<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 1, 2000

                                       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) 987-4500
              ----------------------------------------------------
              (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 23,  2000,  the number of shares of common stock  outstanding  was
63,254,642.  The  aggregate  market  value of  shares of  common  stock  held by
non-affiliates at October 23, 2000 was $548,037,467.

                       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  1, 2000 are
incorporated by reference into Part III of this report.

Index to Exhibits is located on pages 54 through 58 of this report.

================================================================================


<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED SEPTEMBER 1, 2000


<TABLE>
<CAPTION>
                                TABLE OF CONTENTS


                                                                                                PAGE
                                                                                                ----
<S>                                                                                               <C>
                                    INTRODUCTION


Overview                                                                                          2
Forward-Looking Statements                                                                        2
Pro Forma Unaudited Financial Information                                                         3


                                    PART I

Item 1.           Business                                                                        9
Item 2.           Properties                                                                     12
Item 3.           Legal Proceedings                                                              12
Item 4.           Submission of Matters to a Vote of Security Holders                            12


                                    PART II

Item 5.           Market for the Company's Common Stock and Related Shareholder Matters          13
Item 6.           Selected Historical Financial Data                                             13
Item 7.           Management's Discussion and Analysis of Financial Condition and
                       Results of Operations                                                     15
Item 8.           Financial Statements and Supplementary Data                                    21
Item 9.           Changes in and Disagreements with Accountants on Accounting and
                       Financial Disclosure                                                      51


                                    PART III

Item 10.          Directors and Executive Officers of the Registrant                             51
Item 11.          Executive Compensation                                                         51
Item 12.          Security Ownership of Certain Beneficial Owners and Management                 51
Item 13.          Certain Relationships and Related Transactions                                 51


                                    PART IV

Item 14.          Exhibits, Financial Statement Schedules, and Reports on Form 8-K               54
</TABLE>



                                      -1-


<PAGE>


                                  INTRODUCTION

OVERVIEW

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 the
consummation  of the  distribution  (see  Note 1 to the  Consolidated  Financial
Statements) of its lodging,  senior living (Marriott Senior Living Services,  or
"MSLS") and distribution  services (Marriott  Distribution  Services,  or "MDS")
businesses to existing  shareholders  (the  "Distribution"),  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.  (the
"Acquisition"), and  the  combined  operations  were  renamed  Sodexho  Marriott
Services, Inc. In connection with the distribution and acquisition,  the Company
refinanced its debt ("Refinancing"). Collectively, the distribution, acquisition
and  refinancing are known as the  "Transactions"  (see Notes 1 through 5 to the
Consolidated Financial Statements).  The subsidiaries below represent the direct
subsidiaries of the Company. Each of these direct subsidiaries, in turn, has one
or more subsidiaries.

o    Sodexho  Operations,  LLC.,  with one main operating  subsidiary--  Sodexho
     Marriott Management, Inc. (formerly Marriott Management Services Corp.) and
     its subsidiaries;
o    Sodexho Financiere du Canada, Inc. (acquired in the Transactions  discussed
     in  Note 1 to the  Consolidated  Financial  Statements)  and  subsidiaries,
     including its main operating subsidiary-- Sodexho Canada, Inc.;
o    Sodexho MS Canada, Ltd.; and
o    Universal Remote Site Holdings, Ltd.

Prior to the Transactions,  Sodexho Financiere du Canada,  Inc. and subsidiaries
and   International   Catering   Corporation  and   subsidiaries   ("ICC")  were
collectively   referred  to  as  "Sodexho  North  America."  Subsequent  to  the
Transactions,  ICC was merged into Sodexho  Operations,  LLC.  Also,  the former
Marriott  Corporation of Canada,  Ltd. and  subsidiaries and the former Marriott
Management  Services Corp. and  subsidiaries  were  collectively  referred to as
"MMS."


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  ("Sodexho"),  (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, 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.


                                      -2-



<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 1, 2000,  compared  with the fiscal
year ended  September 3, 1999, the  thirty-four  weeks ended August 28, 1998 and
the historical  fiscal year 1997 (presented in Item 8 of this report),  but also
the results for the fiscal year ended  September 1, 2000,  compared with the pro
forma operating  results and pro forma cash flow for the full fiscal years ended
September 3, 1999 and August 28, 1998, as well as the condensed balance sheet as
of September 1, 2000 and September 3, 1999.

Prior to March 27, 1998, pro forma sales include the combined actual activity of
the food and facilities  management  services  business of MMS and Sodexho North
America.  Similarly, pro forma corporate expenses include the combined corporate
overhead of both  businesses.  No synergies  were assumed for periods  presented
prior to March 27, 1998. In the aggregate,  the Company achieved its $40 million
cumulative  annual synergy  target for fiscal year 2000, of which  approximately
$20 million was  incremental to fiscal year 2000.  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 end of year 2001.

Integration  and  restructuring  charges of  approximately  $16  million and $31
million were  excluded  for pro forma fiscal years 1999 and 1998,  respectively.
However,  an estimate of $6 million in annual costs were  included on a pro rata
basis in the period presented prior to March 27, 1998, representing  incremental
costs to operate the Company as a separate  public entity.  Pro forma net income
reflects approximately $16 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 the period prior to March 27, 1998.  Effective  income tax rates of 44.8% and
48% were used for pro forma fiscal years 1999 and 1998, respectively.  Pro forma
results do not include any extraordinary charges related to the Refinancing, the
loss in 1997  from the  sale of  Marriott  Management  Services  Corp.'s  United
Kingdom operations ("MMS- UK") to Sodexho or any operating results from the MMS-
UK operations prior to its sale.

Pro forma basic earnings per share were calculated  with total  weighted-average
shares  outstanding  of 62.1 million for pro forma  fiscal  1999.  For pro forma
fiscal year 1998, 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.  The dilutive  shares were the result of the Company's  convertible  debt,
stock option plans and deferred stock incentive plans.












                                      -3-



<PAGE>



PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME BY SEGMENT
FOR FISCAL YEARS ENDED  SEPTEMBER 1, 2000, SEPTEMBER 3,1999 AND AUGUST 28, 1998
($IN MILLIONS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>

                                                                      2000                1999               1998
                                                                ------------------ ------------------- ------------------
                                                                   (52 WEEKS)          (53 WEEKS)         (52 WEEKS)
<S>                                                                       <C>                 <C>                <C>
SALES
         Corporate Services                                               $1,429              $1,380             $1,336
         Health Care                                                       1,399               1,323              1,277
         Education                                                         1,280               1,221              1,150
         Schools                                                             392                 358                333
         Canada                                                              158                 143                145
         Laundries/Other                                                      76                  77                 65
                                                                ------------------ ------------------- ------------------
TOTAL SALES                                                                4,734               4,502              4,306

OPERATING COSTS AND EXPENSES
         Corporate Services                                                1,336               1,290              1,253
         Health Care                                                       1,282               1,215              1,182
         Education                                                         1,204               1,150              1,093
         Schools                                                             372                 338                317
         Canada                                                              151                 136                140
         Laundries/Other                                                      70                  72                 61
                                                                ------------------- ------------------ ------------------
TOTAL OPERATING COSTS AND EXPENSES                                         4,415               4,201              4,046
                                                                ------------------ ------------------- ------------------

OPERATING PROFIT BEFORE
   CORPORATE ITEMS
         Corporate Services                                                   93                  90                 83
         Health Care                                                         117                 108                 95
         Education                                                            76                  71                 57
         Schools                                                              20                  20                 16
         Canada                                                                7                   7                  5
         Laundries/Other                                                       6                   5                  4
                                                                ------------------ ------------------- ------------------
TOTAL OPERATING PROFIT                                                       319                 301                260
                                                                ------------------ ------------------- ------------------

CORPORATE ITEMS:
  Amortization of Intangible Assets                                          (37)                (38)               (37)
  Corporate Expenses                                                         (86)                (76)               (73)
  Interest Expense, Net                                                      (84)                (87)               (87)
  Gain on Sale of Investment                                                  --                   8                 --
                                                                ------------------ ------------------- ------------------

INCOME BEFORE INCOME TAXES                                                   112                 108                 63

Provision for Income Taxes                                                   (49)                (48)               (30)
                                                                ------------------ ------------------- ------------------

PRO FORMA NET INCOME                                                      $   63              $   60             $   33
                                                                ================== =================== ==================

PRO FORMA BASIC EARNINGS PER SHARE                                        $ 1.01              $ 0.96             $ 0.53
                                                                ================== =================== ==================

PRO FORMA DILUTED EARNINGS PER SHARE                                      $ 1.00              $ 0.94             $ 0.52
                                                                ================== =================== ==================
</TABLE>


                                      -4-


<PAGE>



DISCUSSION OF FISCAL YEAR 2000 COMPARED WITH PRO FORMA FISCAL YEAR 1999
 RESULTS OF OPERATIONS

Total sales for fiscal year 2000 (52 week period  ended  September  1, 2000,  or
"2000") were $4.7 billion, an increase of $232 million, or 5%, over $4.5 billion
for pro forma  fiscal  year 1999 (53 week period  ended  September  3, 1999,  or
"1999").  Adjusting for the  estimated  $76 million  impact of the extra week in
fiscal year 1999, sales increased $308 million, or 7%. Overall,  this growth was
attributed to favorable new sales trends and solid comparable growth in existing
accounts in most of the  Company's  divisions.  The School  Services  and Canada
divisions had  double-digit  sales growth during the year, with strong growth in
the remaining divisions, excluding the Laundries/Other division.

Managed  volume,  which  represents the Company's  measurement of gross revenues
associated  with all services the Company  manages on behalf of its clients,  is
most relevant in the Health Care and Schools divisions.  On a 52-week basis, the
Health Care division's  managed volume was $2.9 billion for fiscal year 2000, up
$29 million or 1% over the $2.8  billion in managed  volume for same period last
year.  The Health Care  division's  relatively  flat managed  volume  growth was
mostly  due to the  health  care  industry  being  under  significant  financial
pressure,  impacting  a  large  number  of  the  Company's  clients  in  certain
geographic markets. Managed volume for the Schools division was $698 million for
fiscal year 2000,  an increase of $54  million,  or 8% over the $644 million for
fiscal year 1999.  The growth in the Schools  division  was due to the impact of
strong sales to new clients that added  almost  proportionately  as much managed
volume as total sales for the period.

Operating profit before corporate items  (corporate  expenses,  interest expense
and  amortization  of  intangible  assets)  totaled $319 million for fiscal year
2000,  an increase of $18  million,  or 6% when  compared  with $301  million in
operating  profit for pro forma  fiscal year 1999.  Operating  profit  increased
mostly due to  increases  in the Health  Care and  Education  divisions,  as the
Education  division  experienced  improving margins from the strong new sales in
the latter half of fiscal  year 1999.  In the Health  Care  division,  operating
margins  improved  from strong new sales and solid  comparable  growth  rates at
existing  accounts,  and the  impact in fiscal  year  1999 of  approximately  $3
million in  bankruptcy  related  losses.  Schools  Services  and Canada had flat
operating   profits  when   compared  with  last  year  the  result  of  several
under-performing  client  accounts  that were mostly first year,  larger  based,
accounts.   The   Company   anticipates   that  the   inefficiencies   in  these
under-performing  accounts will be resolved  during the next two quarters as the
Company  makes the necessary  adjustments  at these  accounts to reach  expected
operating performance.

Total operating costs,  corporate expenses and amortization of intangible assets
represented,  in the  aggregate,  96% of  total  sales  for  fiscal  year  2000,
unchanged from pro forma fiscal year 1999's ratio. The Company  anticipates this
margin  will  improve in the year  ahead,  as the  Company  achieves  additional
purchasing synergies,  partially offset by the continued investment of a portion
of the synergies in its businesses.  In the aggregate,  the Company achieved its
$40 million  cumulative  annual  synergy  target for fiscal year 2000,  of which
approximately  $20 million  was  incremental  to fiscal  year 2000.  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 end of year 2001.  Incremental  synergies
generated  in fiscal year 2000 were  reinvested  during  fiscal  year 2000.  The
reinvestments were primarily in additional sales and management personnel.

Corporate  expenses and  amortization  of intangible  assets in fiscal year 2000
totaled $123  million,  an 11% increase  from the adjusted pro forma fiscal year
1999,  which excludes the $3 million pretax charge related to the resignation of
the former  CEO.  This was  primarily  due to an increase  of  approximately  $7
million  for the impact of open  positions  filled in the latter  half of fiscal
year 1999, in addition to new positions added in the current year,  along with a
$5 million  increase in  assistance  fees paid to Sodexho  Alliance for services
received,  as agreed upon in the merger  agreements.  Pro forma fiscal year 1999
also  included  the  favorable  impact  from  the sale of the  Company's  Bright
Horizons Family Solutions  ("BFAM")  investment for a pretax gain of $8 million,
or $5 million after-tax ($0.07 per diluted common share).

The increase in operating profit,  partially offset by the increase in corporate
expenses and the sale of BFAM in the prior year,  contributed  to an increase in
pretax  income of $4 million,  or 4%, to $112 million for fiscal year 2000.  The
effective tax rate for the current  period was 43.5%,  a decrease from 44.8% for
1999. Net income increased to $63 million, or $1.00 per diluted share,  compared
with $60  million,  or $0.94  per  diluted  share  for pro  forma  fiscal  1999.
Excluding the one-time  resignation charge and the BFAM gain, pro forma earnings
per diluted share would have been approximately  $0.90 in 1999. Diluted weighted
average shares outstanding for fiscal year 2000 were 63.5 million, compared with
63.9 million for the prior year. This reduction was mostly due to the redemption
of the convertible  subordinated debt in November 1999 (see Notes 8 and 9 to the
Consolidated Financial Statements).


                                      -5-
<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 were $4.5  billion,  an increase of
$196 million,  or 5%, over $4.3 billion for pro forma fiscal year 1998 (52 weeks
ended August 28, 1998, or "1998"). Excluding the estimated $76 million impact of
the extra week in 1999,  sales  increased  $120 million,  or 3%. 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.

Pro forma operating profit before corporate items totaled $301 million for 1999,
an increase of $41 million,  or 16%,  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 $111  million,  or a 16% 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 both divisions. The 53rd week did not have a material impact
on the Company's operating profit in pro forma fiscal year 1999.

Corporate  expenses and  amortization  of intangible  assets in pro forma fiscal
year 1999 totaled $114 million,  an increase of $4 million, or 4%, compared with
pro forma fiscal year 1998.  Included in corporate  expenses was a one-time,  $3
million charge ($2 million after-tax, or $0.03 per diluted share) related to the
resignation  of the former  Chief  Executive  Officer.  Excluding  the  one-time
resignation  charge,  total corporate  expenses were level with pro forma fiscal
year 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 year 1999  included the  favorable  impact from the sale of the
Company's Bright Horizons Family Solutions ("BFAM")  investment,  resulting in a
gain of $8 million ($5 million after-tax, or $0.07 per diluted share).

Excluding the one-time  resignation  charge,  total operating  costs,  corporate
expenses and amortization of intangible  assets  represented,  in the aggregate,
96% of total sales for pro forma fiscal year 1999 compared with pro forma fiscal
year 1998's comparable period ratio of 97%.

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
in 1999.


                                      -6-
<PAGE>



CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 1, 2000 AND SEPTEMBER 3, 1999
($ IN MILLIONS)

<TABLE>
<CAPTION>
                                                                           SEPTEMBER 1,       SEPTEMBER 3,
                                                                               2000               1999
                                                                         ------------------ ------------------

                            ASSETS
<S>                                                                               <C>                <C>
Current assets
     Cash and equivalents                                                         $    54            $    48
     Accounts and notes receivable                                                    463                445
     Inventories                                                                       67                 60
     Other                                                                             98                 89
                                                                         ------------------ ------------------
                  Total current assets                                                682                642
                                                                         ------------------ ------------------

Property and equipment, net                                                            96                 85
Intangible assets                                                                     497                535
Other                                                                                  89                 85
                                                                         ------------------ ------------------
                                                                                  $ 1,364            $ 1,347
                                                                         ================== ==================

            LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
     Current portion of long-term debt                                            $    81            $   133
     Accounts payable                                                                 305                238
     Other current liabilities                                                        379                347
                                                                         ------------------ ------------------
                  Total current liabilities                                           765                718

Long-term debt                                                                        900                980
Other long-term liabilities                                                           112                113
Convertible subordinated debt                                                           -                 30

Stockholders' deficit
     Preferred stock, no par value, 1 million shares
       authorized; no shares issued                                                     -                  -
     Common stock, $1 par value; 300 million shares
       authorized, 63 million and 62 million shares
       issued and outstanding in 2000 and 1999, respectively                           63                 62
     Additional paid-in capital                                                     1,348              1,326
     Accumulated deficit                                                           (1,826)            (1,884)
     Accumulated other comprehensive income                                             2                  2
                                                                         ------------------ ------------------
        Total stockholders' deficit                                                  (413)              (494)
                                                                         ------------------ ------------------
        Total liabilities and stockholders' deficit                               $ 1,364            $ 1,347
                                                                         ================== ==================
</TABLE>




                                      -7-

<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 $147
million in 2000, $145 million in 1999, and $115 million in 1998. The increase in
the  adjusted  operating  cash flow in fiscal years 2000 and 1999 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.  In fiscal year 2000, increases in cash provided
by changes in working  capital were mostly due to increases in accounts  payable
and other current  liabilities  exceeding the increase in accounts receivable by
approximately  $81  million,  the  result of  increased  collection  efforts  in
accounts  receivables and more favorable  vendor payment terms and the extension
of payment  cycles in accounts  payables.  For 1999,  higher  accounts and notes
receivable  reflected  the  impact  of the 53rd  week and a  lengthening  of the
average billing cycle compared to 1998. The Company anticipates it will maintain
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 $66 million, $72
million,  and $60 million for 2000,  1999, and 1998,  respectively.  The Company
anticipates  expending  approximately $70 to $75 million for capital investments
for fiscal year 2001.  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 reflect the Company's management of its debt
and  other  long-term  liabilities.  For  fiscal  year  2000,  net cash  used in
financing  activities was mostly due to the $80 million scheduled  repayments of
long-term debt, in addition to approximately $11 million for the cash portion of
the Liquid Yield  Option(TM)  Notes  ("LYONs")  settlement in November 1999 (see
Note 8 to the  Consolidated  Financial  Statements).  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.

PRO FORMA UNAUDITED CONDENSED CONSOLIDATED CASH FLOW
FOR THE FISCAL YEARS ENDED SEPTEMBER 1, 2000, SEPTEMBER 3, 1999
 AND AUGUST 28, 1998
($ IN MILLIONS)

<TABLE>
<CAPTION>
                                                                          2000               1999               1998
                                                                       (52 WEEKS)         (53 WEEKS)         (52 WEEKS)
                                                                   ------------------- ------------------ ------------------
<S>                                                                           <C>                  <C>                <C>

CASH FLOW PROVIDED BY OPERATING ACTIVITIES
==========================================
Net income                                                                    $   63               $ 60               $ 33
Adjust to reconcile net income to net cash:
   Depreciation expense                                                           47                 47                 45
   Amortization of intangible assets                                              37                 38                 37
   Net changes in certain working capital and other items                         74                (40)               (39)
                                                                   ------------------- ------------------ ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                        221                105                 76
                                                                   ------------------- ------------------ ------------------

CASH FLOW FROM INVESTING ACTIVITIES
===================================
Capital expenditures                                                             (66)               (72)               (60)
Other                                                                             (2)               (24)               (27)
                                                                   ------------------- ------------------ ------------------
NET CASH USED IN INVESTING ACTIVITIES                                            (68)               (96)               (87)
                                                                   ------------------- ------------------ ------------------

CASH FLOW FROM FINANCING ACTIVITIES
===================================
Repayments of long-term debt                                                     (92)               (70)               (57)
Other                                                                            (55)                30                106
                                                                   ------------------ ------------------- ------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                             (147)               (40)                49
                                                                   ------------------- ------------------ ------------------

NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS                            $    6               $(31)              $ 38
                                                                   =================== ================== ==================
</TABLE>


                                      -8-
<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 to 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,
          increasing cost pressures and low levels of unemployment.
     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  additional  food and  facilities  management
services to  existing  clients.  Management  of the  Company  believes  that the
facilities  management  industry  remains  even  more  underpenetrated  by large
contractors than the contract food services industry.


                                      -9-
<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 30% 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 30% 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, recent 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/Other.  These two segments collectively  represent  approximately 5% of
the Company's current revenues.

COMPETITION

The food and facilities  management services business in North America comprises
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) 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.


                                      -10-
<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  111,000 employees on its payroll in the U.S. and
Canada, and manages  approximately  61,000 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 year 1997 to August 28,
1998.  Fiscal year 2000 had 52 weeks ending on  September  1, 2000.  Fiscal Year
1999 had 53 weeks  ending on  September  3, 1999.  Prior to the change in fiscal
year,  the Company's 1997  historical  fiscal year had 52 weeks and ended on the
Friday nearest the end of December, which was January 2, 1998.


                                      -11-
<PAGE>



ITEM 2.           PROPERTIES

The Company is headquartered in Maryland, where it has a 10-year lease ending in
December  2008  (with 2  renewable  periods of 5 years  each) for  approximately
115,000  square  feet of space at 9801  Washingtonian  Boulevard,  Gaithersburg,
Maryland.  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);   Lexington,   Massachusetts
(Corporate  Services);  West Lake,  Texas  (Schools);  Burlington,  Canada;  and
Atlanta,  Georgia  (Laundries/Other).  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 20,000
square  feet  of  office  and   warehouse   space  in   Trumbull,   Connecticut;
approximately   15,000   square  feet  of  office  space  in  Mobile,   Alabama;
approximately  34,000 square feet of building  space in  Sunnyvale,  California;
approximately  15,000 square feet of building  space in Allston,  Massachusetts,
and also owned 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.  Also, during fiscal year 2000, the Company sub-leased
the 15,000  square feet of office  space in Mobile,  Alabama to a  non-affiliate
entity and sold the 30,000 square foot office building in Montreal,  Canada.  In
addition,  in June 2000, the Company  terminated the Trumbull,  Connecticut  and
Sunnyvale,  California leases prior to their expiration.  These transactions did
not have an adverse  impact on the Company's  financial  condition or results of
operations.


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 2000.


                                      -12-
<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 was 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 years
2000 and 1999,  the  Transition  Period,  and  fiscal  year 1997 are as  follows
(restated to reflect the one-for-four reverse stock split on March 27, 1998):

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

<S>                               <C>                                      <C>            <C>                    <C>
    FISCAL YEAR 2000              First Quarter                            $ 19 5/16      $ 13 13/16             $.08
                                  Second Quarter                              15 3/4          10 1/8                -
                                  Third Quarter                               15 1/4         10 7/16                -
                                  Fourth Quarter                            18 15/16              14                -

    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
</TABLE>

At September 1, 2000, there were 63.2 million shares of common stock outstanding
held by approximately  36,000 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,  paid 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  years ended
September 1, 2000 and  September 3, 1999,  the 34-week  period ending August 28,
1998,  and fiscal years 1997,  1996 and 1995 (see  below).  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
22-week  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.


                                      -13-
<PAGE>



ITEM 6.           SELECTED HISTORICAL FINANCIAL DATA, CONTINUED


                   SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
                                                                               34
                                                       FISCAL     FISCAL      WEEKS
                                                        YEAR       YEAR       AUGUST                FISCAL YEAR
                                                                                           -------------------------------
                                                       2000(1)     1999(1)    1998(1)        1997(2)    1996(3)   1995(3)
                                                     ----------- ---------- -----------    ---------- --------- ----------
($ in millions, except per share data)
<S>                                                     <C>        <C>         <C>           <C>       <C>        <C>
INCOME STATEMENT DATA:
Sales                                                   $4,734     $4,502      $2,828        $5,026    $4,318     $3,634
Operating Profit Before
   Corporate Expenses and Interest                         319        299         119           157       177        130
Total Corporate Expenses and Interest(4)                  (207)      (207)       (151)         (172)     (127)       (78)
                                                     ----------- ---------- -----------    ---------- --------- ----------
Income (Loss) From Continuing Operations,
  Before Taxes and Extraordinary Item                      112         92         (32)          (15)       50         52
(Provision) Benefit for Income Taxes from
   Continuing Operations                                   (49)       (41)         13            15       (17)       (20)
                                                     ----------- ---------- -----------    ---------- --------- ----------
Income (Loss) From Continuing Operations, Before
   Discontinued Operations and Extraordinary Item           63         51         (19)           --        33         32
Discontinued Operations, Net of Income Taxes(5)             --         --          77           335       273        215
                                                     ----------- ---------- -----------    ---------- --------- ----------
Income Before Extraordinary Item                            63         51          58           335       306        247
Loss from Extraordinary Item, Net of Income Taxes(6)        --         --         (44)           --        --         --
                                                     ----------- ---------- -----------    ---------- --------- ----------
Net Income                                              $   63     $   51      $   14        $  335    $  306     $  247
                                                     =========== ========== ===========    ========== ========= ==========

PER SHARE DATA(7):
Diluted Earnings Per Share:
 Continuing Operations                                  $ 1.00     $ 0.81      $(0.36)       $   --    $ 0.97     $ 0.97
 Discontinued Operations(5)                                 --         --        1.48         10.53      8.08       6.51
                                                     ----------- ---------- -----------    ---------- --------- ----------
 Diluted Earnings Per Share before Extraordinary Item     1.00       0.81        1.12         10.53      9.05       7.48
 Extraordinary Item(6)                                      --         --       (0.85)           --        --         --
                                                     ----------- ---------- -----------    ---------- --------- ----------
Diluted Earnings Per Share                              $ 1.00     $ 0.81      $ 0.27        $10.53    $ 9.05     $ 7.48
                                                     =========== ========== ===========    ========== ========= ==========

Cash Dividends Declared(8)                              $ 0.08     $   --      $ 0.36        $ 1.40    $ 1.28     $ 1.12

Diluted Weighted - Average Shares                         63.5       63.9        52.0          31.8      33.8       33.0

BALANCE SHEET DATA (AT END OF YEAR):
Total Assets                                            $1,364     $1,347      $1,341        $5,009    $4,180     $3,221
Long-Term and Convertible Subordinated Debt                900      1,010       1,091         1,829     1,300        795
Stockholders' (Deficit)/Equity                            (413)      (494)       (555)        1,463     1,260      1,054

-----------

<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 2000 had 52 weeks ended on September  1, 2000,  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 (52 weeks  ended  January 2, 1998)
    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 ending on  January 3, 1997,  with fiscal
    year 1995 including 52 weeks ending on December 29, 1995.
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 - The  Board of Directors  declared on  October 13, 1999,  an $0.08 per common
    share  dividend  for  fiscal  year  1999,  paid  on  December  10,  1999  to
    shareholders of record on November 22,  1999--see Note 9 to the Consolidated
    Financial Statements.
</FN>
</TABLE>


                                      -14-
<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 for
fiscal years 2000 and 1999 have changed substantially  compared to prior periods
presented.

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

o    The 1997  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  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 did 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 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  differences  in the  comparability  of the  Company's  historical
operating  results for fiscal years 2000 and 1999,  the Transition  Period,  and
prior fiscal year,  management  believes that it is  meaningful  and relevant in
understanding the present and ongoing Company  operations to compare fiscal year
2000 with the Company's pro forma  operating  results for fiscal years 1999  and
1998,  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 pro forma fiscal
year 1998.  The pro formas  exclude,  among other items,  certain  non-recurring
costs such as (i) costs of the Distribution of $17 million  (after-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  (pretax) in 1999 and $31 million (pretax) for 1998. See Notes 1 through
5 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.  Although the Company  supports  certain  U.S.  clients in Guam,
Antarctica  and the  Marshall  Islands,  among  others.  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.


                                      -15-
<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.

The  Company  is  positioned  well  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 $130  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.

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 fiscal year 1999 was setting  common goals
and the merging of best practices and business strategies. Fiscal year 1999 also
saw the  successful  alignment  of its  management  team,  consolidation  of its
systems and processes for improved  operations,  and  development  of integrated
business  strategies.  This foundation carried over into fiscal year 2000, where
significant  investments were made to bring  additional  resources to the client
level,   including  recruiting  and  training  of  client  level  operators  and
increasing the Company's sales force.

A key element of the Company's  strategy is obtaining  additional  synergies and
cost  savings  within  its  operations,  particularly  in the  food  procurement
process.  In the  aggregate,  the Company  achieved  its $40 million  cumulative
annual synergy target for fiscal year 2000, of which  approximately  $20 million
was  incremental to fiscal year 2000. 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 end of year 2001.  Incremental synergies generated in fiscal year
2000 were reinvested during fiscal year 2000. The  reinvestments  were primarily
in additional sales and management personnel.

Beginning in fiscal year 1999 and  continuing  in fiscal year 2000,  the Company
has also  invested in new systems to improve the  tracking  and analysis of food
procurement activities. These enhancements will result in additional procurement
efficiencies and improved operating margins in the Company's businesses.  Within
these initiatives,  a new procurement  information system was implemented in the
latter  half of  fiscal  year  2000.  A key  benefit  of this new  system is the
improved capturing of data regarding the Company's  procurement  activity.  This
capability  also improves the Company's  ability to better match the procurement
process to the period in which it occurred,  which  resulted in the recording of
an increase in pretax earnings of $8 million ($5 million after-tax, or $0.07 per
diluted share) in the Company's  fourth  quarter of fiscal year 2000,  accounted
for as a change in estimate under APB Opinion No. 20-- "Accounting Changes." The
Company estimates that  approximately $5 million (pretax),  or $0.04 per diluted
share,  of this  change in estimate  relates to  procurement  activity  prior to
fiscal  year  2000,   with  the  remainder  of  this  impact  being  related  to
enhancements  and  improved  procurement-related  efficiencies  attributable  to
fiscal year 2000.

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
were  originally  expected to be  finalized  during  fiscal year 2000,  however,
management  has  determined  that the  complexity  of the systems  review  would
require  additional  analysis that would carry the project well into fiscal year
2001. See Item 7.--Liquidity and Capital Resources.


                                      -16-
<PAGE>


                              RESULTS OF OPERATIONS

The  following  discussion  presents an analysis of results of operations of the
Company for the 52-week period ended  September 1, 2000 ("fiscal year 2000",  or
"2000") as compared  with the 53-week  period ended  September 3, 1999  ("fiscal
year  1999",  or  "1999")  presented  in  the  Selected  Consolidated  Financial
Highlights  above. The discussion below also presents an analysis of fiscal year
1999  compared  with the 34-week  period ended August 28, 1998 (the  "Transition
Period") and the Transition  Period  compared with the fiscal year ended January
2,  1998  (52  weeks).  As  detailed  above,  due  to  the  differences  in  the
comparability  of the  Company's  historical  operating  results for fiscal year
2000,  compared  with fiscal year 1999,  the  Transition  Period and fiscal year
1997,  management  believes  that it is  meaningful  and  relevant to review the
Company's operating results for fiscal year 2000, compared with pro forma fiscal
years 1999 and 1998, presented in the "Introduction" section of this report.

HISTORICAL 52 WEEKS ENDED SEPTEMBER 1, 2000 COMPARED WITH THE 53 WEEKS ENDED
 SEPTEMBER 3, 1999.

Total sales for fiscal year 2000 were $4.7 billion, an increase of $232 million,
or 5%, over $4.5 billion for fiscal year 1999.  Adjusting  for the estimated $76
million  impact of the extra week in fiscal  year  1999,  sales  increased  $308
million,  or 7%.  Overall,  this growth was  attributed  to favorable  new sales
trends and solid comparable growth in existing accounts in most of the Company's
divisions.  The School  Services and Canada  divisions  had  double-digit  sales
growth during the year, with strong growth in the remaining divisions, excluding
Laundries/Other.  Managed volume, which represents the Company's  measurement of
gross revenues associated with all services the Company manages on behalf of its
clients, is most relevant in the Health Care and Schools divisions. On a 52-week
basis,  the Health Care  division's  managed  volume was $2.9 billion for fiscal
year 2000, up $29 million or 1% over the $2.8 billion in managed volume for same
period last year.  The Health Care  division's  relatively  flat managed  volume
growth was  mostly  due to the health  care  industry  being  under  significant
financial pressure, impacting a large number of the Company's clients in certain
geographic markets. Managed volume for the Schools division was $698 million for
fiscal year 2000,  an increase of $54  million,  or 8% over the $644 million for
fiscal year 1999.  The growth in the Schools  division  was due to the impact of
solid new sales that added  almost  proportionately  as much  managed  volume as
total sales for the period.

Operating profit before corporate items  (corporate  expenses,  interest expense
and  amortization  of  intangible  assets)  totaled $319 million for fiscal year
2000,  an increase of $20  million,  or 7% when  compared  with $299  million in
operating profit for fiscal year 1999.  Operating profit increased mostly due to
increases in the Health Care and Education divisions,  as the Education division
experienced  improving  margins  from the strong new sales in the latter half of
fiscal year 1999. In the Health Care division,  operating  margins improved from
strong new sales and solid comparable growth rates at existing accounts, and the
impact in fiscal year 1999 of  approximately  $3 million in  bankruptcy  related
losses.  Schools  Services and Canada had flat  operating  profits when compared
with last year, the result of several under-performing client accounts that were
mostly first year,  larger based,  accounts.  The Company  anticipates  that the
inefficiencies  in these  under-performing  accounts will be resolved during the
next two  quarters  as the  Company  makes the  necessary  adjustments  at these
accounts to reach expected operating performance.

Total operating costs,  corporate expenses and amortization of intangible assets
represented,  in the  aggregate,  96% of  total  sales  for  fiscal  year  2000,
unchanged  from fiscal year 1999's ratio.  The Company  anticipates  this margin
will improve in the year ahead, as the Company  achieves  additional  purchasing
synergies,  partially  offset by the  continued  investment  of a portion of the
synergies in its businesses.  Overall, the Company achieved about $20 million in
additional  purchasing  synergies in 2000, resulting in an aggregate of over $40
million in  cumulative  annual  synergies  by the end of 2000,  and as  planned,
reinvested most of 2000's synergies in sales staff and management support teams.
The Company continues to anticipate cumulative synergies to reach $60 million in
cost savings annually in 2001.

Corporate  expenses and  amortization  of intangible  assets in fiscal year 2000
totaled $123 million,  an 11% increase from the adjusted fiscal year 1999, which
excludes the $3 million pretax charge  related to the  resignation of the former
CEO and the $14 million in  integration  charges.  This was  primarily due to an
increase of  approximately $7 million for the impact of open positions filled in
the latter half of fiscal year 1999 and new positions added in the current year,
along with a $5 million increase in assistance fees paid to Sodexho Alliance for
services  received,  as agreed upon in the merger  agreements.  Fiscal year 1999
also  included  the  favorable  impact  from  the sale of the  Company's  Bright
Horizons Family Solutions  ("BFAM")  investment for a pretax gain of $8 million,
or $5 million  after-tax  ($0.07 per  diluted  common  share).  The  increase in
operating  profits  contributed to the increase in pretax income of $20 million,
or 22%, to $112 million for fiscal year 2000, as the integration and resignation
charges in 1999 were offset by the BFAM gain in 1999 and  increases in corporate
expenses  between the years.  The effective tax rate for the current  period was
43.5%, a decrease from 44.8% for 1999. Net income  increased to $63 million,  or
$1.00 per diluted share,  compared with $51 million,  or $0.81 per diluted share
for fiscal year 1999.  Diluted  weighted  average shares  outstanding for fiscal
year 2000 were 63.5 million, compared to 63.9 million for the prior year.


                                      -17-
<PAGE>


                        RESULTS OF OPERATIONS, CONTINUED

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% 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 the
Consolidated Financial Statements).  Excluding the MDS and MSLS divisions, total
sales  increased $2 billion,  or 80%. 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 compared with the Transition Period.

Operating  profit  before  corporate  items totaled $299 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  $301  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 $207 million,  an increase of $56 million,  or 37%, 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  $193  million  and $130  million,  an increase of $63
million,  or 48%. 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 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 million,  or $5 million  after-tax ($0.07 per
diluted common share).

Excluding  the Year  2000  costs,  the  integration  expenses  and the  one-time
resignation charge,  total operating costs,  corporate expenses and amortization
of  intangible  assets  represented,  in the  aggregate,  96% of total sales for
fiscal year 1999 compared with the Transition  Period's  comparable period ratio
of 98%.

Total income from continuing operations before taxes was $108 million, excluding
$16 million of integration charges, versus a comparably adjusted $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 the Consolidated Financial Statements).


                                      -18-
<PAGE>


                        RESULTS OF OPERATIONS, CONTINUED

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 44% 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  $1.4  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 the 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%.

Operating  profit before corporate items totaled $119 million for the Transition
Period,  a decrease of $38 million,  or 24%,  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 28%.  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 expenses from Sodexho North America's operations for the 22-week period
ended August 28, 1998.

Excluding  integration  and  restructuring  expenses,   total  operating  costs,
corporate  expenses and amortization of intangible  assets  represented,  in the
aggregate,  98% of total sales for the  Transition  Period  compared with fiscal
year 1997's comparable period ratio of 99%.

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 was the result of the decrease of 18 weeks of
operations in the Transition  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  the
Consolidated Financial Statements).




                                      -19-
<PAGE>


                         LIQUIDITY AND CAPITAL RESOURCES

The Company is highly  leveraged as a result of the  Transactions in March 1998.
The debt  resulting  from the  refinancing  contains  restrictive  covenants and
requires grants of security and guarantees by  subsidiaries of the Company,  and
therefore  limits 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. In fiscal year 2000, net cash flows from  operations  more
than doubled from the prior year, to $221 million.  This increase was mostly due
to improved  net income and  increases in working  capital of $82  million,  the
result  of  increased  collection  efforts  in  accounts  receivables  and  more
favorable  vendor  payment terms and the extension of payment cycles in accounts
payables.  Additionally,  the Company achieved its $40 million cumulative annual
synergy  target for fiscal  year 2000,  of which  approximately  $20 million was
incremental to fiscal year 2000. 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 end of year 2001. These anticipated cost savings will be available to pay
down  debt and  reinvest  in the  Company  to fund  activities  to  enhance  its
competitive  position.  Incremental synergies generated in fiscal year 2000 were
reinvested  during  fiscal  year  2000.  The  reinvestments  were  primarily  in
additional sales and management personnel.

On October 13, 1999,  the Board of Directors  declared an $0.08 per common share
dividend  for fiscal year 1999,  paid 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% of the Company's  net income,  or 45% 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.

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 in fiscal year 2001.  Most  recently,  the Company
began a study of a  solution  set for  payroll,  benefits  and  human  resources
information   systems,  as  the  Company  migrates  from  the  current  Marriott
International  payroll-related systems. Under the current agreement, the Company
is required to migrate off the Marriott  International payroll infrastructure no
later  than the  Company's  fiscal  year 2002  (see  Note 5 to the  Consolidated
Financial Statements).

Overall, the size of the Company's  indebtedness,  its restrictive covenants and
other restrictions on the Company's  activities contained in its credit facility
agreements  may limit the  Company's  ability to  respond to market  conditions,
satisfy  capital  expenditure   requirements,   meet  contractual  or  financial
obligations,   incur   additional   debt,   invest  in  information   technology
infrastructure  or engage in other  activities.  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  1, 2000,  the  Company  had a $235  million  revolving  credit
facility available to provide funds for liquidity,  seasonal borrowing needs and
other  general  corporate  purposes.  At September 1, 2000,  the Company had $21
million  of this  revolving  credit  facility  utilized  by  letters  of  credit
outstanding,  principally related to insurance programs, with the remaining $214
million available for operations. The Company is required to make quarterly cash
interest  payments  on its  term  facilities,  as  well as  scheduled  principal
repayments on its Senior Secured Credit Facility (see Note 8 to the Consolidated
Financial  Statements)  amounting  to  approximately:  $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.  The  results of the  redemption  for the
Company were the issuance of  approximately  760,000 common shares and a payment
of $11 million to MI for the Company's  share of bondholders  choosing to redeem
in cash.


                                      -20-
<PAGE>


                            NEW ACCOUNTING STANDARDS

On September 2, 2000, the Company adopted Statement of Accounting  Standards No.
133, "Accounting for Derivative  Instruments and Hedging Activities," as amended
("SFAS No. 133"). In accordance with the provisions in SFAS No. 133, the Company
has designated all of its interest rate swap agreements as cash flow hedges. The
Company has  determined  that these  interest  rate swap  agreements  are highly
effective in offsetting  the variable  interest cash flows of the Company's debt
portfolio.  The interest  rate swap  agreements  will be recorded on the balance
sheet at fair value in other assets (or other  liabilities)  with the offsetting
entry to accumulated  other  comprehensive  income, a component of stockholders'
deficit for the effective  portion of the hedge. The ineffective  portion of the
hedge will be recorded  directly to the  statement of income.  The fair value of
the interest rate swap contracts were  approximately $15 million (pretax) in the
aggregate  as of  September  1, 2000 (see Note 8 to the  Consolidated  Financial
Statements).  There  were  no net  gains  or  losses  on  derivatives  that  had
previously been deferred or gains and losses on derivatives that were previously
deferred as adjustments to the carrying  amount of the hedged items.  Currently,
the Company does not have any other financial  contracts which contain  embedded
derivatives or fair value hedge  relationships which would fall within the scope
of SFAS No. 133.

                                    YEAR 2000

The Company has actively  addressed  potential  Year 2000  issues.  These issues
could have arisen at any point in the Company's purchasing,  supply, processing,
distribution and financial  chains.  The results to date indicate that Year 2000
issues have had no material adverse impact on the Company.


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, see Note 8 to the Consolidated
Financial  Statements) as well as notes receivable which earn a variable rate of
interest.  However,  changes in interest rates also impact the fair value of the
Company's  debt,  totaling $981 million at September 1, 2000. If interest  rates
increased by 100 basis points,  the fair value of the Company's  debt would have
decreased  by  approximately  $17 million,  while a 100 basis point  decrease in
rates would have increased the fair value of the Company's debt by approximately
$17 million, based on balances at September 1, 2000.


ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial information is included on the pages indicated:

                                                                      PAGE(S)
                                                                      -------

Management's Report                                                        22
Reports of Independent Public Accountants                               23-24
Consolidated Statement of Income                                           25
Consolidated Balance Sheet                                                 26
Consolidated Statement of Cash Flow                                        27
Consolidated Statement of Stockholders' Deficit                            28
Notes to Consolidated Financial Statements                              29-49
Supplementary Data                                                         50








                                      -21-
<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  years  2000 and 1999,  the  Transition  Period of January 3, 1998 to
August  28,  1998,  and for  calendar  year 1997 as  described  in Note 1 to the
Consolidated Financial Statements.  In addition,  fiscal year 2000 and pro forma
fiscal  years 1999 and 1998 are  presented in the  Introduction  section of this
report. Management believes that this presentation is meaningful and relevant 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 years 2000 and 1999
and   for   the    Transition    Period   in   1998   have   been   audited   by
PricewaterhouseCoopers  LLP,  independent  public  accountants.  The  historical
consolidated  financial statements for 1997 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 three 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/ JOHN M. BUSH

       Michel Landel                             John M. Bush
       President and                             Senior Vice President and
       Chief Executive Officer                   Chief Financial Officer








                                      -22-
<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  statement  of income and  stockholders'  deficit  and of cash flow
present  fairly,  in all material  respects,  the financial  position of Sodexho
Marriott Services,  Inc. and its subsidiaries at September 1, 2000 and September
3,  1999,  and the  results  of their  operations  and  their  cash flow for the
fifty-two weeks ended  September 1, 2000, the fifty-three  weeks ended September
3, 1999 and the  thirty-four  weeks ended August 28, 1998,  in  conformity  with
accounting principles generally accepted in the United States of America.  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 of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United  States of America  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 11, 2000





                                      -23-
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders of Sodexho Marriott Services, Inc.:


We have audited the accompanying  consolidated  statements of income, cash flow,
and stockholders' deficit of Sodexho Marriott Services, Inc. (formerly "Marriott
International, Inc.") for the fiscal year 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 audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. 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  audit  provides a reasonable  basis for our
opinion.

In  our  opinion,  the  consolidated   statements  of  income,  cash  flow,  and
stockholders'  deficit  referred  to  above  present  fairly,  in  all  material
respects,  the results of Sodexho Marriott  Services,  Inc.'s operations and its
cash flow for the  fiscal  year  ended  January  2,  1998,  in  conformity  with
accounting principles generally accepted in the United States.




/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)







                                      -24-
<PAGE>


<TABLE>
<CAPTION>
                                                   SODEXHO MARRIOTT SERVICES, INC.
                                                  CONSOLIDATED STATEMENT OF INCOME
                  FOR THE FISCAL YEARS ENDED SEPTEMBER 1, 2000 AND SEPTEMBER 3, 1999, THE THIRTY-FOUR WEEKS ENDED
                                      AUGUST 28, 1998 AND THE FISCAL YEAR ENDED JANUARY 2, 1998
                                              ($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

                                                                                             JANUARY 3 TO
                                                                                              AUGUST 28,
                                                               2000              1999            1998              1997
                                                        ----------------- ---------------- ----------------- ----------------
                                                            (52 WEEKS)        (53 WEEKS)       (34 WEEKS)        (52 WEEKS)

<S>                                                              <C>              <C>               <C>              <C>
SALES                                                            $4,734           $4,502            $2,828           $5,026

OPERATING COSTS AND EXPENSES
     Operating expenses                                           4,415            4,203             2,709            4,847
     Loss on sale of MMS- UK operations                               -                -                 -               22
                                                        ----------------- ---------------- ----------------- ----------------
                                                                  4,415            4,203             2,709            4,869
                                                        ----------------- ---------------- ----------------- ----------------
OPERATING PROFIT BEFORE
   CORPORATE EXPENSES AND INTEREST                                  319              299               119              157
Corporate expenses, including
   amortization of intangible assets                               (123)            (128)              (97)             (94)
Interest expense                                                    (85)             (88)              (65)            (110)
Interest income                                                       1                1                11               32
Gain on sale of investment                                            -                8                 -                -
                                                        ----------------- ---------------- ----------------- ----------------
INCOME (LOSS) FROM CONTINUING
   OPERATIONS, BEFORE TAXES AND
   EXTRAORDINARY ITEM                                               112               92               (32)             (15)
(Provision) benefit for income taxes from
   continuing operations                                            (49)             (41)               13               15
                                                        ----------------- ---------------- ----------------- ----------------
Income (Loss) From Continuing Operations, Before
   Discontinued Operations and Extraordinary Item                    63               51               (19)               -
Discontinued Operations, Net of Income Taxes                          -                -                77              335
                                                        ----------------- ---------------- ----------------- ----------------
Income Before Extraordinary Item                                     63               51                58              335
Loss from Extraordinary Item, Net of Income Taxes                     -                -               (44)               -
                                                        ----------------- ---------------- ----------------- ----------------
NET INCOME                                                       $   63           $   51            $   14           $  335
                                                        ================= ================ ================= ================

BASIC EARNINGS (LOSS) PER SHARE:
   Continuing Operations                                         $ 1.01           $ 0.82            $(0.36)          $    -
   Discontinued Operations                                            -                -              1.48            10.53
                                                        ----------------- ---------------- ----------------- ----------------
                                                                   1.01             0.82              1.12            10.53
   Extraordinary Item                                                 -                -             (0.85)               -
                                                        ----------------- ---------------- ----------------- ----------------
BASIC EARNINGS PER SHARE                                         $ 1.01           $ 0.82            $ 0.27           $10.53
                                                        ================= ================ ================= ================

DILUTED EARNINGS (LOSS) PER SHARE:
   Continuing Operations                                         $ 1.00           $ 0.81            $(0.36)          $    -
   Discontinued Operations                                            -                -              1.48            10.53
                                                        ----------------- ---------------- ----------------- ----------------
                                                                   1.00             0.81              1.12            10.53
   Extraordinary Item                                                 -                -             (0.85)               -
                                                        ----------------- ---------------- ----------------- ----------------
DILUTED EARNINGS PER SHARE                                       $ 1.00           $ 0.81            $ 0.27           $10.53
                                                        ================= ================ ================= ================
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                      -25-
<PAGE>


<TABLE>
<CAPTION>
                                                   SODEXHO MARRIOTT SERVICES, INC.
                                                     CONSOLIDATED BALANCE SHEET
                                               SEPTEMBER 1, 2000 AND SEPTEMBER 3, 1999
                                                           ($ IN MILLIONS)



                                                                  SEPTEMBER 1,                  SEPTEMBER 3,
                                                                      2000                          1999
                                                                -----------------             ------------------
<S>                                                                     <C>                               <C>
                            ASSETS
Current Assets
     Cash and equivalents                                               $    54                        $    48
     Accounts and notes receivable, net                                     463                            445
     Inventories                                                             67                             60
     Other                                                                   98                             89
                                                                -----------------             ------------------
             Total current assets                                           682                            642
                                                                -----------------             ------------------

Property and equipment, net                                                  96                             85
Intangible assets, net                                                      497                            535
Investments in affiliates                                                     8                              7
Other                                                                        81                             78
                                                                -----------------             ------------------
                                                                        $ 1,364                        $ 1,347
                                                                =================             ==================

            LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
     Current portion of long-term debt                                  $    81                        $   133
     Accounts payable                                                       305                            238
     Accrued payroll, benefits and
       other current liabilities                                            379                            347
                                                                -----------------             ------------------
             Total current liabilities                                      765                            718
                                                                -----------------             ------------------

Long-term debt                                                              900                            980
Other long-term liabilities                                                 112                            113
Convertible subordinated debt                                                 -                             30

Commitments and Contingencies (Note 11)

Stockholders' Deficit
     Preferred stock, no par value, 1 million shares
       authorized; no shares issued                                           -                              -
     Common stock, $1 par value; 300 million authorized,
       63.2 million and 62.3 million shares
       issued and outstanding in 2000 and 1999, respectively                 63                             62
     Additional paid-in capital                                           1,348                          1,326
     Accumulated deficit                                                 (1,826)                        (1,884)
     Accumulated other comprehensive income                                   2                              2
                                                                -----------------             ------------------
        Total stockholders' deficit                                        (413)                          (494)
                                                                -----------------             ------------------
        Total liabilities and stockholders' deficit                     $ 1,364                        $ 1,347
                                                                =================             ==================
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                      -26-
<PAGE>


<TABLE>
<CAPTION>
                                                   SODEXHO MARRIOTT SERVICES, INC.
                                                 CONSOLIDATED STATEMENT OF CASH FLOW
                           FOR FISCAL YEARS 2000 AND 1999, THE THIRTY-FOUR WEEKS ENDED AUGUST 28, 1998 AND
                                                THE FISCAL YEAR ENDED JANUARY 2, 1998
                                                           ($ IN MILLIONS)

                                                                                                  JANUARY 3 TO
                                                                                                   AUGUST 28,
                                                                 2000              1999               1998              1997
                                                           ------------------ ----------------- ------------------ -----------------
                                                              (52 WEEKS)        (53 WEEKS)         (34 WEEKS)        (52 WEEKS)
<S>                                                              <C>               <C>                 <C>                 <C>
CASH FLOW PROVIDED BY OPERATING ACTIVITIES
==========================================
Net income                                                        $      63         $      51           $     14           $   335
Adjustments to net cash provided by operating activities:
   Income from discontinued operations                                    -                 -                (77)             (335)
   Extraordinary item - extinguishment of debt                            -                 -                 44                 -
   Gain on sale of investment                                             -                (8)                 -                 -
   Depreciation and amortization expense                                 84                85                 57                99
   Provision (benefit) for deferred taxes                                10                (5)                 6                (2)
   Changes in working capital                                            64               (18)               128                67
   Changes in discontinued operations                                     -                 -                131               271
   Other                                                                  -                 -                 (2)              142
                                                           ------------------ ----------------- ------------------ -----------------
NET CASH PROVIDED BY CONTINUING
  OPERATING ACTIVITIES                                                  221               105                301               577
                                                           ------------------ ----------------- ------------------ -----------------

CASH FLOW FROM INVESTING ACTIVITIES
===================================
Capital expenditures                                                    (66)              (72)               (86)             (282)
Net cash - acquisitions                                                   -                 -                 24                 -
Dispositions                                                              5                26                 29               441
Net decrease in loans to affiliates                                       -                 -                  -                 4
Cash from distributed operations                                          -                 -               (305)                -
Net investment in discontinued operations                                 -                 -               (113)           (1,118)
Other                                                                    (7)              (50)              (160)              (86)
                                                           ------------------ ----------------- ------------------ -----------------

NET CASH USED IN INVESTING ACTIVITIES                                   (68)              (96)              (611)           (1,041)
                                                           ------------------ ----------------- ------------------ -----------------

CASH FLOW FROM FINANCING ACTIVITIES
===================================
Proceeds from the issuance of long-term debt                              -                 -              1,820               687
Repayments of long-term debt                                            (92)              (70)            (1,900)              (18)
(Decrease) increase in short-term debt                                  (52)               26                  -                 -
Proceeds from issuance of common stock for Acquisition                    -                 -                304                 -
Common stock issued - ESOP & other                                        2                 4                 72                40
Purchases of treasury stock                                               -                 -                (35)             (191)
Dividends paid - common                                                  (5)                -                (11)              (43)
                                                           ------------------ ----------------- ------------------ -----------------

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                    (147)              (40)               250               475
                                                           ------------------ ----------------- ------------------ -----------------

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS                   $       6         $     (31)          $    (60)          $    11

CASH & CASH EQUIVALENTS BEGINNING OF PERIOD                              48                79                139               128
                                                           ------------------ ----------------- ------------------ -----------------

CASH & CASH EQUIVALENTS END OF PERIOD                             $      54         $      48           $     79           $   139
                                                           ================== ================= ================== =================

SUPPLEMENTAL:
   Interest paid - continuing operations                          $      77         $      83           $     64           $    96
   Income tax payments - continuing operations                           40                37                 23                19

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


                 See Notes to Consolidated Financial Statements.


                                      -27-
<PAGE>


<TABLE>
<CAPTION>
                                                   SODEXHO MARRIOTT SERVICES, INC.
                                           CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                     FOR THE FISCAL YEARS ENDED SEPTEMBER 1, 2000 AND SEPTEMBER 3, 1999, THIRTY-FOUR WEEKS ENDED
                                     AUGUST 28, 1998 AND THE FISCAL YEAR ENDED JANUARY 2, 1998
                                               (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>       <C>
          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)

             -   Net income                              -            -               63                -            -          63
                                                 ----------- ------------ ---------------- ---------------- ------------ -----------
             -   TOTAL COMPREHENSIVE INCOME              -            -               63                -            -          63
                                                 ----------- ------------ ---------------- ---------------- ------------ -----------

                 Conversion of convertible
           0.8     subordinated debt                     1           19                -                -            -          20
             -   Dividends ($0.08 per share)             -            -               (5)               -            -          (5)
                 Employee stock plan
           0.1     issuance and other                    -            3                -                -            -           3
---------------- ------------------------------- ----------- ------------ ---------------- ---------------- ------------ -----------

          63.2   Balance, September 1, 2000            $63       $1,348          $(1,826)             $ 2         $  -     $  (413)
================ =============================== =========== ============ ================ ================ ============ ===========
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      -28-
<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 conducted 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 remaining line of business was the food service
and facilities management business-- Marriott Management Services ("MMS"), which
became  the   principal   business  of  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 Notes 5 and 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.


                                      -29-
<PAGE>


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

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles requires management to make estimates and judgements that
affect the reported amounts of assets,  liabilities,  revenues and expenses, and
related  disclosure of contingent  assets and liabilities.  Actual results could
differ from those estimates.

In the latter half of fiscal year 2000, a new procurement system was implemented
to improve the  tracking  and  analysis of food  procurement  activities.  A key
benefit of this new  system is the  improved  capturing  of data  regarding  the
Company's  procurement  activity.  This  capability  also improves the Company's
ability  to  better  match the  procurement  process  to the  period in which it
occurred,  which resulted in the recording of an increase in pretax  earnings of
$8 million ($5 million  after-tax,  or $0.07 per diluted share) in the Company's
fourth quarter of fiscal year 2000,  accounted for as a change in estimate under
APB  Opinion  No.  20--  "Accounting   Changes."  The  Company   estimates  that
approximately $5 million (pretax), or $0.04 per diluted share, of this change in
estimate  relates to procurement  activity  prior to fiscal year 2000,  with the
remainder  of  this  impact   being   related  to   enhancements   and  improved
procurement-related efficiencies attributable to fiscal year 2000.

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
year 1997 to the end of the new fiscal year on August 28, 1998. Fiscal year 2000
had 52 weeks and ended on September  1, 2000,  and fiscal year 1999 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 year 1997" or "1997").

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  was $23  million  and $21 million as of
September 1, 2000 and September 3, 1999,  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.


                                      -30-
<PAGE>


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

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

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.

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  comprised
premiums  totaling  $67  million  paid for the  redemptions  and $4  million  of
financing costs.

EARNINGS PER SHARE

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,  and includes the affect of the Company's  employee
stock  option  plan,  the  deferred  stock  incentive  plan and the  convertible
subordinated  debt  securities.  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 1, 2000, the Company had $134
million of  outstanding  drafts  included in  accounts  payable,  compared  with
outstanding draft totals of $83 million at September 3, 1999.

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.


                                      -31-
<PAGE>


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

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

INTANGIBLE ASSETS

Intangible  assets  primarily  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  $37
million in fiscal year 2000,  $38  million in fiscal year 1999,  $26 million for
the  Transition  Period ended  August 28,  1998,  and $25 million in fiscal year
1997.  Amortization  expense for discontinued  operations totaled $8 million for
the Transition Period ended August 28, 1998 and $42 million in fiscal year 1997.

OTHER ASSETS

Included  in other  assets are client  investments,  which  generally  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.

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  6% at  fiscal  year  end  2000)  of  projected  settlements  for  known  and
anticipated  claims.  Self-insurance  liabilities of the Company amounted to $75
million at September  1, 2000 and $89 million at September 3, 1999.  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

Comprehensive  income entails  reporting certain  financial  activity  typically
disclosed in stockholders' deficit as an adjustment to net income in determining
total 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'
Deficit, 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  as  accumulated  other  comprehensive   income.   Total
accumulated other comprehensive  income for fiscal year 2000 included $3 million
of gross foreign exchange  translation  gains, net of taxes totaling $1 million,
unchanged  from fiscal  year 1999.  For fiscal  year 2000,  total  comprehensive
income was  comprised  of $63  million in net income.  During  fiscal year 1999,
total  comprehensive  income was  comprised  of $51 million in net income and $2
million of gross foreign  exchange  translation  gains, net of taxes totaling $1
million,  partially offset by the  reclassification  of the realized gain on the
sale of investment totaling $8 million pretax, net of taxes totaling $3 million.
Total comprehensive  income for the 34 weeks ended August 28, 1998, included $14
million in net income, partially offset by $10 million of gross foreign exchange
translation  losses,  net of taxes  totaling $4  million.  For fiscal year 1997,
total  comprehensive  income was  comprised of $335 million in net income and $9
million of gross securities gain adjustments,  net of taxes totaling $4 million,
partially  offset by $26 million of gross foreign exchange  translation  losses,
net of taxes totaling $10 million.

SEGMENT REPORTING

Information  from  operating  segments  is  derived  from  methods  used  by the
Company's management to allocate resources and measure performance.  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.


                                      -32-
<PAGE>


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

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

NEW ACCOUNTING STANDARDS

On September 2, 2000, the Company adopted Statement of Accounting  Standards No.
133, "Accounting for Derivative  Instruments and Hedging Activities," as amended
("SFAS No. 133"). In accordance with the provisions in SFAS No. 133, the Company
has designated all of its interest rate swap agreements as cash flow hedges. The
Company has  determined  that these  interest  rate swap  agreements  are highly
effective in offsetting  the variable  interest cash flows of the Company's debt
portfolio.  The interest  rate swap  agreements  will be recorded on the balance
sheet at fair value in other assets (or other  liabilities)  with the offsetting
entry to accumulated  other  comprehensive  income, a component of stockholders'
deficit for the effective  portion of the hedge. The ineffective  portion of the
hedge will be recorded  directly to the  statement of income.  The fair value of
the interest rate swap contracts were  approximately $15 million (pretax) in the
aggregate  as of  September  1, 2000 (see  Note 8).  There  were no net gains or
losses on derivatives  that had previously  been deferred or gains and losses on
derivatives that were previously  deferred as adjustments to the carrying amount
of the hedged items.  Currently,  the Company does not have any other  financial
contracts which contain embedded  derivatives or fair value hedge  relationships
which would fall within the scope of SFAS No. 133.


(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
                                                                            ------------------- -------------------
                                                                           ($ in millions, except per share amounts)

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

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

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
                                                                            =================== ===================

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

Results of  discontinued  operations  in 1998  included  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 as of the end
of fiscal year 1997 (see Note 14).


                                      -33-
<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 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% 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:


                                                                ($ in millions)
                                                              -----------------
    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
                                                              =================

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

<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  $16  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 were
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 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.


                                      -34-
<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 the Transition Period and the 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 $2 million at September 1,
2000,  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 is detailed below:

<TABLE>
<CAPTION>
                                         BALANCE AS OF                             BALANCE AS OF
                                       SEPTEMBER 3, 1999         PAYMENTS        SEPTEMBER 1, 2000
                                      --------------------- -- ------------- -- ---------------------
                                                            ($ in millions)

<S>                                                   <C>            <C>                        <C>
Employee Terminations                                 $2.4           $(2.4)                     $ --
Relocation of Sodexho Facilities                       0.7            (0.5)                      0.2
Closures                                               1.9            (1.4)                      0.5
Other Restructuring                                    2.6            (1.8)                      0.8
                                      ---------------------    -------------    ---------------------
Total                                                 $7.6           $(6.1)                     $1.5
                                      =====================    =============    =====================
</TABLE>

In addition, integration and restructuring expenses recorded in the Consolidated
Statement  of Income  during  fiscal  year 1999 and the  Transition  Period  are
detailed  below.  No integration  and  restructuring  costs were recorded in the
Consolidated Statement of Income during fiscal year 2000. Also, no restructuring
expenses were recorded in 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>


                                      -35-
<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 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.   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,  redeemed on 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.


                                      -36-
<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).

Under  these  agreements,  services  provided by MI to be paid by the Company as
well  as  services  provided  by  the  Company  to  be  paid  by  MI  (excluding
pass-through  product  costs)  were  approximately  $64  million and $4 million,
respectively,   for  fiscal  year  2000,   with  $65  million  and  $4  million,
respectively,  for  fiscal  year  1999.  Services  performed  by MI for the 1998
22-week  period ended August 28, 1998 totaled  approximately  $25 million,  with
services provided by the Company totaling $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 was 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  were $2 million in both  fiscal  year 2000 and fiscal
year 1999. Payments made to Sodexho for the 1998 22-week period ended August 28,
1998 totaled approximately $1 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  period ended
August 28,  1998.  Payments  from the  Company to  Sodexho  associated  with the
performance of services were approximately $7 million in fiscal year 2000 and $2
million in fiscal year 1999.

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  (see Note 8), (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 ($3 million pretax) 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 was 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.


                                      -37-
<PAGE>


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

(6)  PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                             2000                    1999
                                                       ------------------      ------------------
                                                                    ($ in millions)
<S>                                                                 <C>                     <C>
Land                                                              $   1                   $   1
Buildings and leasehold improvements                                 14                      14
Furniture and equipment                                             247                     233
Construction in progress                                             10                       9
                                                       ------------------      ------------------
                                                                    272                     257
Accumulated depreciation and amortization                          (176)                   (172)
                                                       ------------------      ------------------
                                                                  $  96                   $  85
                                                       ==================      ==================
</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.
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.


(7)  INTANGIBLE ASSETS

<TABLE>
<CAPTION>
                                                             2000                    1999
                                                       ------------------      ------------------
                                                                    ($ in millions)
<S>                                                                <C>                     <C>
Customer relationships                                            $ 461                   $ 461
Goodwill                                                            374                     375
Other                                                                23                      23
                                                       ------------------      ------------------
                                                                    858                     859
Accumulated amortization                                           (361)                   (324)
                                                       ------------------      ------------------
                                                                  $ 497                   $ 535
                                                       ==================      ==================
</TABLE>

Amortization  expense for continuing  operations  totaled $37 million for fiscal
year 2000,  $38 million for fiscal year 1999, $26 million for the 34 weeks ended
August 28, 1998, and $25 million in 1997.  Amortization expense for discontinued
operations  totaled $8 million for the 34 weeks ended August 28,  1998,  and $42
million in 1997.


                                      -38-
<PAGE>


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

(8)  DEBT

<TABLE>
<CAPTION>
                                                     SEPTEMBER 1, 2000               SEPTEMBER 3, 1999
                                                    --------------------- --------- ---------------------
                                                                      ($ in millions)
<S>                                                              <C>                             <C>
SHORT-TERM DEBT:

Current Portion of Long-Term Debt                                $   80                          $   80
Senior Secured Revolving Credit Facility                              -                              52
Other                                                                 1                               1
                                                    --------------------- --------- ---------------------
         Total                                                   $   81                          $  133
                                                    ===================== ========= =====================

LONG-TERM DEBT:

Senior Secured Credit Facility, maturing 2004
   averaging 6.94% in 2000                                       $  350                          $  430
Senior Guaranteed Credit Facility, due 2005
   averaging 6.99% in 2000                                          620                             620
Unsecured debt:
   Senior Debt, maturing through 2009
      averaging 7.07% in 2000                                         6                               6
   Other                                                              1                               1
Capital Lease Obligations                                             3                               3
                                                    --------------------- --------- ---------------------
         Total                                                   $  980                          $1,060
Amount Reclassified to Short-Term Debt                              (80)                            (80)
                                                    --------------------- --------- ---------------------
                                                                 $  900                          $  980
                                                    ===================== ========= =====================
</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 1,
2000, the Company was paying a rate of 6.90% 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  $21  million  at  September  1, 2000 and $33
million at  September  3, 1999.  At  September  1,  2000,  $214  million of this
facility  was not used and was  available  to the  Company,  compared  with $150
million at September 3, 1999.

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  1, 2000,  the Company was paying a
rate of 6.99% 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).

Aggregate debt maturities,  excluding capital lease obligations, are: 2001 - $80
million;  2002 - $90 million;  2003 - $115 million;  2004 - $65 million and $627
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
1, 2000 and the year then ended,  September 3, 1999 and the year then ended,  as
well as August 28, 1998 and for the 22 weeks then ended.


                                      -39-
<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 was 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%.  The Company  recorded  the LYONs at the  discounted  amount at issuance.
Accretion  was  recorded  as interest  expense  and an increase to the  carrying
value. Gross proceeds from the LYONs issuance were $288 million.

Upon  consummation  of the  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 had  remained  liable to the holders of the LYONs if the Company had
failed to make any payments on its allocable  portion.  The Company's  allocated
portion of the LYONs totaled $30 million at the end of fiscal year 1999.

On October 7, 1999,  MI notified all holders of the LYONs,  that MI would redeem
on  November  8, 1999 all of the  LYONs at a price of  $619.65  for each  $1,000
principal  amount at maturity of the LYONs. The result of the redemption for the
Company was the issuance of approximately 760,000 common shares and a payment of
$11 million to MI for the Company's  share of bondholders  choosing to redeem in
cash.

INTEREST-RATE AGREEMENTS

At September 1, 2000, 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.  The  weighted-average  rate for the total debt  portfolio,
including the effect of the interest-rate agreements,  was 7.01% at September 1,
2000. These agreements expire between May 2001 and February 2005.

Details  of these  interest  rate  agreements  as of  September  1,  2000 are as
follows:

<TABLE>
<CAPTION>
                                                                                                            YEAR-TO-DATE
                                                                                                             NET IMPACT
                                                      NOTIONAL                     WEIGHTED-AVERAGE         TO EARNINGS-
                                                     PRINCIPAL        FAIR          INTEREST RATE             FY 2000
                     TERMS                            BALANCE        VALUE*       PAID        RECEIVED        (PRETAX)
--------------------------------------------------- ------------- ----------- ------------- ------------- -----------------
                ($ in millions)

<S>                                   <C>                   <C>           <C>        <C>           <C>           <C>
Receive Variable, Pay Fixed, Maturing 5/01--8/01            $400         $ 3         5.73%         6.83%        $ 2
Receive Variable, Pay Fixed, Maturing 8/02                   300           5         5.84%         6.83%          1
Receive Variable, Pay Fixed, Maturing 2/05                   200           7         5.90%         6.83%         --
                                                    ------------- ----------- ------------- ------------- -----------------
                                                            $900         $15         5.80%         6.83%        $ 3
                                                    ============= =========== ============= ============= =================

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

At September 1, 2000,  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.


                                      -40-
<PAGE>


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

(9)  STOCKHOLDERS' DEFICIT

STOCKHOLDERS' DEFICIT

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 1, 2000, the Company had 63,244,970 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,  paid 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.






                                      -41-
<PAGE>


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

(9)  STOCKHOLDERS' DEFICIT, CONTINUED

EARNINGS PER SHARE

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,
                                                                       2000           1999            1998            1997
                                                                 --------------- -------------- --------------- ---------------
                                                                            (in millions, except per share amounts)
<S>                                                                       <C>            <C>            <C>             <C>
COMPUTATION OF BASIC EARNINGS PER SHARE:
Net Income (Loss) from Continuing Operations                             $  63          $  51          $  (19)         $   --
Net Income from Discontinued Operations                                     --             --              77             335
Net Loss from Extraordinary Item                                            --             --             (44)             --
                                                                 --------------- -------------- --------------- ---------------
Net Income                                                               $  63          $  51          $   14          $  335
                                                                 =============== ============== =============== ===============

Weighted Average Shares Outstanding                                       63.0           62.1            52.0            31.8
                                                                 =============== ============== =============== ===============
Basic Earnings Per Share:
 Continuing Operations                                                   $1.01          $0.82          $(0.36)         $   --
 Discontinued Operations                                                    --             --            1.48           10.53
 Extraordinary Item                                                         --             --           (0.85)             --
                                                                 --------------- -------------- --------------- ---------------
BASIC EARNINGS PER SHARE                                                 $1.01          $0.82          $ 0.27          $10.53
                                                                 =============== ============== =============== ===============

COMPUTATION OF DILUTED EARNINGS PER SHARE:
Diluted Net Income (Loss) from Continuing Operations                     $63.4          $51.0          $(19.0)         $   --
Diluted Net Income from Discontinued Operations                             --             --            77.0           335.0
Diluted Net Loss from Extraordinary Item                                    --             --           (44.0)             --
After-tax Interest Expense on Convertible Subordinated Debt                0.1            0.7               *               *
                                                                 --------------- -------------- --------------- ---------------
Diluted Net Income                                                       $63.5          $51.7          $ 14.0          $335.0
                                                                 =============== ============== =============== ===============

Weighted Average Shares Outstanding                                       63.0           62.1            52.0            31.8
Effect of Dilutive Securities:
 Employee Stock Option Plan                                                0.2            0.5               *               *
 Deferred Stock Incentive Plan                                             0.1            0.1               *               *
 Convertible Subordinated Debt                                             0.2            1.2               *               *
                                                                 --------------- -------------- --------------- ---------------
Diluted Weighted Average Shares Outstanding                               63.5           63.9            52.0            31.8
                                                                 =============== ============== =============== ===============
Diluted Earnings Per Share:
 Continuing Operations                                                   $1.00          $0.81          $(0.36)         $   --
 Discontinued Operations                                                    --             --            1.48           10.53
 Extraordinary Item                                                         --             --           (0.85)             --
                                                                 --------------- -------------- --------------- ---------------
DILUTED EARNINGS PER SHARE                                               $1.00          $0.81          $ 0.27          $10.53
                                                                 =============== ============== =============== ===============

<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 year 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 in  both periods) were excluded due to the loss from
continuing operations.
</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,
                                                                  2000          1999          1998          1997
                                                              ------------- ------------- ------------- -------------
<S>                                                                    <C>           <C>           <C>           <C>
Weighted average number of shares (in millions)                        5.4           1.8           0.6           0.6
Weighted average exercise price                                        $22           $29           $29          $272
Weighted average remaining life (in years)                               8             9            10            15
</TABLE>


                                      -42-
<PAGE>


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

(10)  INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                                         34 WEEKS
                                                                                          ENDED
                                                                                        AUGUST 28,
                                                       2000              1999              1998             1997
                                                  ---------------- ----------------- ----------------- ----------------
                                                                            ($ in millions)
<S>                                                         <C>               <C>                <C>              <C>
Current:
         -  Federal                                         $(33)             $(36)              $19              $12
         -  Other                                             (6)              (10)               --                1
                                                  ---------------- ----------------- ----------------- ----------------
                                                             (39)              (46)               19               13
                                                  ---------------- ----------------- ----------------- ----------------
Deferred:
         -  Federal                                           (9)                5                (6)               2
         -  Other                                             (1)               --                --               --
                                                  ---------------- ----------------- ----------------- ----------------
                                                             (10)                5                (6)               2
                                                  ---------------- ----------------- ----------------- ----------------
                                                            $(49)             $(41)              $13              $15
                                                  ================ ================= ================= ================
</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,
                                                       2000              1999              1998             1997
                                                  ---------------- ----------------- ----------------- ----------------
<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             (4.8)             (6.3)             (1.3)             6.8
Tax credits                                                 0.9               1.5              13.7             90.5
Goodwill amortization                                      (3.1)             (3.9)             (6.9)           (24.7)
Other, net                                                 (1.5)             (1.1)              0.1             (8.7)
                                                  ---------------- ----------------- ----------------- ----------------
Effective income tax rate                                 (43.5)%           (44.8)%            40.6 %           98.9 %
                                                  ================ ================= ================= ================
</TABLE>


The tax effect of significant temporary differences is as follows:


<TABLE>
<CAPTION>
                                                                    2000                             1999
                                                            --------------------- ---------- ---------------------
                                                                               ($ in millions)
<S>                                                                        <C>                              <C>
Self-insurance                                                             $ 29                             $ 38
Employee benefits                                                            28                               28
Other liabilities                                                            16                               15
Property and equipment                                                        2                                6
Intangible assets                                                           (54)                             (54)
Other, net                                                                   10                                8
                                                            --------------------- ---------- ---------------------
Net deferred tax assets                                                    $ 31                             $ 41
                                                            ===================== ========== =====================
</TABLE>


Total deferred tax assets and  liabilities as of September 1, 2000 and September
3, 1999, were as follows:

<TABLE>
<CAPTION>
                                                              SEPTEMBER 1, 2000                SEPTEMBER 3, 1999
                                                            --------------------- ---------- ---------------------
                                                                               ($ in millions)
<S>                                                                        <C>                             <C>
Deferred tax assets                                                        $ 95                            $ 110
Deferred tax liabilities                                                    (64)                             (69)
                                                            --------------------- ---------- ---------------------
Net deferred taxes                                                         $ 31                            $  41
                                                            ===================== ========== =====================
</TABLE>


                                      -43-
<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).  Under  these  agreements,  the  Company  received
approximately  $9 million  during  fiscal year 2000 from Sodexho  related to the
closing of a tax audit  during  fiscal year 2000  related to tax  returns  filed
prior to the merger and  payments  made by the Company in fiscal year 2000 or to
be made in subsequent tax years.

During  fiscal  year 2000,  the  Internal  Revenue  Service  granted the Company
permission to change its tax year to correspond to its financial  reporting year
end,  the  Friday  closest to the end of  August,  effective  for the year ended
September 3, 1999.

(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 $70 million at  September  1, 2000,  and $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 1, 2000 were $21 million,  with  September 3,
1999 and August 28, 1998  totaling  $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
1, 2000:

<TABLE>
<CAPTION>
                                                          CAPITAL                   OPERATING
                                                           LEASES                    LEASES
                                                  ------------------------- --------------------------
                                                                    ($ in millions)
                  FISCAL YEAR
     <S>                                                             <C>                        <C>
     2001                                                            $0.7                       $10.9
     2002                                                             0.8                         9.4
     2003                                                             0.8                         7.9
     2004                                                             0.8                         6.6
     2005                                                             0.7                         3.9
     Thereafter                                                       0.2                         9.9
                                                  ------------------------- --------------------------
     Total minimum lease payments                                     4.0                       $48.6
                                                                            ==========================
     Less amount representing interest                               (0.8)
                                                  -------------------------
     Present value of minimum lease payments                         $3.2
                                                  =========================
</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 2000
totaled $27 million,  fiscal year 1999  totaled $26 million,  the 34 weeks ended
August 28, 1998 totaled $14  million,  and fiscal year 1997 totaled $90 million.
Total rent expense for discontinued operations for the 34 weeks ended August 28,
1998 totaled $41 million, and $177 million for the fiscal year 1997.

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.


                                      -44-
<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. Within these plans, the
Company contributed  approximately $13 million,  $12 million and $10 million per
year for the fiscal years ended September 1, 2000 and September 3, 1999, and for
the 34-week period ended August 28, 1998, respectively.

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,  with an  additional  2.6 million new stock option awards in fiscal year
2000.

A summary of the Company's  stock option  activity  during  fiscal 2000,  fiscal
1999, and the 34 weeks ended August 28, 1998 is presented  below  (adjusting for
the one-for-four reverse stock split on March 27, 1998):

<TABLE>
<CAPTION>
                                                                                                      34 WEEKS ENDED
                                                 2000                         1999                    AUGUST 28, 1998
                                      ---------------------------- ---------------------------- ----------------------------
                                                       WEIGHTED                     WEIGHTED                     WEIGHTED
                                        NUMBER OF      AVERAGE       NUMBER OF      AVERAGE       NUMBER OF      AVERAGE
                                         OPTIONS       EXERCISE       OPTIONS       EXERCISE       OPTIONS       EXERCISE
                                      (IN MILLIONS)     PRICE      (IN MILLIONS)     PRICE      (IN MILLIONS)     PRICE
                                      -------------- ------------- -------------- ------------- -------------- -------------
<S>                                            <C>          <C>             <C>          <C>             <C>          <C>
Outstanding at beginning of year               4.6          $ 21            5.0          $ 20            3.6          $140
Granted during the year                        2.6            16            0.1            26            1.9            28
Conversion options-Distribution                 --            --             --            --            3.3             *
Conversion options-Acquisition                  --            --             --            --            0.4             6
Terminations-Distribution                       --            --             --            --           (3.3)            *
Exercised during the year                     (0.2)            9           (0.4)            8             --            --
Forfeited during the year                     (0.5)           22           (0.1)           24           (0.9)           17
                                      -------------- ------------- -------------- ------------- -------------- -------------
Outstanding at end of year                     6.5          $ 20            4.6          $ 21            5.0          $ 20
                                      ============== ============= ============== ============= ============== =============
Options exercisable at end of year             2.6          $ 20            1.4          $ 14            0.5          $ 11
                                      ============== ============= ============== ============= ============== =============

<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>


                                      -45-
<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
1, 2000 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                       0.4                  3                $ 8                   0.3                 $ 8
     10.1 to 15.0                       0.5                  6                 13                   0.4                  12
     15.1 to 20.0                       3.1                  8                 17                   0.6                  18
     20.1 to 25.0                       0.9                  7                 22                   0.5                  22
     25.1 to 31.4                       1.6                  8                 29                   0.8                  29
------------------------ ------------------- ------------------ ------------------    ------------------ -------------------
  $   2.3 to 31.4                       6.5                  8                $20                   2.6                 $20
======================== =================== ================== ==================    ================== ===================
</TABLE>

Pro  forma   compensation   cost  for  the  Stock  Option  Plans,  the  Deferred
Compensation  Plan, the Supplemental  Executive Stock Option awards and employee
purchases would reduce the Company's net income as follows:

<TABLE>
<CAPTION>
                                                                                    34 WEEKS ENDED
                                                 2000                1999           AUGUST 28, 1998           1997
                                           ------------------ ------------------- -------------------- -------------------
                                                              ($ in millions, except per share amounts)

<S>                                                      <C>                 <C>                  <C>                <C>
Net income as reported                                   $63                 $51                  $14                $335
Pro forma net income                                     $57                 $46                  $13                $317

Diluted earnings per share as reported                 $1.00               $0.81                $0.27              $10.53
Pro forma diluted earnings per share                   $0.89               $0.72                $0.25               $9.97
</TABLE>

The aggregate  weighted-average fair value for each option granted during fiscal
years 2000 and 1999,  the 34 weeks ended August 28,  1998,  and fiscal year 1997
was $7, $11, $12, and $88,  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.

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
                                              2000                  1999            AUGUST 28, 1998            1997
                                      --------------------- --------------------- -------------------- ---------------------
<S>                                                 <C>                     <C>                  <C>                 <C>
Annual dividends                                    $0.08                  $ --                 $ --                 $1.40
Expected volatility                                    46%                   44%                  40%                   24%
Estimated forfeitures                                  35%                   35%                  35%                   13%
Risk-free interest rate                               6.2%                  6.2%                 5.5%                  6.2%
Expected life (in years)                               10                    10                   10                     7
</TABLE>


                                      -46-
<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>
                                                           2000                                      1999
                                                ---------------------------               ---------------------------
                                                  CARRYING        FAIR                      CARRYING        FAIR
                                                   AMOUNT        VALUE                       AMOUNT        VALUE
                                                ------------- -------------               ------------- -------------
                                                     ($ in millions)                           ($ in millions)

<S>                                                     <C>           <C>                       <C>             <C>
Long-term debt, convertible
  subordinated debt and other
   long-term liabilities                                $900          $882                      $1,010          $981
</TABLE>

The  difference  between  carrying  amounts  and fair values for notes and other
receivables for continuing  operations were not material as of September 1, 2000
and September 3, 1999. Valuations for long-term debt,  convertible  subordinated
debt and other  long-term  liabilities  were  determined  based on quoted market
prices or expected future payments discounted at risk adjusted rates.



                                      -47-
<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 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").

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).

<TABLE>
<CAPTION>

SALES AND OPERATING PROFIT BY BUSINESS SEGMENT:
                                                                                          34 WEEKS
                                                                                            ENDED
                                                                                         AUGUST 28,
                                                         2000              1999             1998              1997
                                                   ----------------- ----------------- ---------------- -----------------
                                                                              ($ in millions)
<S>                                                          <C>               <C>               <C>              <C>
GROSS SALES
         Corporate Services                                  $1,429            $1,380          $  803           $   930
         Health Care                                          1,399             1,323             784             1,039
         Education                                            1,280             1,221             598               824
         Schools                                                392               358             199               303
         Canada                                                 158               143              80               106
         Laundries/Other                                         76                77              43                55
         Other Contract Services                                 --                --             321             1,769
                                                   ----------------- ----------------- ---------------- -----------------
  Contract Services                                           4,734             4,502           2,828             5,026

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

Total Gross Sales                                            $4,734            $4,502          $4,602           $12,034
                                                   ----------------- ----------------- ---------------- -----------------

GROSS OPERATING PROFIT
         Corporate Services                                  $   93            $   90          $   49           $    35
         Health Care                                            117               108              49                60
         Education                                               76                71               5                27
         Schools                                                 20                19               8                11
         Canada                                                   7                 6               1                 3
         Laundries/Other                                          6                 5               2                 2
         Other Contract Services                                 --                --               5                19
                                                   ----------------- ----------------- ---------------- -----------------
  Contract Services                                             319               299             119               157

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

Total Gross Operating Profit                                 $  319            $  299          $  277           $   726
                                                   ----------------- ----------------- ---------------- -----------------

Total Net Operating Profit from
   Continuing Operations (Contract Services)                 $  319            $  299          $  119           $   157

Corporate Items, Gain on Investment and
  Net Interest Expense                                          207               207             151               172
                                                   ----------------- ----------------- ---------------- -----------------

Income (Loss) From Continuing Operations,
  Before Taxes and Extraordinary Item                        $  112            $   92          $  (32)          $   (15)
                                                   ================= ================= ================ =================
</TABLE>


                                      -48-
<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 its 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  1, 2000,  the Company had a diverse  client base and
does  not  have  any  individual  clients  that  are  material  to  its  overall
operations.

<TABLE>
<CAPTION>

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

                                                                                        AUGUST 28,
                                                         2000             1999             1998              1997
                                                   ----------------- ---------------- ---------------- -----------------
                                                                             ($ in millions)
IDENTIFIABLE ASSETS
<S>                                                          <C>              <C>                <C>               <C>
         Corporate Services                                  $  176           $  160           $    *            $    *
         Health Care                                            190              193                *                 *
         Education                                              182              169                *                 *
         Schools                                                 48               44                *                 *
         Canada                                                  40               37                *                 *
         Laundries/Other                                         22               23                *                 *
         Corporate                                              706              721                *                 *
                                                   ----------------- ---------------- ---------------- -----------------
  Contract Services                                           1,364            1,347            1,341             1,669
  Discontinued Operations, Net                                   --               --               --             2,902
  Other                                                          --               --               --               438
                                                   ----------------- ---------------- ---------------- -----------------
                                                             $1,364           $1,347           $1,341            $5,009
                                                   ================= ================ ================ =================
CAPITAL EXPENDITURES
         Corporate Services                                  $   14           $   15           $    *            $    *
         Health Care                                             11               11                *                 *
         Education                                               21               26                *                 *
         Schools                                                  3                3                *                 *
         Canada                                                   4                2                *                 *
         Laundries/Other                                          1                2                *                 *
         Corporate                                               12               13                *                 *
                                                   ----------------- ---------------- ---------------- -----------------
  Contract Services                                              66               72               86               264
  Discontinued Operations                                        --               --               58               271
  Other                                                          --               --               --                18
                                                   ----------------- ---------------- ---------------- -----------------
                                                             $   66           $   72           $  144            $  553
                                                   ================= ================ ================ =================
DEPRECIATION AND AMORTIZATION
         Corporate Services                                  $   12           $   11           $    *            $    *
         Health Care                                              8                9                *                 *
         Education                                               18               18                *                 *
         Schools                                                  2                2                *                 *
         Canada                                                   3                2                *                 *
         Laundries/Other                                          1                1                *                 *
         Corporate                                               40               42                *                 *
                                                   ----------------- ---------------- ---------------- -----------------
  Contract Services                                              84               85               57                87
  Discontinued Operations                                        --               --               21                89
  Other                                                          --               --               --                12
                                                   ----------------- ---------------- ---------------- -----------------
                                                             $   84           $   85           $   78            $  188
                                                   ================= ================ ================ =================

<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 year 1997.
</FN>
</TABLE>



                                      -49-
<PAGE>


                         SODEXHO MARRIOTT SERVICES, INC.
                               SUPPLEMENTARY DATA

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

<TABLE>
<CAPTION>
                                                                                    2000(1)
                                                     ------------- ------------- ------------- ------------- -------------
                                                        FIRST         SECOND        THIRD         FOURTH        FISCAL
                                                       QUARTER       QUARTER       QUARTER       QUARTER(3)      YEAR
                                                     ------------- ------------- ------------- ------------- -------------
                                                      (13 WEEKS)    (13 WEEKS)    (13 WEEKS)    (13 WEEKS)    (52 WEEKS)

<S>                                                       <C>           <C>           <C>           <C>           <C>
Sales                                                     $1,288        $1,179        $1,225        $1,042        $4,734
Operating profit before corporate items                      103            78            86            52           319
Income from continuing operations                             28            14            21            --            63
Net income                                                $   28        $   14        $   21        $   --        $   63
Diluted earnings per share(5)                             $ 0.44        $ 0.23        $ 0.32        $ 0.01        $ 1.00



                                                                                    1999(1)
                                                     ------------- ------------- ------------- ------------- -------------
                                                        FIRST         SECOND        THIRD         FOURTH        FISCAL
                                                       QUARTER       QUARTER       QUARTER       QUARTER         YEAR
                                                     ------------- ------------- ------------- ------------- -------------
                                                      (13 WEEKS)    (13 WEEKS)    (13 WEEKS)    (14 WEEKS)    (53 WEEKS)

Sales                                                     $1,209        $1,090        $1,163        $1,040        $4,502
Operating profit before corporate items                      100            73            81            45           299
Income (Loss) from continuing operations                      29            11            15            (4)           51
Net income                                                $   29        $   11        $   15        $   (4)       $   51
Diluted earnings per share(5)                             $ 0.45        $ 0.18        $ 0.24        $(0.07)       $ 0.81

                                                                                    1998(1)
                                                     ------------- ------------- -------------               -------------
                                                        FIRST
                                                       QUARTER       9 WEEKS       13 WEEKS                    34 WEEKS
                                                      (12 WEEKS)    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(5)                             $ 0.73        $ 0.12        $(0.27)                     $ 0.27


<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.
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 - 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>


                                      -50-
<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 2001 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  2001  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 2001 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 2001 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 2001 Annual Meeting.


EXECUTIVE OFFICERS

The 11 persons identified below are the executive officers of the Company.

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

<S>                                          <C>    <C>
Michel Landel                                49     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>


                                      -51-
<PAGE>



EXECUTIVE OFFICERS, CONTINUED

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

<S>                                          <C>    <C>
Anthony F. Alibrio                           56     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  is  also  past  chair  and
                                                    currently  serves as a member of the  Board of  Directors  for the
                                                    National  Committee for Quality Health Care and is a current chair
                                                    and member of the Board of Health Insights Foundation.

William W. Hamman                            59     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 the Council of Independent  Colleges  (CIC). He also serves on
                                                    the Western Illinois University Foundation Board of Trustees.

Thomas M. Mulligan                           49     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.

Stephen J. Brady                             56     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
                                                    America's Second Harvest and the national food rescue network.
</TABLE>


                                      -52-
<PAGE>



EXECUTIVE OFFICERS, CONTINUED

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

<S>                                          <C>    <C>
John M. Bush                                 46     John Bush was named  Senior  Vice  President  and Chief  Financial
Senior Vice President and Chief                     Officer on February 15, 2000.  Prior to his new  appointment,  Mr.
Financial Officer                                   Bush had served as Senior Vice  President,  Finance  and  Planning
                                                    for the Higher  Education  division of the Company since 1995. Mr.
                                                    Bush began his career with the  Company in 1976 as a Food  Service
                                                    Manager  in the Higher  Education  Division  and  became  regional
                                                    controller in 1989.

Ollie Lawrence, Jr.                          49     Ollie  Lawrence,  Jr.  was  named  Senior  Vice  President,  Human
Senior Vice President and Chief Human               Resources on April 3, 2000.  Previously,  Mr.  Lawrence  served as
Resources Officer                                   Vice President,  Human Resources for U.S. Airways,  Inc. From 1996
                                                    to 1998, Mr.  Lawrence served as Senior Vice President for Sodexho
                                                    USA,  Inc. and also  founded his own  company,  "b michael" of New
                                                    York City were he served as President and CEO.

Bernard Royer                                47     Bernard  Royer was named  Senior Vice  President,  Purchasing  and
Senior Vice President,                              Distribution  on April 6,  2000.  Mr.  Royer  was  Corporate  Vice
Procurement and Distribution                        President of  International  Purchasing for Sodexho  International
                                                    Management  from 1999 to April 2000.  From 1990 to 1998, Mr. Royer
                                                    was Vice President of Purchasing for Sodexho USA, Inc.

Robert A. Stern                              42     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.

Philippe Taillet                             41     Philippe Taillet was appointed to his current  position  effective
Senior Vice President and Chief                     July 10, 2000.  Prior to his  appointment,  Mr.  Taillet served as
Information Officer                                 Senior  Vice  President,  Facilities  Management  and 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.

Susan H. Tatum                               48     Susan  Tatum  was  named  Senior  Vice  President,  Marketing,  on
Senior Vice President,                              September 26, 2000.  From 1985 until her recent  appointment,  Ms.
Marketing                                           Tatum held  positions of  increasing  responsibilities  within the
                                                    Education division of the Company including Senior Vice  President
                                                    and Vice President- Operations and Communications; Vice  President
                                                    and  Director- Business  Development and  Communications; District
                                                    Manager; and General Manager at Stanford University.
</TABLE>





                                      -53-
<PAGE>


                                     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>                                                 <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.

     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).
</TABLE>


                                      -54-
<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>                                                 <C>
     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.

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


                                      -55-
<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>                                                 <C>
    10.4       Employee    Benefits    and   Other   Employment    Exhibit No. 10.6 to Form 8-K dated October 25, 1993.
               Matters 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
               Inc.                                                March 17, 1998 and adjourned on March 20, 1998.

    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
               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.

    10.11      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  March17, 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.
</TABLE>


                                      -56-
<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>                                                 <C>
    10.14      Trademark  and   Trade  Name   License   Agreement  Exhibit No.  10.18 to Form 10-K/A filed on April
               dated as of  March 27,  1998  among  the  Company,  15, 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.

    10.17      $735 million Credit  Agreement dated as of January  (a) Exhibit No.  10(b) to Form 8-K/A dated April 27,
               30, 1998 with Sodexho Marriott  Operations,  Inc.,  1998 and (b) Exhibit  No.  10(d) to Form 8-K/A dated
               as  Borrower,  the Company,  as Parent  Guarantor,  April 27, 1998 (Amendment No. 1).
               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,  dated  Exhibit No.  10.19 to Form 10-K filed on October 29,
               as of May 3, 1999.                                  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>


                                      -57-
<PAGE>



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

(B)      REPORTS ON FORM 8-K

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

<S>                                                           <C>
November 3, 1999                               Announcement  of  the  Resignation  of
                                               Lawrence  E. Hyatt as Chief  Financial
                                               Officer of the Company.

December 29, 1999                              Company  comments on outlook for first
                                               quarter fiscal year 2000.

February 16, 2000                              Announcement  of  the  appointment  of
                                               John  Bush as  Senior  Vice  President
                                               and  Chief  Financial  Officer  of the
                                               Company.

April 6, 2000                                  Announcement  of  the  appointment  of
                                               Bernard    Royer   as   Senior    Vice
                                               President    of     Purchasing     and
                                               Distribution for the Company.
</TABLE>


                                      -58-
<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  13th day of
November, 2000.



                                            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 and   November 13, 2000
---------------------------             Director (Principal
Michel Landel                           Executive Officer)


/S/ JOHN M. BUSH                        Senior Vice President and Chief Financial   November 13, 2000
------------------                      Officer (Principal Financial Officer)
John M. Bush

         *                              Chairman and Director                       November 13, 2000
---------------------------
William J. Shaw

         *                              Director                                    November 13, 2000
---------------------------
Daniel J. Altobello


         *                              Director                                    November 13, 2000
---------------------------
Pierre Bellon


         *                              Director                                    November 13, 2000
---------------------------
Bernard Carton


         *                              Director                                    November 13, 2000
---------------------------
John W. Marriott III


         *                              Director                                    November 13, 2000
---------------------------
Edouard de Royere
</TABLE>



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



                                      -59-