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 expressed 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 U.S. Securities and Exchange Commission (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.

In addition, see the "Item 1A. Risk Factors" caption in the "Part II-OTHER INFORMATION" section of this report.

BUSINESS AND OVERVIEW

The deepening economic recession, the global credit crisis, and eroding consumer confidence all contributed to a difficult business environment in the first quarter of 2009. Lodging demand in the United States, as well as internationally, remained soft throughout the first quarter of 2009, as a result of slowing economic growth while hotel room supply increased in several markets. Demand for our luxury properties remained particularly weak. We experienced continued weakness associated with both leisure and business transient demand. Late in the quarter, new group meeting demand continued to be very weak, and while group meeting cancellations moderated somewhat, we continued to experience significant attrition rates from expected attendance at meetings.

We currently have over 115,000 rooms in our lodging development pipeline. During the first quarter of 2009, we opened 8,814 rooms (gross), which included 297 residential units. Approximately 9 percent of these rooms were conversions from competitor brands and 37 percent of the new rooms were located outside the United States. For the full 2009 fiscal year, we expect to open approximately 30,000 rooms (gross), not including residential units or timeshare units.

Demand for timeshare intervals also remained soft in the first quarter of 2009, reflecting weak consumer confidence. Demand for Ritz-Carlton fractional and residential units was particularly weak. Since the sale of timeshare and fractional intervals and condominiums follows the percentage-of-completion accounting method, soft demand frequently is not reflected in our Timeshare segment results until later accounting periods. Intentional and unintentional construction delays could also reduce nearer-term Timeshare segment results as percentage-of-completion revenue recognition may correspondingly be delayed as well.

Responding to the challenging demand environment for hotel rooms, we continue to deploy a range of new sales promotions with a focus on leisure and group business opportunities to increase property-level revenue. These promotions are designed both to reward and retain loyal customers and to attract new guests. In response to increased hesitancy to finalize group bookings, we have also implemented sales associate and customer incentives to close on business. As more customers use social media, we have also found new ways to connect, communicating with our customers on YouTube, Twitter, Facebook, and through our blog "Marriott on the Move." We also continue to enhance our Marriott Rewards loyalty

program offerings and specifically and strategically market to this large and growing customer base. As a result, most of our brands continue to gain market share on a global basis.

Properties in our system have instituted very tight cost controls. Given this slower demand environment, we continue to work aggressively to reduce costs and enhance property-level house profit margins by modifying menus and restaurant hours, reviewing and adjusting room amenities, cross-training personnel, utilizing personnel at multiple properties where feasible, eliminating certain positions, and not filling some vacant positions. We have also reduced above-property costs by scaling back systems, processing, and support areas that are allocated to the hotels. We have also not filled or eliminated certain above-property positions, and have encouraged, or, where legally permitted, required employees to use their vacation time accrued during the 2009 fiscal year. Additionally, we canceled certain hotel development projects in 2008. For our Timeshare segment, we slowed or canceled some development projects and closed less efficient timeshare sales offices in 2008. We also increased marketing efforts and purchase incentives and eliminated or did not fill certain positions in 2008 and first quarter of 2009. For additional information on our company-wide restructuring efforts, see our "Restructuring Costs and Other Charges" caption later in this section.

Our lodging business model involves managing and franchising hotels, rather than owning them. At March 27, 2009, 48 percent of the hotel rooms in our system were operated under management agreements, 50 percent were operated under franchise agreements, and 2 percent were owned or leased by us. Our emphasis on management contracts and franchising tends to provide more stable earnings in periods of economic softness while continued unit expansion, reflecting properties added to our system, generates ongoing growth. With long-term management and franchise agreements, this strategy has allowed substantial growth while reducing financial leverage and risk in a cyclical industry. Additionally, we increase our financial flexibility by reducing our capital investments and adopting a strategy of recycling those investments we do make.

We calculate RevPAR (revenue per available room) by dividing room sales for comparable properties by room nights available to guests for the period. We consider RevPAR to be a meaningful indicator of our performance because it measures the period-over-period change in room revenues for comparable properties. 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.

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. Gross operating 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. Gross operating profit does not include the impact of management fees, furniture, fixtures and equipment replacement reserves, insurance, taxes, or other fixed expenses.

For our North American comparable company-operated properties, RevPAR decreased by 18.0 percent in the first quarter of 2009, compared to the year-ago quarter, reflecting weakness in most markets. Our 2009 fiscal first quarter began on January 3, 2009, while the prior year's first quarter included the New Year's holiday. For North American hotels, the first quarter of 2008 included the negative impact of the week preceding Easter, while, for 2009, the week preceding Easter was in the second quarter. If RevPAR for the 2009 first quarter was calculated for the twelve weeks beginning on December 27, 2008, RevPAR would have declined by an average of 21.0 percent for our North American comparable company-operated properties. For our comparable managed properties outside North America, first quarter 2009 RevPAR also decreased versus the prior year period particularly in China, Central and Southeast Asia, and Europe.

CONSOLIDATED RESULTS

The following discussion presents an analysis of results of our operations for the twelve weeks ended March 27, 2009, compared to the twelve weeks ended March 21, 2008. Including residential products, we opened 234 properties (36,275 rooms) while 26 properties (4,901 rooms) exited the system since the first quarter of 2008.

Revenues

Revenues decreased by $452 million (15 percent) to $2,495 million in the first quarter of 2009 from $2,947 million in the first quarter of 2008, as a result of lower: cost reimbursements revenue ($223 million); Timeshare sales and service revenue ($117 million); owned, leased, corporate housing, and other revenue ($50 million); incentive management fees ($31 million (comprised of $22 million for North America and $9 million outside of North America)); base management fees ($23 million (comprised of $14 million for North America and $9 million outside of North America)); and franchise fees ($8 million).

The decrease in Timeshare sales and services revenue, to $209 million in the 2009 first quarter, from $326 million in the 2008 first quarter, primarily reflected lower demand for timeshare interval and residential projects and lower services revenue. Favorable reportability from projects that became reportable subsequent to the 2008 first quarter partially offset this decrease.

The decrease in owned, leased, corporate housing, and other revenue, to $220 million in the 2009 quarter, from $270 million in the 2008 first quarter, largely reflected $49 million of lower revenue for owned and leased properties, $2 million of lower hotel agreement termination fees, and nearly flat branding fees associated with both affinity card endorsements and the sale of branded residential real estate (totaling $14 million and $13 million in the first quarters of 2009 and 2008, respectively). The decrease in owned and leased revenue primarily reflected RevPAR declines associated with weak lodging demand.

The decrease in incentive management fees, to $43 million in the 2009 first quarter from $74 million in the 2008 first quarter, reflected lower property-level revenue, associated with weak demand and resulting lower property-level operating income and margins in the first quarter of 2009 compared to the first quarter of 2008. The decreases in base management fees, to $125 million in the 2009 first quarter from $148 million in the 2008 first quarter, and franchise fees, to $88 million in the 2009 first quarter from $96 million in the 2008 first quarter, reflected RevPAR declines driven by weaker demand, partially offset by the impact of unit growth across the system.

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. This revenue and related expense has no impact on either our operating income or net income attributable to us, because we record cost reimbursements based upon the costs incurred with no added markup. The decrease in cost reimbursements revenue, to $1,810 million in the 2009 first quarter from $2,033 million in the 2008 first quarter, reflected lower property-level costs, in response to weaker demand and cost controls, partially offset by the impact of growth across the system. We added 18 managed properties (7,038 rooms) and 176 franchised properties (22,006 rooms) to our system since the end of the 2008 first quarter, net of properties exiting the system.

Restructuring Costs and Other Charges

During the latter part of 2008, we experienced a significant decline in demand for hotel rooms both domestically and internationally as a result, in part, of the recent failures and near failures of a number of large financial service companies in the fourth quarter of 2008 and the dramatic downturn in the economy. Our capital intensive Timeshare business was also hurt both domestically and internationally by the downturn in market conditions and particularly the significant deterioration in the credit markets, which resulted in our decision not to complete a note sale in the fourth quarter of 2008 (although we did complete a note sale in the first quarter of 2009). These declines resulted in reduced management and franchise fees, cancellation of development projects, reduced timeshare contract sales, and anticipated losses under guarantees and loans. In the fourth quarter of 2008, we put certain company-wide cost-saving measures in place in response to these declines, with individual company segments and corporate departments implementing further cost saving measures. Upper-level management responsible for the Timeshare segment, hotel operations, development, and above-property level management of the various corporate departments and brand teams individually led these decentralized management initiatives. The various initiatives resulted in aggregate restructuring costs of $55 million that we recorded in the fourth quarter of 2008. We also recorded $137 million of other charges in the 2008 fourth quarter. For information regarding the fourth quarter 2008 charges, see Footnote No. 20, "Restructuring Costs and Other Charges," in our 2008 Form 10-K.

Restructuring Costs

As part of the restructuring actions we began in the fourth quarter of 2008, we initiated further cost savings measures in the 2009 first quarter associated with our Timeshare segment, hotel development, above-property level management, and corporate overhead that resulted in additional restructuring costs of $2 million in the first quarter of 2009. These first quarter restructuring costs primarily reflected severance costs related to the reduction of 105 employees (the majority of whom were terminated by March 27, 2009). Of the $2 million of severance costs recorded in the 2009 first quarter, $1 million reflected a portion of the $3 million to $4 million in costs that, as disclosed in our 2008 Form 10-K, we expected to incur in 2009 and $1 million reflected incremental costs that we incurred as a result of further cost savings measures we implemented in the first quarter of 2009.

As part of the restructuring efforts in our Timeshare segment, we reduced and consolidated sales channels in the United States and closed down certain operations in Europe in the fourth quarter of 2008. We recorded Timeshare restructuring costs of $28 million in the 2008 fourth quarter. We recorded further Timeshare restructuring costs in the 2009 first quarter of $1 million in severance costs. In connection with these initiatives, we expect to incur an additional $5 million to $8 million related to severance and fringe benefits and $3 million to $5 million related to ceasing use of additional noncancelable leases in 2009. We expect to complete this restructuring by year-end 2009. We are projecting $60 million to $70 million ($39 million to $45 million after-tax) of annual cost savings as of the beginning of 2009 as a result of the restructuring, of which $11 million ($7 million after-tax) has already been realized. These savings will likely be reflected in the "Timeshare-direct" and the "General, administrative, and other expenses" captions in our Condensed Consolidated Statements of Income.

As part of the hotel development restructuring efforts across several of our Lodging segments in the fourth quarter of 2008, we discontinued certain development projects that required our investment. We recorded restructuring costs in the 2008 fourth quarter of $24 million. We recorded further hotel development restructuring costs in the 2009 first quarter of $1 million for severance and fringe benefit costs. In connection with these initiatives, we expect to incur an additional $1 million related to severance and fringe benefits. We expect to complete this restructuring by year-end 2009. We are projecting $5 million to $6 million ($3 million to $4 million after-tax) of annual cost savings as of the beginning of 2009 as a result of the restructuring, of which $1 million ($1 million after-tax) has already been realized. These savings will likely be reflected in the "General, administrative, and other expenses" caption in our Condensed Consolidated Statements of Income.

We also implemented restructuring initiatives by reducing above property-level lodging management personnel and corporate overhead. We incurred 2008 fourth quarter restructuring costs of $3 million primarily reflecting severance and fringe benefit costs. In connection with these initiatives, we expect to incur an additional $2 million to $4 million related to severance and fringe benefits in 2009. We expect to complete this restructuring by year-end 2009. We are projecting up to $4 million ($3 million after-tax) of annual cost savings as of the beginning of 2009 as a result of the restructuring, of which $1 million ($1 million after-tax) has already been realized. These savings will likely be reflected in the "General, administrative, and other expenses" caption in our Condensed Consolidated Statements of Income.

Other Charges

We also incurred $127 million of other charges in the first quarter of 2009 as detailed in the following paragraphs.

Security Deposit and Joint Venture Asset Impairments

We sometimes issue guarantees to lenders and other third parties in connection with financing transactions and other obligations. As a result of the continued downturn in the economy, certain hotels have experienced significant declines in profitability and accordingly, may experience cash flow shortfalls. In the fourth quarter of 2008, we concluded based on cash flow projections that we would fund certain cash flow shortfalls in two portfolios of hotels in order to prevent draws against the related security deposits and the potential conversion of the related management contracts to franchise agreements, even though the related guarantees had expired. We did not deem these fundings to be fully recoverable and recorded a corresponding charge of $16 million for the amount we expected to fund but not recover. However, in the first quarter of 2009 we decided not to continue funding, as the expected incremental funding levels had increased to unacceptable levels.

As a result of the Company's decisions to stop funding these cash flow shortfalls and based on our internal analysis of expected future discounted cash flows, we determined that we may not recover two security deposits totaling $49 million. We used Level 3 inputs for our discounted cash flows analysis in accordance with FAS No. 157. Our assumptions included property level proformas, growth rates, and inflation. We recorded an impairment charge of $49 million to fully reserve these security deposits in the "General, administrative, and other expenses" caption in our Condensed Consolidated Statements of Income. In the 2009 first quarter, we applied the remaining $11 million of the $16 million liability established in the fourth quarter of 2008 against this impairment. In the tables that follow, see the "Impairment of investments and other" caption, which includes the $49 million impairment charge, and the "Reserves for expected fundings" caption, which includes the $11 million reduction in the liability.

We expect that one project in development, in which the Company has a joint venture investment, will generate lower operating results than we had previously anticipated due to the continued downturn in the economy, and have concluded that it is highly unlikely that we will receive a return on or of our investment without first fully funding potentially significant incremental capital, which we are not inclined to do. As a result, based on our internal analysis of expected discounted future cash flows using Level 3 inputs in accordance with FAS No. 157, we determined that our investment in that joint venture was fully impaired. The Level 3 inputs we used in our analysis were based on assumptions regarding property level proformas, fundings of debt service obligations, growth rates, and inflation. We recorded an impairment charge of $30 million in the 2009 first quarter in the "Equity in (losses) earnings" caption in our Condensed Consolidated Statements of Income. See the "Impairment of investments and other" caption in the tables that follow that includes this charge.

Reserves for Loan Losses

From time to time, we advance loans to owners of properties that we manage. As a result of the continued downturn in the economy, certain hotels have experienced significant declines in profitability and the owners may not be able to meet debt service obligations to us or, in some cases, to third-party lending institutions. In the first quarter of 2009, we determined that two loans made by us may not be repaid. Due to the expected loan losses, we fully reserved these loans and recorded a charge of

$42 million in the first quarter of 2009 in the "Provision for loan losses" caption in our Condensed Consolidated Statements of Income. See the "Reserves for loan losses" caption in the tables that follow, which includes this provision.

Timeshare Residual Interests Valuation

The fair market value of our residual interests in timeshare notes sold declined in the first quarter of 2009 primarily due to an increase in the market rate of interest at which we discount future cash flows to estimate the fair market value of the retained interests. The increase in the market rate of interest reflects an increase in defaults caused by the continued deteriorating economic conditions. As a result of this change, we recorded an $11 million charge in the 2009 first quarter. Furthermore, one previously securitized loan pool reached a performance trigger as a result of increased defaults in March 2009, which effectively redirected the excess spread we typically receive each month to accelerate returns to investors. As a result, we recorded a $2 million charge relating to reduced and delayed expected cash flows from that pool, further reducing the fair value of our residual interest. We recorded both charges in the "Timeshare sales and services" caption in our Condensed Consolidated Statements of Income. See the "Residual interests valuation" caption in the tables that follow, which includes this charge. The $13 million charge in the 2009 first quarter is reflected in Footnote No. 6, "Fair Value Measurements," in the Level 3 assets and liabilities rollforward table on the "Included in earnings" line and is partially offset by other changes in the underlying assumptions that impact the fair value of the residual interests.

Four other previously securitized pools are close to hitting performance triggers and, if all four pools were to do so in the second quarter of 2009, we would expect to further reduce our expected cash flow in 2009 by $10 million to $11 million and we would record additional charges of $8 million to $9 million.

Timeshare Contract Cancellation Allowances

Our financial statements reflect net contract cancellation allowances of $4 million recorded in the first quarter of 2009, in anticipation that a portion of contract revenue and costs previously recorded for certain projects under the percentage-of-completion method will not be realized due to contract cancellations prior to closing. We have an equity method investment in one of these projects, and accordingly, we reflected $1 million of the $4 million in the "Equity in (losses) earnings" caption in our Condensed Consolidated Statements of Income. The remaining net $3 million of contract cancellation allowances consisted of a reduction in revenue, net of adjustments to product costs and other direct costs and was recorded in Timeshare sales and services revenue, net of direct costs. See the "Contract cancellation allowances" caption in the tables that follow, which includes this net allowance.

Summary of Restructuring Costs and Other Charges

The following table is a summary of the restructuring costs and other charges we
recorded in and through the first quarter of 2009, as well as our remaining
liability at the end of the first quarter of 2009:



                                        Restructuring                                                   Restructuring           Total
                                          Costs and                                                       Costs and           Cumulative
                                        Other Charges        Total Charge               Cash            Other Charges       Restructuring
                                        Liability at        (Reversal) in           Payments in         Liability at        Costs through
                                         January 2,         the 2009 First         the 2009 First         March 27,         the 2009 First
($ in millions)                             2009              Quarter(1)              Quarter               2009              Quarter(2)
Severance-Timeshare                    $            11     $              1       $              9     $             3     $             15
Facilities exit costs-Timeshare                      5                   -                       1                   4                    5
Development
cancellations-Timeshare                             -                    -                      -                   -                     9

Total restructuring
costs-Timeshare                                     16                    1                     10                   7                   29

Severance-hotel development                          2                    1                      1                   2                    3
Development cancellations-hotel
development                                         -                    -                      -                   -                    22

Total restructuring costs-hotel
development                                          2                    1                      1                   2                   25

Severance-above property-level
management                                           2                   -                      -                    2                    3

Total restructuring costs-above
property- level management                           2                   -                      -                    2                    3

Total restructuring costs                           20                    2                     11                  11     $             57


Impairment of investments and
other                                               -                    79                     -                   -
. . .