs related to MMS. Restructuring costs represent
costs, such as employee termination benefits and office closure costs, that are
incurred to terminate certain duplicate activities. This reserve totaled $5
million at August 28, 1998 and $2 million at September 3, 1999. The gross
acquisition reserve detailed in Note 3 to the Consolidated Financial Statements
principally represents costs associated with termination benefits for
approximately 350 employees and office closure costs related to the former
Sodexho North America operations. This reserve totaled $24 million at March 27,
1998, and was reduced to $17 million and $8 million at August 28, 1998 and
September 3, 1999, respectively, due to net payments made during these periods.

These actions have generated approximately one-third of the anticipated annual
cost savings of approximately $60 million pretax. The remaining two-thirds of
these anticipated savings relate to greater purchasing economies. Management
believes it will achieve these synergies by the end of fiscal year 2001. The
synergies from both purchasing and administrative actions are estimated to be
$25 million in the current year. Anticipated incremental synergies generated in
fiscal year 2000 are expected to be reinvested during fiscal year 2000. The
reinvestments, which are targeted primarily for additional sales and management
personnel, have already begun. See Item 7.--Liquidity and Capital Resources.

ARRANGEMENTS BETWEEN THE COMPANY AND MI

Pursuant to the Distribution agreement, the Company and New Marriott MI, Inc.
("New Marriott", subsequently renamed Marriott International, Inc.) agreed upon
the allocation of assets and liabilities related to the MMS business and the New
Marriott business. In this regard, the Company agreed generally to indemnify New
Marriott against liabilities that relate to the MMS business, and New Marriott
agreed generally to indemnify the Company against liabilities that relate to the
New Marriott business. The Company and New Marriott also entered into a number
of agreements governing their relationship after March 27, 1998. These
agreements include (i) a tax-sharing agreement, (ii) an employee benefits
allocation agreement, (iii) a trademark license agreement, (iv) a noncompetition
agreement, (v) a LYONs allocation agreement, as well as other additional
agreements between the companies. Each of these agreements is described
generally in pages 43 through 48 of the Proxy Statement for the Special Meeting
of Stockholders of Marriott International, Inc. dated March 17, 1998, which is
incorporated by reference into this report, and is included as an exhibit to
this report.

ARRANGEMENTS BETWEEN THE COMPANY AND SODEXHO

The Company has entered into various agreements with Sodexho that govern its
relationship with that entity. These agreements include (i) a royalty agreement,
(ii) an assistance agreement, (iii) a stockholder agreement, as well as other
additional agreements between the companies including guarantees of certain
liabilities of the Company by Sodexho. Each of these agreements is described
generally in pages 48 through 50 of the Proxy Statement for the Special Meeting
of Stockholders of Marriott International, Inc. dated March 17, 1998, which is
incorporated by reference into this report, and is included as an exhibit to
this report.


                                      -17-

<PAGE>



ITEM 1.           BUSINESS, CONTINUED

GOVERNMENT REGULATION

The Company is subject to various governmental regulations relating to its
operations, including, but not limited to, employment, health, safety and
environmental regulations as well as regulations applicable to bidding for and
performing federal, state and local government contracts. The Company has
installed various controls and procedures designed to ensure compliance with
these regulations.

EMPLOYEES

The Company has approximately 103,000 employees on its payroll in the U.S. and
Canada, and manages approximately 60,000 people on its clients' payrolls. An
estimated 12,000 non-management employees are represented by organized labor
unions for collective bargaining purposes. The Company believes its relations
with its employees are positive.

INFLATION

The Company's expenses are impacted by inflation. While price increases
generally can be instituted as inflation occurs, many contracts require certain
approvals before prices can be increased, which may temporarily have an adverse
impact on profit margins. Management believes that over time, however, the
Company will be able to raise prices, as appropriate, and sustain profit
margins.

ACCOUNTING PERIOD

On April 15, 1998, the Company's Board of Directors approved a change in the
Company's fiscal year from the Friday closest to the end of December to the
Friday closest to the end of August, effective immediately. This change resulted
in a 34-week Transition Period from the end of fiscal 1997 to August 28, 1998.
In addition, Fiscal Year 1999 had 53 weeks and ended on September 3, 1999. The
Company's 1997 historical fiscal year ended on the Friday nearest the end of
December and contained 52 weeks, while the 1996 historical fiscal year contained
53 weeks.


                                      -18-

<PAGE>



ITEM 2.           PROPERTIES

In June 1998, the Company entered into a 10 year lease, ending in December 2008,
with 2 renewable periods of 5 years each, for approximately 80,000 square feet
of space at 9801 Washingtonian Boulevard, Gaithersburg, Maryland. Also in June
1998, the Company entered an amended agreement with MI to vacate the Bethesda
headquarters office space no later than December 31, 1998. By December 1998, the
Company had moved all of its 250 headquarters employees to the Gaithersburg
Headquarters. Since that time, an additional 100 employees have been hired or
moved from other locations to the Gaithersburg Headquarters.

In addition, all of the Company's operating divisions lease their respective
headquarters office space as follows: Avon, Connecticut (Health Care); Altamonte
Springs, Florida (Education); and Downers Grove, Illinois (Schools). The
headquarters for the Corporate Services division is located with the Company's
headquarters in Gaithersburg, Maryland. These operating division leases
generally run for initial terms of three to five years with renewal options. The
Company also has a long-term lease for its office facility in Buffalo, New York,
where all of the centralized accounting and processing activities for North
America take place. The Company owns three laundry facilities (Walla Walla,
Washington; Tucson, Arizona; and Phoenix, Arizona) and leases three additional
laundry facilities (Birmingham, Alabama; Gilroy, California; and Compton,
California).

As a result of the Acquisition, the Company also occupied approximately 25,000
square feet of office and warehouse space in Trumbull, Connecticut;
approximately 15,000 square feet of office space in Mobile, Alabama;
approximately 20,000 square feet of building space in Sunnyvale, California; and
approximately 15,000 square feet of building space in Allston, Massachusetts.
The Company also owns a 30,000 square foot office building in Montreal, Canada.

In October 1998, the Company sold an 80,000 square foot office facility in
Waltham, Massachusetts, obtained in the Acquisition. The sale of the Waltham
office facility did not have any adverse impact on the Company's financial
condition or results of operations. To provide space for the operations that
formerly occupied one-half of the Waltham office facility, the Company entered
into an agreement in December 1998 to lease approximately 25,000 square feet of
office space in Lexington, Massachusetts, for a seven year period, with a five
year renewal option.


ITEM 3.           LEGAL PROCEEDINGS

 There are no material legal proceedings pending against the Company.


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

There were no matters submitted to a vote of security holders of the Company
during the fourth quarter of Fiscal Year 1999.

                                      -19-

<PAGE>


                                     PART II

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

COMMON STOCK. The comparability of stock prices in the table below is affected
by the Transactions which occurred on March 27, 1998. The range of the Company's
common stock prices and dividends declared per share for Fiscal Year 1999, the
Transition Period and the past two fiscal years are as follows (restated to
reflect the one-for-four reverse stock split):

<TABLE>
<CAPTION>
                                                                                                         DIVIDENDS
                                                                                                       DECLARED PER
                                                                          HIGH             LOW             SHARE
                                                                     ---------------- --------------- ----------------

<S>                               <C>                                       <C>             <C>                   <C>
    FISCAL YEAR 1999              First Quarter                             $ 33 3/8        $ 24 5/8              $ -
                                  Second Quarter                              29 1/4              22                -
                                  Third Quarter                               25 1/8          18 7/8                -
                                  Fourth Quarter                              23 1/4          13 3/4                -

    TRANSITION PERIOD 1998        Quarter ended March 27, 1998               330 1/2         243 3/4              .36
                                  Nine weeks ended May 29, 1998               31 3/8         24 5/16                -
                                  Quarter ended August 28, 1998              33 1/16          25 3/4                -

    FISCAL YEAR 1997              First Quarter                                  229         198 1/2              .32
                                  Second Quarter                             256 1/2         198 1/2              .36
                                  Third Quarter                                  287             240              .36
                                  Fourth Quarter                                 307         260 1/2              .36

    FISCAL YEAR 1996              First Quarter                              210 1/2             149              .32
                                  Second Quarter                                 200             177              .32
                                  Third Quarter                              229 1/2         193 1/2              .32
                                  Fourth Quarter                             239 1/2         205 1/2              .32
</TABLE>

At September 3, 1999, there were 62.3 million shares of common stock outstanding
held by approximately 42,000 shareholders of record. The Company's common stock
is traded on the New York Stock Exchange, Chicago Stock Exchange, Pacific Stock
Exchange and Philadelphia Stock Exchange.

DIVIDEND POLICY. Prior to the Transactions, the Company had paid regular
quarterly dividends. On October 13, 1999, the Board of Directors declared an
$0.08 per common share dividend for Fiscal Year 1999, payable on December 10,
1999 to shareholders of record on November 22, 1999--see Item 7.--Liquidity and
Capital Resources. The Company may pay dividends in the future, subject to the
restrictive covenants contained in the Company's credit facility agreements
related to the Refinancing and other relevant considerations. In general, the
restrictive covenants do not permit the Company to pay dividends to shareholders
in an amount greater than 40 percent of the Company's net income, or 45 percent
when the ratio of the Company's consolidated debt to Earnings Before Interest,
Taxes, Depreciation and Amortization ratio ("EBITDA", as defined in the
documentation for the credit facility agreements) is less than 4 but not less
than 3. This restriction will no longer apply when such ratio is less than 3.
The payment and amount of cash dividends on the Company's common stock will be
subject to the sole discretion of the Company's Board, which will review the
Company's dividend policy at such times as may be deemed appropriate. The Board
will closely monitor the results of the Company's operations, capital
requirements, and other considerations to determine the extent to which a
dividend may be declared in future periods.

ITEM 6.           SELECTED HISTORICAL FINANCIAL DATA

The following table presents summary selected historical financial data for the
Company derived from its financial statements as of the fiscal year ended
September 3, 1999, the 34-week period ending August 28, 1998, and for the four
fiscal years ended January 2, 1998. As the result of the Transactions, 1998's
results are not comparable to the other years presented. Specifically, the
results of Sodexho North America are only included in the Stub Period ended
August 28, 1998. Conversely, the results of MDS and MSLS are included in the
historical financial continuing operations prior to the Transaction. In
addition, operating results in 1997 include a loss before income taxes of $22
million ($14 million after-tax, or $0.40 per share) on the sale of MMS- UK to
Sodexho.

The historical information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto, each
contained herein.

                                      -20-

<PAGE>



ITEM 6.           SELECTED HISTORICAL FINANCIAL DATA, CONTINUED


<TABLE>
<CAPTION>
                                              SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS

                                                                     34
                                                       FISCAL      WEEKS
                                                        YEAR       AUGUST                      FISCAL YEAR
                                                                                -----------------------------------------
                                                       1999(1)     1998(1)       1997(2)   1996(3)     1995      1994
                                                     ----------- ----------     --------- ---------- --------- ----------
($ in millions, except per share data)

INCOME STATEMENT DATA:
<S>                                                     <C>        <C>           <C>        <C>       <C>        <C>
Sales                                                   $4,502     $2,828        $5,026     $4,318    $3,634     $3,466
Operating Profit Before
   Corporate Expenses and Interest                         304        119           157        177       130        111
Total Corporate Expenses and Interest(4)                  (212)      (151)         (172)      (127)      (78)       (71)
                                                     ----------- ----------     --------- ---------- --------- ----------
Income (Loss) From Continuing Operations,
  Before Taxes and Extraordinary Item                       92        (32)          (15)        50        52         40
(Provision) Benefit for Income Taxes from
   Continuing Operations                                   (41)        13            15        (17)      (20)       (17)
                                                     ----------- ----------     --------- ---------- --------- ----------
Income (Loss) From Continuing Operations, Before
   Discontinued Operations and Extraordinary Item           51        (19)           --         33        32         23
Discontinued Operations, Net of Income Taxes(5)             --         77           335        273       215        177
                                                     ----------- ----------     --------- ---------- --------- ----------
Income Before Extraordinary Item                            51         58           335        306       247        200
Loss from Extraordinary Item, Net of Income Taxes(6)        --        (44)           --         --        --         --
                                                     ----------- ----------     --------- ---------- --------- ----------
Net Income                                              $   51     $   14        $  335     $  306    $  247     $  200
                                                     =========== ==========     ========= ========== ========= ==========

PER SHARE DATA(7):
Diluted Earnings Per Share:
 Continuing Operations                                  $ 0.81     $(0.36)       $   --     $ 0.97    $ 0.97     $ 0.69
 Discontinued Operations(5)                                 --       1.48         10.53       8.08      6.51       5.35
                                                     ----------- ----------     --------- ---------- --------- ----------
 Diluted Earnings Per Share before Extraordinary Item     0.81       1.12         10.53       9.05      7.48       6.04
 Extraordinary Item(6)                                      --      (0.85)           --         --        --         --
                                                     ----------- ----------     --------- ---------- --------- ----------
Diluted Earnings Per Share                              $ 0.81     $ 0.27        $10.53     $ 9.05    $ 7.48     $ 6.04
                                                     =========== ==========     ========= ========== ========= ==========

Cash Dividends Declared(8)                              $   --     $ 0.36        $ 1.40     $ 1.28    $ 1.12     $ 1.12

Diluted Weighted - Average Shares                         63.9       52.0          31.8       33.8      33.0       33.1

BALANCE SHEET DATA (AT END OF YEAR):
Total Assets                                            $1,347     $1,341        $5,009     $4,180    $3,221     $2,529
Long-Term and Convertible Subordinated Debt              1,010      1,091         1,829      1,300       795        488
Stockholders' (Deficit)/Equity                            (494)      (555)        1,463      1,260     1,054        767
-----------

<FN>
1 - On April 15, 1998, the Company's Board of Directors changed the fiscal year
from the Friday closest to the end of December to the Friday closest to the end
of August, thereby creating a 34-week Transition Period. On March 27, 1998, the
Company acquired Sodexho North America. In addition, fiscal year 1999 had 53
weeks and ended on September 3, 1999. The historical data for fiscal year 1997
and prior years does not include the revenue and expenses of the acquired
business, see Notes 1 through 3 to the Consolidated Financial Statements.
2 - Operating results in fiscal year 1997 include a loss before income taxes of
$22 million ($14 million after tax, or $0.40 per share) on the sale of the MMS-
UK operations to Sodexho in connection with the Transactions.
3 - Fiscal year 1996 includes 53 weeks, all fiscal years prior to the
Transactions include 52 weeks.
4 - Total corporate expenses include the amortization of intangible assets. For
fiscal year 1999 and the 34 weeks ended August 28, 1998, $16 million and $31
million pretax, respectively, of integration and restructuring charges were
recognized, see Note 4 to the Consolidated Financial Statements.
5 - On March 27, 1998, the Company distributed to its shareholders the Lodging,
MSLS and MDS divisions as part of the Transactions. For reporting purposes, the
Lodging segment is considered Discontinued Operations prior to March 27, 1998.
MSLS and MDS are considered part of continuing operations for the same periods
(see Note 1 to the Consolidated Financial Statements).
6 - On March 27, 1998, the Company refinanced its debt as part of the
Transactions (see Note 1 and Note 8 to the Consolidated Financial Statements),
resulting in a $71 million pretax charge from the early extinguishment of debt
($44 million after-tax).
7 - Earnings per share data have been restated to reflect the adoption in 1997
of Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
All per share data has been adjusted to reflect a one-for-four reverse stock
split effective March 27, 1998.
8 - Subsequent to the end of fiscal year 1999, the Board of Directors declared
on October 13, 1999, an $0.08 per common share dividend for Fiscal Year 1999,
payable on December 10, 1999 to shareholders of record on November 22, 1999--see
Note 9 to the Consolidated Financial Statements.
</FN>
</TABLE>


                                      -21-

<PAGE>


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

                                    OVERVIEW

As described in Part I, Items 1 & 2, "Business and Properties," on March 27,
1998, the Company completed the Distribution, Acquisition, and Refinancing. As a
result, the assets, liabilities, and business operations of the Company as of
September 3, 1999 and for the year then ended have changed substantially
compared to prior periods presented.

In particular, the most significant differences relate to the following:

o    The 1997 and 1996 Consolidated Statement of Income included revenues, as
     well as operating costs and expenses, related to the Distributed
     Operations. In the Consolidated Statement of Income, the operations of the
     Lodging segment have been combined and included as "Discontinued
     Operations, Net of Income Taxes." The MDS and MSLS segments of Contract
     Services were also part of the Distribution to shareholders, but remained
     part of continuing operations in the historical financial statements. See
     Note 1 to the Consolidated Financial Statements.
o    As described in Notes 1 through 5 to the Consolidated Financial Statements,
     the Company acquired the North American operations of Sodexho Alliance,
     S.A. on March 27, 1998. The historical data in 1997 and prior years does
     not include the revenue and expenses of the acquired business.
o    On March 27, 1998, the Company obtained over $1.3 billion in new debt
     through secured and guaranteed credit facilities, with the proceeds used to
     repay of over $1.6 billion of existing debt.
o    On April 15, 1998, the Company's Board of Directors changed the fiscal year
     from the Friday closest to the end of December to the Friday closest to the
     end of August, thereby creating a 34-week Transition Period. See Note 1 to
     the Consolidated Financial Statements.

Due to these substantial differences in the comparability of the Company's
historical operating results for fiscal year 1999, the Transition Period and
prior fiscal years, management believes that it is meaningful and relevant in
understanding the present and ongoing Company operations to compare the
Company's pro forma operating results for fiscal years 1999, 1998 and 1997,
presented in the "Introduction" section of this report. These pro forma
statements were prepared as if the Distribution, Acquisition, Refinancing and
the implementation of the various related agreements entered into with Marriott
International, Inc. and Sodexho occurred at the beginning of each period. The
pro formas exclude, among other items, certain non-recurring costs such as (i)
costs of the Distribution of $17 million (net-of-tax) in 1998, (ii) an
extraordinary loss related to the early extinguishment of debt of $44 million,
after-tax, and (iii) integration and restructuring charges totaling $16 million
in 1999 and $31 million for 1998. See Notes 1 through 4 to the Consolidated
Financial Statements.

Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company, which analyzes the major elements of the Company's
consolidated statements of operations and financial condition, should be read in
conjunction with the detailed information and consolidated financial statements,
and related Notes to Consolidated Financial Statements, included in this report.

SEASONAL NATURE OF THE COMPANY'S BUSINESS

The food service and facilities management business has been characterized
historically by seasonal fluctuations in overall demand for services,
particularly in the Education and Schools divisions where sales are stronger
during the fall and spring.

LIMITED GEOGRAPHIC FOCUS

The Company is not currently expected to expand its international presence
beyond Canada. The Trademark License Agreement entered into by the Company and
Marriott International, Inc. gives the Company the right to use the Marriott
name in the U.S. and Canada (and elsewhere only in extremely limited
circumstances). Likewise, the Company entered into a Royalty Agreement with
Sodexho pursuant to which Sodexho licenses the right to use the "Sodexho" name
in the U.S. and Canada. As a practical matter, since the Company will only be
allowed to use its corporate name in the U.S. and Canada, and since Sodexho
controls or has a significant interest in companies operating in other countries
in the food and facilities management industries, it is unlikely that the
Company will engage in significant operations outside the U.S. and Canada. As a
result, the Company will be more susceptible to a downturn in the U.S.
and Canadian economies than a company that is actively engaged in various other
markets.

                                      -22-

<PAGE>


                                BUSINESS STRATEGY

The Company's key financial objective is to generate higher revenues and
increase cash flow from operations through new contract sales, the retention of
existing contracts, and improved efficiencies in the Company's operations. This
financial objective is designed to build on the performance strengths of the
Company, which include expanding relationships with existing clients, attracting
new business, identifying under-penetrated and rapidly growing segments of the
food and facilities management industry, and seeking selective strategic
acquisition candidates compatible with this objective.

In 1999, the Company substantially completed the integration of the number one
and number four market leaders in the U.S. food and facilities management
services industry. The focus during the year has been setting common goals and
the merging of best practices and business strategies. The Company successfully
aligned its management team, consolidated its systems and processes for improved
operations, and developed integrated business strategies.

The Company is positioned to capitalize on the current trend for outsourcing
services. As increasing cost pressures force organizations to focus on their
core business, the demand for outsourcing services is growing. The total market
is estimated at $113 billion in North America, with 75% of potential food and
facilities management outsourcing business still self-operated. The Company is
focusing on building the organization where resources are closest to the units,
facilitating the local managers ability to adapt to the clients needs.
Additionally, the Company wants to focus on the markets and sub-markets that
have the most growth potential and that match up well with the Company's core
services. During the past year, the Company made significant progress in
segmenting all of its markets in terms of size, penetration, needs, growth and
profitability. The results of this process provide the basis for choosing the
steps the Company will take to strengthen its leadership position and to target
specific high potential markets.

An integral part of the Company's business strategy has been the design and
implementation of the Company-wide incentive program, which is predominately
based on the achievement of predetermined financial targets and operational
performance objectives. During the Transition Period, the Board of Directors
granted 1.8 million shares in the form of incentive stock options to the
managing employees of the Company. These grants have extended further down in
the management structure than previous grants issued prior to the
Transactions--see Note 9 to Consolidated Financial Statements. In addition, the
Company expects to issue approximately 2.5 million new stock option awards in
the first half of fiscal year 2000, which are anticipated to include one-time
grants for eligible unit general managers of the Company.

In fiscal year 1999, efficiencies in the procurement and distribution processes,
when combined with the administrative savings, resulted in an estimated $25
million in aggregate savings for the year. The Company expects that the
procurement and distribution process savings will account for approximately
two-thirds of the estimated $60 million in annual synergies which the Company
expects to realize by the year 2001. While no assurance can be given that this
objective will be met, management believes it is attainable as seen in the
results for fiscal year 1999. Anticipated incremental synergies generated in
fiscal year 2000 are expected to be reinvested during fiscal year 2000. The
reinvestments, which are targeted primarily for additional sales and management
personnel, have already begun. In addition, the Company has undertaken an
information systems strategy study to evaluate the current state of its
information systems, and consider information technology options. Among the
options under consideration is the adoption of certain elements of the
technology platform adopted by Sodexho Alliance. This evaluation will require
additional time to study and review alternatives and their impact on capital
investments, earnings, shareholder value and the provisions of the Company's
debt agreements. Strategic developments in this area are expected to be
finalized during Fiscal Year 2000. See Item 7.--Liquidity and Capital Resources.




                                      -23-

<PAGE>


                              RESULTS OF OPERATIONS

The following discussion presents an analysis of results of operations of the
Company for the 53-week period ended September 3, 1999 ("Fiscal Year 1999") as
compared with the 34-week period ended August 28, 1998 (the "Transition Period")
presented in the Selected Consolidated Financial Highlights above. The
discussion below also presents an analysis of fiscal years ended January 2, 1998
(52 weeks) and January 3, 1997 (53 weeks). As detailed above, due to the
substantial differences in the comparability of the Company's historical
operating results for Fiscal Year 1999, the Transition Period and prior fiscal
years, management believes that it is more meaningful and relevant, in
understanding the present and ongoing operations of the Company, to review the
Company's pro forma operating results for fiscal years 1999, 1998, and 1997,
presented in the "Introduction" section of this report.

HISTORICAL 53 WEEKS ENDED SEPTEMBER 3, 1999 COMPARED WITH THE 34 WEEKS ENDED
  AUGUST 28, 1998.

Total sales for Fiscal Year 1999 were $4.5 billion, an increase of $1.7 billion,
or 59.2% compared with $2.8 billion for the Transition Period. The significant
increase between the periods was due to the 19 additional weeks reported in
Fiscal Year 1999, partially offset by the first 12 weeks of the Transition
Period including sales from the Marriott Distribution Services ("MDS") and
Marriott Senior Living Services ("MSLS") divisions that were distributed to
shareholders on March 27, 1998 (as detailed in Notes 1 through 4 to Consolidated
Financial Statements). Excluding the MDS and MSLS divisions, total sales
increased $2 billion, or 79.6%. Solid sales growth in comparable accounts was
partially offset by a lower retention rate for the Transition Period. Retention
rates, particularly in the Health Care and Education divisions, improved in
Fiscal Year 1999, which will favorably impact fiscal year 2000's sales growth.

Operating profit before corporate items totaled $304 million for Fiscal Year
1999, more than double the $119 million for the 1998 Transition Period.
Excluding $2 million and $10 million in integration and restructuring costs in
Fiscal Year 1999 and the Transition Period, respectively, operating profit would
have totaled $306 million for Fiscal Year 1999 and $129 million for the
Transition Period. This increase was the result of the 19 week difference
between the periods as well as increased margins, largely due to purchasing and
administrative synergies between the periods. These increases were partially
offset by challenges in the health care industry, which resulted in charges
totaling $3 million to operating profit for Fiscal Year 1999 to record
additional bad debt reserves due to three client bankruptcies during the year.

Corporate items totaled $212 million, an increase of $61 million, or 40%, when
compared to $151 million for the Transition Period. Excluding integration
expenses totaling $14 million for Fiscal Year 1999 and integration and
restructuring expenses of $21 million for the Transition Period, adjusted
corporate items totaled $198 million and $130 million, an increase of $68
million, or 52%. This increase reflects the over 50% increase in the number of
operating weeks between the periods. In addition, the benefits from the
elimination of certain positions after the Transactions along with other
administrative synergies were more than offset in the current fiscal year by a
one-time, $3.4 million pretax charge related to the resignation of the former
Chief Executive Officer and $5 million pretax of Year 2000 related costs (see
"Year 2000"). Fiscal Year 1999 also included the favorable impact from the sale
of the Company's Bright Horizons Family Solutions ("BFAM") investment, resulting
in a cumulative pretax gain of $8.3 million, or $4.6 million after-tax ($0.07
per diluted common share).

Excluding the Year 2000 costs, integration expenses and the one-time resignation
charge, total operating costs, corporate expenses and amortization of intangible
assets represented, in the aggregate, 95.7% of total sales for Fiscal Year 1999
compared with the Transition Period's comparable period ratio of 98.1%. The
Company anticipates this margin will continue to improve in the periods ahead,
as the Company continues to realize purchasing synergies. Together with the
synergies from administrative actions, these savings are anticipated to reach
$60 million annually by fiscal year 2001. Synergies from both purchasing and
administrative actions are estimated to be $25 million in the current year.
Anticipated incremental synergies generated in fiscal year 2000 are expected to
be reinvested during fiscal year 2000. The reinvestments, which are targeted
primarily for additional sales and management personnel, have already begun. In
addition, the Company has undertaken an information systems strategy study to
evaluate the current state of its information systems, and consider information
technology options. Among the options under consideration is the adoption of
certain elements of the technology platform adopted by Sodexho Alliance. This
evaluation will require additional time to study and review alternatives and
their impact on capital investments, earnings, shareholder value and the
provisions of the Company's debt agreements. See "Liquidity and Capital
Resources."


                                      -24-

<PAGE>


                        RESULTS OF OPERATIONS, CONTINUED

HISTORICAL 53 WEEKS ENDED SEPTEMBER 3, 1999 COMPARED WITH THE 34 WEEKS ENDED
  AUGUST 28, 1998, CONTINUED.

Total income from continuing operations before taxes was $108 million, excluding
$16 million of integration charges, versus a comparable $1 million loss from
continuing operations for the Transition Period. This significant increase was
due to the 19 additional weeks of operations in the current year, in addition to
increased operating margins as well as administrative and purchasing synergies.
The Transition period included Discontinued Operations, net of income taxes,
totaling $77 million, reflecting the results of the lodging segment prior to the
Transactions. The Transition Period also included a loss from an extraordinary
item totaling $44 million, or $0.85 per share, from the redemption and
defeasance of debt (see Note 1 to Consolidated Financial Statements).


HISTORICAL 34 WEEKS ENDED AUGUST 28, 1998 COMPARED WITH THE 52 WEEKS ENDED
  JANUARY 2, 1998.

Total sales for the Transition Period were $2.8 billion, a decrease of $2.2
billion, or 43.7% compared with $5.0 billion for Fiscal Year 1997. The
significant decrease between the periods was due to the 35% decrease in the
number of weeks reported, in addition to the $1.45 billion decrease from the
Marriott Distribution Services ("MDS") and Marriott Senior Living Services
("MSLS") divisions that were distributed to shareholders on March 27, 1998 (as
detailed in Notes 1 through 3 to Consolidated Financial Statements). Excluding
the MDS and MSLS divisions, and with no adjustment for the difference in the
number of weeks reported, total sales decreased $750 million, or 23.0%.

Operating profit before corporate items totaled $119 million for the Transition
Period, a decrease of $38 million, or 24.2%, compared with the $157 million for
Fiscal Year 1997. Excluding $10 million in integration costs in the Transition
Period and a $22 million pretax loss from the sale of MMS- UK in Fiscal Year
1997 operating profit would have totaled $129 million for the Transition Period
and $179 million for Fiscal Year 1997, a decrease of $50 million, or 27.9%. This
decrease was the result of the 18 week difference between the periods and the
$14 million decrease in operating profit from the MDS and MSLS divisions, which
were partially offset by increased margins between the periods, especially in
the Corporate Services division from the continued success of the Crossroads
Cuisines marketing strategy.

Corporate items totaled $151 million, a decrease of $21 million, or 12%, when
compared to $172 million for Fiscal Year 1997. Excluding integration and
restructuring expenses of $21 million for the Transition Period, adjusted
corporate items totaled $130 million for the Transition Period, an adjusted
decrease of $42 million, or 24%. This decrease reflects the 35% decrease in the
number of operating weeks between the periods, though the Transition Period
includes the Stub Period expenses of Sodexho North America's operations.

Excluding integration and restructuring expenses, total operating costs,
corporate expenses and amortization of intangible assets represented, in the
aggregate, 98.1% of total sales for the Transition Period compared with Fiscal
Year 1997's comparable period ratio of 98.7%. The Company anticipates this
margin will continue to improve in the periods ahead, as the Company continues
to realize purchasing synergies. Together with the synergies from administrative
actions, these savings are anticipated to reach $60 million annually by fiscal
year 2001. Synergies from both purchasing and administrative actions are
estimated to be $25 million in the current year. Anticipated incremental
synergies generated in fiscal year 2000 are expected to be reinvested during
fiscal year 2000. The reinvestments, which are targeted primarily for additional
sales and management personnel, have already begun. In addition, the Company is
evaluating participation in the development of Sodexho Alliance's information
technology platform. This evaluation will require additional time to study and
review alternatives and their impact to earnings, shareholder value and the
provisions of the Company's debt agreements. See "Liquidity and Capital
Resources."

Total loss from continuing operations before taxes was $1 million, excluding $31
million of integration and restructuring charges, for the Transition Period.
This compares with income from continuing operations before taxes of $7 million
for Fiscal Year 1997, excluding the $22 million pretax loss from the sale of
MMS- UK operations. This decrease is the result of the decrease of 18 weeks of
operations in the current period, most of which include strong operational weeks
for the Education and Schools divisions. The Transition period included
Discontinued Operations, net of income taxes, totaling $77 million, reflecting
the results of the lodging segment prior to the Transactions. Fiscal Year 1997
included Discontinued Operations, net of income taxes, totaling $335 million,
reflecting a full year of the lodging segment. The Transition Period also
included a loss from an extraordinary item totaling $44 million, or $0.85 per
share, from the redemption and defeasance of debt (see Note 1 to Consolidated
Financial Statements).



                                      -25-

<PAGE>


                        RESULTS OF OPERATIONS, CONTINUED

HISTORICAL 52 WEEKS ENDED JANUARY 2, 1998 COMPARED WITH 53 WEEKS ENDED
  JANUARY 3, 1997.

The Company reported a 1% increase in operating profit from continuing
operations on 16% higher sales in fiscal 1997, before the $22 million loss on
the sale of the MMS- UK operations to Sodexho. Profit comparisons between years
were affected by sales to investors during 1996 and 1997 of 43 senior living
communities, which were part of the Company's MSLS division that was distributed
to shareholders on March 27, 1998. Before the impact of the Distribution and
sale of the MMS- UK operations, operating profits from continuing operations
increased 11% over fiscal 1996. Operating profit was also adversely affected by
start-up losses for new distribution centers and distribution accounts from the
MDS division.

Before the loss on the sale of the MMS- UK operations, operating profits,
excluding MDS and MSLS, were 14% higher on a sales increase of 3% percent in
fiscal 1997. Sales and profits increased due to new contracts, expanded service
to ongoing accounts and continued cost reductions in several areas. The
Corporate Services, Health Care, Education and Schools divisions were the main
contributors to the profit growth.

MSLS, which was part of the Distribution on March 27, 1998, reported a sales
increase of 28% in fiscal 1997 over 1996, primarily due to the opening of 17
communities during 1997 and a two percentage point increase in occupancy, to
95%, for comparable properties. The Company sold 43 senior living properties to
investors since the beginning of 1996, retaining long-term operating agreements.
Operating profits declined as "ownership profits" from these properties were
replaced with "managed operating profits." This reduction in operating profit
was offset by a corresponding reduction in interest expense.

MDS, which was also part of the Distribution on March 27, 1998, had sales move
up sharply in fiscal 1997 as a result of the addition of several major
restaurant customers and the net addition of two new distribution centers.
Profits, however, were lower in fiscal 1997 due to start-up costs associated
with the new centers, as well as costs involved in integrating the new business
into existing distribution centers.

Corporate expenses rose 19% in 1997, due to noncash items associated with
investments generating significant income tax benefits, as well as modest staff
increases to accommodate growth and new business development. Interest expense
increased 29% over fiscal 1996 despite lower effective interest rates. The
average debt balance increased due to the acquisition of RHG, partially offset
by proceeds from sales of hotels and senior living communities.

Discontinued Operations, comprising the lodging division, had an operating
profit increase of 26% on 20% higher sales, benefiting from favorable conditions
in the U.S. lodging market, and contributions from new properties. The revenue
increase resulted from average growth across all brands of eight percent. This
revenue growth resulted in higher base management and franchise fees. Revenue
growth also contributed to higher house profits, which resulted in higher
incentive management fees.

The Company's net effective income tax rate for continuing and discontinued
operations increased to 39.5% in 1997, compared to 39% in 1996, reflecting
approximately a one percentage point increase due to the RHG acquisition and the
Company's ongoing participation in jobs and affordable housing tax credit
programs.

Net income increased nine percent to $335 million in fiscal 1997, on a sales
increase of 18% to $12 billion when including the sales from discontinued
operations, driven by contributions from new unit expansion and strong profit
growth for the Discontinued segment, partially offset by the loss on the sale of
the MMS- UK operations to Sodexho and the impact of the Renaissance Hotel Group
(RHG) acquisition. Diluted earnings per share increased 16% to $10.53,
reflecting higher net income. Before the loss on sale of the MMS- UK operations
and the impact of the RHG acquisition, net income and diluted earnings per share
increased 20%.



                                      -26-

<PAGE>


                         LIQUIDITY AND CAPITAL RESOURCES

The Company continues to capitalize on its combined market presence as well as
focusing on attracting new accounts and enhancing services to sustain growth.
The Company is highly leveraged and anticipates that it would have long-term
unsecured debt ratings, if obtained, below investment grade based on its pro
forma financial statements. The debt resulting from the Refinancing contains
restrictive covenants and requires grants of security and guarantees by
subsidiaries of the Company, which limit the Company's ability to incur
additional debt and engage in certain other activities. Additionally, these debt
covenants limit the Company's ability to pay dividends.

Capital requirements are funded from a combination of existing cash balances and
operating cash flow. Additionally, the Company anticipates achieving annual cost
savings of approximately $60 million pretax by the end of fiscal year 2001,
resulting from purchasing actions and administrative synergies. The anticipated
cost savings, which the Company estimates were approximately $25 million in
Fiscal Year 1999, will be available to pay down debt and reinvest in the Company
to fund activities to enhance its competitive position. Anticipated incremental
synergies generated in fiscal year 2000 are expected to be reinvested during
fiscal year 2000. These reinvestments, which are targeted primarily for
additional sales and management personnel, have already begun. In addition, the
Company has undertaken an information systems strategy study to evaluate the
current state of its information systems, and consider information technology
options. Among the options under consideration is the adoption of certain
elements of the technology platform adopted by Sodexho Alliance. This evaluation
will require additional time to study and review alternatives and their impact
on capital investments, earnings, shareholder value and the provisions of the
Company's debt agreements. Strategic developments in this area are expected to
be finalized during Fiscal Year 2000. See Item 1.--Integration and Restructuring
and Item 7.--Liquidity and Capital Resources. Subject to the foregoing, the
Company believes that current cash flow generated from operations and cash
balances will be adequate to finance ongoing capital needs, meet debt service
requirements and fund the Company's planned growth initiatives.

As of September 3, 1999, the Company had a $235 million revolving credit
facility available at an interest rate of 7.55% to provide funds for liquidity,
seasonal borrowing needs and other general corporate purposes. At September 3,
1999, $52 million of this facility was outstanding, while an additional $33
million of this revolving credit facility was utilized by letters of credit
outstanding, principally related to insurance programs.

Prior to the Transactions, the Company paid regular quarterly dividends. On
October 13, 1999, the Board of Directors declared an $0.08 per common share
dividend for Fiscal Year 1999, payable on December 10, 1999 to shareholders of
record on November 22, 1999. The Company may pay dividends in the future,
subject to the restrictive covenants contained in the Company's credit facility
agreements and other relevant considerations. In general, the restrictive
covenants do not permit the Company to pay dividends to shareholders in an
amount greater than 40 percent of the Company's net income, or 45 percent when
the ratio of the Company's consolidated debt to Earnings Before Interest, Taxes,
Depreciation and Amortization ratio ("EBITDA", as defined in the documentation
for the credit facility agreements) is less than 4 but not less than 3. This
restriction will no longer apply when such ratio is less than 3. The payment and
amount of cash dividends on the Company's common stock will be subject to the
sole discretion of the Company's Board, which will review the Company's dividend
policy at such times as may be deemed appropriate. The Board will continue to
closely monitor the results of the Company's operations, capital requirements,
and other considerations to determine the extent to which a dividend may be
declared in future periods.

The Company is required to make quarterly cash interest payments on its term and
guaranteed facilities, as well as scheduled principal repayments on its Senior
Secured Credit Facility (as detailed in Note 8 to Consolidated Financial
Statements). Annual interest expense was $88 million for the 53-week period
ended September 3, 1999 ($87 million on an annualized basis). Principal
repayments totaled $70 million in fiscal year 1999; with scheduled repayments of
approximately $80 million in 2000; $80 million in 2001; $90 million in 2002;
$115 million in 2003 and $65 million in 2004.

On October 7, 1999, Marriott International notified all holders of the LYONs,
that Marriott International had elected to redeem all of the LYONs at a price of
$619.65 for each $1,000 principal amount at maturity of the LYONs, with a
redemption date of November 8, 1999. Conversion is available at any time until
the close of business on the redemption date. The maximum amount of funds that
the Company would be obligated to pay to Marriott International if all the LYONs
were redeemed for cash is approximately $30 million. This amount would be paid
to Marriott International in the first quarter of fiscal year 2000--See Note 8
to Consolidated Financial Statements.

                                      -27-

<PAGE>


                            NEW ACCOUNTING STANDARDS

SFAS No. 133-- "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998 and will require the Company to record derivative
instruments, such as interest-rate agreements, on the Consolidated Balance Sheet
as assets or liabilities, measured at fair value. Currently, the Company treats
such instruments as off-balance-sheet items. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the specific use of each derivative instrument and whether it qualifies for
hedge accounting treatment as stated in the standard. In June 1999, the
Financial Accounting Standards Board approved the deferral of the effective date
for SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June
15, 2000. Therefore, SFAS No. 133 will be effective for the Company on September
2, 2000, the beginning of fiscal year 2001. The impact to the Company's
financial position of implementing SFAS No. 133 is not anticipated to be
material.


                                    YEAR 2000

GENERAL. The Company is actively addressing potential issues arising from the
historical computer programming practice of using two digits rather than four
digits to signify dates (e.g. "00" instead of "2000"). This practice could cause
the Company's owned and operated computer-based technology to process dates
incorrectly because of an inability to distinguish properly between 1900 and
2000, and could result in computer systems failures or miscalculations. These
potential issues are collectively referred to as the Year 2000 issue. The Year
2000 issue could arise at any point in the Company's purchasing, supply,
processing, distribution and financial chains. Incomplete or untimely resolution
of the Year 2000 issue by the Company, its key suppliers, clients and other
parties could have a material adverse effect on the Company's business, results
of operations, financial condition and cash flow.

YEAR 2000 READINESS DISCLOSURE. The Company began the process of understanding
the Year 2000 issue in 1996. The Company's Board of Directors and senior
management are committed to minimizing the impact of the Year 2000 issue on the
Company's operations.

The Company established a Year 2000 project (the "Project") to address the Year
2000 issue. The Project's Steering Committee consists of members of the
Company's senior management, including representatives from each of the
Company's divisions and most corporate functions. This Steering Committee
oversees and regularly reviews the status of each of the following areas of
concentration for the Project:

  o        Internally developed software
  o        Third party software
  o        Infrastructure (mainframe, personal computers, etc.)
  o        Facilities systems
  o        Other external systems (supply chain and other outside relationships)

Internally developed software, third party software and infrastructure hardware
are all information technology ("IT") systems. Facilities and other external
systems are non-IT systems.

The Steering Committee is also tasked with estimating and controlling the
associated costs of the Project. Additionally, the Company established a Year
2000 Project team, led by an experienced project manager, that is responsible
for the day-to-day oversight and coordination of the Company's Year 2000
efforts. The Company's methodology involves eight phases for the Project: (1)
awareness, (2) inventory, (3) assessment, (4) remediation, (5) testing and
validation, (6) implementation, (7) contingency planning and (8) crisis
management/business continuity.

INFORMATION TECHNOLOGY SYSTEMS
The inventory and assessment phases for the IT systems began in 1996. For
internally developed mainframe software, the Company not only has completed
these two phases, but also has completed testing, third party validation, and
implementation of compliant versions of the software.

With respect to other internally developed software, third party software and
personal computers, which are used at most of the Company's operating locations
to support unit level financial and operating systems, the Company has completed
the inventory and assessment of these items. The Company also completed testing
and third party validation of its internally developed software and has acquired
compliant versions of all of its third party software. The Company is working
with clients and other external entities to validate the compliance status of
their systems.

                                      -28-

<PAGE>


                              YEAR 2000, CONTINUED

The rollout of compliant versions of all software and of personal computers to
replace those the Company owns and the removal of non compliant systems are on
schedule to be substantially complete by October 31, 1999. Considering the large
number and geographic diversity of the Company's operating locations, systems
considered most critical to ongoing operations and those that could have a
material adverse effect on the Company's business results of operations,
financial condition and cash flow are being given the highest priority.

NON-INFORMATION TECHNOLOGY SYSTEMS
The Company has also surveyed and assessed facilities systems, which include
food service refrigeration and food preparation systems that the Company manages
for its clients. The Company also manages elevators, heating, ventilation and
air conditioning systems, and other equipment for its clients pursuant to plant
operations and maintenance agreements. In some Health Care division accounts the
Company provides, either directly or through subcontractors, certain maintenance
services related to biomedical equipment. Because these facilities systems
reside at client sites, they are generally not under the Company's control, and
responsibility for these systems generally rests with the client. The assessment
of these systems has involved close cooperation between the Company and its
clients. With respect to plant operations and maintenance clients, the Company
is providing certain services to assist its clients in achieving their Year 2000
objectives relative to their facilities systems.

Finally, the Company continues to obtain up-to-date compliance information
regarding its vendors and suppliers and is monitoring the compliance status of
other external systems that support the different facets of its business, such
as utilities, government entities and other service providers. These systems are
not under the Company's control. At this time, the Company anticipates sporadic
outages of limited duration, however the Company believes its contingency plans
in place are sufficient to address this degree of potential disruption.

RISKS. There are many risks associated with the Year 2000 issue. Because the
Company's Year 2000 compliance depends upon numerous third parties also being
Year 2000 compliant on a timely basis, there can be no guarantee that the
Company's efforts will prevent a material adverse impact on its business,
results of operations, financial condition and cash flow. The possible
consequences to the Company of its business partners or the general
infrastructure (including transportation, government, utilities, and
communications) not being fully Year 2000 compliant include temporary facilities
closings, delays in the delivery of products, delays in the receipt of key food
products, equipment and packaging supplies, invoice and collection delays and
errors, and inventory and supply shortages. These consequences could have a
material adverse impact on the Company's business, results of operations,
financial condition and cash flow if the Company is unable to conduct its
business in the ordinary course.

To manage potential points of failure, the Company has developed contingency
plans designed to mitigate the potential disruptions that may result from the
Year 2000 issue. In general, because the Company has had much experience with
power outages, equipment failures, etc., in its normal course of business, the
Company believes it is prepared for potential Year 2000 disruptions. Contingency
plans and associated cost estimates are generally complete, and will be
continually refined as additional information becomes available. The Company
believes that its business continuity planning should significantly reduce the
adverse effects any disruptions may have.

COSTS. The Company had originally estimated that the pretax costs to be borne by
it to address the Year 2000 issue would be approximately $5-8 million
principally for modification, testing, validation, project management and
contingency and business continuity planning. These costs are being expensed as
incurred and funded from operating cash flow. Through Fiscal Year 1999,
approximately $5.5 million had been incurred and expensed, and the Company now
anticipates spending a total of approximately $8 million for this Project. Thus,
approximately $2.5 million will be incurred and expensed for this Project in
Fiscal Year 2000. The Company does not separately identify certain internal
costs incurred for the Project, most of which are related to the Company's
internal IT-personnel costs.

The actual costs to be incurred by the Company will depend on a number of
factors which cannot be accurately predicted, including the extent and
difficulty of the remediation and other work remaining to be done, the clients'
expectations of the Company's responsibility to help remediate the clients'
facilities systems, the availability and cost of consultants, the extent of
testing required to demonstrate Year 2000 compliance, the portion of such costs
that may be borne by the Company's clients pursuant to existing contractual
agreements and the Company's ability to timely collect all payments due to it
under existing contracts and the severity and duration of the impact of Year
2000 on the Company's business.


                                      -29-

<PAGE>



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's earnings are not materially affected by changes in interest rates,
due to the relatively low balances of borrowings at floating interest rates
(after adjusting for hedge positions outstanding) as well as notes receivable
which earn a variable rate of interest (see Note 8 to the Consolidated Financial
Statements). However, changes in interest rates also impact the fair value of
the Company's debt, totaling $1.1 billion at September 3, 1999. If interest
rates increased by 100 basis points, the fair value of the Company's debt would
have decreased by approximately $21 million, while a 100 basis point decrease in
rates would have increased the fair value of the Company's debt by approximately
$22 million, based on balances at September 3, 1999.


ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial information is included on the pages indicated:

                                                                      PAGE(S)
                                                                      -------

Management's Report                                                      31
Reports of Independent Public Accountants                             32-33
Consolidated Statement of Income                                         34
Consolidated Balance Sheet                                               35
Consolidated Statement of Cash Flow                                      36
Consolidated Statement of Stockholders' Equity                           37
Notes to Consolidated Financial Statements                            38-58
Supplementary Data                                                       59








                                      -30-

<PAGE>


                               MANAGEMENT'S REPORT



Management is responsible for the integrity and objectivity of the consolidated
financial statements and other financial information presented in this report.
In meeting this responsibility, the Company maintains a highly developed system
of internal controls, policies and procedures, including an internal auditing
function that continually evaluates the adequacy and effectiveness of its
control system. Management believes this system provides reasonable assurance
that transactions are properly authorized and recorded to adequately safeguard
the Company's assets and to permit preparation of the financial statements in
accordance with generally accepted accounting principles.

The financial statements presented herein were prepared on a historical basis
for Fiscal Year 1999, the Transition Period of January 3, 1998 to August 28,
1998, and for the calendar years 1997 and 1996, as described in Note 1 to the
Consolidated Financial Statements. In addition, pro forma fiscal years 1997
through 1999 are presented in the Introduction section of this report.
Management believes that this presentation is the most meaningful to
shareholders and other users of these financial statements. The pro forma
results were prepared by applying certain pro forma adjustments to the audited
historical results of Marriott International, Inc. and the acquired North
American operations of Sodexho Alliance, S.A.

The historical consolidated financial statements for Fiscal Year 1999 and for
the Transition Period in 1998 have been audited by PricewaterhouseCoopers LLP,
independent public accountants. The historical consolidated financial statements
for 1997 and 1996 have been audited by Arthur Andersen LLP, independent public
accountants. Their reports, included in this report, express an informed
judgment as to whether management's historical consolidated financial statements
present fairly the Company's financial position and results of operation in
conformity with generally accepted accounting principles. The pro forma
financial statements included herein do not represent actual historical results
of the Company and as such are not audited.

The Board of Directors fulfills its responsibility for the financial statements
through its Audit Committee, composed of three directors not otherwise employed
by the Company. The committee meets a minimum of two times during the year with
the independent public accountants, representatives of management and the
internal auditors to review the scope and results of the internal and external
audits, the accounting principles applied in financial reporting, and financial
and operational controls. The independent public accountants and internal
auditors have unrestricted access to the Audit Committee with and without the
presence of management.




/s/ MICHEL LANDEL          /s/ LAWRENCE E. HYATT        /s/ LOTA S. ZOTH

Michel Landel              Lawrence E. Hyatt            Lota S. Zoth
President and              Senior Vice President and    Vice President,
Chief Executive Officer    Chief Financial Officer      Corporate Controller and
                                                        Chief Accounting Officer






                                      -31-

<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS





To the Board of Directors and
Shareholders of Sodexho Marriott Services, Inc.


In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and stockholders' equity and of cash flow
present fairly, in all material respects, the financial position of Sodexho
Marriott Services, Inc. and its subsidiaries at September 3, 1999 and August 28,
1998 and the results of their operations and their cash flow for the fifty-three
weeks and thirty-four weeks then ended, respectively, in conformity with
generally accepted accounting principles. 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 audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.




/s/ PRICEWATERHOUSECOOPERS LLP


Washington, D.C.
October 8, 1999




                                      -32-

<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders of Sodexho Marriott Services, Inc.:


We have audited the accompanying consolidated balance sheet of Sodexho Marriott
Services, Inc. (formerly "Marriott International, Inc.") as of January 2, 1998,
and the related consolidated statements of income, cash flow, and stockholders'
equity for each of the two fiscal years in the period ended January 2, 1998.
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 generally accepted auditing
standards. Those standards require that we plan and perform the 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sodexho Marriott
Services, Inc. as of January 2, 1998, and the results of its operations and its
cash flow for each of the two fiscal years in the period ended January 2, 1998,
in conformity with generally accepted accounting principles.




/s/ ARTHUR ANDERSEN LLP



Vienna, VA
February 3, 1998 (except with respect to the matters discussed in Notes
                  2 and 14, as to which the date is October 7, 1998)






                                      -33-

<PAGE>


<TABLE>
<CAPTION>
                                                    SODEXHO MARRIOTT SERVICES, INC.
                                                   CONSOLIDATED STATEMENT OF INCOME
                     FOR THE FISCAL YEAR ENDED SEPTEMBER 3, 1999, THE THIRTY-FOUR WEEKS ENDED AUGUST 28, 1998 AND
                                       FOR FISCAL YEARS ENDED JANUARY 2, 1998 AND JANUARY 3, 1997
                                               ($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

                                                                            JANUARY 3 TO
                                                                             AUGUST 28,
                                                           1999                 1998                1997                 1996
                                                    -------------------- ------------------- -------------------- ------------------
                                                        (53 WEEKS)           (34 WEEKS)          (52 WEEKS)           (53 WEEKS)

<S>                                                             <C>                 <C>                  <C>                 <C>
SALES                                                           $4,502              $2,828               $5,026              $4,318

OPERATING COSTS AND EXPENSES
     Operating expenses                                          4,198               2,709                4,847               4,141
     Loss on sale of MMS- UK operations                              -                   -                   22                   -
                                                    -------------------- ------------------- -------------------- ------------------
                                                                 4,198               2,709                4,869               4,141
                                                    -------------------- ------------------- -------------------- ------------------
OPERATING PROFIT BEFORE
   CORPORATE EXPENSES AND INTEREST                                 304                 119                  157                 177
Corporate expenses, including
   amortization of intangible assets                              (133)                (97)                 (94)                (79)
Interest expense                                                   (88)                (65)                (110)                (85)
Interest income                                                      1                  11                   32                  37
Gain on sale of investment                                           8                   -                    -                   -
                                                    -------------------- ------------------- -------------------- ------------------
INCOME (LOSS) FROM CONTINUING
   OPERATIONS, BEFORE TAXES AND
   EXTRAORDINARY ITEM                                               92                 (32)                 (15)                 50
(Provision) Benefit for Income Taxes from
   Continuing Operations                                           (41)                 13                   15                 (17)
                                                    -------------------- ------------------- -------------------- ------------------
Income (Loss) From Continuing Operations, Before
   Discontinued Operations and Extraordinary Item                   51                 (19)                   -                  33
Discontinued Operations, Net of Income Taxes                         -                  77                  335                 273
                                                    -------------------- ------------------- -------------------- ------------------
Income Before Extraordinary Item                                    51                  58                  335                 306
Loss from Extraordinary Item, Net of Income Taxes                    -                 (44)                   -                   -
                                                    -------------------- ------------------- -------------------- ------------------
NET INCOME                                                      $   51              $   14               $  335              $  306
                                                    ==================== =================== ==================== ==================

BASIC EARNINGS (LOSS) PER SHARE:
   Continuing Operations                                        $ 0.82              $(0.36)              $    -              $ 1.03
   Discontinued Operations                                           -                1.48                10.53                8.56
                                                    -------------------- ------------------- -------------------- ------------------
                                                                  0.82                1.12                10.53                9.59
   Extraordinary Item                                                -               (0.85)                   -                   -
                                                    -------------------- ------------------- -------------------- ------------------
BASIC EARNINGS PER SHARE                                        $ 0.82              $ 0.27               $10.53              $ 9.59
                                                    ==================== =================== ==================== ==================

DILUTED EARNINGS (LOSS) PER SHARE:
   Continuing Operations                                        $ 0.81              $(0.36)              $    -              $ 0.97
   Discontinued Operations                                           -                1.48                10.53                8.08
                                                    -------------------- ------------------- -------------------- ------------------
                                                                  0.81                1.12                10.53                9.05
   Extraordinary Item                                                -               (0.85)                   -                   -
                                                    -------------------- ------------------- -------------------- ------------------
DILUTED EARNINGS PER SHARE                                      $ 0.81              $ 0.27               $10.53              $ 9.05
                                                    ==================== =================== ==================== ==================
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                      -34-

<PAGE>


<TABLE>
<CAPTION>
                                                    SODEXHO MARRIOTT SERVICES, INC.
                                                      CONSOLIDATED BALANCE SHEET
                                        SEPTEMBER 3, 1999, AUGUST 28, 1998 AND JANUARY 2, 1998
                                                            ($ IN MILLIONS)

                                                                  SEPTEMBER 3,       AUGUST 28,         JANUARY 2,
                                                                      1999              1998               1998
                                                                ----------------- ----------------- -------------------

                            ASSETS
<S>                                                                      <C>               <C>                 <C>
Current Assets
     Cash and equivalents                                                $   48            $   79              $  139
     Accounts and notes receivable, net                                     445               374                 487
     Inventories                                                             60                54                 116
     Other                                                                   89                98                  77
     Net current assets from discontinued operations                          -                 -                  95
                                                                ----------------- ----------------- -------------------
             Total current assets                                           642               605                 914
                                                                ----------------- ----------------- -------------------

Property and equipment, net                                                  85                82                 505
Intangible assets, net                                                      535               569                 388
Investments in affiliates                                                     7                 5                 197
Other                                                                        78                80                 198
Net noncurrent assets of discontinued operations                              -                 -               2,807
                                                                ----------------- ----------------- -------------------
                                                                         $1,347            $1,341              $5,009
                                                                ================= ================= ===================

        LIABILITIES AND STOCKHOLDERS' (DEFICIT)/EQUITY

Current Liabilities
     Current portion of long-term debt                                   $  133            $   96              $   23
     Accounts payable                                                       238               222                 548
     Accrued payroll and benefits                                           327               301                 358
     Other current liabilities                                               20                27                 220
     Payable to affiliates for excess net tangible assets                     -                49                   -
                                                                ----------------- ----------------- -------------------
             Total current liabilities                                      718               695               1,149
                                                                ----------------- ----------------- -------------------

Long-term debt                                                              980             1,062               1,519
Other long-term liabilities                                                 113               110                 568
Convertible subordinated debt                                                30                29                 310

Commitments and Contingencies (Note 11)

Stockholders' (deficit)/equity
     Preferred stock, no par value, 1 million shares
       Authorized; no shares issued                                           -                 -                   -
     Common stock, $1 par value; 300 million,
       75 million and 75 million authorized; 62.3 million,
       61.9 million and 31.5 million shares issued
       and outstanding                                                       62                62                  32
     Additional paid-in capital                                           1,326             1,322                 805
     (Accumulated deficit)/Retained earnings                             (1,884)           (1,946)                822
     Accumulated other comprehensive income (expense)                         2                 7                 (12)
     Treasury stock, at cost                                                  -                 -                (184)
                                                                ----------------- ----------------- -------------------
        Total stockholders' (deficit)/equity                               (494)             (555)              1,463
                                                                ----------------- ----------------- -------------------
        Total liabilities and stockholders' (deficit)/equity             $1,347            $1,341              $5,009
                                                                ================= ================= ===================
</TABLE>


                 See Notes to Consolidated Financial Statements.

                                      -35-

<PAGE>


<TABLE>
<CAPTION>
                                                    SODEXHO MARRIOTT SERVICES, INC.
                                                  CONSOLIDATED STATEMENT OF CASH FLOW
                                 FOR FISCAL YEAR 1999, THE THIRTY-FOUR WEEKS ENDED AUGUST 28, 1998 AND
                                        FISCAL YEARS ENDED JANUARY 2, 1998 AND JANUARY 3, 1997
                                                            ($ IN MILLIONS)

                                                                               JANUARY 3 TO
                                                                                AUGUST 28,
                                                                1999               1998                1997               1996
                                                         ------------------ ------------------ ------------------- -----------------
                                                             (53 WEEKS)         (34 WEEKS)          (52 WEEKS)         (53 WEEKS)
<S>                                                            <C>                 <C>                   <C>                <C>
CASH PROVIDED BY OPERATING ACTIVITIES
-------------------------------------
Net income                                                     $       51           $     14             $   335            $   306
Adjust to reconcile net income to cash and equivalents:
   Income from discontinued operations                                  -                (77)               (335)              (273)
   Extraordinary item - extinguishment of debt                          -                 44                   -                  -
   Gain on sale of investment                                          (8)                 -                   -                  -
   Depreciation and amortization expense                               85                 57                  99                101
   (Benefit) provision for deferred taxes                              (5)                 6                  (2)                (2)
   Changes in working capital                                         (18)               128                  67                 57
   Changes in discontinued operations                                   -                131                 271                397
   Other                                                                -                 (2)                142                  6
                                                         ------------------ ------------------ ------------------- -----------------
NET CASH PROVIDED BY CONTINUING
  OPERATING ACTIVITIES                                                105                301                 577                592
                                                         ------------------ ------------------ ------------------- -----------------

CASH FLOW FROM INVESTING ACTIVITIES
-----------------------------------
Capital expenditures                                                  (72)               (86)               (282)              (170)
Net cash - acquisitions                                                 -                 24                   -               (331)
Dispositions                                                           26                 29                 441                 60
Net decrease in loans to affiliates                                     -                  -                   4                 44
Cash from distributed operations                                        -               (305)                  -                  -
Net investment in discontinued operations                               -               (113)             (1,118)               (99)
Other                                                                 (50)              (160)                (86)               (53)
                                                         ------------------ ------------------ ------------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES                                 (96)              (611)             (1,041)              (549)
                                                         ------------------ ------------------ ------------------- -----------------

CASH FLOW FROM FINANCING ACTIVITIES
-----------------------------------
Proceeds from the issuance of long-term debt                            -              1,820                 687                  -
Repayments of long-term debt                                          (70)            (1,900)                (18)              (137)
Proceeds from issuance of convertible subordinated debt                 -                  -                   -                288
Proceeds from issuance of common stock for Acquisition                  -                304                   -                  -
Common stock issued - ESOP & other                                      4                 72                  40                 43
Purchases of treasury stock                                             -                (35)               (191)              (158)
Dividends paid - common                                                 -                (11)                (43)               (40)
Other                                                                  26                  -                   -                  -
                                                         ------------------ ------------------ ------------------- -----------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                   (40)               250                 475                 (4)
                                                         ------------------ ------------------ ------------------- -----------------

NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS                $      (31)          $    (60)            $    11            $    39

CASH & CASH EQUIVALENTS BEGINNING OF PERIOD                            79                139                 128                 89
                                                         ------------------ ------------------ ------------------- -----------------

CASH & CASH EQUIVALENTS END OF PERIOD                          $       48           $     79             $   139            $   128
                                                         ================== ================== =================== =================

SUPPLEMENTAL:
   Interest paid - continuing operations                       $       87           $     64             $    96            $    57
   Income tax payments - continuing operations                         37                 23                  19                 35

NONCASH INVESTING AND FINANCING ACTIVITIES:
   Issuance of common stock for Acquisition                    $        -           $    275             $     -            $     -
</TABLE>


                 See Notes to Consolidated Financial Statements.

                                      -36-

<PAGE>


<TABLE>
<CAPTION>
                                                    SODEXHO MARRIOTT SERVICES, INC.
                                            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                           FOR THE YEAR ENDED SEPTEMBER 3, 1999, THIRTY-FOUR WEEKS ENDED AUGUST 28, 1998 AND
                                        FISCAL YEARS ENDED JANUARY 2, 1998 AND JANUARY 3, 1997
                                                (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

                                                                                                ACCUMULATED
                                                                              (ACCUMULATED         OTHER
    COMMON                                                     ADDITIONAL      DEFICIT)/       COMPREHENSIVE    TREASURY
    SHARES                                          COMMON      PAID-IN         RETAINED          INCOME         STOCK,
  OUTSTANDING                                       STOCK       CAPITAL         EARNINGS         (EXPENSE)       AT COST     TOTAL
---------------- ------------------------------- ----------- ------------- ----------------- ---------------- ------------ ---------

<S>       <C>                                          <C>        <C>              <C>                  <C>        <C>      <C>
          31.4   Balance, December 29, 1995            $32        $  716           $   395              $(2)       $ (87)   $ 1,054

             -   Net income                              -             -               306                -            -        306
             -   Foreign exchange translation            -             -                 -                1            -          1
                                                 ----------- ------------- ----------------- ---------------- ------------ ---------
             -   TOTAL COMPREHENSIVE INCOME              -             -               306                1            -        307
                                                 ----------- ------------- ----------------- ---------------- ------------ ---------
                 Employee stock plan
           0.9     issuance and other                    -            35               (32)               -          100        103
             -   Dividends ($1.28 per share)             -             -               (41)               -            -        (41)
          (0.8)  Purchases of treasury stock             -             -                 -                -         (163)      (163)
---------------- ------------------------------- ----------- ------------- ----------------- ---------------- ------------ ---------
          31.5   Balance, January 3, 1997               32           751               628               (1)        (150)     1,260

             -   Net income                              -             -               335                -            -        335
             -   Unrealized gain on securities           -             -                 -                5            -          5
             -   Foreign exchange translation            -             -                 -              (16)           -        (16)
                                                 ----------- ------------- ----------------- ---------------- ------------ ---------
             -   TOTAL COMPREHENSIVE INCOME              -             -               335              (11)           -        324
                                                 ----------- ------------- ----------------- ---------------- ------------ ---------
                 Employee stock plan
           0.8     issuance and other                    -            54               (97)               -          173        130
             -   Dividends ($1.40 per share)             -             -               (44)               -            -        (44)
          (0.8)  Purchases of treasury stock             -             -                 -                -         (207)      (207)
---------------- ------------------------------- ----------- ------------- ----------------- ---------------- ------------ ---------
          31.5   Balance, January 2, 1998               32           805               822              (12)        (184)     1,463

             -   Net income                              -             -                14                -            -         14
             -   Unrealized gain on securities           -             -                 -                1            -          1
             -   Foreign exchange translation            -             -                 -               (6)           -         (6)
                                                 ----------- ------------- ----------------- ---------------- ------------ ---------
             -   TOTAL COMPREHENSIVE INCOME              -             -                14               (5)           -          9
                                                 ----------- ------------- ----------------- ---------------- ------------ ---------
             -   Distribution to shareholders            -             -            (2,715)              24            -     (2,691)
                 Shares issued to Sodexho--
          29.9     related to the Acquisition           30           549                 -                -            -        579
                 Employee stock plan
           0.6     issuance and other                    -           (32)              (56)               -          160         72
             -   Dividends ($0.36 per share)             -             -               (11)               -            -        (11)
          (0.1)  Purchases of treasury stock             -             -                 -                -          (35)       (35)
             -   Cancellation of treasury stock          -             -                 -                -           59         59
---------------- ------------------------------- ----------- ------------- ----------------- ---------------- ------------ ---------
          61.9   Balance, August 28, 1998               62         1,322            (1,946)               7            -       (555)

             -   Net income                              -             -                51                -            -         51
                 Reclassification of gain
             -     realized in net income, net           -             -                 -               (5)           -         (5)
             -   Foreign exchange translation            -             -                 -                1            -          1
             -   Other                                   -             -                 -               (1)           -         (1)
                                                 ----------- ------------- ----------------- ---------------- ------------ ---------
             -   TOTAL COMPREHENSIVE INCOME              -             -                51               (5)           -         46
                                                 ----------- ------------- ----------------- ---------------- ------------ ---------
                 Adjustment of distribution to
             -     shareholders                          -             -                11                -            -         11
                 Employee stock plan
           0.4     issuance and other                    -             4                 -                -            -          4
---------------- ------------------------------- ----------- ------------- ----------------- ---------------- ------------ ---------

          62.3   Balance, September 3, 1999            $62        $1,326           $(1,884)             $ 2        $   -    $  (494)
================ =============================== =========== ============= ================= ================ ============ =========
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                      -37-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Sodexho Marriott Services, Inc. (the "Company") is the leading provider in North
America of outsourced food and facilities management services to businesses,
health care facilities, colleges and universities, and primary and secondary
schools. Food services include food and beverage procurement, preparation and
menu planning, as well as the operation and maintenance of food service and
catering facilities, generally on a client's premises. Facilities management
services include plant maintenance, energy management, grounds keeping, and
housekeeping and custodial services.

The Company was formerly named Marriott International, Inc. ("MI"). Upon
consummation of the Distribution, Acquisition and Refinancing (collectively, the
"Transactions"), which occurred on March 27, 1998, the last day of the first
quarter of 1998, Marriott International, Inc. was renamed Sodexho Marriott
Services, Inc. As of March 27, 1998, the principal business of the Company
changed from lodging and contract services to food and facilities management
services. In connection with the Distribution and Acquisition, the Company began
a restructuring and refinanced its debt. The Transactions are explained in
detail in Notes 2, 3, and 4.

All material intercompany transactions and balances between Sodexho Marriott
Services, Inc., and its consolidated subsidiaries have been eliminated. Certain
amounts previously presented have been reclassified to conform to the current
presentation. Additionally, related to the Distribution on March 27, 1998, the
Company has combined the results of operations, cash flow and balance sheet
items of the lodging segment as "Discontinued Operations" for all periods
presented (see "Distribution" below and Note 2).

The preparation of financial statements in conformity with 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, and the reported amounts of sales and expenses during the
reporting period. Accordingly, ultimate results could differ from those
estimates.

DISTRIBUTION

On March 27, 1998, the Company completed the Distribution to its shareholders,
on a pro rata basis, of all outstanding shares of New Marriott MI, Inc. ("New
Marriott"), a wholly owned subsidiary of the Company, in a tax-free distribution
(the "Distribution"). New Marriott conducts the lodging (including timeshare
resort development and operation), senior living services and distribution
service businesses previously conducted by the Company and changed its name to
Marriott International, Inc. The food service and facilities management business
will continue to be conducted by the Company. Immediately after the
Distribution, the Company acquired the North American food service and
facilities management operations of Sodexho Alliance, S.A. (Sodexho) in exchange
for stock of the Company, with the Company operating the combined food service
and facilities management businesses under the name - Sodexho Marriott Services,
Inc. As a result of the issuance of new shares of the Company's common stock to
Sodexho in connection with the Acquisition, the shareholders who owned 100% of
the Company immediately prior to the Distribution owned approximately 51% of the
Company thereafter. At the same time, the Company obtained financing arranged by
Sodexho, to refinance certain existing indebtedness of the Company.

For the purposes of governing certain of the ongoing relationships between MI
and the Company after the Distribution and to provide for an orderly transition,
MI and the Company entered into various agreements including the Employee
Benefits and Other Employment Matters Allocation Agreement, Liquid Yield
Option(TM) Notes (LYONs) Allocation Agreement (see Note 8), Tax Sharing
Agreement, Trademark and Trade Name License Agreement, Noncompetition Agreement,
Employee Benefit Services Agreement, Procurement Services Agreement,
Distribution Services Agreement and other transitional services agreements.
Effective March 27, 1998, these agreements provided, among other things, that MI
assumed administration of certain of the Company's employee benefit plans and
insurance programs as well as succeed to the Company's liability to LYONs
holders under the LYONs Indenture, a portion of which was assumed by the
Company. In connection with the Distribution, on October 31, 1997, the Company
sold the MMS- UK operations to Sodexho for $50 million in cash. The sale
resulted in a pretax loss of $22 million ($14 million after tax, or $0.40 per
share) for the year ended January 2, 1998.


                                      -38-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

REVERSE STOCK SPLIT

The Company also combined every four shares of its common stock into one share
of the Company's common stock pursuant to a reverse stock split on March 27,
1998. All share and per share data has been adjusted to reflect a one-for-four
reverse stock split effective March 27, 1998.

FISCAL YEAR

On April 15, 1998, the Company's Board of Directors approved a change in the
Company's fiscal year from the Friday closest to the end of December to the
Friday closest to the end of August, effective immediately. This change resulted
in a 34-week transition period (the "Transition Period") from the end of fiscal
1997 to the end of the new fiscal year on August 28, 1998. The new fiscal 1999
year had 53 weeks and ended on September 3, 1999.

Prior to the 1998 Transition Period, the Company's fiscal year ended on the
Friday nearest to December 31. The 1997 fiscal year included 52 weeks and ended
on January 2, 1998 ("Fiscal 1997" or "1997"). The 1996 fiscal year included 53
weeks and ended on January 3, 1997 ("Fiscal 1996" or "1996").

REVENUE RECOGNITION AND ACCOUNTS AND NOTES RECEIVABLE

Revenues are recognized at the time services are rendered or products are
delivered. Revenues include reimbursements for food and payroll costs incurred
on behalf of customers under contracts in which the Company manages food service
programs for a fee. Losses, if any, are provided for at the time management
determines the cost will ultimately exceed contract revenue for the duration of
the contract.

The allowance for doubtful accounts for continuing operations was $21 million,
$17 million, and $12 million as of September 3, 1999, August 28, 1998, and
January 2, 1998, respectively. Concentration of credit risk within accounts
receivable is limited because a large number of customers make up the Company's
customer base, thus spreading risk associated with trade credit. In addition,
the Company closely monitors its accounts receivable. The Company generally does
not require collateral and maintains reserves for potential uncollectible
amounts, which, in the aggregate, have not exceeded management's expectations.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of undiscounted expected future cash flow is less than
the carrying amount of long-lived assets, the Company recognizes an impairment
loss based on the amount by which the carrying amount of the asset exceeds the
fair value of the asset.

INTEREST-RATE AGREEMENTS

The Company's policies prohibit the use of derivative instruments for trading
purposes and procedures are in place to monitor and control their use. The use
of derivative instruments is limited to interest-rate agreements for the purpose
of reducing the variability of the Company's debt costs. The majority of these
agreements were entered into in conjunction with the issuance of the debt they
were intended to modify.

The notional balances of these agreements represent a balance used to calculate
the exchange of cash flows and are not assets or liabilities of the Company, in
addition to not representing an exposure to credit loss. The notional amount and
interest payment of these agreements match the cash flows of the related debt.
Accordingly, any market risk or opportunity associated with these agreements is
offset by the opposite market impact on the related debt. The Company's credit
risk related to interest-rate agreements is considered low because they are
entered into only with strong creditworthy counterparties and are generally
settled on a net basis. The difference paid or received on interest-rate
agreements is recognized as an adjustment to interest expense. See Note 8 for
the notional amounts, related interest rates, maturities, and fair values of
these interest-rate agreements.


                                      -39-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

INCOME TAXES

The Company recognizes deferred tax assets and liabilities based upon the
expected future tax consequences of existing differences between the financial
reporting and tax reporting bases of assets and liabilities and operating loss
and tax credit carryforwards.

EXTRAORDINARY ITEM

On March 27, 1998, the Company recognized an extraordinary charge of $71 million
($44 million after the related income tax benefit of $27 million) in connection
with the redemption and defeasance of the Secured Debt. This loss was comprised
of premiums totaling $67 million paid for the redemptions and $4 million of
financing costs.

EARNINGS PER SHARE

The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," in fiscal 1997. Under SFAS No. 128, basic earnings
per share is computed by dividing net income by the weighted-average number of
outstanding common shares. Diluted earnings per share is computed by dividing
net income by the diluted weighted-average number of outstanding common shares.
In addition, on March 27, 1998, the Company's common stock underwent a
one-for-four reverse stock split. Earnings per share computations have been
restated to reflect this reverse stock split.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents. The Company uses
drafts in its cash management system. At September 3, 1999, the Company had $83
million of outstanding drafts included in accounts payable, compared with
outstanding draft totals of $34 million and $193 million at August 28, 1998 and
January 2, 1998, respectively.

INVENTORIES

Inventories consist of food items and supplies, which are stated at the lower of
average cost or market, generally using the first-in, first-out method.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
ranging from 3 to 40 years. Replacements and improvements are capitalized.
Leasehold improvements, net of estimated residual value, are amortized over the
shorter of the useful life of the asset or the lease term.

INTANGIBLE ASSETS

Intangible assets consist of goodwill and customer relationships. Intangible
assets are amortized on a straight-line basis over periods generally ranging
from 30 to 40 years for goodwill and 10 to 20 years for customer relationships.
Amortization expense for continuing operations totaled $38 million in fiscal
year 1999, $26 million for the Transition Period ended August 28, 1998, $25
million in fiscal year 1997, and $26 million in fiscal year 1996. Amortization
expense for discontinued operations totaled $8 million for the Transition Period
ended August 28, 1998, $42 million in fiscal year 1997 and $8 million in fiscal
year 1996.

OTHER ASSETS

Included in other assets are client investments, which represent amounts
provided by the Company to clients at contract inception for the purchase of
property and equipment pertaining to the contract. These amounts are amortized
over the life of the related contract. When a contract terminates prior to its
scheduled termination date, the client generally must repay any unamortized
client investment balance to the Company.

                                      -40-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

INSURANCE

Except for the period of October 1, 1997 to March 27, 1998, the Company is
partially self-insured for certain levels of workers' compensation, general
liability, employment practices and employee medical coverage. Self-insurance
levels are the result of the Company using certain insurance programs that
include higher deductibles for the Company, resulting in the Company being
"self-insured" for claims below the deductible levels. Estimated costs for these
self-insurance programs are accrued at the present value (discounted at a rate
of 5% at fiscal year end 1999) of projected settlements for known and
anticipated claims. Self-insurance liabilities of the Company amounted to $89
million at September 3, 1999 and $87 million at August 28, 1998. The Company was
fully insured for most claims occurring during the period of October 1, 1997 to
March 27, 1998, as the Company placed certain insurance programs with
third-party providers during the period.

ACCUMULATED OTHER COMPREHENSIVE INCOME

In June 1997, SFAS No. 130--"Reporting Comprehensive Income" was issued,
requiring that certain financial activity typically disclosed in stockholders'
equity be reported in the financial statements as an adjustment to net income in
determining comprehensive income. Items applicable to the Company include
activity in foreign exchange translation adjustments and securities available
for sale under SFAS No. 115. Items identified as comprehensive income are
reported in the Consolidated Balance Sheet and the Consolidated Statement of
Stockholders' Equity, under separate captions.

Results for the Canada division are translated to U.S. dollars using the average
exchange rates during the period. Assets and liabilities are translated using
the exchange rate in effect at the applicable balance sheet date, and resulting
translation adjustments are reflected in stockholders' (deficit)/equity as
accumulated other comprehensive income.

Total accumulated other comprehensive income included $3.1 million of gross
foreign exchange translations gains, net of taxes totaling $1.4 million, at
September 3, 1999. At August 28, 1998, total accumulated other comprehensive
income was comprised of $10.1 million of gross unrealized securities gain
adjustments under SFAS No. 115, net of taxes totaling $4.0 million and gross
foreign exchange translation gains totaling $1.1 million, net of taxes totaling
$0.4 million. At January 2, 1998, total accumulated other comprehensive income
was comprised of $28.2 million of gross unrealized securities loss adjustments,
net of taxes totaling $11.0 million, partially offset by gross foreign exchange
translation gains totaling $8.9 million, net of taxes totaling $3.5 million.

During fiscal year 1999, total comprehensive income was comprised of $51 million
in net income and $1.9 million of gross foreign exchange translation gains, net
of taxes totaling $0.9 million, partially offset by the reclassification of the
realized gain on the sale of investment totaling $8.3 million pretax, net of
taxes totaling $3.7 million. Total comprehensive income for the 34 weeks ended
August 28, 1998, included $14 million in net income and $1.2 million in gross
securities gain adjustments, net of taxes totaling $0.5 million, partially
offset by $10.7 million of gross foreign exchange translation losses, net of
taxes totaling $4.3 million. For fiscal 1997, total comprehensive income was
comprised of $335 million in net income and $8.9 million of gross securities
gain adjustments, net of taxes totaling $3.5 million, partially offset by $26.6
million of gross foreign exchange translation losses, net of taxes totaling
$10.4 million.

SEGMENT REPORTING

In June 1997, SFAS No. 131--"Disclosures about Segments of an Enterprise and
Related Information" was issued requiring the reporting of selected segmented
information in quarterly and annual reports. Information from operating segments
is derived from methods used by the Company's management to allocate resources
and measure performance. The Company is required to disclose profit/loss,
revenues and assets for each segment identified, including reconciliations of
these items to consolidated totals. The Company is also required to disclose the
basis for identifying the segments and the types of products and services within
each segment. SFAS No. 131 was effective for the Company for the Transition
Period ended August 28, 1998 (see Note 14), and quarterly in fiscal 1999,
including the restatement of prior periods reported consistent with this
pronouncement, if practicable.


                                      -41-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

NEW ACCOUNTING STANDARDS

SFAS No. 133-- "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998 and will require the Company to record derivative
instruments, such as interest-rate agreements, on the Consolidated Balance Sheet
as assets or liabilities, measured at fair value. Currently, the Company treats
such instruments as off-balance-sheet items. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the specific use of each derivative instrument and whether it qualifies for
hedge accounting treatment as stated in the standard. In June 1999, the
Financial Accounting Standards Board approved the deferral of the effective date
for SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June
15, 2000. Therefore, SFAS No. 133 will be effective for the Company on September
2, 2000, the beginning of fiscal year 2001. The impact to the Company's
financial position of implementing SFAS No. 133 is not anticipated to be
material.


(2)  THE DISTRIBUTION AND DISCONTINUED OPERATIONS

THE DISTRIBUTION

On March 27, 1998, the Company distributed to its shareholders, on a pro rata
basis, all outstanding shares of New Marriott MI, Inc., a wholly owned
subsidiary of the Company, in a tax-free distribution (the "Distribution"). New
Marriott MI, Inc., subsequently renamed Marriott International, Inc. (together
with subsidiaries, "MI") conducts business in the lodging segment and two of the
three lines of business in the contract services segment - Marriott Senior
Living Services ("MSLS") and Marriott Distribution Services ("MDS"). The
lodging, MSLS and MDS businesses are collectively referred to as Distributed
Operations. The third line of business in the contract services segment,
Marriott Management Services ("MMS"), has become the principal business of the
Company.

DISCONTINUED OPERATIONS

As a result of the Distribution, the Consolidated Financial Statements and Notes
thereto have been restated to present the lodging segment distributed to
shareholders as Discontinued Operations. The MDS, MSLS and MMS business make up
the Contract Services segment in the historical financial statements of the
Company. Thus, the distributed operations of MSLS and MDS are presented as
continuing operations prior to the date of distribution, March 27, 1998.

Discontinued Operations, Net of Income Taxes, is comprised of the following:

<TABLE>
<CAPTION>
                                                            34 WEEKS ENDED
                                                            AUGUST 28, 1998          1997                1996
                                                           ------------------- ------------------ -------------------
                                                                   ($ in millions, except per share amounts)

<S>                                                                   <C>                <C>                 <C>
Sales                                                                 $1,774             $7,008              $5,854

Income Before Income Taxes                                            $  158             $  569              $  452
Income Taxes                                                             (64)              (234)               (179)
                                                           ------------------- ------------------ -------------------
Income -Discontinued Operations                                       $   94             $  335              $  273

Costs Associated with Effecting the Distribution                      $  (28)            $    -              $    -
Income Taxes                                                              11                  -                   -
                                                           ------------------- ------------------ -------------------
Net Costs Associated with Effecting the Distribution                  $  (17)            $    -              $    -
                                                           ------------------- ------------------ -------------------
Discontinued Operations, Net of Income Taxes                          $   77             $  335              $  273
                                                           =================== ================== ===================

Basic Earnings Per Share                                              $ 1.48             $10.53              $ 8.56
Diluted Earnings Per Share                                            $ 1.48             $10.53              $ 8.08
</TABLE>

Results of discontinued operations in 1998 include a pretax charge of $28
million relating to the Distribution detailed above, and was comprised of legal,
administrative and accounting costs to consummate the Distribution. Net
identifiable assets of the Lodging segment totaled $2.90 billion and $1.62
billion as of the end of fiscal years ended 1997 and 1996, respectively (see
Note 14).

                                      -42-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(3)  ACQUISITION

On March 27, 1998, Sodexho transferred to the Company the operations of Sodexho
North America having a fair market value of $278 million, combined with a cash
payment of $304 million, in exchange for 29.9 million shares of the Company's
common stock, after giving effect to the one-for-four reverse stock split (see
Notes 1 through 4). The purchase price included approximately $3 million in
transaction costs. As a result of the issuance of new shares to the Company's
common stock to Sodexho in connection with the Acquisition, the shareholders who
owned 100% of the Company immediately prior to the Distribution owned
approximately 51% immediately thereafter.

The Acquisition has been accounted for using the purchase method of accounting.
The purchase price has been allocated to the fair market value of assets
acquired and liabilities assumed as follows:

<TABLE>
<CAPTION>
                                                                                        ($ in millions)
                                                                                        -----------------
<S>                                                                                               <C>
                   Current assets                                                                 $ 142
                   Other assets                                                                      56
                   Customer relationships                                                           122
                   Current liabilities                                                             (137)
                   Payable to Sodexho for excess net tangible assets                                (17)
                   Other liabilities                                                                (46)
                   Debt                                                                             (73)
                   Deferred taxes, net                                                               (8)
                   Goodwill                                                                         239
                                                                                        -----------------

                             Subtotal                                                               278
                   Cash contributed to the Company                                                  304
                                                                                        -----------------

                             Total purchase price                                                 $ 582
                                                                                        =================
</TABLE>

Pro forma results of the Company, assuming the Acquisition had been made at the
beginning of the periods presented are shown below:

PRO FORMA UNAUDITED RESULTS OF OPERATIONS
($ in millions, except per share amounts)

<TABLE>
<CAPTION>
                                                                            34 WEEKS ENDED       52 WEEKS ENDED
                                                                            AUGUST 28, 1998      JANUARY 2, 1998
                                                                          -------------------- --------------------
                                                                          ($ in millions, except per share amounts)

<S>                                                                                   <C>                  <C>
        SALES                                                                         $2,716               $4,163

        OPERATING COSTS AND EXPENSES                                                   2,574                3,908
                                                                          -------------------- --------------------
        OPERATING PROFIT BEFORE CORPORATE ITEMS                                          142                  255
        Corporate expenses and amortization of intangible assets                         (68)                (116)
        Interest expense, net                                                            (57)                 (87)
                                                                          -------------------- --------------------

        INCOME BEFORE INCOME TAXES                                                        17                   52
        Provision for income taxes                                                        (8)                 (25)
                                                                          -------------------- --------------------
        PRO FORMA NET INCOME                                                          $    9               $   27
                                                                          ==================== ====================

        PRO FORMA EARNINGS PER SHARE:
            BASIC                                                                     $ 0.14               $ 0.43
                                                                          ==================== ====================
            DILUTED                                                                   $ 0.14               $ 0.43
                                                                          ==================== ====================
</TABLE>

Pro forma sales include the combined actual sales of the food and facilities
management services business of MMS and Sodexho North America. Pro forma
operating profit before corporate expenses and interest reflects the pro rata
amount of approximately $15.9 million of annual amortization expense for the
intangible assets related to the Acquisition. Pro forma corporate expenses
include the combined corporate overhead of both businesses. No synergies are
assumed and integration and restructuring costs totaling $31 million have been
excluded from the 34 weeks ended August 28, 1998 results. However, an estimate
of $6.4 million in annual costs were included on a pro rata basis in all periods
presented until the date of the Transactions, representing the incremental costs
to operate as a separate public entity.

                                      -43-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(3)  ACQUISITION, CONTINUED

For the 52 weeks ended January 2, 1998, the loss from the sale and operations of
the MMS- UK operations sold to Sodexho in October 1997 have been excluded from
the results presented. Pro forma interest expense, net, represents the estimated
costs as if the Refinancing and the interest-rate agreements had been in place
on the first day of both periods presented. An effective income tax rate of 48%
and 49% were used for current and prior period, respectively. Pro forma results
do not include the extraordinary item related to the Refinancing. Pro forma
basic earnings per share were calculated on a share base of 61.9 million for
both periods presented, which represents the number of shares outstanding on
August 28, 1998. Pro forma diluted earnings per share were calculated on a share
base of 62.6 million for both periods presented. The dilutive shares are due to
stock option plans, deferred stock incentive plans, and convertible debt
outstanding.


(4)  INTEGRATION AND RESTRUCTURING

Integration and restructuring actions taken in fiscal year 1999 and the
Transition Period ended August 28, 1998 reflect the undertaking by the Company
to integrate and realign resources for more effective and efficient execution of
operating strategies. Integration costs totaled $16 million during fiscal year
1999 and $24 million during the Transition Period. The integration costs
include, among other items, training and relocating of former MMS employees,
incremental overhead during the integration phase, systems modifications, and
other one-time costs.

Restructuring costs represent employee termination benefits, office closure
expenditures, and other costs related to a restructuring plan initiated from the
Transactions. The acquisition reserve, which totaled $8 million at September 3,
1999, generally represents the estimated cost of termination benefits for
approximately 350 former Sodexho North America employees as well as the
estimated cost for the closure of certain Sodexho North America offices.

Acquisition reserve activity, reflecting certain adjustments made to the
preliminary allocation of the purchase price to the fair market value of assets
acquired (see Note 3), is detailed below:

<TABLE>
<CAPTION>
                                         BALANCE AS OF                                                 BALANCE AS OF
                                        AUGUST 28, 1998         ADJUSTMENTS         PAYMENTS         SEPTEMBER 3, 1999
                                      -------------------- -- ----------------- - ------------- -- ----------------------
                                                                       ($ in millions)

<S>                                                 <C>                 <C>             <C>                         <C>
Employee Terminations                               $10.3               $ 0.3          $ (8.2)                      $2.4
Relocation of Sodexho Facilities                      2.6                (0.8)           (1.1)                       0.7
Closures                                              3.1                 1.2            (2.4)                       1.9
Other Restructuring                                   1.3                 1.3              --                        2.6
                                      --------------------    -----------------   -------------    ----------------------
Total                                               $17.3               $ 2.0          $(11.7)                      $7.6
                                      ====================    =================   =============    ======================
</TABLE>

In addition, integration expenses recorded in the Consolidated Statement of
Income during fiscal year 1999 and the Transition Period are detailed below. No
restructuring expenses were recorded in the Consolidated Statement of Income
during fiscal year 1999.

<TABLE>
<CAPTION>
                                                            FISCAL YEAR              34 WEEKS ENDED
                                                               1999                 AUGUST 28, 1998
                                                       ----------------------     ---------------------
                                                                       ($ in millions)
<S>                                                                    <C>                       <C>
Integration:
   Duplicate Overhead                                                 $ 7.2                     $ 9.4
   MMS Relocation                                                       0.3                       1.7
   Training Systems                                                     1.1                       1.3
   Other                                                                7.0                      12.0
Restructuring:
   Employee Terminations                                                 --                       2.2
   Closures                                                              --                       2.1
   Other                                                                 --                       2.4
                                                       ----------------------     ---------------------
Total                                                                 $15.6                     $31.1
                                                       ======================     =====================
</TABLE>

                                      -44-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(5)  RELATIONSHIP WITH MARRIOTT INTERNATIONAL AND SODEXHO ALLIANCE, S.A.

RELATIONSHIP WITH MARRIOTT INTERNATIONAL ("MI")

Pursuant to the Distribution agreement (see Note 2), the Company and MI agreed
upon the allocation of assets and liabilities related to the MMS business and MI
business. The Company and MI also agreed to enter into a number of agreements
governing their relationship after March 27, 1998, as described below.

TAX SHARING AGREEMENT. The Tax Sharing Agreement by and among the Company, MI
and Sodexho Alliance, S.A. ("Sodexho") provides that MI is liable for all taxes
of the Company (other than sales, use and property taxes, which are borne by the
entities filing such returns) for all periods up to and including March 27,
1998. In addition, the parties have agreed for certain specified periods after
the Distribution not to take specific actions that could cause the Distribution
not to have Tax-Free Status.

EMPLOYEE BENEFITS ALLOCATION AGREEMENT. On September 30, 1997, the Company and
MI entered into an Employee Benefits and Other Employment Matters Allocation
Agreement providing for the allocation of employees of the Company and
obligations and responsibilities regarding compensation, benefits and labor
matters.

MEDICAL AND OTHER WELFARE BENEFITS PLANS. MI assumed the administration of the
Company's medical, dental, short-term disability, vacation and group term life
insurance plans incurred before March 27, 1998 by MI employees, the Company's
employees and former employees. The Company established and maintains a separate
medical, dental, short-term disability, vacation and group term life insurance
plans for its employees after the Distribution.

TRADEMARK LICENSE AGREEMENT. As part of the contribution of assets to MI, the
Company transferred and assigned to MI all of the Company's right, title and
interest in certain trademarks, including the trademarks "Marriott,"
"Courtyard," "Residence Inns by Marriott" and "Fairfield Inns by Marriott."
Pursuant to the terms of the agreement MI generally granted to the Company a
limited nonexclusive right to use the "Marriott" name solely in connection with
the Company's business as defined in the agreement. For four years after March
27, 1998, the Company is permitted to use the "Marriott" name as part of its
corporate name and the names of its principal business divisions. During the
term of the license, the Company pays MI a license fee of $1 million per year,
payable quarterly in advance. MI may terminate the Trademark License Agreement
prior to the expiration of its term under certain conditions. In addition, the
Company may terminate this agreement upon 180 days' prior written notice to MI.

NONCOMPETITION AGREEMENT. The Company and MI entered into a Noncompetition
Agreement generally prohibiting MI from competing in the core business of MMS
(as defined) in the United States, Canada and the United Kingdom for a period of
four years. However, per the agreement, MI may enter into certain negligible
investments (as defined) in businesses that compete with the Company through
direct investment or acquisitions.

LYONS ALLOCATION AGREEMENT AND SUPPLEMENTAL INDENTURE. The Company had issued
$540 million face amount of Liquid Yield Option(TM) Notes ("LYONs"), with an
accreted value as of January 2, 1998 of approximately $310 million. Pursuant to
the LYONs Allocation Agreement and a supplemental indenture to the LYONs
Indenture, MI assumed responsibility for all of the debt obligations evidenced
by the LYONs by becoming a successor to the Company in accordance with the terms
of the LYONs Indenture. The Company assumed responsibility for a portion of the
LYONs equal to its pro rata share based on the relative equity values of the
Company and MI, although MI will remain liable for any payments that the Company
fails to make on its allocable portion. Subsequent to the end of fiscal year
1999, on October 7, 1999, Marriott International notified all holders of the
LYONs, that Marriott International had elected to redeem all of the LYONs at a
price of $619.65 for each $1,000 principal amount at maturity of the LYONs, with
a redemption date of November 8, 1999--See Note 8.

ADDITIONAL AGREEMENTS BETWEEN THE COMPANY AND MI. In connection with the
Distribution agreement, the Company and MI (or a subsidiary of MI) have entered
into a number of additional agreements providing for the delivery of certain
transitional and other services between the companies. The terms and conditions
of these agreements were negotiated by the parties bargaining at arm's length.
Absent the Transactions, the Company believes that it may have been able to
negotiate more favorable terms with outside parties on certain of these
agreements. However, the Company further believes the terms of these agreements
are within the range of the prevailing markets for such services.

                                      -45-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(5)  RELATIONSHIP WITH MARRIOTT INTERNATIONAL AND
          SODEXHO ALLIANCE, S.A., CONTINUED

Such additional agreements include agreements regarding payroll processing,
benefits administration, procurement, distribution, information technology, and
office space and related facilities management in the MI corporate headquarters
(see Note 2).

Billings from MI to the Company and from the Company to MI associated with the
performance of these agreements (excluding pass-through product costs) were
approximately $65 million and approximately $4 million, respectively, for fiscal
year 1999. Billings from MI for the 1998 22-week Stub Period totaled
approximately $25 million, with total billings to MI of $2 million during the
same period.

As part of the Transactions, the Company entered into an agreement with MI that
established a reasonable amount of adjusted net tangible assets (as defined in
the agreement) for the operations that were not part of the Distribution
immediately prior to the consummation of the Transactions. This agreement
provided that the Company would pay MI the amount by which the adjusted net
tangible assets total is greater than $103 million, estimated at March 27, 1998
to be $29 million payable to MI. This amount was arbitrated and paid in fiscal
year 1999 for a reduced amount totaling $19 million, mostly the result of
adjustments related to deferred taxes.

RELATIONSHIP WITH SODEXHO ALLIANCE, S.A. ("SODEXHO")

ROYALTY AGREEMENT AND ASSISTANCE AGREEMENT. The Company and Sodexho entered into
a Royalty Agreement and an Assistance Agreement effective March 27, 1998.
Pursuant to these agreements, the Company has the right to use the name
"Sodexho" in connection with its operations in the United States and Canada for
a period of 10 years, for a royalty payment equal to 0.05% of the annual gross
revenues of the Company during the first three years of the Royalty Agreement.
Thereafter, Sodexho and the Company will negotiate in good faith to determine
the royalty fee, based on fair market value. The Royalty Agreement may be
terminated by the Company at any time after Sodexho owns less than 10% of the
outstanding Common Stock of the Company. Sodexho may terminate the Royalty
Agreement prior to the expiration of its term under certain circumstances.
Payments made to Sodexho under this agreement in Fiscal Year 1999 totaled $2.25
million.

The Assistance Agreement sets forth certain services provided by Sodexho to the
Company, including services related to purchasing activities, catering and site
support services, marketing, management and administration, legal and financial
matters, human relations, communications and cash management. In exchange for
these services, the Company pays to Sodexho a fee equal to a percentage of the
annual gross revenues of the Company and its subsidiaries. Pursuant to the terms
of the Assistance Agreement, no fee was owed during the 22-week Stub Period
ended August 31, 1998. Payments from the Company to Sodexho associated with the
performance of services was approximately $2.25 million for fiscal year 1999.
Payments made to Sodexho for the 1998 22-week Stub Period totaled approximately
$1 million. Payments in fiscal year 2000 are expected to increase to
approximately $5 million under this agreement.

OTHER ARRANGEMENTS. Sodexho has agreed to guarantee the following: (i) the
payment when due of certain deferred compensation amounts payable by the Company
to the Company's employees, (ii) the obligations of the Company under the LYONs
allocation agreement and the LYONs indenture, (iii) obligations with respect to
certain insurance costs that are set forth in the Distribution agreement, and
(iv) Senior Credit Guarantee Facility (see Note 8) where Sodexho has guaranteed
the Company's obligation under a $620 million credit facility in exchange for a
guarantee fee equal to 0.50% per annum of the outstanding principal amount of
indebtedness. In addition, the Company and Sodexho entered into a stockholder
agreement covering certain corporate governance matters and that grants Sodexho
certain registration rights with respect to stock of the Company held by Sodexho
as well as certain rights to nominate members of the Company's Board of
Directors.

As part of the Acquisition, the Company entered into an agreement with Sodexho
that established a reasonable amount of adjusted net tangible assets (as defined
in the agreement) of the acquired operations immediately prior to the
consummation of the Acquisition. This agreement provided that the Company would
pay Sodexho the amount by which the adjusted net tangible assets total is less
than a negative $35 million, estimated on March 27, 1998 to be $20 million
payable to Sodexho. As a result of negotiations between Sodexho and the Company,
this amount was paid in fiscal year 1999 for a reduced amount totaling $17
million.

                                      -46-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(6)  PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                             1999               AUGUST 28, 1998              1997
                                                       ------------------      ------------------      ------------------
                                                                                ($ in millions)
<S>                                                                 <C>                     <C>                     <C>
Land                                                               $  1                    $  9                    $ 89
Buildings and leasehold improvements                                 14                      20                     242
Furniture and equipment                                             233                     217                     303
Construction in progress                                              9                       3                     129
                                                       ------------------      ------------------      ------------------
                                                                    257                     249                     763
Accumulated depreciation and amortization                          (172)                   (167)                   (258)
                                                       ------------------      ------------------      ------------------
                                                                   $ 85                    $ 82                    $505
                                                       ==================      ==================      ==================
</TABLE>

Property and equipment is recorded at cost, including interest, rent and real
estate taxes incurred during development and construction. Interest capitalized
for continuing operations was not material for all periods presented. Interest
capitalized for discontinued operations totaled $16 million in 1997 and $9
million in 1996. Replacements and improvements that extend the useful life of
property and equipment are capitalized. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the asset life or lease term. As
a result of the Distribution, approximately $1.09 billion of the Company's
property and equipment was restated as Discontinued Operations as of the fiscal
year ended 1997 (see Notes 1 and 2).


(7)  INTANGIBLE ASSETS

<TABLE>
<CAPTION>
                                                             1999               AUGUST 28, 1998              1997
                                                       ------------------      ------------------      ------------------
                                                                                ($ in millions)
<S>                                                                <C>                     <C>                     <C>
Customer relationships                                             $461                    $477                    $389
Goodwill                                                            375                     413                     269
Other                                                                23                      24                      10
                                                       ------------------      ------------------      ------------------
                                                                    859                     914                     668
Accumulated amortization                                           (324)                   (345)                   (280)
                                                       ------------------      ------------------      ------------------
                                                                   $535                    $569                    $388
                                                       ==================      ==================      ==================
</TABLE>

Amortization expense for continuing operations totaled $38 million for fiscal
year 1999, $26 million for the 34 weeks ended August 28, 1998, $25 million in
1997 and $26 million in 1996. As a result of the Distribution, approximately
$1.29 billion of the Company's intangible assets were restated as Discontinued
Operations as of the fiscal year ended 1997 (see Notes 1 and 2). Amortization
expense for discontinued operations totaled $8 million for the 34 weeks ended
August 28, 1998, $42 million in 1997 and $8 million in 1996.

                                      -47-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(8)  DEBT

<TABLE>
<CAPTION>
                                                      SEPTEMBER 3, 1999      AUGUST 28, 1998       JANUARY 2, 1998
                                                    --------------------- --------------------- ---------------------
                                                                            ($ in millions)
SHORT-TERM DEBT:

<S>                                                              <C>                     <C>                   <C>
Current Portion of Long-Term Debt                                $   80                $   70                $   23
Senior Secured Revolving Credit Facility                             52                    25                     -
Other                                                                 1                     1                     -
                                                    --------------------- --------------------- ---------------------
         Total                                                   $  133                $   96                $   23
                                                    ===================== ===================== =====================

LONG-TERM DEBT:

Senior Secured Credit Facility, maturing 2004
   averaging 7.13% in 1999                                       $  430                $  500                $    -
Senior Guaranteed Credit Facility, due 2005
   averaging 6.92% in 1999                                          620                   620                     -
Unsecured debt:
   Senior Debt, maturing through 2009
      averaging 7.07% in 1999                                         6                     6                   725
   Commercial Paper, 5.82% in 1997                                    -                     -                   692
   Endowment Deposits (non-interest bearing)                          -                     -                    91
   Other                                                              1                     2                    24
Capital Lease Obligations                                             3                     4                    10
                                                    --------------------- --------------------- ---------------------
         Total                                                   $1,060                $1,132                $1,542
Amount Reclassified to Short-Term Debt                              (80)                  (70)                  (23)
                                                    --------------------- --------------------- ---------------------
                                                                 $  980                $1,062                $1,519
                                                    ===================== ===================== =====================
</TABLE>

Senior Secured Credit Facility-- the senior secured credit facility consists of
$235 million of revolving credit and an additional $500 million, six-year term
loan facility. Interest is based on a bank prime rate, an amount over the
Federal funds rate, or an amount over the London interbank offered rate for
Eurodollar deposits ("LIBOR"), payable in arrears quarterly. At September 3,
1999, the Company is paying a rate of 6.80% on the term loan facility, adjusted
for fee amortization and hedging costs. The senior secured credit facility is
secured predominantly by inventory and accounts receivable of the Company. Up to
$100 million of the $235 million revolving credit may be used to collateralize
letters of credit, which totaled $33 million at September 3, 1999 and $26
million at August 28, 1998. At September 3, 1999, $150 million of this facility
was not used and was available to the Company, compared with $184 million at
August 28, 1998.

Senior Guaranteed Credit Facility-- the senior guaranteed credit facility
consists of a $620 million seven-year term loan. Interest is based on a bank
prime rate, an amount over the Federal funds rate, or an amount over LIBOR,
payable in arrears quarterly. At September 3, 1999, the Company is paying a rate
of 6.85% on this facility, adjusted for fee amortization and hedging costs and
including an annual guarantee fee of 0.5% ($3 million pretax) paid to Sodexho
for this facility (see Note 5).

Debt totaling $17 million was presented as Discontinued Operations at January 2,
1998 (see Notes 1 and 2).

Aggregate debt maturities, excluding capital lease obligations, are: 2000 - $80
million; 2001 - $80 million; 2002 - $90 million; 2003 - $115 million and $692
million thereafter.

The Company's debt agreements require the maintenance of certain financial
ratios and stockholders' equity balances, and also include, among other things,
limitations on additional indebtedness, certain acquisitions, dividend payments,
pledging of assets, and other restrictions on operations related to cash flow.
The Company met the financial covenants of the debt agreements as of September
3, 1999 and the year then ended, as well as August 28, 1998 and for the 22 weeks
then ended.


                                      -48-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(8)  DEBT, CONTINUED

CONVERTIBLE SUBORDINATED DEBT

On March 25, 1996, the Company issued $540 million (principal amount at
maturity) of zero coupon convertible subordinated debt in the form of Liquid
Yield Option(TM) Notes ("LYONs") due 2011. Each $1,000 LYON is convertible at
any time, at the option of the holder, into 8.76 shares of the Company's Common
Stock. The LYONs were issued at a discount representing a yield to maturity of
4.25 percent. The Company recorded the LYONs at the discounted amount at
issuance. Accretion is recorded as interest expense and an increase to the
carrying value. Gross proceeds from the LYONs issuance were $288 million.

Upon consummation of the Distribution, each LYON was convertible into 2.19
shares of the Company's common stock (after giving effect to a one-for-four
reverse stock split), as well as 17.52 shares of MI's Common Stock. The LYONs
were assumed by MI, and the Company assumed responsibility for a portion of the
LYONs equal to its pro rata share of the relative equity values of the Company
and MI as determined in good faith by the Company prior to the Distribution,
although MI remains liable to the holders of the LYONs for any payments that the
Company fails to make on its allocable portion. The Company's allocated portion
of the LYONs totaled $30 million at September 3, 1999 and $29 million at August
28, 1998.

On October 7, 1999, MI notified all holders of the LYONs, that MI had elected to
redeem all of the LYONs at a price of $619.65 for each $1,000 principal amount
at maturity of the LYONs, with a redemption date of November 8, 1999. Conversion
is available at any time until the close of business on the redemption date. The
maximum amount of funds that the Company would be obligated to pay to MI if all
the LYONs were redeemed for cash is approximately $30 million. This amount would
be paid to MI in the first quarter of fiscal year 2000.

INTEREST-RATE AGREEMENTS

At September 3, 1999, the majority of the Company's debt was payable at variable
rates of interest. As part of the Refinancing of the Company's debt, the Company
entered into several interest-rate agreements on May 29, 1998 totaling $900
million in notional principal balances to hedge a portion of its variable rate
debt. These agreements guarantee a fixed rate of interest over the life of the
agreements. The Company is paying a fixed rate ranging between 5.70% and 5.90%,
plus a residual margin that is not hedged relating to the underlying
variable-rate debt.

In March 1999, the Company entered two new interest-rate agreements to guarantee
a fixed rate of interest payments for a portion of its unhedged floating
interest rate debt. These agreements were effective on March 30, 1999 and April
1, 1999, with notional principal amounts of $80 million and $70 million,
respectively, and paid a fixed rate of 5.02% and 5.05%, respectively, while
receiving interest based on three-month LIBOR. These agreements matured in
fiscal year 1999. The weighted-average rate for the total debt portfolio,
including the effect of the interest-rate agreements, was 6.87% at September 3,
1999. These agreements expire between August 2001 and February 2005.

Details of these interest rate agreements as of September 3, 1999 are as
follows:

<TABLE>
<CAPTION>
                                                                                                             YEAR-TO-DATE
                                                     NOTIONAL                       WEIGHTED-AVERAGE          NET IMPACT
                                                    PRINCIPAL        FAIR            INTEREST RATE           TO EARNINGS-
                     TERMS                           BALANCE        VALUE*         PAID        RECEIVED        FY 1999
------------------------------------------------- ------------- ------------- ------------- ------------- -----------------
                ($ in millions)
<S>                                                       <C>            <C>         <C>           <C>                <C>
Receive Variable, Pay Fixed, Maturing 5/--8/01            $400           $ 3         5.71%         5.49%              $(2)
Receive Variable, Pay Fixed, Maturing 8/02                 300             4         5.84%         5.49%               (2)
Receive Variable, Pay Fixed, Maturing 8/05                 200             6         5.90%         5.49%               (1)
                                                  ------------- ------------- ------------- ------------- -----------------
                                                          $900           $13         5.80%         5.49%              $(5)
                                                  ============= ============= ============= ============= =================

<FN>
*-- based on the termination cost for these agreements obtained from third party market quotes.
</FN>
</TABLE>

At September 3, 1999, the Company did not have any material accrued interest
receivable or payable to its counterparties and did not have any unamortized
fees or premiums under these agreements. All of the Company's interest-rate
agreements are for purposes other than trading.

                                      -49-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(9)  STOCKHOLDERS' (DEFICIT)/EQUITY

STOCKHOLDERS' (DEFICIT)/EQUITY

The Company is authorized to issue three hundred million shares of the Company's
common stock, with a par value of $1 per share. One million shares of preferred
stock, without par value, are authorized, with none issued. At the Distribution,
each shareholder received one share of the Company's stock and one share of New
Marriott, Inc. stock (renamed Marriott International, Inc.). In addition, the
Company's stock underwent a one-for-four reverse stock split on March 27, 1998.
Prior to the Distribution, the Company's charter authorized the issuance of
seventy-five million shares of the Company's common stock, with a par value of
$1 per share, with one million shares of preferred stock, without par value,
authorized, with none issued.

In addition, on March 27, 1998, the Company issued to Sodexho Alliance, S.A.,
approximately 48% of its shares of common stock, representing 29.9 million
shares (after the effect of the reverse stock split), in exchange for $304
million in cash and the operations of Sodexho North America (see Note 3). At
September 3, 1999, the Company had 62,251,459 shares outstanding.

On July 23, 1993, the Company's Board of Directors adopted a shareholder rights
plan under which one preferred stock purchase right was distributed for each
share of Company 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 $150. The rights will be exercisable ten days
after a person or group acquires beneficial ownership of 20 percent or more of
the Company's common stock, or begins a tender or exchange offer for 30 percent
or more of the Company's common stock. Shares owned by a person or group on
September 30, 1993 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 Company's
shareholder rights plan, unless exercised or previously redeemed by the Company
for $.01 each. If the Company is 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. The shareholder rights plan continued in effect after the
Distribution and was amended to exempt shares acquired by Sodexho and its
affiliates.

A program to repurchase the Company's common stock, up to 5.1 million shares,
was terminated with the consummation of the Transactions.

On October 13, 1999, the Board of Directors declared an $0.08 per common share
dividend for Fiscal Year 1999, payable on December 10, 1999, to shareholders of
record on November 22, 1999. The payment and amount of cash dividends on the
Company's common stock will continue to be subject to the sole discretion of the
Company's Board, which will review the Company's dividend policy at such times
as may be deemed appropriate. The Board will continue to closely monitor the
results of the Company's operations, capital requirements, and other
considerations to determine the extent to which a dividend may be declared in
future periods.





                                      -50-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(9)  STOCKHOLDERS' (DEFICIT)/EQUITY, CONTINUED

EARNINGS PER SHARE

In 1997, the Company adopted SFAS No. 128 (see Note 1), thus 1996 earnings per
share computations have been restated in conformity with SFAS No. 128. The
following table details earnings and number of shares used in the basic and
diluted earnings per share calculations.

<TABLE>
<CAPTION>
                                                                                 34 WEEKS ENDED
                                                                                   AUGUST 28,
                                                                       1999           1998            1997            1996
                                                                 --------------- -------------- --------------- ---------------
                                                                              (in millions, except per share amounts)
COMPUTATION OF BASIC EARNINGS PER SHARE:
<S>                                                                      <C>           <C>             <C>              <C>
Net Income (Loss) from Continuing Operations                             $  51         $  (19)         $   --           $  33
Net Income from Discontinued Operations                                     --             77             335             273
Net Loss from Extraordinary Item                                            --            (44)             --              --
                                                                 --------------- -------------- --------------- ---------------
Net Income                                                               $  51         $   14          $  335           $ 306
                                                                 =============== ============== =============== ===============

Weighted Average Shares Outstanding                                       62.1           52.0            31.8            31.9
                                                                 =============== ============== =============== ===============
Basic Earnings Per Share:
 Continuing Operations                                                   $0.82         $(0.36)         $   --           $1.03
 Discontinued Operations                                                    --           1.48           10.53            8.56
 Extraordinary Item                                                         --          (0.85)             --              --
                                                                 --------------- -------------- --------------- ---------------
BASIC EARNINGS PER SHARE                                                 $0.82         $ 0.27          $10.53           $9.59
                                                                 =============== ============== =============== ===============

COMPUTATION OF DILUTED EARNINGS PER SHARE:
Diluted Net Income (Loss) from Continuing Operations                     $  51         $  (19)         $   --           $  33
Diluted Net Income from Discontinued Operations                             --             77             335             273
Diluted Net Loss from Extraordinary Item                                    --            (44)             --              --
After-tax Interest Expense on Convertible Subordinated Debt                  1              *               *               *
                                                                 --------------- -------------- --------------- ---------------
Diluted Net Income                                                       $  52         $   14          $  335           $ 306
                                                                 =============== ============== =============== ===============

Weighted Average Shares Outstanding                                       62.1           52.0            31.8            31.9
Effect of Dilutive Securities:
 Employee Stock Option Plan                                                0.5              *               *             1.1
 Deferred Stock Incentive Plan                                             0.1              *               *             0.8
 Convertible Subordinated Debt                                             1.2              *               *               *
                                                                 --------------- -------------- --------------- ---------------
Diluted Weighted Average Shares Outstanding                               63.9           52.0            31.8            33.8
                                                                 =============== ============== =============== ===============
Diluted Earnings Per Share:
 Continuing Operations                                                   $0.81         $(0.36)         $   --           $0.97
 Discontinued Operations                                                    --           1.48           10.53            8.08
 Extraordinary Item                                                         --          (0.85)             --              --
                                                                 --------------- -------------- --------------- ---------------
DILUTED EARNINGS PER SHARE                                               $0.81         $ 0.27          $10.53           $9.05
                                                                 =============== ============== =============== ===============

<FN>
*--The effect of dilutive securities is computed using the treasury stock method
and average market prices during the periods. The if-converted method is used
for convertible subordinated debt ("debt securities"). For the 34 weeks ended
August 28, 1998 and for fiscal 1997, dilutive securities under the employee
stock option plan (of 0.6 million and 1.1 million, respectively), the deferred
stock incentive plan (of 0.1 million and 0.7 million, respectively) and the debt
securities (of 1.2 million for both periods) was excluded due to the loss from
continuing operations. Also, debt securities were excluded in fiscal 1996 (of
0.9 million) as they were antidilutive.
</FN>
</TABLE>

Certain employee and deferred stock options to purchase shares of common stock
were outstanding but were not included in the computation of diluted earnings
per share because the exercise prices of the options were greater than the
average market price of the common shares as follows:

<TABLE>
<CAPTION>
                                                                              34 WEEKS
                                                                               ENDED
                                                                             AUGUST 28,
                                                                  1999          1998          1997          1996
                                                              ------------- ------------- ------------- -------------
<S>                                                                    <C>           <C>           <C>           <C>
Weighted average number of shares (in millions)                        1.8           0.6           0.6           0.5
Weighted average exercise price                                        $29           $29          $272          $220
Weighted average remaining life (in years)                               9            10            15            15
</TABLE>

                                      -51-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(10)  INCOME TAXES

The (provision) benefit for income taxes on continuing operations was comprised
of the following:

<TABLE>
<CAPTION>
                                                                       34 WEEKS
                                                                        ENDED
                                                                      AUGUST 28,
                                                       1999              1998              1997             1996
                                                  ---------------- ----------------- ----------------- ----------------
                                                                            ($ in millions)
Current:
<S>                                                         <C>                <C>               <C>             <C>
         -  Federal                                         $(36)              $19               $12             $(13)
         -  Other                                            (10)               --                 1               (6)
                                                  ---------------- ----------------- ----------------- ----------------
                                                             (46)               19                13              (19)
                                                  ================ ================= ================= ================
Deferred:
         -  Federal                                            5                (6)                2                2
         -  Other                                             --                --                --               --
                                                  ---------------- ----------------- ----------------- ----------------
                                                               5                (6)                2                2
                                                  ---------------- ----------------- ----------------- ----------------
                                                            $(41)              $13               $15             $(17)
                                                  ================ ================= ================= ================
</TABLE>


A reconciliation of the Federal statutory tax rate to the Company's effective
income tax rate follows:

<TABLE>
<CAPTION>
                                                                       34 WEEKS
                                                                        ENDED
                                                                      AUGUST 28,
                                                       1999              1998              1997             1996
                                                  ---------------- ----------------- ----------------- ----------------
<S>                                                       <C>                <C>               <C>             <C>
Federal statutory tax rate                                (35.0)%            35.0 %            35.0 %          (35.0)%
State income taxes, net of Federal tax benefit             (6.3)             (1.3)              6.8             (2.8)
Tax credits                                                 1.5              13.7              90.5              8.1
Goodwill amortization                                      (3.9)             (6.9)            (24.7)            (7.6)
Other, net                                                 (1.1)              0.1              (8.7)             4.1
                                                  ---------------- ----------------- ----------------- ----------------
Effective income tax rate                                 (44.8)%            40.6 %            98.9 %          (33.2)%
                                                  ================ ================= ================= ================
</TABLE>


The tax effect of significant temporary differences is as follows:

<TABLE>
<CAPTION>
                                                                             AUGUST 28,
                                                          1999                  1998                  1997
                                                  --------------------- --------------------- ---------------------
                                                                           ($ in millions)
<S>                                                              <C>                   <C>                   <C>
Self-insurance                                                   $ 38                  $ 38                  $ 37
Employee benefits                                                  28                    25                    30
Other liabilities                                                  15                    26                    14
Property and equipment                                              6                     2                     3
Intangible assets                                                 (54)                  (63)                  (29)
Other, net                                                          8                     4                    (7)
                                                  --------------------- --------------------- ---------------------
Net deferred tax assets                                          $ 41                  $ 32                  $ 48
                                                  ===================== ===================== =====================
</TABLE>


Total deferred tax assets and liabilities as of September 3, 1999, August 28,
1998 and January 2, 1998, were as follows:

<TABLE>
<CAPTION>
                                                   SEPTEMBER 3, 1999      AUGUST 28, 1998             1997
                                                  --------------------- --------------------- ---------------------
                                                                           ($ in millions)
<S>                                                             <C>                   <C>                    <C>
Deferred tax assets                                             $ 110                 $ 104                  $ 81
Deferred tax liabilities                                          (69)                  (72)                  (33)
                                                  --------------------- --------------------- ---------------------
Net deferred taxes                                              $  41                 $  32                  $ 48
                                                  ===================== ===================== =====================
</TABLE>

                                      -52-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(10)  INCOME TAXES, CONTINUED

The Company has not established a valuation allowance for deferred tax assets.
In assessing the realizability of deferred tax assets, management considers the
Company's ability to generate sufficient future taxable income during periods in
which temporary differences reverse. The amount of net deferred tax assets
considered realizable could be reduced if estimated future taxable income cannot
be achieved. Management believes it is more likely than not the Company will
realize the benefits of its net deferred tax assets.

As part of the Distribution and Acquisition, the Company, MI and Sodexho entered
into tax sharing agreements which reflect each party's rights and obligations
with respect to deficiencies and refunds, if any, of federal, state or other
taxes relating to the business of the Company, MI and Sodexho prior to the
Transactions (see Note 5).

While the Company has changed its accounting period from a fiscal year ended on
the Friday closest to the end of December to the Friday closest to the end of
August, its tax year has not changed. The Company has applied to the Internal
Revenue Service for a change in its tax year in 1999 to the Friday closest to
the end of August.


(11)  COMMITMENTS AND CONTINGENCIES

The Company issues bid and performance bonds for its client-related contracts in
the normal course of business. These guarantees are limited, in the aggregate,
to $56 million at September 3, 1999 and August 28, 1998, with expected funding
of zero. Letters of credit outstanding on the Company's behalf at September 3,
1999 and August 28, 1998 totaled $33 million and $26 million, respectively,
related to the Company's insurance programs. Upon consummation of the
Distribution, MI replaced the Company as guarantor or obligor under previous
guarantees and commitments related primarily to the lodging segment distributed
on March 27, 1998.

Summarized below are the Company's future obligations under leases at
September 3, 1999:

<TABLE>
<CAPTION>
                                                          CAPITAL                   OPERATING
                                                           LEASES                    LEASES
                                                  ------------------------- --------------------------
                                                                    ($ in millions)
                  FISCAL YEAR
<S>                                                                  <C>                        <C>
     2000                                                            $0.7                       $12.0
     2001                                                             0.7                        10.2
     2002                                                             0.8                         8.0
     2003                                                             0.8                         5.5
     2004                                                             0.8                         4.5
     Thereafter                                                       0.9                        10.5
                                                  ------------------------- --------------------------
     Total minimum lease payments                                     4.7                       $50.7
                                                                            ==========================
     Less amount representing interest                               (1.1)
                                                  -------------------------
     Present value of minimum lease payments                         $3.6
                                                  =========================
</TABLE>

The Company generally leases office space and equipment under noncancellable
agreements, primarily to support its administrative operations. Most leases have
initial terms of one to 20 years, and contain one or more renewal options,
generally for five or 10-year periods. The leases provide for minimum rentals,
and additional rentals, which are based on the operations of the leased
property. Total rent expense for continuing operations for fiscal year 1999
totaled $26 million, the 34 weeks ended August 28, 1998 totaled $13.8 million,
fiscal year 1997 totaled $90 million, and fiscal year 1996 totaled $81 million.
Total rent expense for discontinued operations for the 34 weeks ended August 28,
1998 totaled $41 million, and $177 million and $179 million for the fiscal years
ended 1997 and 1996, respectively.

The nature of the business of the Company causes it to be involved in routine
legal proceedings from time to time. Management of the Company believes that
there are no pending or threatened legal proceedings that upon resolution would
have a material adverse impact to the Company.


                                      -53-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(12)  EMPLOYEE BENEFIT AND INCENTIVE PLANS

DEFERRED COMPENSATION PLANS

Employees meeting certain eligibility requirements can participate in the
Company's deferred compensation and savings plans. As part of the Distribution,
the Company elected to continue the deferred compensation plan and has
established a new savings plan for the Company separate from the MI profit
sharing plan. The Company assumed the obligations and liabilities of the
undistributed portion of the deferred compensation plan in relationship to the
employees retained by the Company after the Distribution. The Company currently
contributes generally 50% of the participants' contributions to these plans,
limited to 6% of compensation, with certain exceptions. For the fiscal year
ended September 3, 1999, the Company contributed approximately $10.2 million for
these plans, with contributions totaling $9.5 million for the 34-week period
ended August 28, 1998.

STOCK OPTION PLANS

The Company has two stock-based incentive plans-- the Sodexho Marriott Services,
Inc. 1993 and 1998 Comprehensive Stock Incentive Plans (the "1993 Plan" or the
"1998 Plan"). The purpose of these plans is to promote and enhance the long-term
growth of the Company by aligning the interests of the employees with the
interests of the Company's shareholders. The 1993 Plan administers converted
stock options prior to the Distribution, with no new awards made under this
plan. The 1998 Plan governs the issuance and administration of conversion awards
and is also available for the issuance of new awards. These stock plans are
administered by the Compensation Policy Committee as authorized by the Board of
Directors. As part of the Distribution and the amendment of these plans, and in
relationship to the changes in the capital structure of the Company after the
Distribution, the Board of Directors has approved up to 10 million shares of
common stock to be available under the 1998 Plan for converted options as well
as new awards. At the Distribution date, approximately 3.3 million options were
exchanged as conversion options of prior grants under both the 1993 and 1998
Plans, with an additional 0.4 million options issued to employees of Sodexho
North America as part of the conversion of stock options held by those employees
prior to the Acquisition. Also, 3.3 million shares were terminated related to
the options of former MI employees from the Distribution.

Employee stock options may be granted to officers and key employees at exercise
prices not less than the market price of the Company's stock on the date of
grant. Most options under the stock option plans are exercisable in cumulative
installments of one-fourth at the end of each of the first four years following
the date of grant. In June 1998, the Company issued 1.8 million new stock option
awards. The Company expects to issue approximately 2.5 million new stock option
awards in the first half of fiscal year 2000.

A summary of the Company's stock option activity during fiscal 1999, the 34
weeks ended August 28, 1998 and fiscal 1997 is presented below (adjusting for
the one-for-four reverse stock split on March 27, 1998):

<TABLE>
<CAPTION>
                                                                         34 WEEKS ENDED
                                                 1999                    AUGUST 28, 1998                   1997
                                      ---------------------------- ---------------------------- ----------------------------
                                                       WEIGHTED                     WEIGHTED      NUMBER OF      WEIGHTED
                                        NUMBER OF      AVERAGE       NUMBER OF      AVERAGE        OPTIONS        AVERAGE
                                         OPTIONS       EXERCISE       OPTIONS       EXERCISE         (IN         EXERCISE
                                      (IN MILLIONS)     PRICE      (IN MILLIONS)     PRICE        MILLIONS)       PRICE
                                      -------------- ------------- -------------- ------------- ------------- --------------
<S>                                            <C>          <C>             <C>          <C>            <C>           <C>
Outstanding at beginning of year               5.0          $ 20            3.6          $140           3.5           $112
Granted during the year                        0.1            26            1.9            28           0.6            268
Conversion options-Distribution                 --            --            3.3             *            --             --
Conversion options-Acquisition                  --            --            0.4             6            --             --
Terminations-Distribution                       --            --           (3.3)            *            --             --
Exercised during the year                     (0.4)            8             --            --          (0.5)            84
Forfeited during the year                     (0.1)           24           (0.9)           17            --             --
                                      -------------- ------------- -------------- ------------- ------------- --------------
Outstanding at end of year                     4.6          $ 21            5.0          $ 20           3.6           $140
                                      ============== ============= ============== ============= ============= ==============
Options exercisable at end of year             1.4          $ 14            0.5          $ 11           2.3           $ 96
                                      ============== ============= ============== ============= ============= ==============

<FN>
*-- exercise price for shares outstanding prior to the Transactions were
repriced to reflect the change in the Company's capital structure (including the
one-for-four reverse stock split) as well as preserve the financial value of the
options to the option holders as of March 27, 1998.
</FN>
</TABLE>

                                      -54-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(12)  EMPLOYEE BENEFIT AND INCENTIVE PLANS, CONTINUED

Stock options under the 1993 and 1998 Plans that were outstanding at September
3, 1999 are summarized as follows:

<TABLE>
<CAPTION>
                                               OUTSTANDING                                         EXERCISABLE
                         ---------------------------------------------------------    --------------------------------------
                                                 WEIGHTED           WEIGHTED                                  WEIGHTED
       RANGE OF              NUMBER OF            AVERAGE            AVERAGE              NUMBER OF           AVERAGE
       EXERCISE               OPTIONS         REMAINING LIFE        EXERCISE               OPTIONS            EXERCISE
        PRICES             (IN MILLIONS)        (IN YEARS)            PRICE             (IN MILLIONS)          PRICE
------------------------ ------------------- ------------------ ------------------    ------------------ -------------------
<S>                                     <C>                  <C>              <C>                   <C>                 <C>
  $   2.3 to 10.0                       0.5                  5                $ 8                   0.5                 $ 8
     10.1 to 15.0                       0.5                  6                 12                   0.3                  12
     15.1 to 20.0                       0.9                  7                 18                   0.3                  18
     20.1 to 25.0                       1.0                  8                 22                   0.3                  22
     25.1 to 31.4                       1.7                  9                 29                    --                  --
------------------------ ------------------- ------------------ ------------------    ------------------ -------------------
  $   2.3 to 31.4                       4.6                  7                $21                   1.4                 $14
======================== =================== ================== ==================    ================== ===================
</TABLE>

Pro forma compensation cost for the Stock Option Plans, the Deferred
Compensation Plan, the Supplemental Executive Stock Option awards and employee
purchases, recognized in accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation," would reduce the Company's net income as follows:

<TABLE>
<CAPTION>
                                                                    34 WEEKS ENDED
                                            SEPTEMBER 3, 1999      AUGUST 28, 1998           1997               1996
                                           --------------------- --------------------- ------------------ ------------------
                                                              ($ in millions, except per share amounts)

<S>                                                         <C>                   <C>               <C>                <C>
Net income as reported                                      $51                   $14               $335               $306
Pro forma net income                                        $46                   $13               $317               $295

Diluted earnings per share as reported                    $0.81                 $0.27             $10.53              $9.05
Pro forma diluted earnings per share                      $0.72                 $0.25              $9.97              $8.73
</TABLE>

The aggregate weighted-average fair value for each option granted during fiscal
year 1999, the 34 weeks ended August 28, 1998, fiscal 1997 and fiscal 1996 was
$11, $12, $88 and $76, respectively. Since the pro forma compensation cost is
recognized over the vesting period, the foregoing pro forma reductions in the
Company's net income are not representative of anticipated amounts in future
years.

For purposes of the following disclosures required by SFAS No. 123, the fair
value of each option granted has been estimated on the date of grant using the
Black-Scholes option-pricing model, with the following assumptions:

<TABLE>
<CAPTION>
                                                              34 WEEKS ENDED
                                              1999            AUGUST 28, 1998            1997                  1996
                                      --------------------- --------------------- -------------------- ---------------------
<S>                                                   <C>                   <C>                <C>                   <C>
Annual dividends                                      $--                   $--                $1.40                 $1.28
Expected volatility                                    44%                   40%                  24%                   25%
Estimated forfeitures                                  35%                   35%                  13%                   13%
Risk-free interest rate                               6.2%                  5.5%                 6.2%                  6.1%
Expected life (in years)                               10                    10                    7                     7
</TABLE>


                                      -55-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(13)  FAIR VALUE OF FINANCIAL INSTRUMENTS

For current assets, current liabilities and notes and other receivables,
management believes the carrying amounts are reasonable estimates of their fair
values. The fair values of noncurrent financial liabilities are shown below.

<TABLE>
<CAPTION>
                                             1999                  AUGUST 28, 1998                   1997
                                  --------------------------- --------------------------- ---------------------------
                                    CARRYING        FAIR        CARRYING        FAIR        CARRYING        FAIR
                                     AMOUNT        VALUE         AMOUNT        VALUE         AMOUNT        VALUE
                                  ------------- ------------- ------------- ------------- ------------- -------------
                                                                   ($ in millions)

<S>                                   <C>             <C>         <C>           <C>           <C>           <C>
Long-term debt, convertible
  subordinated debt and other
   long-term liabilities              $1,010          $981        $1,091        $1,073        $1,908        $1,944
</TABLE>

The difference between carrying amounts and fair values for notes and other
receivables for continuing operations are not material as of September 3, 1999,
August 28, 1998 and January 2, 1998. However, net noncurrent assets of
discontinued operations include notes and other receivables with a carrying
amount of $647 million at fiscal year end 1997, with a market value based on the
expected future cash flows discounted at risk adjusted rates of $660 million.
Valuations for long-term debt, convertible subordinated debt and other long-term
liabilities are determined based on quoted market prices or expected future
payments discounted at risk adjusted rates. The fair value of commercial paper
borrowings is equal to the carrying value.


                                      -56-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(14)  BUSINESS SEGMENTS

The Company is the leading provider in North America of outsourced food and
facilities management services to businesses, health care facilities, colleges
and universities, primary and secondary schools and other clients. The Company
has identified six new business segments within these markets: Corporate
Services, Health Care, Education, Schools, Canada, and Laundries/Other. Prior to
the Distribution, the Company was a diversified hospitality company with
operations in two business segments: Lodging, which includes development,
ownership, operation and franchising of lodging properties under 10 brand names
and development and operation of vacation timesharing resorts; and Contract
Services, consisting of the Company's principal business operations after the
Distribution, in addition to the senior living communities business and the
wholesale food distribution business ("Other Contract Services").

In June 1997, SFAS No. 131 was issued--"Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 requires the reporting of
selected-segmented information in quarterly and annual reports. As required in
SFAS No. 131, information from operating segments presented has been derived
consistent with the Company's methodology in allocating resources and measuring
performance after the Distribution (see Note 1).

SALES AND OPERATING PROFIT BY BUSINESS SEGMENT:
<TABLE>
<CAPTION>
                                                                         34 WEEKS
                                                                          ENDED
                                                                        AUGUST 28,
                                                         1999              1998             1997              1996
                                                   ----------------- ----------------- ---------------- -----------------
                                                                              ($ in millions)
<S>                                                          <C>                <C>             <C>               <C>
GROSS SALES
         Corporate Services                                  $1,380           $  803          $   930           $   901
         Health Care                                          1,323              784            1,039             1,027
         Education                                            1,221              598              824               805
         Schools                                                358              199              303               275
         Canada                                                 143               80              106               111
         Laundries/Other                                         77               43               55                56
         Other Contract Services                                 --              321            1,769             1,143
                                                   ----------------- ----------------- ---------------- -----------------
  Contract Services                                           4,502            2,828            5,026             4,318

  Discontinued Operations                                        --            1,774            7,008             5,854
                                                   ----------------- ----------------- ---------------- -----------------

Total Gross Sales                                            $4,502           $4,602          $12,034           $10,172
                                                   ----------------- ----------------- ---------------- -----------------

GROSS OPERATING PROFIT
         Corporate Services                                  $   91           $   49          $    35           $    30
         Health Care                                            109               49               60                54
         Education                                               73                5               27                24
         Schools                                                 20                8               11                 8
         Canada                                                   6                1                3                 2
         Laundries/Other                                          5                2                2                 3
         Other Contract Services                                 --                5               19                56
                                                   ----------------- ----------------- ---------------- -----------------
  Contract Services                                             304              119              157               177

  Discontinued Operations                                        --              158              569               452
                                                   ----------------- ----------------- ---------------- -----------------

Total Gross Operating Profit                                 $  304           $  277          $   726           $   629
                                                   ----------------- ----------------- ---------------- -----------------

Total Net Operating Profit from
   Continuing Operations (Contract Services)                 $  304           $  119          $   157           $   177

Corporate Items, Gain on Investment and
  Net Interest Expense                                          212              151              172               127
                                                   ----------------- ----------------- ---------------- -----------------

Income (Loss) From Continuing Operations,
  Before Taxes and Extraordinary Item                        $   92           $  (32)         $   (15)          $    50
                                                   ================= ================= ================ =================
</TABLE>


                                      -57-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(14)  BUSINESS SEGMENTS, CONTINUED

The Company does not have any material activity outside of the United States and
does not presently analyze it operations by geographic regions. In addition, the
Company offers a wide array of food and facilities products within its
operations, customized to individual client's requirements, and thus the
Company's management has not found it practical to track results by individual
products or services in relationship to the financial statements presented in
this report. At September 3, 1999, the Company had a diverse client base and
does not have any individual clients that are material to its overall
operations.

IDENTIFIABLE ASSETS, CAPITAL EXPENDITURES AND DEPRECIATION AND AMORTIZATION BY
BUSINESS SEGMENT:

<TABLE>
<CAPTION>
                                                                       AUGUST 28,
                                                         1999             1998              1997             1996
                                                   ----------------- ---------------- ----------------- ----------------
                                                                              ($ in millions)
<S>                                                          <C>              <C>               <C>              <C>
IDENTIFIABLE ASSETS
         Corporate Services                                  $  160           $    *            $    *           $    *
         Health Care                                            193                *                 *                *
         Education                                              169                *                 *                *
         Schools                                                 44                *                 *                *
         Canada                                                  37                *                 *                *
         Laundries/Other                                         23                *                 *                *
         Corporate                                              721                *                 *                *
                                                   ----------------- ---------------- ----------------- ----------------
  Contract Services                                           1,347            1,341             1,669            2,108
  Discontinued Operations, Net                                   --               --             2,902            1,624
  Other                                                          --               --               438              448
                                                   ----------------- ---------------- ----------------- ----------------
                                                             $1,347           $1,341            $5,009           $4,180
                                                   ================= ================ ================= ================
CAPITAL EXPENDITURES
         Corporate Services                                  $   15           $    *            $    *           $    *
         Health Care                                             11                *                 *                *
         Education                                               26                *                 *                *
         Schools                                                  3                *                 *                *
         Canada                                                   2                *                 *                *
         Laundries/Other                                          2                *                 *                *
         Corporate                                               13                *                 *                *
                                                   ----------------- ---------------- ----------------- ----------------
  Contract Services                                              72               86               264              154
  Discontinued Operations                                        --               58               271              158
  Other                                                          --               --                18               14
                                                   ----------------- ---------------- ----------------- ----------------
                                                             $   72           $  144            $  553           $  326
                                                   ================= ================ ================= ================
DEPRECIATION AND AMORTIZATION
         Corporate Services                                  $   11           $    *            $    *           $    *
         Health Care                                              9                *                 *                *
         Education                                               18                *                 *                *
         Schools                                                  2                *                 *                *
         Canada                                                   2                *                 *                *
         Laundries/Other                                          1                *                 *                *
         Corporate                                               42                *                 *                *
                                                   ----------------- ---------------- ----------------- ----------------
  Contract Services                                              85               57                87               91
  Discontinued Operations                                        --               21                89               55
  Other                                                          --               --                12               10
                                                   ----------------- ---------------- ----------------- ----------------
                                                             $   85           $   78            $  188           $  156
                                                   ================= ================ ================= ================

<FN>
* -- Management has determined that available financial information related to
periods prior to March 27, 1998 does not allow for a practical or meaningful
presentation of identifiable assets, capital expenditures or depreciation and
amortization for its current business segments for the Transition Period and
Fiscal Years 1997 and 1996.
</FN>
</TABLE>


                                      -58-

<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
                               SUPPLEMENTARY DATA

HISTORICAL QUARTERLY FINANCIAL DATA - UNAUDITED
($ in millions, except per share amounts)

<TABLE>
<CAPTION>
                                                                                    1999(1)
                                                     ------------- ------------- ------------- ------------- -------------
                                                        FIRST         SECOND        THIRD         FOURTH        FISCAL
                                                       QUARTER       QUARTER       QUARTER       QUARTER         YEAR
                                                     ------------- ------------- ------------- ------------- -------------
                                                      (13 WEEKS)    (13 WEEKS)    (13 WEEKS)    (14 WEEKS)    (53 WEEKS)
<S>                                                       <C>           <C>           <C>           <C>           <C>
Sales                                                     $1,209        $1,090        $1,163        $1,040        $4,502
Operating profit before corporate items                      101            74            83            46           304
Income (Loss) from continuing operations                      29            11            15            (4)           51
Net income                                                $   29        $   11        $   15        $   (4)       $   51
Diluted earnings per share(6)                             $ 0.45        $ 0.18        $ 0.24        $(0.07)       $ 0.81

                                                                                    1998(1)
                                                     ------------- ------------- -------------               -------------
                                                        FIRST        9 WEEKS       13 WEEKS                    34 WEEKS
                                                       QUARTER       5/29/98(2)    8/28/98(2)                  8/28/98
                                                     ------------- ------------- -------------               -------------

Sales                                                     $1,111        $  752        $  965                      $2,828
Operating profit before corporate items                       39            50            30                         119
(Loss) Income from continuing operations(3)                  (11)            9           (17)                        (19)
Discontinued operations, net of income taxes(3)               77            --            --                          77
Extraordinary item, net of income taxes(4)                   (43)           (1)           --                         (44)
Net income                                                $   23        $    8        $  (17)                     $   14
Diluted earnings per share(6)                             $ 0.73        $ 0.12        $(0.27)                     $ 0.27

                                                                                    1997(1)
                                                     ------------- ------------- ------------- ------------- -------------
                                                        FIRST         SECOND        THIRD         FOURTH        FISCAL
                                                       QUARTER       QUARTER       QUARTER       QUARTER(3)      YEAR
                                                     ------------- ------------- ------------- ------------- -------------
                                                      (12 WEEKS)    (12 WEEKS)    (12 WEEKS)    (16 WEEKS)    (52 WEEKS)
Sales                                                     $1,154        $1,164        $1,072        $1,636        $5,026
Operating profit before corporate items                       41            44            18            54           157
Income (Loss) from continuing operations(3)                   --            --            --            --            --
Discontinued operations, net of income taxes(3)               77            83            67           108           335
Net income(5)                                             $   77        $   83        $   67        $  108        $  335
Diluted earnings per share(6)                             $ 2.50        $ 2.62        $ 2.12        $ 3.29        $10.53


<FN>
1 - On April 15, 1998, the Company's Board of Directors approved a change in the
Company's fiscal year from the Friday closest to the end of December to the
Friday closest to August 31, thereby creating a 34-week Transition Period. On
March 27, 1998, the Company acquired Sodexho North America. The historical data
for fiscal year 1997 and prior years does not include the revenue and expenses
of the acquired business, see Notes 1 and 3 to the Consolidated Financial
Statements.
2 - Combined actual results of MMS and the acquired Sodexho North America after
March 27, 1998.
3 - On March 27, 1998, the Company distributed to its shareholders the Lodging,
MSLS and MDS divisions as part of the Transactions. For reporting purposes, the
Lodging segment is considered Discontinued Operations prior to March 27, 1998.
MSLS and MDS are considered part of continuing operations (see Note 1 to the
Consolidated Financial Statements).
4 - On March 27, 1998, the Company refinanced its debt as part of the
Transactions (see Notes 1 and 8 to the Consolidated Financial Statements),
resulting in a $71 million pretax charge from the early extinguishment of debt
($44 million after-tax).
5 - Operating results in the fourth quarter of 1997 include a loss before tax of
$22 million ($14 million after tax, or $0.40 per share) on the sale of MMS- UK
to Sodexho in connection with the Transactions.
6 - Earnings per share data have been restated to reflect the adoption in 1997
of Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
All per share data has been adjusted to reflect a one-for-four reverse stock
split effective March 27, 1998.
</FN>
</TABLE>


                                      -59-

<PAGE>



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

 None.


                                    PART III

ITEMS 10, 11, 12 AND 13.

As described below, certain information appearing in the Company's Proxy
Statement to be furnished to shareholders in connection with the 2000 Annual
Meeting, is incorporated by reference in this Form 10-K Annual Report.

         ITEM 10.          This information is incorporated by reference to
                           the "Directors" and "Section 16(a) Beneficial
                           Ownership Reporting Compliance" sections of the
                           Company's Proxy Statement to be furnished to
                           shareholders in connection with the 2000 Annual
                           Meeting. Information regarding executive officers is
                           included below.

         ITEM 11.          This information is incorporated by reference to
                           the "Executive Compensation" section of the Company's
                           Proxy Statement to be furnished to shareholders in
                           connection with the 2000 Annual Meeting.

         ITEM 12.          This information is incorporated by reference to
                           the "Security Ownership of Certain Beneficial Owners
                           and Management" section of the Company's Proxy
                           Statement to be furnished to shareholders in
                           connection with the 2000 Annual Meeting.

         ITEM 13.          This information is incorporated by reference to
                           the "Certain Transactions" section of the Company's
                           Proxy Statement to be furnished to shareholders in
                           connection with the 2000 Annual Meeting.


EXECUTIVE OFFICERS

The 12 persons identified below are the executive officers of the Company.

<TABLE>
<CAPTION>
             NAME AND TITLE                  AGE                           BUSINESS EXPERIENCE
             --------------                  ---                           -------------------

<S>                                          <C>    <C>
Michel Landel                                48     Michel Landel was named President and Chief  Executive  Officer of
President and                                       the   Company  on  May  3,   1999.   Upon   consummation   of  the
  Chief Executive Officer                           Transactions,  Mr. Landel was appointed as the Company's Executive
                                                    Vice  President  on  June  16,  1998  and  was  named   President,
                                                    Corporate  Services  division.  Prior  to  the  Transactions,  Mr.
                                                    Landel was  appointed  President  and Chief  Executive  Officer of
                                                    Sodexho North America in 1994.  Mr. Landel joined  Sodexho in 1984
                                                    as a Regional  Manager of Sodexho  Africa.  In 1986,  he was named
                                                    President of Sodexho  Africa,  a position he held until 1989, when
                                                    he became  President  and Chief  Executive  Officer  of  Sodexho's
                                                    United States  operations.  Prior to joining  Sodexho,  Mr. Landel
                                                    held   positions   with  Groupe  Poliet  (Plan  General   Manager,
                                                    1980-1984)  and The Chase  Manhattan Bank  (Financial  Analyst and
                                                    Assistant Treasurer, 1976-1980).
</TABLE>


                                      -60-

<PAGE>



EXECUTIVE OFFICERS, CONTINUED

<TABLE>
<CAPTION>
             NAME AND TITLE                  AGE                           BUSINESS EXPERIENCE
             --------------                  ---                           -------------------

<S>                                          <C>    <C>
Anthony F. Alibrio                           55     Anthony F. Alibrio was appointed  President,  Health Care Services
Executive Vice President                            effective  with  the   Transactions  and  was  also  appointed  an
  President, Health Care Services                   Executive  Vice  President  as  of  May  3,  1999.  Prior  to  the
                                                    Transactions,  Mr.  Alibrio  served as  President  of Health  Care
                                                    Services  for  the  Marriott   Management   Services  division  of
                                                    Marriott  International,  Inc.  since  1990.  His  career has been
                                                    focused on serving the health care  industry for the past 28 years
                                                    of his  33-year  tenure  with  Marriott.  In the  past he has held
                                                    various   operations,   sales,   and  marketing   responsibilities
                                                    including  Division Vice  President and National Vice President of
                                                    Sales  and  Marketing  at  Marriott.  A member  of the  Healthcare
                                                    Research and  Development  Institute  and the American  Academy of
                                                    Medical  Administrators,  Mr.  Alibrio  also serves as a member of
                                                    the Board of  Directors  for the  National  Committee  for Quality
                                                    Health Care and Health Insights Foundation.

William W. Hamman                            57     William W.  Hamman was  appointed  President,  Education  Services
Executive Vice President                            effective  with  the   Transactions  and  was  also  appointed  an
  President, Education Services                     Executive  Vice  President  as  of  May  3,  1999.  Prior  to  the
                                                    Transactions,  Mr.  Hamman  served as  President  of the  Marriott
                                                    Education Services division of Marriott International,  Inc. since
                                                    1990.  He has  supported  the higher  education  community  for 36
                                                    years,  holding  positions  in Marriott  Education  Services  that
                                                    included   Regional  Vice  President,   Area  Vice  President  and
                                                    Division  Vice  President.  Mr.  Hamman is active in the  National
                                                    Association of College and University  Business  Officers (NACUBO)
                                                    and Council of Independent  Colleges  (CIC). He also serves on the
                                                    Western Illinois University Foundation Board of Trustees.

Thomas M. Mulligan                           48     Thomas  M.  Mulligan  was   appointed  to  his  current   position
President, Corporate Services                       effective May 28, 1999.  Mr.  Mulligan  joined  Sodexho  Services,
                                                    Inc.,  a subsidiary of Sodexho Alliance, in 1974 and has served in
                                                    the   Sodexho   Education,   Corporate   Services  and  Healthcare
                                                    divisions. Prior to his  current  appointment, Mr. Mulligan served
                                                    as head of the  New England  Corporate  Services operations of the
                                                    Company.  Mr. Mulligan supports hunger relief  efforts through the
                                                    Pine Street Inn in  Boston and has  worked with the  Toys for Tots
                                                    program.

James A. Seaton                              50     James A. Seaton was  appointed to his current  position  effective
President, School Services                          September  3, 1998.  Prior to his  current  position,  Mr.  Seaton
                                                    served  as  Senior  Vice  President  in  the  Corporate   Services
                                                    division   of   the   Company.    Mr.   Seaton   joined   Marriott
                                                    International,  Inc. in 1972 as a management  trainee and advanced
                                                    through  several  positions in the  Education  Services  division,
                                                    serving  as  a  manager  of  district  operations,  Regional  Vice
                                                    President  and Vice  President  of  Operations.  Mr.  Seaton  also
                                                    served as Vice  President of Grandy's and as Senior Vice President
                                                    for  the  Corporate  Services  division  of  Marriott   Management
                                                    Services prior to the Transactions.
</TABLE>


                                      -61-

<PAGE>



EXECUTIVE OFFICERS, CONTINUED

<TABLE>
<CAPTION>
             NAME AND TITLE                  AGE                           BUSINESS EXPERIENCE
             --------------                  ---                           -------------------

<S>                                          <C>    <C>
Stephen J. Brady                             55     Stephen J. Brady was appointed to his current  position  effective
Senior Vice President, Corporate                    with the  Transactions.  Mr. Brady joined  Sodexho USA, a division
Communications                                      of Sodexho Alliance,  in 1989 after a 15-year career in the retail
                                                    industry.  His positions  with Sodexho USA were Vice  President of
                                                    Strategic  Developments,  Vice President of Health Care Operations
                                                    and  Regional  Vice  President  of  Education   Operations.   Most
                                                    recently  he  has  served  as  Vice  President  of  Marketing  and
                                                    Communications  for Sodexho  USA. Mr. Brady serves on the board of
                                                    FoodChain, the national food rescue network.

Randall C. Harris                            48     Randall C. Harris was appointed to his current position  effective
Senior Vice President and Chief Human               with the Transactions.  Mr. Harris joined Marriott  International,
Resources Officer                                   Inc.  in  1997.  Before  joining  Marriott,  Mr.  Harris  was with
                                                    Cognizant  Corporation,  which  was  formed  as  a  result  of the
                                                    restructuring of  Dunn  &  Bradstreet  Corporation.  His  previous
                                                    experience   includes   senior   human   resources   and   general
                                                    management  positions with  American  Express (and the  subsequent
                                                    initial  public  offering of  First  Data  Corporation) and Sprint
                                                    Corporation.

Lawrence E. Hyatt                            45     Lawrence E. Hyatt was appointed to his current position  effective
Senior Vice President and Chief                     with the  Transactions.  Mr. Hyatt served as Senior Vice President
Financial Officer                                   of Finance  and  Planning  for the  Marriott  Management  Services
                                                    division of Marriott  International,  Inc.  since 1988.  He joined
                                                    Marriott  Corporation  in 1981  and has  been  Staff  Auditor  for
                                                    Corporate  Internal Audit,  Manager of Financial  Analysis for Roy
                                                    Rogers  Restaurants,  Director  of Finance for  Marriott  Services
                                                    Group and Vice President,  Operations Planning and Control for the
                                                    Company.   Previously,   Mr.   Hyatt  was  an   associate  in  ICF
                                                    Incorporated  and a  financial  analyst for the US  Department  of
                                                    Energy.

David R. Smail                               60     David R. Smail was  appointed  to his current  position  effective
Senior Vice President and Chief                     with the  Transactions.  Previously,  Mr.  Smail  served as Senior
Information Officer                                 Vice  President  and Chief  Information  Officer for the  Marriott
                                                    Management  Services  division  of  Marriott  International,  Inc.
                                                    since  1993.  He  joined  Marriott  Corporation  in  1981  as Vice
                                                    President in the Marriott  Information  Systems  Department.  From
                                                    1985 to 1992,  he  served  as Vice  President,  Corporate  Systems
                                                    Services,   Marriott   Corporation.   Prior  to  joining  Marriott
                                                    Corporation,  Mr. Smail worked as an Assistant  Vice  President in
                                                    the  Operations  Group,  AMTRAK,  and  spent 14 years at  Andersen
                                                    Consulting.

Robert A. Stern                              41     Robert A. Stern was  appointed to his current  position  effective
Senior Vice President and General Counsel           with the Transactions.  Previously,  Mr. Stern served as Associate
                                                    General Counsel for Marriott  International,  Inc. providing legal
                                                    support   to   Marriott   Management   Services.   Prior   to  his
                                                    appointment  to Associate  General  Counsel,  Mr.  Stern  provided
                                                    legal  support to  Marriott  Corporation's  Restaurant  and Travel
                                                    Plaza  businesses.  Mr. Stern joined Marriott  Corporation in 1985
                                                    from the Washington  D.C.,  office of Skadden Arps Slate Meagher &
                                                    Flom.
</TABLE>


                                      -62-

<PAGE>



EXECUTIVE OFFICERS, CONTINUED

<TABLE>
<CAPTION>
             NAME AND TITLE                  AGE                           BUSINESS EXPERIENCE
             --------------                  ---                           -------------------

<S>                                          <C>    <C>
Philippe Taillet                             40     Philippe Taillet was appointed to his current  position  effective
Senior Vice President,                              August 10, 1999. Prior to his  appointment,  Mr. Taillet served as
Facilities Management                               Senior Vice President,  Strategic Planning for the Company.  Prior
                                                    to  the  Transactions,  Mr.  Taillet  served  as  Vice  President,
                                                    Corporate  Strategy for Sodexho  Alliance since 1995. From 1991 to
                                                    1995,  he was  Director of  Facilities  Management  at  Disneyland
                                                    Paris  and  from  1986  to  1991 he was a  consultant  for  Bain &
                                                    Company in Paris and  Boston.  Mr.  Taillet  began his career as a
                                                    software engineer for Schlumberger Oil Field Services in Paris.

Anthony J. Wilson                            47     Anthony J. Wilson was appointed to his current position  effective
Senior Vice President,                              with the  Transactions.  Previously,  Mr.  Wilson served as Senior
Marketing and Procurement                           Vice  President,   Marketing  and  Product   Development  for  the
                                                    Marriott Management  Services division of Marriott  International,
                                                    Inc. since November 1996.  Prior to joining  Marriott,  Mr. Wilson
                                                    was Vice President and General  Manager in the Global Food Service
                                                    division  of  Campbell  Soup  Company.  He also  spent 13 years at
                                                    ARAMARK,  where he served as Senior Vice  President  ARASERVE  and
                                                    President of ARAMARK's Marketing Services Group.
</TABLE>



                                     PART IV

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

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

         (1)      Financial Statements

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

         (2)      Financial Statement Schedules

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

         (3)      Exhibits

         Any shareholder who desires a copy of the following Exhibits may obtain
         a copy upon request from the Company at a charge that reflects the
         reproduction cost of such Exhibits. Requests should be made to the
         Secretary, Sodexho Marriott Services, Inc., 9801 Washingtonian
         Boulevard, Gaithersburg, Maryland, 20878.


<TABLE>
<CAPTION>
 EXHIBIT                      DESCRIPTION                             INCORPORATION BY REFERENCE (WHERE A REPORT OR
 -------                      -----------                             ---------------------------------------------
   NO.                                                               REGISTRATION STATEMENT IS INDICATED BELOW, THAT
   ---                                                               -----------------------------------------------
                                                                        DOCUMENT HAS BEEN PREVIOUSLY FILED BY THE
                                                                        -----------------------------------------
                                                                          COMPANY AND THE APPLICABLE EXHIBIT IS
                                                                          -------------------------------------
                                                                            INCORPORATED BY REFERENCE THERETO)
                                                                            ----------------------------------

<S>            <C>                                                 <C>
     3.1       Amended and Restated Certificate of                 Exhibit No. 3 (a) to Form 8-K dated April 3, 1998.
               Incorporation.

     3.2       Amended and Restated Bylaws.                        Exhibit No. 3 (b) to Form 8-K dated April 3, 1998.
</TABLE>

                                      -63-

<PAGE>



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

(A)  LIST OF DOCUMENTS FILED AS PART OF THIS REPORT, CONTINUED

         (3)      Exhibits, Continued

<TABLE>
<CAPTION>
 EXHIBIT                      DESCRIPTION                             INCORPORATION BY REFERENCE (WHERE A REPORT OR
 -------                      -----------                             ---------------------------------------------
   NO.                                                               REGISTRATION STATEMENT IS INDICATED BELOW, THAT
   ---                                                               -----------------------------------------------
                                                                        DOCUMENT HAS BEEN PREVIOUSLY FILED BY THE
                                                                        -----------------------------------------
                                                                          COMPANY AND THE APPLICABLE EXHIBIT IS
                                                                          -------------------------------------
                                                                            INCORPORATED BY REFERENCE THERETO)
                                                                            ----------------------------------

<S>            <C>                                                 <C>
     4.1       Certificate of Designation, Preferences and         Exhibit No. 4.1 to Form 8-K dated October 25, 1993.
               Rights of Series A Junior Participating
               Preferred Stock.

     4.2       Rights Agreement with The Bank of New York, as      (a)  Exhibit  No. 4.2 to Form 8-K dated  October 25,
               Rights Agent, as amended.                           1993,  (b) Exhibit 1 to Form 8--A/A filed on October
                                                                   15, 1997  (Amendment  No. 1) and (c) Amendment No. 2
                                                                   to  Rights  Agreement  dated  as of March  27,  1998
                                                                   filed by amendment to Form 8-A.

     4.3       Indenture with Chemical Bank, as Trustee, as        (a)  Exhibit  Nos.  4(i) and 4(ii) to Form 8-K dated
               supplemented.                                       December  9,  1993  (original  Indenture  and  First
                                                                   Supplemental  Indenture);  (b) Exhibit No. 4 (ii) to
                                                                   Form 8-K dated April 19, 1995  (Second  Supplemental
                                                                   Indenture);  (c)  Exhibit  No. 4.2 to From 8-K dated
                                                                   June 7, 1995  (Third  Supplemental  Indenture);  (d)
                                                                   Exhibit No. 4.2 to Form 8-K dated  December 11, 1995
                                                                   (Fourth  Supplemental  Indenture);  (e)  Exhibit No.
                                                                   4(a) to Form  8-K/A  dated  April  27,  1998  (Fifth
                                                                   Supplemental  Indenture);  (f)  Exhibit  No. 4(b) to
                                                                   Form 8-K/A dated April 27, 1998 (Sixth  Supplemental
                                                                   Indenture);  Exhibit  No.  4(c) to Form 8-K/A  dated
                                                                   April 27,  1998  (Seventh  Supplemental  Indenture);
                                                                   and  Exhibit  No. 4(d) to Form 8-K/A dated April 27,
                                                                   1998 (Eighth Supplemental Indenture).

     4.4       Indenture with The Bank of New York, as Trustee,    (a) Exhibit  No. 4.1 Form 8-K dated March 25,  1996;
               relating to Liquid Yield Option(TM) Notes, as       and (b)  Exhibit No. 4.2 to Form 8-K dated March 25,
               supplemented.                                       1996 (First Supplemental Indenture).

     4.5       Indenture among RHG Finance Corporation, as         (a)  Exhibit  No.  2.02 to  Renaissance  Hotel Group
               issuer, Renaissance Hotel Group N.V. and the        N.V.  Annual Report on Form 20-F for the fiscal year
               Company, as guarantors, and The First National      ended June 30,  1996;  and (b) Exhibit No. 4 to Form
               Bank of Chicago as Trustee, as supplemented.        10-Q for the  fiscal  quarter  ended  June 20,  1997
                                                                   (First and Second Supplemental Indenture).

     4.6       Sodexho Marriott Services, Inc. 1993                Exhibit 4(a) to Form 8-K dated April 15, 1998.
               Comprehensive Stock Incentive Plan.

     4.7       Sodexho Marriott Services, Inc. 1998                Exhibit 4(a) to Form 8-K dated April 15, 1998.
               Comprehensive Stock Incentive Plan.

     4.8       Sodexho Savings Plus Plan.                          Exhibit 4.3 to Form S-8 dated September 17, 1998.

     4.9       Sodexho Marriott Services, Inc. 401(k) Employee     Exhibit 4.3 to Form S-8 dated September 17, 1998.
               Retirement Savings Plan.
</TABLE>

                                      -64-

<PAGE>



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

(A)  LIST OF DOCUMENTS FILED AS PART OF THIS REPORT, CONTINUED

         (3)      Exhibits, Continued

<TABLE>
<CAPTION>
 EXHIBIT                      DESCRIPTION                           INCORPORATION BY REFERENCE (WHERE A REPORT OR
 -------                      -----------                           ---------------------------------------------
   NO.                                                             REGISTRATION STATEMENT IS INDICATED BELOW, THAT
   ---                                                             -----------------------------------------------
                                                                      DOCUMENT HAS BEEN PREVIOUSLY FILED BY THE
                                                                      -----------------------------------------
                                                                        COMPANY AND THE APPLICABLE EXHIBIT IS
                                                                        -------------------------------------
                                                                          INCORPORATED BY REFERENCE THERETO)
                                                                          ----------------------------------

<S>            <C>                                                 <C>
    4.10       Trust Agreement with Bankers Trust Company,         Exhibit 99.1 to Form S-8 dated September 17, 1998.
               Trustee for the Sodexho Marriott Services, Inc.
               401(k) Employee Retirement Savings Plan.

    10.1       $1.5 billion Credit Agreement with Citibank,        (a)  Exhibit  No.  10 to Form  10-Q  for the  fiscal
               N.A., as Administrative Agent, and certain banks,   quarter ended March 28, 1997  (original  agreement);
               as Banks, as amended.                               (b)  Exhibit  No.  10.2 to Form 10-K for the  fiscal
                                                                   year   ended  December 29, 1995  (first  Amendment);
                                                                   and (c) Exhibit No. 10-1 to Form 10-Q for the fiscal
                                                                   quarter    ended    September   12,   1997   (Second
                                                                   Amendment).


    10.2       Distribution Agreement with Host Marriott, as       (a) Exhibit  No. 10.3 to Form 8-K dated  October 25,
               amended.                                            1993;  (b)  Exhibit  No.  10.2 to Form  10-K for the
                                                                   fiscal   year   ended   December  29,  1995   (First
                                                                   Amendment);  and  (c)  Exhibit  No. 10.1 to Form 10-
                                                                   Q for the  fiscal  quarter ended  September 12, 1997
                                                                   (Second Amendment).

    10.3       Non Competition Agreement with Host Marriott and    (a) Exhibit  No. 10.7 to Form 8-K dated  October 25,
               Host Marriott Services Corporation, as amended.     1993;  and (b) Exhibit No. 10.4 to Form 10-K for the
                                                                   fiscal year ended  December 29, 1995  (Amendment No.
                                                                   1).

    10.4       Employee Benefits and Other Employment Matters      Exhibit No. 10.6 to Form 8-K dated October 25, 1993.
               Allocation  Agreement   with   Host  Marriott.

    10.5       Agreement  and  Plan of  Merger by  and  among      Exhibit  No.  (c)  (1)  to   Schedule   14d-1  dated
               Marriott International, Inc., FGI  Acquisition      February 23, 1996.
               Corp. and Forum Group, Inc.

    10.6       Acquisition Agreement, dated as of February 17,     Exhibit  No.  10.1 to Form 8-K  dated  February  19,
               1997, by and between the Company and Renaissance    1997.
               Hotel Group N.V.

    10.7       Shareholder Agreement, dated as of February 17,     Exhibit  No.  10.2 to Form 8-K  dated  February  19,
               1997, by and between Marriott International, Inc.   1997.
               and Diamant Hotel Investments N.V.

    10.8       Stock Purchase  Agreement, dated as of June 21,     Exhibit No. 10.2 to Form 10-Q for the fiscal quarter
               1997, by and between Host Marriott Corporation      ended September 12, 1997.
               and Marriott Senior Living Services, Inc.

    10.9       Distribution Agreement dated as of September 30,    Appendix  A to  Definitive  Proxy  Statement  for  a
               1997  between the  Company  and New Marriott MI,    Special Meeting of  Shareholders  commenced on March
               Inc.                                                17, 1998 and adjourned on March 20, 1998.
</TABLE>


                                      -65-

<PAGE>



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

(A)  LIST OF DOCUMENTS FILED AS PART OF THIS REPORT, CONTINUED

         (3)      Exhibits, Continued

<TABLE>
<CAPTION>
 EXHIBIT                      DESCRIPTION                           INCORPORATION BY REFERENCE (WHERE A REPORT OR
 -------                      -----------                           ---------------------------------------------
   NO.                                                             REGISTRATION STATEMENT IS INDICATED BELOW, THAT
   ---                                                             -----------------------------------------------
                                                                      DOCUMENT HAS BEEN PREVIOUSLY FILED BY THE
                                                                      -----------------------------------------
                                                                        COMPANY AND THE APPLICABLE EXHIBIT IS
                                                                        -------------------------------------
                                                                          INCORPORATED BY REFERENCE THERETO)
                                                                          ----------------------------------

<S>            <C>                                                 <C>
    10.10      Agreement  and   Plan  of  Merger  dated  as  of    Appendix B  to  Definitive  Proxy  Statement for a
               September 30, 1997  by  and  among  the Company,    Special Meeting of Shareholders commenced on March
               Marriott - ICC  Merger Corp.,  New  Marriott MI,    17, 1998 and adjourned on March 20, 1998.
               Inc., Sodexho Alliance, S.A., and  International
               Catering Corporation.

    10.11      Omnibus  Restructuring  Agreement  dated  as  of    Appendix C to Definitive Proxy Statement for a
               September  30,  1997  by  and among the Company,    Special Meeting of Shareholders commenced on
               Marriott - ICC  Merger  Corp.,  New Marriott MI,    March 17, 1998 and adjourned on March 20, 1998.
               Inc., Sodexho Alliance, S.A., and  International
               Catering Corporation.

    10.12      Amendment  Agreement,  dated  as of  January 28,    Appendix D to Definitive Proxy Statement for a
               1998,  by  and among the  Company,  Marriott-ICC    Special Meeting of Shareholders commenced on
               Merger  Corp.,  New  Marriott  MI, Inc., Sodexho    March 17, 1998 and adjourned on March 20, 1998.
               Alliance,  S.A.,   and   International  Catering
               Corporation.

    10.13      Employee   Benefits   and    Other    Employment    Exhibit  No.  10.1 to Form  10 of New  Marriott  MI,
               Matters   Allocation   Agreement,  dated  as  of    Inc. filed on February 1, 1998.
               September 30, 1997,  by  and between the Company
               and  New Marriott MI, Inc.  Computation of Ratio
               of Earnings to Fixed  Charges.  Subsidiaries  of
               Marriott International, Inc.  Consent  of Arthur
               Andersen LLP. Forward-Looking Statements.

    10.14      Trademark  and  Trade  Name  License   Agreement    Exhibit No.  10.18 to Form 10-K/A filed on April 15,
               dated  as of March 27, 1998  among the  Company,    1998.
               New Marriott and Marriott Worldwide Corporation.

    10.15      Royalty Agreement dated  as of  March  27,  1998    Exhibit  No.  10.19  to Form  10-K/A  filed on April
               between Sodexho Alliance, S.A. and the Company.     15, 1998.

    10.16      $620   million  Credit  Agreement  dated  as  of    (a) Exhibit No. 10(a) to Form 8-K/A dated April 27,
               January 30, 1998 with the  Company, as Borrower,    1998; and (b) Exhibit No. 10(c) to Form 8-K/A
               certain  initial  lenders,  as  Initial Lenders,    dated April 27, 1998 (Amendment No. 1).
               Societe Generale and J.P. Morgan Securities Inc.
               ("J.P. Morgan"), as Arrangers, Societe Generale,
               as Administrative  Agent,  and  Morgan  Guaranty
               Trust  Company  of   New  York   ("Morgan"),  as
               Documentation Agent, as amended.
</TABLE>


                                      -66-

<PAGE>



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

(A)  LIST OF DOCUMENTS FILED AS PART OF THIS REPORT, CONTINUED

         (3)      Exhibits, Continued

<TABLE>
<CAPTION>
 EXHIBIT                      DESCRIPTION                           INCORPORATION BY REFERENCE (WHERE A REPORT OR
 -------                      -----------                           ---------------------------------------------
   NO.                                                             REGISTRATION STATEMENT IS INDICATED BELOW, THAT
   ---                                                             -----------------------------------------------
                                                                      DOCUMENT HAS BEEN PREVIOUSLY FILED BY THE
                                                                      -----------------------------------------
                                                                        COMPANY AND THE APPLICABLE EXHIBIT IS
                                                                        -------------------------------------
                                                                          INCORPORATED BY REFERENCE THERETO)
                                                                          ----------------------------------

<S>            <C>                                                 <C>
    10.17      $735  million  Credit   Agreement  dated  as  of    (a) Exhibit No. 10(b) to Form 8-K/A dated April 27,
               January   30,   1998   with   Sodexho   Marriott    1998 and (b) Exhibit No. 10(d) to Form 8-K/A dated
               Operations, Inc.,  as  Borrower, the Company, as    April 27, 1998 (Amendment No. 1).
               Parent  Guarantor,  certain  initial lenders, as
               Initial Lenders, Societe Generale and Morgan, as
               Initial Issuing Banks,  Morgan, as Documentation
               Agent  and  Administrative  Agent,  and  Societe
               Generale  and  J.P.  Morgan,  as  Arrangers,  as
               amended.

    10.18      Stockholder Agreement dated as of March 27, 1998    Exhibit No.  10.22 to Form 10-K/A filed on April 15,
               with Sodexho Alliance, S.A.                         1998.

    10.19      Severance  agreement  with  Charles  D.  O'Dell,    Filed herewith.
               dated as of May 3, 1999.

     12        Schedule of  Ratio of Earnings to Fixed Charges.    Filed herewith.

     21        Subsidiaries of  Sodexho Marriott Services, Inc.    Filed herewith.

    23.1       Consent  of  PricewaterhouseCoopers   LLP,          Filed herewith.
               Independent Public Accountants.

    23.2       Consent of Arthur Andersen LLP,                     Filed herewith.
               Independent Public Accountants.

     24        Power of Attorney.                                  Filed herewith.

     99        Forward-Looking Statements.                         Filed herewith.
</TABLE>


(B)      REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
                  DATE                                        ITEM REPORTED
                  ----                                        -------------

<S>                                                           <C>
September 17, 1998                                            Announcement   of  the   1999   Annual
                                                              Meeting of Stockholders.

May 3, 1999                                                   Announcement  of the  Company's  Board
                                                              of Directors  had named Michel  Landel
                                                              as  President   and  Chief   Executive
                                                              Officer  and a member  of the Board of
                                                              Directors of the Company.

July 29, 1999                                                 Announcement     relating    to    the
                                                              Company's investor  conference held in
                                                              New York, New York.
</TABLE>


                                      -67-

<PAGE>



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 29th day of
October, 1999.



                                            SODEXHO MARRIOTT SERVICES, INC.


                                              By:  /S/ ROBERT A. STERN
                                                  -------------------------
                                                       Robert A. Stern
                                                       Senior Vice President and
                                                       General Counsel


         Pursuant to the requirements of the Securities Act of 1934, as amended,
this report has been signed by the following persons in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE                                       TITLE                                       DATE
---------                                       -----                                       ----


<S>                                             <C>                                         <C>
         *                                      President and Chief Executive Officer       October 29, 1999
---------------------------                     and Director (Principal
Michel Landel                                   Executive Officer)



/S/ LAWRENCE E. HYATT                           Senior Vice President and Chief Financial   October 29, 1999
---------------------------                     Officer (Principal Financial Officer)
Lawrence E. Hyatt



/S/ LOTA S. ZOTH                                Vice President, Corporate Controller and    October 29, 1999
---------------------------                     Chief Accounting Officer (Principal
Lota S. Zoth                                    Accounting Officer)



         *                                      Chairman and Director                       October 29, 1999
---------------------------
William J. Shaw


         *                                      Director                                    October 29, 1999
---------------------------
Daniel J. Altobello


         *                                      Director                                    October 29, 1999
---------------------------
Pierre Bellon

</TABLE>



                                      -68-

<PAGE>



<TABLE>
<CAPTION>
SIGNATURE                                       TITLE                                       DATE
---------                                       -----                                       ----



<S>                                             <C>                                         <C>
         *                                      Director                                    October 29, 1999
---------------------------
Bernard Carton


         *                                      Director                                    October 29, 1999
---------------------------
Doctor R. Crants


         *                                      Director                                    October 29, 1999
---------------------------
John W. Marriott III


         *                                      Director                                    October 29, 1999
---------------------------
Edouard de Royere

</TABLE>



*By:  /S/ ROBERT A. STERN
    -----------------------
         Robert A. Stern
         Attorney- in- fact



                                      -69-