Edgar Filing: MARRIOTT INTERNATIONAL INC /MD/

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

(Do not check if a smaller reporting company)

MAR-Q4.2011-10K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



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

For the Fiscal Year Ended December 30, 2011



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

For the transition period from to

Commission File No. 1-13881

MARRIOTT INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)



Delaware	52-2055918
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

10400 Fernwood Road, Bethesda, Maryland	20817
(Address of Principal Executive Offices)	(Zip Code)

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

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



Title of Each Class		Name of Each Exchange on Which Registered
Class A Common Stock, $0.01 par value (333,866,753 shares outstanding as of January 27, 2012)		New York Stock Exchange Chicago Stock Exchange

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities Act. Yes ý No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark if disclosure of 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. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

The aggregate market value of shares of common stock held by non-affiliates at June 17, 2011, was $9,196,335,195

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement prepared for the 2012 Annual Meeting of Shareholders are incorporated by reference into

Part III of this report.

Table of Contents

MARRIOTT INTERNATIONAL, INC.

FORM 10-K TABLE OF CONTENTS

FISCAL YEAR ENDED DECEMBER 30, 2011



		Page No.
Part I.

Item 1.	Business	2
Item 1A.	Risk Factors	16
Item 1B.	Unresolved Staff Comments	21
Item 2.	Properties	21
Item 3.	Legal Proceedings	21
Item 4.	Mine Safety Disclosures	21

Part II.

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
Item 6.	Selected Financial Data	23
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	60
Item 8.	Financial Statements and Supplementary Data	62
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	113
Item 9A.	Controls and Procedures	113
Item 9B.	Other Information	114

Part III.

Item 10.	Directors, Executive Officers and Corporate Governance	115
Item 11.	Executive Compensation	115
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	115
Item 13.	Certain Relationships and Related Transactions, and Director Independence	115
Item 14.	Principal Accounting Fees and Services	115

Part IV.

Item 15.	Exhibits, Financial Statement Schedules	120
	Signatures	125

Table of Contents

Throughout this report, we refer to Marriott International, Inc., together with its subsidiaries, as “we,” “us,” or “the Company.” Unless otherwise specified, each reference to a particular year means the fiscal year ended on the date shown in the table below, rather than the corresponding calendar year:



Fiscal Year	Fiscal Year-End Date	Fiscal Year	Fiscal Year-End Date
2011	December 30, 2011	2006	December 29, 2006
2010	December 31, 2010	2005	December 30, 2005
2009	January 1, 2010	2004	December 31, 2004
2008	January 2, 2009	2003	January 2, 2004
2007	December 28, 2007	2002	January 3, 2003

In addition, in order to make this report easier to read, we refer throughout to (i) our Consolidated Financial Statements as our “Financial Statements,” (ii) our Consolidated Statements of Income as our “Income Statements,” (iii) our Consolidated Balance Sheets as our “Balance Sheets,” (iv) our properties, brands or markets in the United States and Canada as “North America” or “North American,” and (v) our properties, brands or markets outside of the United States and Canada as “International.”

PART I


Item 1.	Business.

We are a worldwide operator, franchisor, and licensor of hotels, corporate housing properties, and timeshare properties under numerous brand names at different price and service points. Consistent with our focus on management, franchising, and licensing, we own very few of our lodging properties. We also operate, market, and develop residential properties and provide services to home/condominium owner associations.

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

Prior to the spin-off date, we developed, operated, marketed, and sold timeshare interval, fractional ownership, and residential properties as part of our former Timeshare segment. Because of our significant continuing involvement in MVW operations after the spin-off date (by virtue of the license and other agreements between us and MVW), our former Timeshare segment's historical financial results prior to the spin-off date will continue to be included in our historical financial results as a component of continuing operations. Following the spin-off, license fees associated with the timeshare business are included in "other unallocated corporate." See Footnote No. 17, "Spin-off," of the Notes to our Financial Statements included in this annual report for additional information on the spin-off.

At year-end 2011, our operations are grouped into four business segments: North American Full-Service Lodging, North American Limited-Service Lodging, International Lodging, and Luxury Lodging. The following table shows the percentage of 2011 total revenue from each of our lodging segments, as well as from unallocated corporate and our former Timeshare segment:

Table of Contents



Segment	Percentage of 2011 Total Revenues
North American Full-Service Lodging Segment	44	%
North American Limited-Service Lodging Segment	19	%
International Lodging Segment	10	%
Luxury Lodging Segment	14	%
Former Timeshare Segment ⁽¹⁾	12	%
Other unallocated corporate	1	%
⁽¹⁾Reflects revenue through the spin-off date

Our North American Full-Service and North American Limited-Service segments include properties located in the United States and Canada, our Luxury segment includes worldwide properties, and our International segment includes full-service and limited-service properties located outside the United States and Canada. Unless otherwise indicated, our references to Marriott Hotels & Resorts throughout this report include Marriott Conference Centers and JW Marriott, references to Renaissance Hotels include Renaissance ClubSport, and references to Fairfield Inn & Suites include Fairfield Inn^®.

Financial information by segment and geographic area for 2011, 2010, and 2009 appears in Footnote No. 16, “Business Segments,” of the Notes to our Financial Statements included in this annual report.

Lodging

We operate, franchise or license 3,718 lodging properties worldwide, with 643,196 rooms as of year-end 2011 inclusive of 32 home and condominium products (3,838 units) for which we manage the related owners’ associations. In addition, we provided 2,166 furnished corporate housing rental units, which are not included in the totals. We believe that our portfolio of lodging brands is the broadest of any company in the world. Our brands are listed in the following table:



• Marriott^® Hotels & Resorts	• AC Hotels by Marriott
• JW Marriott^®	• Marriott Vacation Club^®
• Renaissance^® Hotels	• The Ritz-Carlton Destination Club^®
• Autograph Collection^®	• The Ritz-Carlton Residences^®
• Courtyard by Marriott^® (“Courtyard”)	• Grand Residences by Marriott^®
• Fairfield Inn & Suites by Marriott^®(“Fairfield Inn & Suites”)
• SpringHill Suites by Marriott^®(“SpringHill Suites”)
• Residence Inn by Marriott^®(“Residence Inn”)
• TownePlace Suites by Marriott^®(“TownePlace Suites”)
• Marriott ExecuStay^®
• Marriott Executive Apartments^®
• The Ritz-Carlton^®
• Bulgari Hotels & Resorts^®
• EDITION^®

Company-Operated Lodging Properties

At year-end 2011, we operated 1,053 properties (277,526 rooms) under long-term management agreements with property owners, 43 properties (10,358 rooms) under long-term lease agreements with property owners (management and lease agreements together, “the Operating Agreements”), and 6 properties (1,155 rooms) as owned. The figures noted for properties operated under long-term management agreements include 32 home and condominium products (3,838 units) for which we manage the related owners’ associations.

Terms of our management agreements vary, but typically, we earn a management fee, which comprises a base management fee, which is a percentage of the revenues of the hotel, and an incentive management fee, which is based on the profits of the hotel. Our management agreements also typically include reimbursement of costs of operations (both direct and indirect). Such agreements are generally for initial periods of 20 to 30 years, with options for us to renew for up to 50 or more

Table of Contents

additional years. Our lease agreements also vary, but may include fixed annual rentals plus additional rentals based on a percentage of annual revenues in excess of a fixed amount. Many of the Operating Agreements are subordinated to mortgages or other liens securing indebtedness of the owners. Additionally, many of our Operating Agreements permit the owners to terminate the agreement if certain performance metrics are not met and financial returns fail to meet defined levels for a period of time and we have not cured such deficiencies. In certain circumstances, some of our management agreements allow owners to convert company-operated properties to franchised properties.

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

Franchised, Licensed and Unconsolidated Joint Venture Lodging Properties

We have franchising, licensing, and joint venture programs that permit the use of many of our lodging brand names and systems by other hotel owners and operators as well as by MVW. Under the franchising program, we generally receive an initial application fee and continuing royalty fees, which typically range from four percent to six percent of room revenues for all brands, plus two percent to three percent of food and beverage revenues for certain full-service hotels. We are a partner in unconsolidated joint ventures that manage and/or franchise hotels, and we recognize our share of the joint ventures' net income or loss. Franchisees and joint ventures contribute to our national marketing and advertising programs and pay fees for use of our centralized reservation systems. Under license agreements with us, MVW is both the exclusive developer and operator of timeshare, fractional, and related products under the Marriott brand and the exclusive developer of fractional and related products under The Ritz-Carlton brand. We receive license fees under licensing agreements with MVW consisting of a fixed annual fee of $50 million plus two percent of the gross sales price paid to MVW for initial developer sales of interests in vacation ownership units and residential real estate units and one percent of the gross sales price paid to MVW for resales of interests in vacation ownership units and residential real estate units, in each case that are identified with or use the Marriott or Ritz-Carlton marks.

At year-end 2011, we had 2,467 franchised properties (332,636 rooms), 85 unconsolidated joint venture properties (8,721 rooms), and 64 timeshare, fractional and related properties (12,800 units).

Residential

We sell residential real estate in conjunction with luxury hotel development (Ritz-Carlton-Residential) and receive branding fees for sales of such branded residential real estate by others. Residences developed in conjunction with hotels are typically constructed and sold by hotel owners with limited amounts, if any, of our capital at risk. While the worldwide residential market is very large, the luxurious nature of our residential properties, the quality and exclusivity associated with our brands, and the hospitality services that we provide, all serve to make our residential properties distinctive.

Seasonality

In general, business at company-operated and franchised properties is relatively stable and includes only moderate seasonal fluctuations. Business at some resort properties may be seasonal depending on location.

Relationship with Major Customer

We operate a number of properties under long-term management agreements that are owned or leased by Host Hotels & Resorts, Inc. (“Host”). In addition, Host is a partner in several partnerships that own properties operated by us under long-term management agreements. See Footnote No. 23, “Relationship with Major Customer,” of the Notes to our Financial Statements included in this annual report for more information.

Intellectual Property

We operate in a highly competitive industry and our brand names, trademarks, service marks, trade names, and logos are very important to the sales and marketing of our properties and services. We believe that our brand names and other intellectual property have come to represent the highest standards of quality, caring, service, and value to our customers and the traveling public. Accordingly, we register and protect our intellectual property where we deem appropriate and otherwise protect against its unauthorized use.

Table of Contents

Summary of Properties by Brand

At year-end 2011, we operated, franchised, or licensed the following properties by brand (excluding 2,166 corporate housing rental units):



	Company-Operated		Franchised / Licensed		Other⁽³⁾
Brand	Properties	Rooms	Properties	Rooms	Properties	Rooms
U.S. Locations
Marriott Hotels & Resorts	138	71,751	184	56,075	—	—
Marriott Conference Centers	10	2,915	—	—	—	—
JW Marriott	14	9,226	7	2,914	—	—
Renaissance Hotels	38	17,426	40	11,454	—	—
Renaissance ClubSport	—	—	2	349	—	—
Autograph Collection	—	—	17	5,207	—	—
The Ritz-Carlton	39	11,587	—	—	—	—
The Ritz-Carlton-Residential⁽¹⁾	29	3,509	—	—	—	—
EDITION	—	—	—	—	—	—
Courtyard	282	44,250	523	69,163	—	—
Fairfield Inn & Suites	3	1,055	664	59,337	—	—
SpringHill Suites	34	5,311	251	28,155	—	—
Residence Inn	134	19,364	463	52,712	—	—
TownePlace Suites	29	3,086	171	16,962	—	—
Timeshare ⁽²⁾	—	—	50	10,496	—	—
Total U.S. Locations	750	189,480	2,372	312,824	—	—

Non-U.S. Locations
Marriott Hotels & Resorts	135	40,701	35	10,327	—	—
JW Marriott	29	10,891	3	795	—	—
Renaissance Hotels	54	17,971	20	5,766	—	—
Autograph Collection	—	—	5	548	5	350
The Ritz-Carlton	39	11,996	—	—	—	—
The Ritz-Carlton-Residential ⁽¹⁾	3	329	—	—	—	—
The Ritz-Carlton Serviced Apartments	4	579	—	—	—	—
EDITION	1	78	—	—	—	—
Bulgari Hotels & Resorts	2	117	—	—	—	—
Marriott Executive Apartments	22	3,601	1	99	—	—
AC Hotels by Marriott	—	—	—	—	80	8,371
Courtyard	59	12,784	49	8,522	—	—
Fairfield Inn & Suites	—	—	13	1,568	—	—
SpringHill Suites	—	—	2	299	—	—
Residence Inn	4	512	16	2,279	—	—
TownePlace Suites	—	—	1	105	—	—
Timeshare ⁽²⁾	—	—	14	2,304	—	—
Total Non-U.S. Locations	352	99,559	159	32,612	85	8,721

Total	1,102	289,039	2,531	345,436	85	8,721


(1)	Represents projects where we manage the related owners’ association. We include residential products once they possess a certificate of occupancy.


(2)	Timeshare properties licensed by MVW under the Marriott Vacation Club, The Ritz-Carlton Destination Club, The Ritz-Carlton Residences, and Grand Residences by Marriott brand names. Includes products that are in active sales as well as those that are sold out.


(3)	Properties are operated as part of unconsolidated joint ventures.

Table of Contents

Summary of Properties by Country

At year-end 2011, we operated, franchised or licensed properties in the following 73 countries and territories (excluding 2,166 corporate housing rental units).



Country	Properties	Rooms
Americas
Argentina	1	318
Aruba	4	1,635
Bahamas	1	44
Barbados	1	118
Brazil	4	1,115
British Virgin Islands	1	58
Canada	67	13,698
Cayman Islands	3	772
Chile	2	485
Colombia	2	503
Costa Rica	5	1,039
Curaçao	2	484
Dominican Republic	2	445
Ecuador	2	401
El Salvador	1	133
Honduras	1	153
Jamaica	1	427
Mexico	19	4,728
Panama	3	757
Peru	1	300
Puerto Rico	6	1,971
Saint Kitts and Nevis	2	541
Suriname	1	140
Trinidad and Tobago	1	119
United States	3,122	502,304
U.S. Virgin Islands	5	1,095
Venezuela	3	688
Total Americas	3,263	534,471
United Kingdom and Ireland
Ireland	3	610
United Kingdom (England, Scotland, and Wales)	58	11,269
Total United Kingdom and Ireland	61	11,879

Table of Contents



Middle East and Africa
Algeria	1	204
Bahrain	2	457
Egypt	7	3,430
Jordan	3	644
Kuwait	2	577
Oman	2	495
Pakistan	2	508
Qatar	6	1,509
Saudi Arabia	4	1,244
United Arab Emirates	8	1,563
Total Middle East and Africa	37	10,631
Asia
China	57	22,831
Guam	1	436
India	15	3,951
Indonesia	9	1,955
Japan	10	3,151
Malaysia	7	3,019
Philippines	2	657
Singapore	3	1,059
South Korea	5	1,751
Thailand	20	4,527
Vietnam	1	336
Total Asia	130	43,673
Australia	6	1,768
Continental Europe
Armenia	1	226
Austria	7	1,720
Belgium	5	881
Czech Republic	6	1,088
Denmark	1	401
France	16	3,664
Georgia	2	245
Germany	30	6,853
Greece	1	314
Hungary	4	892
Israel	1	342
Italy	21	3,301
Kazakhstan	3	465
Netherlands	3	945
Poland	2	754
Portugal	5	1,161
Romania	1	401
Russia	14	3,492
Spain	82	9,812
Sweden	2	406
Switzerland	6	1,181
Turkey	8	2,230
Total Continental Europe	221	40,774

Total	3,718	643,196

Table of Contents

Descriptions of Our Brands

North American Full-Service Segment, North American Limited-Service Segment,

International Segment Lodging Products

Marriott Hotels & Resorts is our global flagship brand, primarily serving business and leisure upper-upscale travelers and meeting groups. Marriott Hotels & Resorts properties are located in downtown, urban, and suburban areas, near airports, and at resort locations. Marriott Hotels & Resorts is a performance-inspired brand that caters to the achievement-oriented guest.

Typically, properties contain 300 to 700 well-appointed rooms, the Revive^® bedding package, in-room high-speed Internet access, swimming pools, convention and banquet facilities, destination-driven restaurant and lounges, room service, concierge lounges, wireless Internet access in public places, and parking facilities. Seventeen properties have over 1,000 rooms. Many resort properties have additional recreational facilities, such as tennis courts, golf courses, additional restaurants and lounges, and spa facilities. New and renovated properties typically reflect the M.I. greatroom^SM, a reinvented lobby featuring functional seating, state-of-the-art technology, and innovative food and beverage concepts in a stylish setting, as well as the new Marriott guest room, which features contemporary residential design, warm colors, rich woods and architectural detail, flat-screen high-definition televisions, “plug ‘n play” technology, and bathrooms reflecting spa-like luxury. At year-end 2011, there were 492 Marriott Hotels & Resorts properties (178,854 rooms), excluding JW Marriott and Marriott Conference Centers.

At year-end 2011, there were 10 Marriott Conference Centers (2,915 rooms) throughout the United States. Some of the centers are used exclusively by employees of sponsoring organizations, while others are marketed to outside meeting groups and individuals. In addition to the features found in a typical Marriott full-service property, the centers typically include expanded meeting room space, banquet and dining facilities, and recreational facilities.

JW Marriott is a global luxury brand made up of a collection of beautiful properties and resorts that cater to accomplished, discerning travelers seeking an elegant environment with discreet personal service. At year-end 2011, there were 53 properties (23,826 rooms) primarily located in gateway cities and upscale locations throughout the world. JW Marriott offers anticipatory service and exceptional amenities, many with world-class golf and spa facilities. In addition to the features found in a typical Marriott full-service property, the facilities and amenities at JW Marriott properties normally include larger guest rooms, higher end décor and furnishings, upgraded in-room amenities, upgraded executive lounges, business centers and fitness centers, and 24-hour room service.



Marriott Hotels & Resorts, Marriott Conference Centers, and JW Marriott Geographic Distribution at Year-End 2011	Properties
United States (42 states and the District of Columbia)	353	(142,881 rooms)
Non-U.S. (58 countries and territories)
Americas	46
Continental Europe	39
United Kingdom and Ireland	52
Asia	42
Middle East and Africa	18
Australia	5
Total Non-U.S.	202	(62,714 rooms)

Renaissance Hotels is a global, full-service lifestyle brand that targets business and leisure travelers who are discoverers at heart and who seek to live life to the fullest.

Renaissance Hotels properties are generally located in downtown locations of major cities, in suburban office parks, near major gateway airports, and in destination resorts. Renaissance hotels echo and embrace their locales—from historic icons, to modern boutiques to exotic resorts. Most properties contain from 250 to 500 rooms, featuring modern chic design, active restaurants and lounges, state-of-the-art technology, and inspiring meeting and banquet facilities. At year-end 2011, there were 154 Renaissance Hotels properties (52,966 rooms), including two Renaissance ClubSport properties (349 rooms).

Table of Contents



Renaissance Hotels Geographic Distribution at Year-End 2011	Properties
United States (28 states and the District of Columbia)	80	(29,229 rooms)
Non-U.S. (33 countries and territories)
Americas	9
Continental Europe	32
United Kingdom and Ireland	4
Asia	26
Middle East and Africa	3
Total Non-U.S.	74	(23,737 rooms)

Autograph Collection. The Autograph Collection is our evolving ensemble of upper-upscale and luxury independent hotels located in major cities and desired destinations worldwide. Hotels are selected for their originality, rich character, and uncommon details. Autograph Collection hotels seek to reflect the adventurous spirit and uncompromising originality of the guests who seek them out. Properties in the Collection fall into a variety of hotel categories and guest experiences that provides the Collection the opportunity to attract new customers as they look for travel experiences our other brands do not offer. The Collection also enables our company to grow by attracting owners of high-quality hotels who benefit from a much stronger consumer offering through our leading reservations and marketing platforms, as well as our world-class rewards program. At year-end 2011, there were 27 Autograph Collection properties (6,105 rooms) operating in six countries and territories.



Autograph Collection Hotels Geographic Distribution at Year-End 2011	Properties
United States (11 states)	17	(5,207 rooms)
Non-U.S. (5 countries and territories)
Americas	1
Continental Europe	9
Total Non-U.S.	10	(898 rooms)

AC Hotels by Marriott. In 2011, we entered into joint ventures with AC Hotels of Spain to create the “AC Hotels by Marriott” co-brand. AC Hotels by Marriott is designed to attract the upper-moderate guest and features stylish, sleek designs with limited food and beverage offerings. AC Hotels typically contain 50 to 150 rooms and are located in destination, downtown, and suburban markets. Each hotel has its own unique style and character, but all feature the signature “AC Bed” with four large pillows and built-in reading light. Other hotel amenities include a mini-bar, 24-hour room service, laundry service, exclusive bathroom amenities, writing desk, and Wi-Fi. AC Hotels also feature “AC Fitness” centers with state-of-the-art exercise equipment and the “AC Lounge” where guests can relax and unwind. Small meeting rooms can be found in most hotels to enable guests to have private board meetings or intimate social gatherings. At year-end 2011, there were 80 AC Hotels by Marriott properties (8,371 rooms) in Spain, Italy, and Portugal.

Courtyard is our select-service hotel product for the upper-moderate price tier. Focused primarily on transient business travel, Courtyard hotels are designed to offer a refreshing environment to help guests stay connected, productive, and balanced, while accommodating their need for choice and control when traveling. The hotels typically contain 90 to 150 rooms in suburban locales and 140 to 340 rooms in downtown domestic and international locales. Well-landscaped grounds typically include a courtyard with a pool and outdoor social areas. Hotels feature functionally designed guest rooms and meeting rooms, free in-room high-speed Internet access, free wireless high-speed Internet access (Wi-Fi) in the lobby (in North America), a swimming pool, an exercise room, and The Market (a self-serve food store open 24 hours a day). While many hotels currently offer a breakfast buffet, the brand is transitioning to a new state-of-the-art lobby design and food and beverage concept. The multifunctional space enables guests to work, relax, eat, drink, and socialize at their own pace, taking advantage of enhanced technology and The Bistro’s breakfast and dinner offerings. The new, sophisticated lobby design is intended to keep Courtyard well positioned against its competition by providing better value through superior facilities, technology, and service to generate stronger connections with our guests. At year-end 2011, over half of our North American Courtyard hotels had completed the new lobby design. At year-end 2011, there were 913 Courtyards (134,719 rooms) operating in 37 countries and territories.

Table of Contents



Courtyard Geographic Distribution at Year-End 2011	Properties
United States (49 states and the District of Columbia)	805	(113,413 rooms)
Non-U.S. (36 countries and territories)
Americas	35
Continental Europe	43
United Kingdom and Ireland	1
Asia	25
Middle East and Africa	3
Australia	1
Total Non-U.S.	108	(21,306 rooms)

Fairfield Inn & Suites (which includes Fairfield Inn) competes in the moderate-price tier and is targeted primarily at value-conscious business travelers. A typical Fairfield Inn & Suites or Fairfield Inn property has 60 to 140 rooms in suburban locations and up to 200 rooms in urban destinations. Fairfield Inn & Suites offers a wide range of amenities, including free in-room high-speed Internet access and free Wi-Fi access in the lobby, on-site business services (copying, faxing, and printing), a business center/lobby computer with Internet access and print capability, complimentary continental breakfast buffet, The Market (a self-serve food store open 24 hours a day, at most locations), exercise facilities (at most locations), and a swimming pool. Additionally, suite rooms (approximately 25 percent of the rooms at a typical Fairfield Inn & Suites) provide guests with separate areas for sleeping, working, and relaxing as well as in-room amenities including a microwave and refrigerator. At year-end 2011, there were 431 Fairfield Inn & Suites properties and 249 Fairfield Inn properties (61,960 rooms total), operating in the United States, Canada, and Mexico.



Fairfield Inn & Suites and Fairfield Inn Geographic Distribution at Year-End 2011	Properties
United States (49 states and the District of Columbia)	667	(60,392 rooms)
Non-U.S. Americas (Canada and Mexico)	13	(1,568 rooms)

SpringHill Suites is our all-suite brand in the upper-moderate-price tier primarily targeting business travelers who are looking for extra space and style with a great value. SpringHill Suites properties typically have 90 to 165 suites that have approximately 25 percent more space than a traditional hotel guest room with separate areas for sleeping, working, and relaxing. The brand offers a broad range of amenities, including free in-room high-speed Internet access and free Wi-Fi access in the lobby, The Market (a self-serve food store open 24 hours a day), complimentary hot breakfast buffet, lobby computer and on-site business services (copying, faxing, and printing), exercise facilities, and a swimming pool. At year-end 2011, there were 285 properties (33,466 rooms) located in the United States and 2 properties (299 rooms) in Canada.

Residence Inn is North America’s leading upscale extended-stay hotel brand designed for business and leisure travelers staying five or more nights. Residence Inn provides upscale design and style with spacious suites that feature separate living, sleeping, and working areas, as well as kitchens with full-size appliances. Guests can maintain their own pace and routines through free in-room high-speed Internet access and free Wi-Fi access in the lobby, on-site exercise options, and comfortable places to work or relax. Additional amenities include free hot breakfast and evening social events, free grocery shopping services, 24-hour friendly and knowledgeable staffing, and laundry facilities. At year-end 2011, there were 617 Residence Inn properties (74,867 rooms) located in the United States, Canada, Costa Rica, United Kingdom, and Germany.



Residence Inn Geographic Distribution at Year-End 2011	Properties
United States (47 states and the District of Columbia)	597	(72,076 rooms)
Non-U.S. Americas (4 countries and territories)
Americas	18
Continental Europe	1
United Kingdom and Ireland	1
Total Non-U.S.	20	(2,791 rooms)

Table of Contents

TownePlace Suites is a moderately priced extended-stay hotel brand that is designed to appeal to business and leisure travelers who stay for five nights or more. Designed for the self-sufficient, value-conscious traveler, each suite generally provides functional spaces for living and working, including a full kitchen and a home office. TownePlace Suites associates provide insightful local knowledge, and each hotel specializes in delivering service that helps guests settle in, maintain their day-to-day routine, and connect to the local area. Additional amenities include housekeeping services, breakfast, on-site exercise facilities, a pool, 24-hour staffing, free in-room high-speed Internet access and free Wi-Fi access in the lobby, and laundry facilities. At year-end 2011, 200 TownePlace Suites properties (20,048 rooms) were located in 42 states.

Marriott ExecuStay provides furnished corporate apartments primarily for long-term stays nationwide. ExecuStay owns no residential real estate and provides units primarily through short-term lease agreements with apartment owners and managers and franchise agreements. At year-end 2011, Marriott leased approximately 2,200 apartments and our 11 franchisees leased approximately 2,500 apartments. Apartments are located in 43 different markets in the United States, of which 34 are franchised.

Marriott Executive Apartments provide temporary housing (“Serviced Apartments”) for business executives and others who need quality accommodations outside their home country, usually for 30 or more days. These full-service apartments are designed with upscale finishes and a wide variety of amenities including a 24-hour front desk, housekeeping services and on-site laundry facilities. With all the space of a high-end apartment and all the services of Marriott's skilled staff, Marriott Executive Apartments offers a truly unique solution for long-term international guests. At year-end 2011, 21 Marriott Executive Apartments and two other Serviced Apartments properties (3,700 rooms total) were located in 16 countries and territories. All Marriott Executive Apartments are located outside the United States.

Luxury Segment Lodging Products

The Ritz-Carlton is a leading global luxury lifestyle brand, comprised of hotels and resorts renowned for their extraordinary locations, inspired design, and legendary service. The Ritz-Carlton properties include elegant spa and wellness facilities, restaurants led by celebrity chefs, championship golf courses, and The Ritz-Carlton Club^®Level. Established in 1983 and acquired by Marriott International in 1995, the Ritz-Carlton is a highly reputable, award-winning organization and the only service company to have twice earned the prestigious Malcolm Baldrige National Quality Award.



The Ritz-Carlton Geographic Distribution at Year-End 2011 ⁽¹⁾	Properties
United States (16 states and the District of Columbia)	68	(15,096 rooms)
Non-U.S. (26 countries and territories)
Americas	9
Continental Europe	7
United Kingdom and Ireland	1
Asia	20
Middle East and Africa	9
Total Non-U.S.	46	(12,904 rooms)


(1)	Includes 32 home and condominium projects (3,838 units) for which we manage the related owners’ associations.

Bulgari Hotels & Resorts. Through a joint venture with Italian jeweler and luxury goods designer Bulgari SpA, we operate distinctive luxury hotel properties in prime locations under the name Bulgari Hotels & Resorts. At year-end 2011, we operated the Bulgari Milano Hotel (58 rooms), in Milan, Italy, and the Bulgari Bali Resort, which features 59 private villas, two restaurants, and comprehensive spa facilities. We also operate two restaurants in Tokyo, Japan, which are co-located with two Bulgari retail stores. The properties are designed by renowned Italian designer Antonio Citterio and the furnishings and detailing embody the idea of contemporary luxury. Upcoming openings include a hotel in London in 2012 and other projects are currently in various stages of development in Europe, Asia, the Middle East and North America.

EDITION. In 2007, we entered into an agreement with hotel innovator Ian Schrager to create next-generation lifestyle boutique hotels to be designed by Schrager and operated by Marriott. The EDITION brand offers a personal, intimate, individualized, and unique lodging experience on a global scale. At year-end 2011, the brand operates an award-winning 78-room hotel in Istanbul, Turkey and is scheduled to open hotels in London (2012), Miami Beach (2013), New York (2014), and Abu Dhabi (2015), with other projects under development in key locations around the world.

Table of Contents

Licensed Timeshare Brands

Prior to the spin-off date, we developed, operated, marketed, and sold timeshare interval, fractional ownership, and residential properties as part of our former Timeshare segment under four brand names - Marriott Vacation Club, The Ritz-Carlton Destination Club, The Ritz-Carlton Residences, and Grand Residences by Marriott. In conjunction with the spin-off of our timeshare operations and timeshare development business, we entered into licensing agreements with MVW for MVW’s use of the Marriott timeshare and Ritz-Carlton fractional brands.

Under the licensing agreements, MVW is the exclusive worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. They are also the exclusive global developer, marketer and seller of vacation ownership and related products under The Ritz-Carlton Destination Club brand. Ritz-Carlton generally provides on-site management for Ritz-Carlton branded properties. We receive license fees under the licensing agreements with MVW.

Many resorts are located adjacent to company-operated hotels, such as Marriott Hotels & Resorts and The Ritz-Carlton, and owners have access to certain hotel facilities during their vacation.

Brands licensed by us to MVW are as follows:

The Marriott Vacation Club brand is MVW's signature offering in the upscale tier of the vacation ownership industry. Marriott Vacation Club resorts typically combine many of the comforts of home, such as spacious accommodations with one-, two- and three- bedroom options, living and dining areas, in-unit kitchens and laundry facilities, with resort amenities such as large feature swimming pools, restaurants and bars, convenience stores, fitness facilities and spas, as well as sports and recreation facilities appropriate for each resort's unique location.

Grand Residences by Marriott is an upscale tier vacation ownership and whole ownership residence brand. MVW's vacation ownership products under this brand include multi-week ownership interests. The ownership structure and physical products for these locations are similar to those MVW offers to Marriott Vacation Club owners, although the time period for each Grand Residences by Marriott ownership interest ranges between three and 13 weeks. MVW also offers whole ownership residential products under this brand.

The Ritz-Carlton Destination Club brand is MVW's vacation ownership offering in the luxury tier of the industry. The Ritz-Carlton Destination Club provides luxurious vacation experiences commensurate with The Ritz-Carlton brand. Ritz-Carlton Destination Club resorts typically feature two-, three- and four- bedroom units that generally include marble foyers, walk-in closets and custom kitchen cabinetry, and luxury resort amenities such as large feature pools and full-service restaurants and bars. We deliver on-site services, which usually include daily maid service, valet, in-residence dining, and access to fitness facilities as well as spa and sports facilities as appropriate for each destination, through our Ritz-Carlton subsidiary.

The Ritz-Carlton Residences brand is a whole ownership residence brand in the luxury tier of the industry. The Ritz-Carlton Residences include whole ownership luxury residential condominiums and home sites for luxury home construction co-located with certain Ritz-Carlton Destination Club resorts. Owners can typically purchase condominiums that vary in size from one-bedroom apartments to spacious penthouses. Ritz-Carlton Residences are situated in settings ranging from city center locations to golf and beach communities with private homes where residents can avail themselves of the services and facilities on an a la carte basis that are associated with the co-located Ritz-Carlton Destination Club resort. On-site services are delivered by Ritz-Carlton. While the worldwide residential market is very large, the luxurious nature of the Ritz-Carlton Residences properties, the quality and exclusivity associated with the Ritz-Carlton brand, and the hospitality services that are provided all make Ritz-Carlton Residences properties distinctive.

MVW offers Marriott Rewards^® Points and Ritz-Carlton Rewards^® Points to its owners or potential owners as sales, tour, and financing incentives, in exchange for vacation ownership usage rights, for customer referrals, and to resolve customer service issues. These points are purchased from the Marriott Rewards and Ritz-Carlton Rewards programs.

At year-end 2011, MVW operated 64 properties, primarily in the United States, but also in other countries and territories.

Table of Contents

Other Activities

At year-end 2011, Marriott Golf managed 44 golf course facilities as part of our management of hotels and for other golf course owners.

At year-end 2011, we operated 15 system-wide hotel reservation centers, eight in the United States and Canada and seven in other countries and territories, which handle reservation requests for our lodging brands worldwide, including franchised properties. We own one of the U.S. facilities and lease the others.

At year-end 2011, we had six credit card programs in the United States, Canada, and the United Kingdom, which include both Marriott Rewards and The Ritz-Carlton Rewards credit cards. We earn licensing fees based on card usage, and the cards are designed to encourage loyalty to our brands.

We focus on increasing value for the consumer and “selling the way the customer wants to buy.” Our Look No Further^® Best Rate Guarantee gives customers access to the same rates whether they book through our telephone reservation system, our website, or any other Marriott reservation channel. Also key to our success is our strong Marriott Rewards program, our Ritz-Carlton Rewards program, and our information-rich and easy-to-use Marriott.com website.

With 75 percent of our guests saying they use our website when planning or booking their stays and with nearly $7 billion in annual property-level gross revenues, Marriott.com is one of the largest online retail sites in the world based on sales. In 2011, we introduced a number of new digital innovations, including a new mobile booking experience. We made improvements to the Marriott.com booking, search, and online Marriott Rewards experience that are designed to generate more revenue, further reduce booking costs, and make it even easier for our customers to do business with us. We are also a founding venture partner along with five other major hotel chains in the establishment of Roomkey.com, a new industry online referral and lead generation site. Roomkey.com will allow consumers to research hotel options across multiple brands and when a Roomkey.com customer selects a Marriott branded hotel, the customer books directly on Marriott.com. As a result, we expect Roomkey.com will drive new business to Marriott.com with a more cost-effective and efficient business model for properties in our system than other online travel sites.

Our sales deployment strategy aligns our sales efforts around customer needs, reducing duplication of sales efforts, and enabling coverage for a larger number of accounts. We consider our new organization to be a key competitive advantage for Marriott. The deployment rollout, which began in late 2007, was completed in June 2011. Our reservation system manages and controls inventory availability and pricing set by our hotels and allows us to utilize online and offline agents where cost effective. With over 3,700 properties in our system, economies of scale enable us to minimize costs per occupied room, drive profits for our owners and franchisees, and enhance our fee revenue. In 2011, we also implemented innovative technology solutions, including our Retail Pricing Optimizer tool ("RPO") and our High Performance Pricing tool ("HPP"). RPO determines optimal transient retail (benchmark) rates for hotels using an analytically-driven and market-based methodology. We believe this technology provides a competitive advantage in pricing decisions, increases efficiency in analysis and decision making, and produces increased property level revenue for transient retail and associated segments. HPP enables hotels to more effectively manage the rate set up and modification processes using web-based functionality. The streamlined process provides for greater pricing flexibility, reduces time spent on rate program creation and maintenance, and increases the speed to market of new products and services.

As further discussed in Part I, Item 1A “Risk Factors” later in this report, in conducting our business, we utilize sophisticated technology and systems, including those used for our reservation, revenue management and property management systems, and our Marriott Rewards and The Ritz-Carlton Rewards programs. We also make certain technologies available to our guests. Keeping pace with developments in technology is important for our operations and our competitive position. Furthermore, the integrity and protection of customer, employee, and company data is critical to us as we use such data for business decisions and to maintain operational efficiency.

Building on more than 20 years of energy conservation experience, we are committed to protecting the environment. Our “Spirit to Preserve^®” environmental strategy calls for: greening our multi-billion dollar supply chain; further reducing fuel and water consumption; expanding our portfolio of green hotels and buildings; educating and inspiring employees and guests to support the environment; and investing in innovative, large-scale conservation projects worldwide.

We were the first in the hospitality industry to launch a series of green hotel prototypes that have been pre-approved by U.S. Green Building Council (“USGBC”) as part of its Leadership in Energy and Environment Design (“LEED”) Volume program, meaning that any hotel that follows these plans will earn basic LEED certification, or possibly higher, upon final

Table of Contents

USGBC approval while also reducing energy and water consumption up to 25 percent. We are also developing a portfolio of newly designed "green" Fairfield Inn properties in Brazil. The U.S. Travel Association confirms that travelers place the importance of supporting environmentally responsible travel service suppliers as a necessity, even in an economic downturn.

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

Competition

We encounter strong competition both as a lodging operator and as a franchisor. We believe that by operating a number of hotels among our brands that address different price and service points, we stay in direct touch with customers and react to changes in the marketplace more quickly than chains that rely exclusively on franchising. There are approximately 900 lodging management companies in the United States, including approximately 20 that operate more than 100 properties. These operators are primarily private management firms, but also include several large national chains that own and operate their own hotels and also franchise their brands. Our management contracts are typically long-term in nature, but most allow the hotel owner to replace the management firm if certain financial or performance criteria are not met.

During the recent recession we experienced significant reductions in demand for hotel rooms and timeshare products, particularly in 2009, and we took steps to reduce operating costs and improve efficiency. Due to the competitive nature of our industry, we focused these efforts on areas that had limited or no impact on the guest experience. While demand trends globally improved in 2010 and 2011, additional cost reductions could become necessary to preserve operating margins if demand trends reverse, but we would expect to implement any such efforts in a manner designed to maintain customer loyalty, owner preference, and associate satisfaction, to help maintain or increase our market share.

Affiliation with a national or regional brand is prevalent in the U.S. lodging industry, and we believe that brand recognition is a method of competition in the industry. In 2011, approximately 69 percent of U.S. hotel rooms were brand-affiliated. Most of the branded properties are franchises, under which the operator pays the franchisor a fee for use of its hotel name and reservation system. The franchising business is concentrated, with the six largest franchisors operating multiple brands accounting for a significant proportion of all U.S. rooms.

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

Based on lodging industry data, we have approximately a ten percent share of the U.S. hotel market (based on number of rooms) and we estimate less than a one percent share of the lodging market outside the United States. We believe that our hotel brands are attractive to hotel owners seeking a management company or franchise affiliation because our hotels typically generate higher occupancies and Revenue per Available Room (“RevPAR”) than our direct competitors in most market areas. We attribute this performance premium to our success in achieving and maintaining strong customer preference. We believe that the location and quality of our lodging facilities, our marketing programs, our reservation systems and our emphasis on guest service and guest and associate satisfaction are contributing factors across all of our brands.

Properties that we operate, franchise or license are regularly upgraded to maintain their competitiveness. Most of our management agreements provide for the allocation of funds, generally a fixed percentage of revenue, for periodic renovation of buildings and replacement of furnishings. These ongoing refurbishment programs, along with periodic brand initiatives, are generally adequate to preserve or enhance the competitive position and earning power of the hotels and timeshare properties. Competitor hotels converting to one of Marriott’s brands typically complete renovations as needed in conjunction with the conversion.

Marriott Rewards and The Ritz-Carlton Rewards are our frequent guest programs with over 38 million members and 13 participating brands. In addition, MVW and other program partners are able to participate in the Marriott Rewards and The Ritz-Carlton Rewards programs. The rewards programs yield repeat guest business by rewarding frequent stays with points toward free hotel stays and other rewards, or airline miles with any of 35 participating airline programs. We believe that our rewards programs generate substantial repeat business that might otherwise go to competing hotels. In 2011, approximately 50 percent of our room nights were purchased by rewards program members. We continue to enhance our rewards program offerings and specifically and strategically market to this large and growing customer base. Our loyal rewards member base

Table of Contents

provides a low cost and high impact vehicle for our revenue generation efforts. See the "Our Rewards Programs" caption in Footnote No. 1 "Summary of Significant Accounting Policies" for additional information.

Employee Relations

At year-end 2011, we had approximately 120,000 employees, approximately 7,800 of whom were represented by labor unions. We believe relations with our employees are positive.

Environmental Compliance

The properties we operate or develop are subject to national, state and local laws and regulations that govern the discharge of materials into the environment or otherwise relate to protecting the environment. Those environmental provisions include requirements that address health and safety; the use, management and disposal of hazardous substances and wastes; and emission or discharge of wastes or other materials. We believe that our operation of properties and our development of properties comply, in all material respects, with environmental laws and regulations. Our compliance with such provisions also has not had a material impact on our capital expenditures, earnings or competitive position, nor do we anticipate that such compliance will have a material impact in the future.

Internet Address and Company SEC Filings

Our Internet address is Marriott.com. On the investor relations portion of our website, Marriott.com/investor, we provide a link to our electronic filings with the U.S. Securities and Exchange Commission (the "SEC"), including our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to these reports. All such filings are available free of charge and are available as soon as reasonably practicable after filing. The information found on our website is not part of this or any other report we file with or furnish to the SEC.

Table of Contents


Item 1A.	Risk Factors.

Forward-Looking Statements

We make forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on information currently available to us. Forward-looking statements include information about our possible or assumed future results of operations, which follow under the headings “Business and Overview,” “Liquidity and Capital Resources,” and other statements throughout this report preceded by, followed by or that include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions.

Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those we express in these forward-looking statements, including the risks and uncertainties described below and other factors we describe from time to time in our periodic filings with the SEC. We therefore caution you not to rely unduly on any forward-looking statements. The forward-looking statements in this report speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

Risks and Uncertainties

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

Our industry is highly competitive, which may impact our ability to compete successfully with other hotel properties for customers. We generally operate in markets that contain numerous competitors. Each of our hotel brands competes with major hotel chains in national and international venues and with independent companies in regional markets. Our ability to remain competitive and to attract and retain business and leisure travelers depends on our success in distinguishing the quality, value, and efficiency of our lodging products and services from those offered by others. If we cannot compete successfully in these areas, this could limit our operating margins, diminish our market share, and reduce our earnings.

General economic uncertainty and weak demand in the lodging industry could continue to impact our financial results and growth. Weak economic conditions in the United States, Europe and much of the rest of the world and the uncertainty over the duration of these conditions could continue to have a negative impact on the lodging industry. As a result of current economic conditions, we continue to experience weakened demand for our hotel rooms, particularly in some markets. Recent improvements in demand trends globally may not continue, and our future financial results and growth could be further harmed or constrained if the recovery stalls or conditions worsen.

Operational Risks

Premature termination of our management or franchise agreements could hurt our financial performance. Our hotel management and franchise agreements may be subject to premature termination in certain circumstances, such as the bankruptcy of a hotel owner or franchisee, or a failure under some agreements to meet specified financial or performance criteria that are subject to the risks described in this section, which the Company fails or elects not to cure. A significant loss of agreements due to premature terminations could hurt our financial performance or our ability to grow our business.

Our lodging operations are subject to global, regional and national conditions. Because we conduct our business on a global platform, our activities are susceptible to changes in the performance of both global and regional economies. In recent years, our business has been hurt by decreases in travel resulting from weak economic conditions and the heightened travel security measures that have resulted from the threat of further terrorism. Our future economic performance could be similarly affected by the economic environment in each of the regions in which we operate, the resulting unknown pace of business travel, and the occurrence of any future incidents in those regions.

The growing significance of our operations outside of the United States also makes us increasingly susceptible to the risks of doing business internationally, which could lower our revenues, increase our costs, reduce our profits or disrupt our business. We currently operate or franchise hotels and resorts in 73 countries, and our operations outside the United States represented approximately 16 percent of our revenues in 2011. We expect that the international share of our total revenues will increase in future years. As a result, we are increasingly exposed to a number of challenges and risks associated with doing business outside the United States, including the following, any of which could reduce our revenues or profits, increase our costs, result in significant liabilities or sanctions or otherwise disrupt our business: (1) compliance with complex and changing

Table of Contents

laws, regulations and policies of governments that may impact our operations, including foreign ownership restrictions, import and export controls, and trade restrictions; (2) compliance with laws that affect the activities of companies abroad including U.S. and other jurisdictions' anti-corruption laws, currency regulations and laws affecting dealings with certain nations; (3) limitations on our ability to repatriate non-U.S. earnings in a tax effective manner; (4) the difficulties involved in managing an organization doing business in many different countries; (5) uncertainties as to the enforceability of contract and intellectual property rights under local laws; (6) rapid changes in government policy, political or civil unrest, including in the Middle East, acts of terrorism or the threat of international boycotts or U.S. anti-boycott legislation; and (7) currency exchange rate fluctuations.

Our new programs and new branded products may not be successful. We cannot assure that our recently launched EDITION, Autograph Collection and AC Hotels by Marriott brands or any new programs or products we may launch in the future will be accepted by hotel owners, potential franchisees, or the traveling public or other customers. We also cannot be certain that we will recover the costs we incurred in developing the brands or any new programs or products, or that the brands or any new programs or products will be successful. In addition, some of our new brands involve or may involve cooperation and/or consultation with one or more third parties, including some shared control over product design and development, sales and marketing, and brand standards. Disagreements with these third parties could slow the development of these new brands and/or impair our ability to take actions we believe to be advisable for the success and profitability of such brands.

Risks relating to natural or man-made disasters, contagious disease, terrorist activity, and war could reduce the demand for lodging, which may adversely affect our revenues. So called “Acts of God,” such as hurricanes, earthquakes, tsunamis, and other natural disasters, man-made disasters such as the recent oil spill in the Gulf of Mexico and, more recently, the aftermath of the earthquake and tsunami in Japan, and the spread of contagious diseases, such as H1N1 Flu, Avian Flu, and SARS, in locations where we own, manage or franchise significant properties, and areas of the world from which we draw a large number of customers could cause a decline in the level of business and leisure travel and reduce the demand for lodging. Actual or threatened war, terrorist activity, political unrest or civil strife, such as recent events in Egypt, Libya and Bahrain, and other geopolitical uncertainty could have a similar effect. Any one or more of these events may reduce the overall demand for hotel rooms and corporate apartments or limit the prices that we can obtain for them, both of which could adversely affect our profits.

Disagreements with the owners of the hotels that we manage or franchise may result in litigation or may delay implementation of product or service initiatives. Consistent with our focus on management and franchising, we own very few of our lodging properties. The nature of our responsibilities under our management agreements to manage each hotel and enforce the standards required for our brands under both management and franchise agreements may be subject to interpretation and will from time to time give rise to disagreements, which may include disagreements over the need for or payment for new product or service initiatives. Such disagreements may be more likely when hotel returns are weaker. We seek to resolve any disagreements in order to develop and maintain positive relations with current and potential hotel owners and joint venture partners but are not always able to do so. Failure to resolve such disagreements has resulted in litigation, and could do so in the future. If any such litigation results in a significant adverse judgment, settlement or court order, we could suffer significant losses, our profits could be reduced, or our future ability to operate our business could be constrained.

Our business depends on the quality and reputation of our brands, and any deterioration in the quality or reputation of these brands could have an adverse impact on our market share, reputation, business, financial condition or results of operations. Events that may be beyond our control could affect the reputation of one or more of our properties or more generally impact the reputation of our brands. If the reputation or perceived quality of our brands declines, our market share, reputation, business, financial condition or results of operations could be affected.

Actions by our franchisees and licensees could adversely affect our image and reputation. We franchise and license many of our brand names and trademarks to third parties in connection with lodging, timeshare and residential services. Under the terms of their agreements with us, our franchisees and licensees interact directly with customers and other third parties under our brand and trade names. If these franchisees or licensees fail to maintain or act in accordance with applicable brand standards, experience operational problems, or project a brand image inconsistent with ours, our image and reputation could suffer. Although our franchise and license agreements provide us with recourse and remedies in the event of a breach by the franchisee or licensee, including termination of the agreements under certain circumstances, pursuing any such recourse, remedy or termination could be expensive and time consuming. In addition, while we believe that our contractual termination rights are strong, we cannot assure you that a court would ultimately enforce those rights in every instance.

Damage to, or losses involving, properties that we own, manage or franchise may not be covered by insurance. We have comprehensive property and liability insurance policies with coverage features and insured limits that we believe are customary. Market forces beyond our control may nonetheless limit the scope of the insurance coverage we can obtain or our ability to obtain coverage at reasonable rates. Certain types of losses, generally of a catastrophic nature, such as earthquakes,

Table of Contents

hurricanes and floods, or terrorist acts, or liabilities that result from breaches in the security of our information systems may be uninsurable or too expensive to justify obtaining insurance. As a result, we may not be successful in obtaining insurance without increases in cost or decreases in coverage levels. In addition, in the event of a substantial loss, the insurance coverage we carry may not be sufficient to pay the full market value or replacement cost of our lost investment or that of hotel owners or in some cases could result in certain losses being totally uninsured. As a result, we could lose some or all of the capital we have invested in a property, as well as the anticipated future revenue from the property, and we could remain obligated for guarantees, debt, or other financial obligations related to the property.

Development and Financing Risks

While we are predominantly a manager and franchisor of hotel properties, our hotel owners depend on capital to buy, develop, and improve hotels, and our hotel owners may be unable to access capital when necessary. In order to fund new hotel investments, as well as refurbish and improve existing hotels, both the Company and current and potential hotel owners must periodically spend money. The availability of funds for new investments and improvement of existing hotels by our current and potential hotel owners depends in large measure on capital markets and liquidity factors, over which we can exert little control. Instability in the financial markets and the difficulty of obtaining financing on attractive terms, or at all, continues to constrain the capital markets for hotel and real estate investments. In addition, owners of existing hotels that we franchise or manage may have difficulty meeting required debt service payments or refinancing loans at maturity.

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

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

Our development activities expose us to project cost, completion, and resale risks. We develop new hotel and residential properties, and previously developed timeshare interval and fractional ownership properties, both directly and through partnerships, joint ventures, and other business structures with third parties. As demonstrated by the 2009 and 2011 impairment charges associated with our former Timeshare business, our ongoing involvement in the development of properties presents a number of risks, including that: (1) continued weakness in the capital markets may limit our ability, or that of third parties with whom we do business, to raise capital for completion of projects that have commenced or for development of future properties; (2) properties that we develop could become less attractive due to further decreases in demand for residential, increases in mortgage rates and/or decreases in mortgage availability, market absorption or oversupply, with the result that we may not be able to sell such properties for a profit or at the prices or selling pace we anticipate, potentially requiring additional changes in our pricing strategy that could result in further charges; (3) construction delays, cost overruns, lender financial defaults, or so called “Acts of God” such as earthquakes, hurricanes, floods or fires may increase overall project costs or result in project cancellations; and (4) we may be unable to recover development costs we incur for these projects that are not pursued to completion.

Development activities that involve our co-investment with third parties may result in disputes that could increase project costs, impair project operations, or increase project completion risks. Partnerships, joint ventures, and other business structures involving our co-investment with third parties generally include some form of shared control over the operations of the business and create additional risks, including the possibility that other investors in such ventures could become bankrupt or otherwise lack the financial resources to meet their obligations, or could have or develop business interests, policies or objectives that are inconsistent with ours. Although we actively seek to minimize such risks before investing in partnerships, joint ventures or similar structures, actions by another investor may present additional risks of project delay, increased project costs, or operational difficulties following project completion. Such disputes may also be more likely in the current difficult business environment.

Risks associated with development and sale of residential properties that are associated with our lodging properties or brands may reduce our profits. In certain hotel and timeshare projects we participate, through noncontrolling interests and/or

Table of Contents

licensing fees, in the development and sale of residential properties associated with our brands, including luxury residences and condominiums under our Ritz-Carlton and Marriott brands. Such projects pose additional risks beyond those generally associated with our lodging businesses, which may reduce our profits or compromise our brand equity, including the following:


•	The continued weakness in residential real estate and demand generally will continue to reduce our profits and could result in losses on residential sales, increase our carrying costs due to a slower pace of sales than we anticipated, and could make it more difficult to convince future hotel development partners of the value added by our brands;


•	Increases in interest rates, reductions in mortgage availability, or increases in the costs of residential ownership could prevent potential customers from buying residential products or reduce the prices they are willing to pay; and


•	Residential construction may be subject to warranty and liability claims, and the costs of resolving such claims may be significant.

Technology, Information Protection, and Privacy Risks

A failure to keep pace with developments in technology could impair our operations or competitive position. The lodging industry continues to demand the use of sophisticated technology and systems, including those used for our reservation, revenue management and property management systems, our Marriott Rewards and The Ritz-Carlton Rewards programs, and technologies we make available to our guests. These technologies and systems must be refined, updated, and/or replaced with more advanced systems on a regular basis. If we are unable to do so as quickly as our competitors or within budgeted costs and time frames, our business could suffer. We also may not achieve the benefits that we anticipate from any new technology or system, and a failure to do so could result in higher than anticipated costs or could impair our operating results.

An increase in the use of third-party Internet services to book online hotel reservations could adversely impact our business. Some of our hotel rooms are booked through Internet travel intermediaries such as Expedia.com^®, Travelocity.com^®, and Orbitz.com^®, as well as lesser-known online travel service providers. These intermediaries initially focused on leisure travel, but now also provide offerings for corporate travel and group meetings. Although Marriott’s Look No Further^® Best Rate Guarantee has greatly reduced the ability of intermediaries to undercut the published rates at our hotels, intermediaries continue to use a variety of aggressive online marketing methods to attract customers, including the purchase, by certain companies, of trademarked online keywords such as “Marriott” from Internet search engines such as Google^®, Bing^® and Yahoo^® to steer customers toward their websites (a practice currently being challenged by various trademark owners in federal court). Although Marriott has successfully limited these practices through contracts with key online intermediaries, the number of intermediaries and related companies that drive traffic to intermediaries’ websites is too large to permit us to eliminate this risk entirely. Our business and profitability could be harmed if online intermediaries succeed in significantly shifting loyalties from our lodging brands to their travel services, diverting bookings away from Marriott.com, or through their fees increasing the overall cost of Internet bookings for our hotels.

Failure to maintain the integrity of internal or customer data could result in faulty business decisions, operational inefficiencies, damage of reputation and/or subject us to costs, fines, or lawsuits. Our businesses require collection and retention of large volumes of internal and customer data, including credit card numbers and other personally identifiable information of our customers in various information systems that we maintain and in those maintained by third parties with whom we contract to provide services, including in areas such as human resources outsourcing, website hosting, and email marketing. We also maintain personally identifiable information about our employees. The integrity and protection of that customer, employee, and company data is critical to us. If that data is inaccurate or incomplete, we could make faulty decisions. Our customers and employees also have a high expectation that we and our service providers will adequately protect their personal information. The regulatory environment as well as the requirements imposed on us by the payment card industry surrounding information, security and privacy is also increasingly demanding, in both the United States and other jurisdictions in which we operate. Our systems may be unable to satisfy changing regulatory and payment card industry requirements and employee and customer expectations, or may require significant additional investments or time in order to do so. Our information systems and records, including those we maintain with our service providers, may be subject to security breaches, system failures, viruses, operator error or inadvertent releases of data. A significant theft, loss, or fraudulent use of customer, employee, or company data maintained by us or by a service provider could adversely impact our reputation and could result in remedial and other expenses, fines, or litigation. A breach in the security of our information systems or those of our service providers could lead to an interruption in the operation of our systems, resulting in operational inefficiencies and a loss of profits.

Early in 2011, we were notified by Epsilon, a marketing vendor used by the Company to manage customer emails, that an unauthorized third party gained access to a number of Epsilon’s accounts including the Company’s email list. Epsilon has stated that the unauthorized person(s) had access only to names and email addresses of the Company’s customers and did not have access to other customer information, such as physical addresses, loyalty program point balances, account logins and

Table of Contents

passwords, credit card information or other personal data. We have informed our affected customers of the breach and that it may result in receiving unsolicited emails.

Changes in privacy law could adversely affect our ability to market our products effectively. We rely on a variety of direct marketing techniques, including email marketing, online advertising, and postal mailings. Any further restrictions in laws such as the CANSPAM Act, and various U.S. state laws, or new federal laws, regarding marketing and solicitation or international data protection laws that govern these activities could adversely affect the continuing effectiveness of email, online advertising, and postal mailing techniques and could force further changes in our marketing strategy. If this occurs, we may not be able to develop adequate alternative marketing strategies, which could impact the amount and timing of our sales of certain products. We also obtain access to potential customers from travel service providers or other companies with whom we have substantial relationships and market to some individuals on these lists directly or by including our marketing message in the other company’s marketing materials. If access to these lists was prohibited or otherwise restricted, our ability to develop new customers and introduce them to our products could be impaired.

Other Risks

Changes in tax and other laws and regulations could reduce our profits or increase our costs. Our businesses are subject to regulation under a wide variety of laws, regulations and policies in jurisdictions around the world. In response to the recent economic crisis and the recent recession, we anticipate that many of the jurisdictions in which we do business continue to review tax and other revenue raising laws, regulations and policies, and any resulting changes could impose new restrictions, costs or prohibitions on our current practices and reduce our profits. In particular, governments may revise tax laws, regulations or official interpretations in ways that could have a significant impact on us, including modifications that could reduce the profits that we can effectively realize from our non-U.S. operations, or that could require costly changes to those operations, or the way in which they are structured. For example, most U.S. company effective tax rates reflect the fact that income earned and reinvested outside the United States is generally taxed at local rates, which are often much lower than U.S. tax rates. If changes in tax laws, regulations or interpretations significantly increase the tax rates on non-U.S. income, our effective tax rate could increase and our profits could be reduced. If such increases resulted from our status as a U.S. company, those changes could place us at a disadvantage to our non-U.S. competitors if those competitors remain subject to lower local tax rates.

The spin-off could result in significant tax liability to us and our shareholders. Although we received a private letter ruling from the IRS and an opinion from our tax counsel confirming that the distribution of Marriott Vacations Worldwide Corporation ("MVW") common stock will not result in the recognition, for U.S. federal income tax purposes, of income, gain or loss to us or our shareholders (except to the extent of cash received in lieu of fractional shares of MVW common stock), the private letter ruling and opinion that we received are subject to the continuing validity of any assumptions and representations reflected therein. In addition, an opinion from our tax counsel is not binding on the IRS or a court. Moreover, certain future events that may or may not be within our control, including certain extraordinary purchases of our stock or MVW's stock, could cause the distribution not to qualify as tax-free. Accordingly, the IRS could determine that the distribution of the MVW common stock is a taxable transaction and a court could agree with the IRS. If the distribution of the MVW common stock is determined to be taxable for U.S. federal income tax purposes, we and our shareholders who received shares of MVW common stock in the spin-off could incur significant tax liabilities. Under the tax sharing and indemnification agreement that we entered into with MVW, we are entitled to indemnification from MVW for certain taxes and related losses resulting from the failure of the distribution of MVW common stock to qualify as tax-free as a result of (i) any breach by MVW or its subsidiaries of the covenants regarding the preservation of the tax-free status of the distribution, (ii) certain acquisitions of equity securities or assets of MVW or its subsidiaries, and (iii) any breach by MVW or its subsidiaries of certain representations in the documents submitted to the IRS and the separation documents relating to the spin-off. If, however, the distribution fails to qualify as a tax-free transaction for reasons other than those specified in the indemnification provisions of the tax sharing and indemnification agreement, liability for any resulting taxes related to the distribution will be apportioned between us and MVW based on our relative fair market values.

The spin-off might not produce the cash tax benefits we anticipate. In connection with the spin-off, we completed an internal reorganization, which included transactions that have been structured in a manner that are expected to result, for U.S. federal income tax purposes, in our recognition of built-in losses in properties used in the North American and Luxury segments of the Timeshare division. The recognition of these built-in losses and corresponding tax deductions are expected to generate significant cash tax benefits for us. Although we received a private letter ruling from the IRS and an opinion from our tax counsel confirming that these built-in losses will be recognized and deducted by us, the private letter ruling and opinion that we received are subject to the continuing validity of any assumptions and representations reflected therein. Accordingly, the IRS could determine that the built-in losses should not be recognized or deductions for such losses should be disallowed and a court could agree with the IRS. If we are unable to deduct these losses for U.S. federal income tax purposes, and, instead, the tax basis of the properties that is attributable to the built-in losses is available to MVW and its subsidiaries, MVW has agreed,

Table of Contents

pursuant to the tax sharing and indemnification agreement, to indemnify us for certain tax benefits that we otherwise would have recognized if we were able to deduct such losses. For additional information on the cash tax benefits anticipated, see the "Liquidity and Capital Resources" caption within Part II Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this report.

If we cannot attract and retain talented associates, our business could suffer. We compete with other companies both within and outside of our industry for talented personnel. If we cannot recruit, train, develop, and retain sufficient numbers of talented associates, we could experience increased associate turnover, decreased guest satisfaction, low morale, inefficiency, or internal control failures. Insufficient numbers of talented associates could also limit our ability to grow and expand our businesses.

Delaware law and our governing corporate documents contain, and our Board of Directors could implement, anti-takeover provisions that could deter takeover attempts. Under the Delaware business combination statute, a stockholder holding 15 percent or more of our outstanding voting stock could not acquire us without Board of Director consent for at least three years after the date the stockholder first held 15 percent or more of the voting stock. Our governing corporate documents also, among other things, require supermajority votes in connection with mergers and similar transactions. In addition, our Board of Directors could, without stockholder approval, implement other anti-takeover defenses, such as a stockholder’s rights plan.


Item 1B.	Unresolved Staff Comments.

None.


Item 2.	Properties.

Company-operated properties are described in Part I, Item 1. “Business,” earlier in this report. We believe our properties are in generally good physical condition with the need for only routine repairs and maintenance and periodic capital improvements. Most of our regional offices and reservation centers, both domestically and internationally, are located in leased facilities. We also lease space in a number of buildings with combined space of approximately 1.1 million square feet in Maryland where our corporate and Ritz-Carlton headquarters are located.


Item 3.	Legal Proceedings.

From time to time, we are subject to certain legal proceedings and claims in the ordinary course of business, including adjustments proposed during governmental examinations of the various tax returns we file. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, cash flows, or overall trends in results of operations, legal proceedings are inherently uncertain, and unfavorable rulings could, individually or in aggregate, have a material adverse effect on our business, financial condition, or operating results.


Item 4.	Mine Safety Disclosures.

Not applicable.

Executive Officers of the Registrant

See Part III, Item 10 of this report for information about our executive officers.

Table of Contents

Part II


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

Market Information and Dividends

The range of prices of our common stock and cash dividends declared per share for each quarterly period within the last two years are shown in the following table and have not been adjusted for the impact of the spin-off. See Footnote No. 17, "Spin-off," of the Notes to our Financial Statements included in this annual report for additional information on the spin-off.



		Stock Price				Dividends Declared Per Share
		High		Low		Dividends Declared Per Share
2010	First Quarter	$	31.24	$	25.63	$	0.0400
	Second Quarter	38.15		30.44		0.0400
	Third Quarter	36.39		28.94		0.0400
	Fourth Quarter	42.68		34.51		0.0875



		Stock Price				Dividends Declared Per Share
		High		Low		Dividends Declared Per Share
2011	First Quarter	$	42.78	$	36.24	$	0.0875
	Second Quarter	38.52		32.92		0.1000
	Third Quarter	37.90		25.92		0.1000
	Fourth Quarter	33.57		25.49		0.1000

At January 27, 2012, there were 333,866,753 shares of Class A Common Stock outstanding held by 42,086 shareholders of record. Our Class A Common Stock is traded on the New York Stock Exchange and the Chicago Stock Exchange. The fiscal year-end closing price for our stock was $29.17 on December 30, 2011, and $41.54 on December 31, 2010. All prices are reported on the consolidated transaction reporting system.

Fourth Quarter 2011 Issuer Purchases of Equity Securities



(in millions, except per share amounts)
Period	Total Number of Shares Purchased	Average Price per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs ⁽¹⁾
September 10, 2011-October 7, 2011	2.0	$	27.77	2.0	10.4
October 8, 2011-November 4, 2011	—	—		—	10.4
November 5, 2011-December 2, 2011	1.1	28.88		1.1	9.3
December 3, 2011-December 30, 2011	3.8	29.28		3.8	5.5


⁽¹⁾	As of year-end 2011, 5.5 million shares remained available for repurchase under authorizations previously approved by our Board of Directors. We repurchase shares in the open market and in privately negotiated transactions. On February 10, 2012, we announced that our Board of Directors increased, by 35 million shares, the authorization to repurchase our Class A Common Stock.

Amounts in the preceding table have not been adjusted for the impact of the spin-off. See Footnote No. 17, "Spin-off," of the Notes to our Financial Statements included in this annual report for additional information on the spin-off.

Table of Contents


Item 6.	Selected Financial Data.

The following table presents a summary of selected historical financial data for the Company derived from our financial statements as of and for our last ten fiscal years.

Since the information in this table is only a summary and does not provide all of the information contained in our financial statements, including the related notes, you should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Financial Statements in our Form 10-K for each respective year for more detailed information including, among other items, restructuring costs and other charges incurred in 2008 and 2009, timeshare strategy - impairment charges incurred in 2009 and 2011, and the spin-off of the timeshare operations and timeshare development business in 2011. For periods prior to the spin-off date, the former Timeshare segment continues to be included in Marriott's historical financial results as a component of continuing operations because of Marriott's significant continuing involvement in MVW future operations.



	Fiscal Year ⁽¹⁾
($ in millions, except per share data)	2011			2010		2009			2008		2007			2006			2005		2004		2003		2002
Income Statement Data:
Revenues ⁽²⁾	$	12,317		$	11,691	$	10,908		$	12,879	$	12,990		$	11,995		$	11,129	$	9,778	$	8,712	$	8,222
Operating income (loss) ⁽²⁾	$	526		$	695	$	(152	)	$	765	$	1,183		$	1,089		$	671	$	579	$	476	$	448
Income (loss) from continuing operations attributable to Marriott	$	198		$	458	$	(346	)	$	359	$	697		$	712		$	543	$	487	$	380	$	365
Cumulative effect of change in accounting principle ⁽³⁾	—			—		—			—		—			(109		)	—		—		—		—
Discontinued operations ⁽⁴⁾	—			—		—			3		(1		)	5			126		109		122		(88		)
Net income (loss) attributable to Marriott	$	198		$	458	$	(346	)	$	362	$	696		$	608		$	669	$	596	$	502	$	277
Per Share Data:
Diluted earnings (losses) per share from continuing operations attributable to Marriott shareholders ⁽⁷⁾	$	0.55		$	1.21	$	(0.97	)	$	0.97	$	1.73		$	1.64		$	1.16	$	1.01	$	0.76	$	0.71
Diluted losses per share from cumulative effect of accounting change ⁽⁷⁾	—			—		—			—		—			(0.25		)	—		—		—		—
Diluted earnings (losses) per share from discontinued operations attributable to Marriott shareholders ⁽⁷⁾	—			—		—			0.01		—			0.01			0.27		0.22		0.25		(0.17		)
Diluted earnings (losses) per share attributable to Marriott shareholders ⁽⁷⁾	0.55			1.21		(0.97		)	0.98		1.73			1.40			1.43		1.23		1.01		0.54
Cash dividends declared per share ⁽⁷⁾	0.3875			0.2075		0.0866			0.3339		0.2844			0.2374			0.1979		0.1632		0.1459		0.1360
Balance Sheet Data (at year-end):
Total assets	$	5,910		$	8,983	$	7,933		$	8,903	$	8,942		$	8,588		$	8,530	$	8,668	$	8,177	$	8,296
Long-term debt	1,816			2,691		2,234			2,975		2,790			1,818			1,681		836		1,391		1,553
Shareholders’ equity	(781		)	1,585		1,142			1,380		1,429			2,618			3,252		4,081		3,838		3,573
Other Data:
Base management fees	$	602		$	562	$	530		$	635	$	620		$	553		$	497	$	435	$	388	$	379
Franchise fees	506			441		400			451		439			390			329		296		245		232
Incentive management fees	195			182		154			311		369			281			201		142		109		162
Total fees	$	1,303		$	1,185	$	1,084		$	1,397	$	1,428		$	1,224		$	1,027	$	873	$	742	$	773
Fee Revenue-Source:
North America ⁽⁵⁾	$	970		$	878	$	806		$	1,038	$	1,115		$	955		$	809	$	682	$	592	$	626
Total Outside North America	333			307		278			359		313			269			218		191		150		147
Total fees	$	1,303		$	1,185	$	1,084		$	1,397	$	1,428		$	1,224		$	1,027	$	873	$	742	$	773


(1)	All fiscal years included 52 weeks, except for 2008 and 2002, which each included 53 weeks.


(2)	Balances do not reflect the impact of discontinued operations.


(3)	We adopted certain provisions of Accounting Standards Certification Topic 978 (previously Statement of Position 04-2, “Accounting for Real Estate Time Sharing Transactions”), in our 2006 first quarter, which we reported in our Income Statements as a cumulative effect of change in accounting principle.


(4)	In 2002, we announced our intent to sell, and subsequently did sell, our Senior Living Services business and exited our Distribution Services business. In 2007, we exited our synthetic fuel business. These businesses are now reflected as discontinued operations.


(5)	Includes the continental United States and Canada, except for 2011 which represents the United States and Canada.


(6)	Represents fee revenue outside the continental United States and Canada, except for 2011 which represents fee revenue outside the United States and Canada.


(7)	For periods prior to the stock dividends issued in the third and fourth quarters of 2009, all per share data have been retroactively adjusted to reflect the stock dividends. Additionally, for periods prior to 2006, all per share data have been retroactively adjusted to reflect the June 9, 2006, stock split effected in the form of a stock dividend.

Table of Contents


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

BUSINESS AND OVERVIEW

Under numerous brand names in 73 countries and territories, we are a worldwide operator, franchisor, and licensor of hotels, corporate housing properties, and timeshare properties. We also develop, operate, and market residential properties and provide services to home/condominium owner associations. At year-end 2011, our system was comprised of 3,718 properties (643,196 rooms). The figures in the preceding sentence include 32 home and condominium products (3,838 units) for which we manage the related owners’ associations. In addition, we provided 2,166 furnished corporate housing rental units, which are not included in the totals. At year-end 2011, our operations are grouped into four business segments: North American Full-Service Lodging, North American Limited-Service Lodging, International Lodging, and Luxury Lodging.

On November 21, 2011 ("the spin-off date"), we completed a spin-off of our timeshare operations and timeshare development business through a special tax-free dividend to our shareholders of all of the issued and outstanding common stock of our wholly owned subsidiary Marriott Vacations Worldwide Corporation ("MVW"). In connection with the spin-off, we entered into several agreements with MVW, and, in some cases, certain of its subsidiaries, that govern our post-spin-off relationship with MVW, including a Separation and Distribution Agreement and two License Agreements for the use of Marriott and Ritz-Carlton marks and intellectual property. Under license agreements with us, MVW is both the exclusive developer and operator of timeshare, fractional, and related products under the Marriott brand and the exclusive developer of fractional and related products under The Ritz-Carlton brand. We receive license fees under these license agreements.

Because of our significant continuing involvement in MVW future operations (by virtue of the license and other agreements between us and MVW), our former Timeshare segment's historical financial results prior to the spin-off date will continue to be included in our historical financial results as a component of continuing operations. Please see Footnote No. 17, “Spin-off,” of the Notes to our Financial Statements and “Part I, Item 1A – Risk Factors; Other Risks” for additional information.

We earn base, incentive, and franchise fees based upon the terms of our management and franchise agreements. We earn revenues from the limited number of hotels we own or lease. We also earn fees from credit card endorsements, the sale of branded residential real estate, and licensing the Marriott timeshare and fractional and Ritz-Carlton fractional brands to MVW. Prior to the spin-off of our Timeshare business, we also generated revenues from the following sources: (1) selling timeshare interval, fractional ownership, and residential properties; (2) operating the resorts and residential properties; (3) financing customer purchases of timesharing intervals; and (4) rentals, all of which we included in our Timeshare segment.

We sell residential real estate either in conjunction with luxury hotel development or on a stand-alone basis under The Ritz-Carlton brand (The Ritz-Carlton Residences). Residences are typically constructed and sold by third-party developers with limited amounts, if any, of our capital at risk. While the worldwide residential market is very large, the luxurious nature of our residential properties, the quality and exclusivity associated with our brands, and the hospitality services that we provide, all serve to make our residential properties distinctive.

Lodging

Conditions for our lodging business improved in 2011 reflecting generally low supply growth, a more favorable economic climate in most developed markets around the world, albeit at a generally low growth rate, and stronger economic growth in emerging markets, strong unit growth, and the impact of operating efficiencies across our company. While economic growth in Europe slowed in the later part of 2011 and the level of economic growth is uncertain in the United States, we remain focused on doing the things that we do well; that is, selling rooms, taking care of our guests, and making sure we control our costs. In 2011, as compared to 2010, worldwide average daily rates increased 3.4 percent on a constant dollar basis to $133.26 for comparable systemwide properties, with RevPAR increasing 6.4 percent to $92.69 and occupancy increasing 2.0 percentage points to 69.6 percent.

For properties in North America in 2011, markets in the West reflected strong demand, while properties in the East and South reflected more moderate demand. In Washington, D.C., a shorter Congressional calendar and government spending concerns reduced lodging demand. For properties in China and Brazil, demand was particularly strong during 2011, while for properties in Europe, demand was more moderate reflecting the financial crisis and related economic concerns. Demand at properties in the Middle East remained weak reflecting continued unrest in that region, and demand outside of the more metropolitan regions in Britain remained weak as a result of government austerity measures. While demand in Japan was weak in the first quarter of 2011 reflecting the impact of the aftermath of the earthquake and tsunami, domestic demand began to

Table of Contents

improve in the 2011 second quarter and continued throughout the rest of 2011, but remained below 2010 levels.

We monitor market conditions continuously and carefully price our rooms daily to meet individual hotel demand levels. We modify the mix of our business to increase revenue as demand changes. Demand for higher rated rooms improved in 2010 and that improvement continued in 2011, which allowed us to reduce discounting and special offers for transient business. This mix improvement benefited average daily rates.

The hotels in our system serve both transient and group customers. Overall, business transient and leisure transient demand was strong in 2011, while group demand continues to improve. Group customers typically book rooms and meeting space with significant lead times, sometimes several years in advance of guest arrival. Typically, two-thirds of group business is booked prior to the year of arrival and one-third is booked in the year of arrival. During an economic recovery, group pricing tends to lag transient pricing due to the significant lead times for group bookings. Group business booked in earlier periods at lower rates continues to roll off, and with improving group demand, is being replaced with bookings reflecting generally higher rates.

Negotiated corporate business (“special corporate business”) represented 14 percent of our full-service hotel room nights for 2011 in North America. We typically negotiate and fix room rates associated with special corporate business in advance of the year to which they apply, which limits our ability to raise these rates quickly. For 2012, we expect to complete negotiations with our special corporate business clients in the first quarter, and we expect rates to be higher than the prior year. In negotiating pricing for this segment of business, we do not focus strictly on volume, but instead carefully evaluate the relationship with our customers, including for example, stay patterns (day of week and season), locations of stays, non-room spend, and aggregate spend.

Properties in our system continue to maintain very tight cost controls. Where appropriate for market conditions, we have maintained many of our 2009 property-level cost saving initiatives regarding menus and restaurant hours, room amenities, cross-training personnel, and utilizing personnel at multiple properties where feasible. We also control above-property costs, which we allocate to hotels, by remaining focused on systems, processing, and support areas. In addition, we continue to require (where legally permitted) or encourage employees to use their vacation time accrued during the year.

Our brands remain strong as a result of superior customer service with an emphasis on guest and associate satisfaction, the worldwide presence and quality of our brands, our Marriott Rewards and The Ritz-Carlton Rewards loyalty programs, a multichannel central reservations system, and desirable property amenities. We, along with owners and franchisees, continue to invest in our brands by means of new, refreshed, and reinvented properties, new room and public space designs, and enhanced amenities and technology offerings. We also remove hotels from our system that no longer meet our standards. We continue to enhance the appeal of our proprietary, information-rich, and easy-to-use website, Marriott.com, through functionality and service improvements, and we expect to continue capturing an increasing proportion of property-level reservations via this cost-efficient channel.

We completed the roll out of our sales deployment strategy in 2011, which aligns our sales efforts around customer needs, reducing duplication of sales efforts, and enabling coverage for a larger number of accounts. We now have the systems, training, and incentives for sales associates to sell our represented hotels as a portfolio rather than solely on a hotel-by-hotel basis. Our largest properties continue to have sales staff assigned on property. In 2011, we also implemented innovative technology solutions, including our Retail Pricing Optimizer tool ("RPO") and our High Performance Pricing tool ("HPP"). RPO determines optimal transient retail (benchmark) rates for hotels using an analytically-driven and market-based methodology. We believe this technology provides a competitive advantage in pricing decisions, increases efficiency in analysis and decision making, and produces increased property level revenue for transient retail and associated segments. HPP enables hotels to more effectively manage the rate set up and modification processes using web-based functionality. The streamlined process provides for greater pricing flexibility, reduces time spent on rate program creation and maintenance, and increases the speed to market of new products and services.

Our lodging business model involves managing and franchising hotels, rather than owning them. At year-end 2011, we operated 44 percent of the hotel rooms in our worldwide system under management agreements, our franchisees operated 53 percent under franchise agreements, we owned or leased 2 percent, and 1 percent were operated or franchised through unconsolidated joint ventures. Our emphasis on long-term management contracts and franchising tends to provide more stable earnings in periods of economic softness, while the addition of new hotels to our system generates growth, typically with little or no investment by the company. This strategy has allowed substantial growth while reducing financial leverage and risk in a cyclical industry. In addition, we believe we increase our financial flexibility by reducing our capital investments and adopting a strategy of recycling the investments that we make.

We consider RevPAR, which we calculate by dividing room sales for comparable properties by room nights available to guests for the period, to be a meaningful indicator of our performance because it measures the period-over-period change in

Table of Contents

room revenues for comparable properties. RevPAR may not be comparable to similarly titled measures, such as revenues. References to RevPAR throughout this report are in constant dollars, unless otherwise noted. Constant dollar statistics are calculated by applying exchange rates for the current period to the prior comparable period.

Company-operated house profit margin is the ratio of property-level gross operating profit (also known as house profit) to total property-level revenue. We consider house profit margin to be a meaningful indicator of our performance because this ratio measures our overall ability as the operator to produce property-level profits by generating sales and controlling the operating expenses over which we have the most direct control. House profit includes room, food and beverage, and other revenue and the related expenses including payroll and benefits expenses, as well as repairs and maintenance, utility, general and administrative, and sales and marketing expenses. House profit does not include the impact of management fees, furniture, fixtures and equipment replacement reserves, insurance, taxes, or other fixed expenses.

Timeshare

As noted previously, on November 21, 2011, we completed a spin-off of our timeshare operations and timeshare development business through a special tax-free dividend to our shareholders of all of the issued and outstanding common stock of our wholly owned subsidiary MVW.

In preparing our former Timeshare segment to operate as an independent, publicly traded company following the spin-off of the stock of MVW management assessed the Timeshare segment's intended use of excess undeveloped land and built inventory and the current market conditions for those assets. On September 8, 2011, management approved a plan for our former Timeshare segment to accelerate cash flow through the monetization of certain excess undeveloped land and excess built luxury inventory. As a result, we recorded a pre-tax non-cash impairment charge of $324 million ($234 million after-tax) in our 2011 Income Statement under the "Timeshare strategy-impairment charges" caption. We discuss these charges in more detail under the caption "Timeshare Strategy-Impairment Charges" later in this Management's Discussion and Analysis section. Also see the "Timeshare" caption later in this Management's Discussion and Analysis section, for additional information on the results of operations.

CONSOLIDATED RESULTS

The following discussion presents an analysis of results of our operations for 2011, 2010, and 2009. The results for 2011 include the results of the former Timeshare segment prior to the spin-off date while 2010 and 2009 included the former Timeshare segment for the entire fiscal year. See the Timeshare segment discussion later in this report for additional information.

Revenues

2011 Compared to 2010

Revenues increased by $626 million (5 percent) to $12,317 million in 2011 from $11,691 million in 2010, as a result of higher: cost reimbursements revenue ($604 million); base management and franchise fees ($105 million); owned, leased, corporate housing, and other revenue ($37 million); and incentive management fees ($13 million (all from properties outside of North America)). These favorable variances were partially offset by lower Timeshare sales and services revenue ($133 million).

The increases in base management fees, to $602 million in 2011 from $562 million in 2010, and in franchise fees, to $506 million in 2011 from $441 million in 2010, primarily reflected stronger RevPAR and, to a lesser extent, the impact of unit growth across the system and favorable foreign exchange rates. Base management fees in 2011 included $51 million associated with the timeshare business compared to $55 million in the prior year. Franchise fees in 2011 included $4 million associated with MVW license fees. The increase in incentive management fees from $182 million in 2010 to $195 million in 2011 primarily reflected higher net property-level income resulting from higher property-level revenue and continued property-level cost controls and, to a lesser extent, new unit growth in international markets and favorable foreign exchange rates.

The increase in owned, leased, corporate housing, and other revenue, to $1,083 million in 2011, from $1,046 million in 2010, reflected $21 million of higher total branding fees, $7 million of higher corporate housing revenue, $4 million of higher hotel agreement termination fees, and $3 million of higher other revenue. Combined branding fees associated with credit card endorsements and the sale of branded residential real estate by others totaled $99 million and $78 million in 2011 and 2010, respectively.

The decrease in Timeshare sales and services revenue to $1,088 million in 2011, from $1,221 million in 2010, primarily

Table of Contents

reflected: (1) $49 million of lower development revenue which reflected the spin-off and, to a lesser extent, lower sales volumes, partially offset by favorable reportability primarily related to sales reserves recorded in 2010; (2) $45 million of lower financing revenue from lower interest income as a result of the transfer of the mortgage portfolio to MVW in conjunction with the spin-off as well as a lower mortgage portfolio balance prior to the spin-off date; (3) $32 million of lower other revenue, which primarily reflected the spin-off and lower resales revenue; and (4) $7 million of lower services revenue which reflected the spin-off, partially offset by increased rental occupancies and rates prior to the spin-off date. See “BUSINESS SEGMENTS: Timeshare” later in this report for additional information on our former Timeshare segment.

Cost reimbursements revenue represents reimbursements of costs incurred on behalf of managed and franchised properties and relates, predominantly, to payroll costs at managed properties where we are the employer. As we record cost reimbursements based upon costs incurred with no added markup, this revenue and related expense has no impact on either our operating income or net income. The increase in cost reimbursements revenue, to $8,843 million in 2011 from $8,239 million in 2010, reflected the impact of higher property-level demand and growth across the system.

2010 Compared to 2009

Revenues increased by $783 million (7 percent) to $11,691 million in 2010 from $10,908 million in 2009, as a result of higher: cost reimbursements revenue ($557 million); Timeshare sales and services revenue ($98 million); base management and franchise fees ($73 million); incentive management fees ($28 million (comprised of a $12 million increase for North America and a $16 million increase outside of North America)); and owned, leased, corporate housing, and other revenue ($27 million).

The increase in Timeshare sales and services revenue to $1,221 million in 2010, from $1,123 million in 2009, primarily reflected higher financing revenue due to higher interest income and to a lesser extent higher services revenue reflecting increased rental occupancy levels and rates. These favorable impacts were partially offset by lower development revenue reflecting lower sales volumes primarily associated with tough comparisons driven by sales promotions begun in 2009, a $20 million increase in reserves (we now reserve for 100 percent of notes that are in default in addition to the reserve we record on notes not in default), and lower sales to new customers in our initial launch of the MVCD Program. See “BUSINESS SEGMENTS: Timeshare” later in this report for additional information on our Timeshare segment.

The increases in base management fees, to $562 million in 2010 from $530 million in 2009, and in franchise fees, to $441 million in 2010 from $400 million in 2009, primarily reflected stronger RevPAR and the impact of unit growth across the system. The increase in incentive management fees, to $182 million in 2010 from $154 million in 2009, primarily reflected higher property-level revenue and continued tight property-level cost controls that improved 2010 margins compared to 2009 and, to a lesser extent, new unit growth.

The increase in owned, leased, corporate housing, and other revenue, to $1,046 million in 2010, from $1,019 million in 2009, largely reflected $14 million of higher hotel agreement termination fees associated with six properties that exited our system, $8 million of higher branding fees, $6 million of higher revenue for owned and leased properties, and $5 million of higher other revenue. Partially offsetting these favorable variances was a one-time $6 million transaction cancellation fee received in 2009. The increase in owned and leased revenue primarily reflected increased RevPAR and occupancy levels. Combined branding fees associated with credit card endorsements and the sale of branded residential real estate totaled $78 million and $70 million in 2010 and 2009, respectively.

The increase in cost reimbursements revenue, to $8,239 million in 2010 from $7,682 million in 2009, reflected the impact of growth across the system, partially offset by lower property-level costs in response to cost controls. Net of hotels exiting the system, we added 4,287 managed rooms and 17,024 franchised rooms to our system in 2010.

Timeshare Strategy-Impairment Charges

2011 Charges

In preparing our former Timeshare segment to operate as an independent, publicly traded company following our spin-off of the stock of MVW (see Footnote No. 17, "Spin-off" for additional information), management assessed the Timeshare segment's intended use of excess undeveloped land and built inventory and the current market conditions for those assets. On September 8, 2011, management approved a plan for the Timeshare segment to accelerate cash flow through the monetization of certain excess undeveloped land in the U.S., Mexico, and the Bahamas over the next 18 to 24 months and to accelerate sales of excess built luxury fractional and residential inventory over the next three years. As a result, in accordance with the guidance for accounting for the impairment or disposal of long-lived assets, because the nominal cash flows from the planned land sales and the estimated fair values of the land and excess built luxury inventory were less than their respective carrying values, we recorded a pre-tax non-cash impairment charge of $324 million ($234 million after-tax) in our 2011 Income

Table of Contents

Statement under the “Timeshare strategy-impairment charges” caption.

2009 Charges

In 2009 we recorded pretax charges totaling $752 million in our Income Statement ($502 million after-tax), including $614 million of pretax charges that impacted operating income under the “Timeshare strategy-impairment charges” caption, and $138 million of pretax charges that impacted non-operating income under the “Timeshare strategy-impairment charges (non-operating)” caption. The $752 million of pretax impairment charges were non-cash, other than $27 million of charges associated with ongoing mezzanine loan fundings and $21 million of charges for purchase commitments.

For additional information related to the 2009 and 2011 impairment charges, including how these impairments were determined, the impairment charges grouped by product type and/or geographic location, and a table showing the composition of the charges, see Footnote No. 18, “Timeshare Strategy - Impairment Charges.”

Restructuring Costs and Other Charges

As part of the restructuring actions we began in 2008, we initiated further cost savings measures in 2009 associated with our former Timeshare segment, hotel development, above-property level management, and corporate overhead. These further measures resulted in additional restructuring costs of $51 million in 2009. For additional information on the 2009 restructuring costs, including the types of restructuring costs incurred in total and by segment, please see Footnote No. 21, “Restructuring Costs and Other Charges,” of the Notes to the Financial Statements in our 2009 Form 10-K. For the cumulative restructuring costs incurred since inception, please see Footnote No. 19, “Restructuring Costs and Other Charges,” of the Notes to our Financial Statements in this Form 10-K.

As a result of our restructuring efforts, we realized the following annual cost savings in 2010 and 2009, respectively, which were primarily reflected in our Income Statement under the expense captions noted: (i) $113 million ($73 million after-tax) and $80 million to $85 million ($48 million to $52 million after-tax) for our former Timeshare segment, under “Timeshare-direct” and “General, administrative, and other”; (ii) $12 million ($8 million after-tax) and $9 million ($5 million after-tax) for hotel development across several of our Lodging segments, primarily under “General, administrative, and other”; and (iii) $10 million ($8 million after-tax) and $8 million ($5 million after-tax) for reducing above property-level lodging management personnel under “General, administrative, and other.”

Operating Income (Loss)

2011 Compared to 2010

Operating income decreased by $169 million to $526 million in 2011 from $695 million in 2010. The decrease reflected Timeshare strategy-impairment charges of $324 million recorded in 2011 and $40 million of lower Timeshare sales and services revenue net of direct expenses, partially offset by a $105 million increase in base management and franchise fees, $49 million of higher owned, leased, corporate housing, and other revenue net of direct expenses, a $28 million decrease in general, administrative, and other expenses, and $13 million of higher incentive management fees. We address the reasons for the increases in base management and franchise fees and in incentive management fees as compared to 2010 in the preceding “Revenues” section.

The $49 million (54 percent) increase in owned, leased, corporate housing, and other revenue net of direct expenses was primarily attributable to $21 million of higher branding fees, $15 million of net stronger results at some owned and leased properties due to higher RevPAR and property-level margins, $6 million of higher hotel agreement termination fees, net of 2010 termination costs, $6 million of higher corporate housing and other revenue, net of expenses, and $5 million of decreased rent expense, partially offset by $4 million of lower results at a leased hotel in Japan that experienced lower demand as a result of the earthquake and tsunami earlier in the year.

General, administrative, and other expenses decreased by $28 million (4 percent) to $752 million in 2011 from $780 million in 2010. The decrease primarily reflected favorable variances from the following items recorded in 2010: an $84 million long-lived asset impairment charge associated with a capitalized revenue management software asset (which we did not allocate to any of our segments); a $13 million long-lived asset impairment charge (allocated to our former Timeshare segment); and a $14 million long-lived asset impairment charge (allocated to our North American Limited-Service segment). Also contributing to the decrease in expenses, was $9 million of lower former Timeshare segment expenses due to the spin-off and a $5 million reversal in 2011 of a loan loss provision related to one property with increased expected future cash flows. These favorable variances were partially offset by the following items recorded in 2011: $34 million of transaction-related expenses associated with the spin-off of the timeshare business; $17 million of higher compensation costs; $10 million of increased other expenses primarily associated with higher costs in international markets and initiatives to enhance and grow our brands globally, a $5 million impairment of contract acquisition costs and a $5 million accounts receivable reserve, both related

Table of Contents

to one Luxury segment property whose owner filed for bankruptcy; a $5 million performance cure payment for a North American Full-Service property; and $7 million related to an increase in the guarantee reserves for one International and one North American Full-Service property, primarily due to cash flow shortfalls at the properties, and a $2 million write-off of contract acquisition costs associated with two other properties. Unfavorable variances from a $4 million reversal of excess accruals for net asset tax based on the receipt of final assessments from a taxing authority located outside the United States and a $6 million reversal of guarantee accruals, primarily related to a completion guarantee for which we satisfied the related requirements, both recorded in 2010, further offset the aforementioned favorable variances.

The $28 million decrease in total general, administrative, and other expenses consisted of a $34 million decrease that we did not allocate to any of our segments; a $22 million decrease allocated to our former Timeshare segment; and a $12 million decrease allocated to our North American Limited-Service segment; partially offset by a $20 million increase allocated to our Luxury segment; a $15 million increase allocated to our International segment; and a $5 million increase allocated to our North American Full-Service segment.

Timeshare sales and services revenue net of direct expenses totaled $159 million in 2011 and $199 million in 2010. The decrease of $40 million as compared to 2010, primarily reflected $28 million of lower other revenue, net of expenses and $25 million of lower financing revenue, net of expenses, partially offset by $8 million of higher development revenue net of product costs and marketing and selling costs and $5 million of higher services revenue, net of expenses. The $28 million decrease in other revenue, net of expenses primarily reflected a $15 million unfavorable variance from an adjustment to the Marriott Rewards liability in the prior year and, to a lesser extent in the current year reflected the impact of the spin-off as well as lower resales revenue, net of expenses due to lower closings. The $25 million decrease in financing revenue, net of expenses primarily reflected decreased interest income due to the spin-off as well as lower notes receivable balances prior to the spin-off date. Higher development revenue net of product costs and marketing and selling costs primarily reflected favorable reportability as well as a favorable variance from a net $12 million reserve in the prior year, partially offset by lower 2011 sales volumes as well as the impact of the spin-off. See “BUSINESS SEGMENTS: Timeshare,” later in this report for additional information on our former Timeshare segment prior to spin-off.

2010 Compared to 2009

Operating income increased by $847 million to operating income of $695 million in 2010 from an operating loss of $152 million in 2009. The increase in operating income reflected a favorable variance of $614 million related to Timeshare strategy-impairment charges recorded in 2009, $116 million of higher Timeshare sales and services revenue net of direct expenses, a $73 million increase in base management and franchise fees, a $51 million decrease in restructuring costs, $28 million of higher incentive management fees, and $23 million of higher owned, leased, corporate housing, and other revenue net of direct expenses, partially offset by a $58 million increase in general, administrative, and other expenses. We note the reasons for the increase of $73 million in base management and franchise fees as well as the increase of $28 million in incentive management fees as compared to 2009 in the preceding “Revenues” section.

Timeshare sales and services revenue net of direct expenses in 2010 totaled $199 million. The increase of $116 million as compared to 2009, primarily reflected $78 million of higher financing revenue, net of expenses, which largely reflected increased interest income associated with the impact of consolidating previously unconsolidated securitized notes under the new Transfers of Financial Assets and Consolidation standards, $33 million of higher development revenue net of product costs and marketing and selling costs, and $8 million of higher other revenue, net of expenses partially offset by $3 million of lower services revenue net of expenses. Higher development revenue net of product costs and marketing and selling costs primarily reflected both lower product costs due to lower sales volumes and lower marketing and selling costs in 2010, as well as favorable variances from both a $10 million charge related to an issue with a state tax authority and a net $3 million impact from contract cancellation allowances in 2009, partially offset by lower development revenue for the reasons stated in the preceding “Revenues” section. See “BUSINESS SEGMENTS: Timeshare,” later in this report for additional information on our former Timeshare segment prior to spin-off.

The $23 million (34 percent) increase in owned, leased, corporate housing, and other revenue net of direct expenses was primarily attributable to $12 million of higher hotel agreement termination fees net of property closing costs, $8 million of higher branding fees, a $4 million reversal of a liability related to a hotel that closed in 2010, and net stronger results at some owned and leased properties due to higher RevPAR and property-level margins, partially offset by additional rent expense associated with one property and an unfavorable variance from a one-time $6 million transaction cancellation fee received in 2009.

General, administrative, and other expenses increased by $58 million (8 percent) to $780 million in 2010 from $722 million in 2009. The increase primarily reflected the following 2010 charges: an $84 million long-lived asset impairment charge associated with a capitalized revenue management software asset (which we did not allocate to any of our segments); a

Table of Contents

$13 million long-lived asset impairment charge (allocated to our former Timeshare segment); and a $14 million long-lived asset impairment charge (allocated to our North American Limited-Service segment). See Footnote No. 7, “Property and Equipment,” of the Notes to our Financial Statements for additional information on these three impairment charges. In addition, we recorded a $4 million contract acquisition cost impairment charge (allocated to our North American Full-Service segment) in 2010. See the North American Full-Service segment discussion for additional information on this impairment charge. Also contributing to the year-over-year increase was $35 million of higher compensation costs, $14 million of increased other expenses primarily associated with initiatives to enhance our brands globally, $7 million of increased currency exchange losses, and $2 million of increased legal expenses. These unfavorable variances were partially offset by an $8 million reversal in 2010 of guarantee accruals, primarily related to a completion guarantee for which we satisfied the related requirements, and a $4 million reversal of excess accruals for net asset tax based on the receipt of final assessments from a taxing authority located outside the United States. In addition, the comparison reflects the following 2009 expenses that we did not incur in 2010: $49 million of impairment charges related to two security deposits that we deemed unrecoverable in 2009 due, in part, to our decision not to fund certain cash flow shortfalls, partially offset by an $11 million reversal of the 2008 accrual for the funding of those cash flow shortfalls; a $7 million write-off of Timeshare segment capitalized software costs; and $4 million of bad debt expense on an accounts receivable balance. The year-over-year comparison also reflected a $15 million favorable variance in deferred compensation expenses (with changes to our deferred compensation plan, general, administrative, and other expenses for 2010 had no deferred compensation impact, compared with $15 million of mark-to-market valuation expenses in 2009). The increase in general, administrative, and other expenses was also partially offset by the elimination of the loan loss provision in 2010, compared with a $43 million provision in 2009, which reflected $29 million associated with one Luxury segment project and $14 million associated with a North American Limited-Service segment portfolio.

The $58 million increase in total general, administrative, and other expenses was comprised of: a $77 million increase that we did not allocate to any of our segments; a $5 million increase allocated to our former Timeshare segment; an $8 million decrease allocated to our North American Limited-Service segment; an $8 million decrease allocated to our Luxury segment; a $7 million decrease allocated to our North American Full-Service segment; and a $1 million decrease allocated to our International segment.

(Losses) Gains and Other Income (Expense)

We show our (losses) gains and other income for 2011, 2010, and 2009 in the following table:




($ in millions)	2011			2010		2009
Gain on debt extinguishment	$	—		$	—	$	21
Gains on sales of real estate and other	11			34		10
Gain/(loss) on sale of joint venture and other investments	$	—		$	1	$	3
Income from cost method joint ventures	—			—		2
Impairment of equity securities	(18		)	—		(5		)
	$	(7	)	$	35	$	31

2011 Compared to 2010

The $23 million decrease in gains on sales of real estate and other primarily reflected an unfavorable variance from an $18 million gain on the sale of one Timeshare segment property in 2010. The $18 million impairment of equity securities in 2011 reflects an other-than-temporary impairment of marketable securities. For additional information on the impairment, see Footnote No. 4, “Fair Value of Financial Instruments.”

2010 Compared to 2009

We did not extinguish any debt in 2010. In 2009, we repurchased $122 million principal amount of our Senior Notes in the open market, across multiple series. The $21 million gain on debt extinguishment in 2009 represents the difference between the $98 million purchase price and the $119 million net carrying amount of Senior Notes we repurchased during the period. The $5 million impairment of equity securities in 2009 reflected an other-than-temporary impairment of marketable securities in accordance with the guidance for accounting for certain investments in debt and equity securities. For additional information on the impairment, see Footnote No. 5, “Fair Value Measurements,” of the Notes to the Financial Statements in our 2009 Form 10-K.

Table of Contents

Interest Expense

2011 Compared to 2010

Interest expense decreased by $16 million (9 percent) to $164 million in 2011 compared to $180 million in 2010. This decrease was primarily driven by: (1) a $12 million decrease in interest expense on securitized notes, which reflected the transfer of these notes to MVW on the spin-off date, as well as a lower average outstanding balance and a lower average interest rate on those notes prior to the spin-off date; (2) a $2 million increase in capitalized interest associated with construction projects; and (3) a $1 million decrease in interest expense associated with our revolving credit facility and commercial paper program, which reflected lower interest rates. See the “LIQUIDITY AND CAPITAL RESOURCES” caption later in this report for additional information on our credit facility.

2010 Compared to 2009

Interest expense increased by $62 million (53 percent) to $180 million in 2010 compared to $118 million in 2009. This increase was driven by: (1) the consolidation of $1,121 million of debt in the 2010 first quarter associated with previously securitized notes, which resulted in a $55 million increase in interest expense in 2010 related to that debt; (2) a $14 million unfavorable variance from 2009 as a result of lower capitalized interest in 2010 associated with construction projects; and (3) $12 million of higher interest expense in 2010 associated with our executive deferred compensation plan. These increases were partially offset by: (1) $12 million of lower interest expense associated with our repurchase of $122 million of principal amount of our Senior Notes in 2009, the maturity of our Series C Senior Notes in the 2009 fourth quarter and other net debt reductions; and (2) a $7 million decrease in interest expense associated with our previous $2.4 billion multicurrency revolving credit facility, which primarily reflected lower average borrowings.

Interest Income and Income Tax

2011 Compared to 2010

Interest income decreased by $5 million (26 percent) to $14 million in 2011 compared to $19 million in 2010, primarily reflecting a $3 million decrease associated with the repayment of certain loans.

Our tax provision increased by $65 million (70 percent) to a tax provision of $158 million in 2011 from a tax provision of $93 million in 2010. The increase was primarily due to an unfavorable variance related to a prior year IRS settlement on the treatment of funds received from certain non-U.S. subsidiaries that resulted in an $85 million benefit to our income tax provision in 2010 and $34 million of income tax expense that we recorded in 2011 to write-off certain deferred tax assets that we transferred to MVW in conjunction with the spin-off of our timeshare operations and timeshare development business. We impaired these assets because we consider it "more likely than not" that MVW will be unable to realize the value of those deferred tax assets. Please see Footnote No. 17, "Spin-off" of the Notes to our Financial Statements for additional information on the transaction. The increases were partially offset by lower pretax income in 2011.

2010 Compared to 2009

Interest income decreased by $6 million (24 percent) to $19 million in 2010, compared to $25 million in 2009, primarily reflecting a $4 million decrease associated with a loan that we determined was impaired in 2009. Because we recognize interest on impaired loans on a cash basis, we did not recognize any interest on this loan after its impairment. The decline in interest income also reflected a $2 million decrease due to a reduction in principal due associated with one loan.

Our income tax expense increased by $158 million (243 percent) to a provision of $93 million in 2010 from a benefit of $65 million in 2009. The increase was primarily due to pretax income in 2010 (as compared to a pretax loss in 2009) and $14 million of higher tax expense associated with changes to our deferred compensation plan (there were no 2010 plan changes impacting deferred compensation expenses, compared with changes which had a $14 million favorable impact in 2009). The increase was partially offset by a lower tax rate in 2010, as 2009 reflected $52 million of income tax expense primarily related to the treatment of funds received from certain non-U.S. subsidiaries. In the 2010 fourth quarter, we settled issues with the Internal Revenue Service (“IRS”) on our treatment of funds received from certain non-U.S. subsidiaries. In conjunction with that settlement, we recorded an $85 million benefit to our income tax provision in 2010. Our 2010 income tax expense also reflected a $12 million benefit we recorded primarily associated with revisions to prior years’ estimated foreign tax expense.

Equity in (Losses) Earnings

2011 Compared to 2010

Equity in losses of $13 million in 2011 decreased by $5 million from equity in losses of $18 million in 2010 and

Table of Contents

primarily reflected $9 million of increased earnings at two North American Limited-Service joint ventures and one International segment joint venture, primarily due to stronger property-level performance; $8 million of lower losses for a residential and fractional project joint venture (our former Timeshare segment stopped recognizing their share of the joint venture’s losses as their investment, including loans due from the joint venture, was reduced to zero in 2010); and a favorable variance from joint venture impairment charges in 2010 of $5 million associated with our North American Limited-Service segment. These favorable impacts were partially offset by $8 million of decreased earnings at two Luxury segment joint ventures. Furthermore, in 2011 and 2010 we reversed $3 million and $11 million, respectively of the $27 million funding liability we initially recorded in the Timeshare strategy-impairment charges (non-operating) caption of our 2009 Income Statement (see Footnote No. 18, "Timeshare Strategy-Impairment Charges" of the Notes to our Financial Statements of this 10-K for additional information). The $11 million reversal in 2010 and the $3 million reversal in 2011 were both recorded based on facts and circumstances surrounding a project related to our former Timeshare segment, including continued progress on certain construction-related legal claims and potential funding of certain costs by one of the partners.

2010 Compared to 2009

Equity in losses of $18 million in 2010 decreased by $48 million from equity in losses of $66 million in 2009 and primarily reflected favorable variances from a $30 million impairment charge associated with a Luxury segment joint venture investment that we determined was fully impaired and a $3 million impairment charge for a joint venture that we did not allocate to one of our segments, both incurred in 2009. In the 2010 fourth quarter we also recorded an $11 million reversal of the $27 million funding liability initially recorded in 2009 (see preceding "2011 Compared to 2010" discussion). Increased earnings of $5 million for our International segment joint ventures and $3 million of lower cancellation reserves at our former Timeshare segment joint venture also contributed to the decrease in equity in losses. A 2010 impairment charge of $5 million associated with our North American Limited-Service segment joint venture partially offset the favorable impacts.

Net Losses Attributable to Noncontrolling Interests

2010 Compared to 2009

Net losses attributable to noncontrolling interests decreased by $7 million in 2010 to zero, compared to $7 million in 2009. The benefit for net losses attributable to noncontrolling interests in 2009 of $7 million are net of tax and reflected our partners’ share of losses totaling $11 million associated with joint ventures we consolidate, net of our partners’ share of tax benefits of $4 million associated with the losses.

Net Income (Loss)

2011 Compared to 2010

Net income and net income attributable to Marriott decreased by $260 million (57 percent) to $198 million in 2011 from $458 million in 2010, and diluted earnings per share attributable to Marriott decreased by $0.66 per share (55 percent) to $0.55 per share from $1.21 per share in 2010. As discussed in more detail in the preceding sections beginning with “Operating Income (Loss),” the $260 million decrease in net income compared to the prior year was due to Timeshare strategy-impairment charges ($324 million), higher income taxes ($65 million), lower gains and other income ($42 million), lower Timeshare sales and services revenue net of direct expenses ($40 million), and lower interest income ($5 million). Higher base management and franchise fees ($105 million), higher owned, leased, corporate housing, and other revenue net of direct expenses ($49 million), lower general, administrative, and other expenses ($28 million), lower interest expense ($16 million), higher incentive management fees ($13 million), and lower equity in losses ($5 million) partially offset these items.

2010 Compared to 2009

Net income of $458 million in 2010 increased by $811 million (230 percent) from a loss of $353 million in 2009, net income attributable to Marriott of $458 million in 2010 increased by $804 million (232 percent) from a loss of $346 million in 2009, and diluted income per share attributable to Marriott of $1.21 per share increased by $2.18 (225 percent) from losses of $0.97 per share in 2009. As discussed in more detail in the preceding sections beginning with “Operating Income (Loss),” the $458 million increase in net income compared to the prior year was due to a favorable variance related to Timeshare strategy-impairment charges in 2009 ($752 million), higher Timeshare sales and services revenue net of direct expenses ($116 million), lower restructuring costs ($51 million), higher base management and franchise fees ($73 million), lower equity in losses ($48 million), higher incentive management fees ($28 million), higher owned, leased, corporate housing, and other revenue net of direct expenses ($23 million), and higher gains and other income ($4 million). These favorable variances were partially offset by higher income taxes ($158 million), higher general, administrative, and other expenses ($58 million), higher interest expense ($62 million), and lower interest income ($6 million).

Table of Contents

Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA

EBITDA, a financial measure that is not prescribed or authorized by United States generally accepted accounting principles (“GAAP”), reflects earnings excluding the impact of interest expense, provision for income taxes, and depreciation and amortization. We consider EBITDA to be an indicator of operating performance because we use it to measure our ability to service debt, fund capital expenditures, and expand our business. We also use EBITDA, as do analysts, lenders, investors and others, to evaluate companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA also excludes depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies.

We also evaluate Adjusted EBITDA, another non-GAAP financial measure, as an indicator of operating performance. Our Adjusted EBITDA reflects:

(1) Timeshare Spin-off Adjustments ("Timeshare Spin-off Adjustments") as if the spin-off had occurred on the first day of 2010. The Timeshare Spin-off Adjustments remove the results of our former Timeshare segment for 2011 and 2010, remove unallocated spin-off transaction costs of $34 million we incurred in 2011, and assume payment by MVW to us of estimated license fees of $60 million for 2011 and $64 million for 2010. We have also included certain corporate items not previously allocated to our former Timeshare segment in the Timeshare spin-off adjustments. For additional information on the nature of the Timeshare Spin-off Adjustments, see the Form 8-K we filed with the SEC on November 21, 2011 upon completion of the spin-off;

(2) an adjustment for $28 million of other charges for 2011 consisting of an $18 million charge for an other-than-temporary impairment of marketable securities; a $5 million impairment of deferred contract acquisition costs and a $5 million accounts receivable reserve, both related to one Luxury segment property whose owner filed for bankruptcy; and

(3) an adjustment for $98 million of other charges for 2010 consisting of an $84 million impairment charge related to a capitalized revenue management software asset and a $14 million impairment charge related to a land parcel.

We discuss the second and third of these items in greater detail in the preceding "(Losses) Gains and Other Income (Expense)" caption and the "2010 Compared to 2009" heading under the "Operating Income (Loss)" caption, respectively.

We evaluate Adjusted EBITDA to make period-over-period comparisons of our ongoing core operations before material charges. EBITDA and Adjusted EBITDA also facilitate our comparison of results from our ongoing operations before material charges with results from other lodging companies.

EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. Both of these non-GAAP measures exclude certain cash expenses that we are obligated to make. In addition, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do or may not calculate them at all, limiting EBITDA's and Adjusted EBITDA's usefulness as comparative measures. We provide Adjusted EBITDA for illustrative and informational purposes only and this measure is not necessarily indicative of and does not purport to represent what our operating results would have been had the spin-off occurred on the first day of 2010. This information also does not reflect certain financial and operating benefits we expect to realize as a result of the spin-off.

We show our 2011 and 2010 EBITDA and Adjusted EBITDA calculations and reconcile those measures with Net Income in the following tables.

Table of Contents



($ in millions)	As Reported 2011			Timeshare Spin-off Adjustments			Other Charges			2011 Adjusted EBITDA
Net Income	$	198		$	260		$	17
Interest expense	164			(29		)	—
Tax provision (benefit)	158			40			11
Depreciation and amortization	168			(28		)	—
Less: Depreciation reimbursed by third-party owners	(15		)	—			—
Interest expense from unconsolidated joint ventures	18			—			—
Depreciation and amortization from unconsolidated joint ventures	30			—			—
EBITDA	$	721		$	243		$	28		$	992

($ in millions)	As Reported 2010			Timeshare Spin-off Adjustments			Other Charges			2010 Adjusted EBITDA
Net Income (Loss)	$	458		$	(47	)	$	(25	)
Interest expense	180			(43		)	—
Tax provision (benefit)	93			(29		)	123
Depreciation and amortization	178			(35		)	—
Less: Depreciation reimbursed by third-party owners	(11		)	—			—
Interest expense from unconsolidated joint ventures	19			(3		)	—
Depreciation and amortization from unconsolidated joint ventures	27			—			—
EBITDA	$	944		$	(157	)	$	98		$	885

Business Segments

We are a diversified hospitality company with operations in four business segments: North American Full-Service Lodging, North American Limited-Service Lodging, International Lodging, and Luxury Lodging. See Footnote No. 16, “Business Segments,” of the Notes to our Financial Statements for further information on our segments including how we aggregate our individual brands into each segment, the reclassification of certain 2010 and 2009 segment revenues, segment financial results, and segment assets to reflect our movement of Hawaii to our North American segments from our International segment, and other information about each segment, including revenues, net income (loss) attributable to Marriott, net losses attributable to noncontrolling interests, equity in earnings (losses) of equity method investees, assets, and capital expenditures.

In addition to the segments noted previously, on November 21, 2011 we spun off our timeshare operations and timeshare development business as a new independent company, MVW, which was formerly our Timeshare segment. See Footnote No. 16, “Business Segments,” of the Notes to our Financial Statements for historical financial results of our former Timeshare segment and Footnote No. 17, "Spin-off" of the Notes to our Financial Statements for additional information on the spin-off.

Table of Contents

At year-end 2011, we operated, franchised, and licensed the following properties (excluding 2,166 corporate housing rental units associated with our ExecuStay brand):



	Total Lodging and Timeshare Products
	Properties			Rooms
	U.S.	Non-U.S.	Total	U.S.	Non-U.S.	Total
North American Full-Service Lodging Segment ⁽¹⁾
Marriott Hotels & Resorts	322	14	336	127,826	5,244	133,070
Marriott Conference Centers	10	—	10	2,915	—	2,915
JW Marriott	21	1	22	12,140	221	12,361
Renaissance Hotels	78	2	80	28,880	790	29,670
Renaissance ClubSport	2	—	2	349	—	349
Autograph Collection	17	—	17	5,207	—	5,207
	450	17	467	177,317	6,255	183,572
North American Limited-Service Lodging Segment ⁽¹⁾
Courtyard	805	17	822	113,413	2,929	116,342
Fairfield Inn & Suites	667	11	678	60,392	1,234	61,626
SpringHill Suites	285	2	287	33,466	299	33,765
Residence Inn	597	17	614	72,076	2,450	74,526
TownePlace Suites	200	1	201	20,048	105	20,153
	2,554	48	2,602	299,395	7,017	306,412
International Lodging Segment ⁽¹⁾
Marriott Hotels & Resorts	—	156	156	—	45,784