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

Lodging

Weak economic conditions in the United States, Europe and much of the rest of the world, instability in the financial markets following the 2008 worldwide financial crisis, and weak consumer confidence all contributed to a difficult business environment in the first three quarters of 2009. Lodging demand in the United States, as well as internationally, remained soft throughout the first three quarters of 2009, as a result of weak economic conditions, while hotel room supply increased in several markets. Outside the United States, concerns in the 2009 second and third quarters regarding the H1N1 virus also impacted demand, particularly in Mexico, as well as in some markets in Asia, the Caribbean and South America. Demand for our luxury properties remained particularly weak. We experienced continued weakness associated with both group and business transient demand. Group meeting cancellations have moderated in the 2009 second and third quarters as compared to the 2008 fourth quarter and the 2009 first quarter, although new near-term group bookings remain weak. While we continued to experience significant attrition rates in 2009 from expected attendance at meetings, that has moderated somewhat in the 2009 third quarter. As compared to the 2009 first quarter, non-corporate demand improved in the 2009 second quarter and even more so in the 2009 third quarter, largely as a result of significant promotional efforts and discounting aimed at replacing weak corporate business with leisure, government, and other discounted transient business. Through these challenging times, our strategy and focus continues to be to preserve profit margins by driving revenue, increasing our market share and managing costs.

We currently have approximately 105,000 rooms in our lodging development pipeline. During the first three quarters of 2009, we opened 27,565 rooms
(gross), which included 397 residential units. Approximately 8 percent of these rooms were conversions from competitor brands and 22 percent of the new rooms were located outside the United States. For the full 2009 fiscal year, we expect to open over 33,000 rooms (gross), not including residential units or timeshare units.

Responding to the weak 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 both property-level revenue and market share. These promotions are designed both to reward and retain loyal customers and to attract new guests. Marriott.com and our loyal Marriott Rewards member base are both low cost and high impact vehicles for our revenue generation efforts. In response to increased hesitancy to finalize

group bookings, we have also implemented sales associate, meeting planner, and customer incentives to close on new group 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 instituted and are maintaining very tight cost controls. Given this weak 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, relaxing some brand standards for hotels, 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, which are allocated to hotels, by scaling back systems, processing, and support areas. We have also eliminated or not filled 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.

Our lodging business model involves managing and franchising hotels, rather than owning them. At September 11, 2009, 46 percent of the hotel rooms in our system were operated under management agreements, 52 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 maintain financial flexibility by minimizing 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 20.8 percent in the first three quarters of 2009, compared to the year-ago period, reflecting weakness in most markets. Our 2009 fiscal year began on January 3, 2009, while the prior year included the New Year's holiday. If RevPAR for the first three quarters of 2009 was calculated for the thirty-six weeks beginning on December 27, 2008, RevPAR would have declined by an average of 21.3 percent for our North American comparable company-operated properties. For our comparable managed properties outside North America, RevPAR for the first three quarters of 2009 decreased 21.0 percent versus the prior year period, with particular weakness in China, Thailand, India, the United Arab Emirates, and Mexico.

Timeshare

Weak economic conditions, instability in the financial markets, and weak consumer confidence also kept demand for timeshare intervals soft in the first three quarters of 2009. Demand for fractional and residential units was particularly weak. As a result, we slowed or canceled some development projects and closed less efficient timeshare sales offices in 2008 and 2009. We also increased marketing efforts and purchase incentives and eliminated or did not fill certain positions in 2008 and the first three quarters of 2009. During the 2009 second and third quarters, we were able to increase sales over the 2009 first quarter through various sales promotions, including pricing adjustments. As with Lodging, our Timeshare properties have instituted very tight cost controls, and we have eliminated or not filled certain above-property positions, and have encouraged, or, where legally permitted, required employees to use their vacation time accrued during the 2009 fiscal year. For additional information on our company-wide restructuring efforts, see our "Restructuring Costs and Other Charges" caption later in this Management's Discussion and Analysis section.

In response to the difficult business conditions that the Timeshare segment's businesses continue to experience, we evaluated our entire Timeshare segment portfolio in the 2009 third quarter. In order to adjust the business strategy to reflect current market conditions, on September 22, 2009, we approved plans for our Timeshare segment to stimulate sales, accelerate cash flow, and reduce investment spending. These decisions resulted in our recording 2009 third quarter pretax charges totaling $752 million ($502 million after-tax). We discuss these charges in more detail under the caption "Timeshare Strategy-Impairment Charges" later in this Management's Discussion and Analysis section.

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.

CONSOLIDATED RESULTS

The following discussion presents an analysis of results of our operations for the twelve weeks and thirty-six weeks ended September 11, 2009, compared to the twelve weeks and thirty-six weeks ended September 5, 2008. Including residential products, we opened 271 properties (39,016 rooms) while 15 properties (3,035 rooms) exited the system since the third quarter of 2008.

Revenues

Twelve Weeks. Revenues decreased by $492 million (17 percent) to $2,471 million in the third quarter of 2009 from $2,963 million in the third quarter of 2008, as a result of lower: cost reimbursements revenue ($258 million); Timeshare sales and service revenue ($130 million); incentive management fees ($35 million (comprised of $17 million for North America and $18 million outside of North America)); owned, leased, corporate housing, and other revenue ($34 million); base management fees ($27 million (comprised of $19 million for North America and $8 million outside of North America)); and franchise fees ($8 million).

The decrease in Timeshare sales and services revenue, to $254 million in the 2009 third quarter, from $384 million in the 2008 third quarter, primarily reflected lower revenue for timeshare intervals and to a lesser extent, residential products and the Asia points program, as well as unfavorable reportability due to projects that became reportable in the 2008 third quarter. Favorable reportability from projects that started sales or became reportable subsequent to the 2008 third quarter partially offset this decrease.

The decrease in owned, leased, corporate housing, and other revenue, to $226 million in the 2009 quarter, from $260 million in the 2008 third quarter, largely reflected $34 million of lower revenue for owned and leased properties and $6 million of lower revenue associated with our corporate housing business, partially offset by a one-time $6 million transaction cancellation fee received in the 2009 third

quarter. Combined branding fees associated with affinity card endorsements and the sale of branded residential real estate totaled $18 million and $16 million for the 2009 and 2008 third quarters, respectively. The decrease in owned and leased revenue primarily reflected RevPAR declines associated with weak lodging demand.

The decrease in incentive management fees, to $17 million in the 2009 third quarter from $52 million in the 2008 third quarter, reflected lower property-level revenue, associated with weak demand and the associated lower property-level operating income and margins in the third quarter of 2009 compared to the third quarter of 2008. The impact of weak demand on incentive management fees was partially offset by the impact of strong cost controls. The decreases in base management fees, to $116 million in the 2009 third quarter from $143 million in the 2008 third quarter, and franchise fees, to $100 million in the 2009 third quarter from $108 million in the 2008 third 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 operating income or net income attributable to us because we record cost reimbursements based upon the costs incurred with no added mark-up. The decrease in cost reimbursements revenue, to $1,758 million in the 2009 third quarter from $2,016 million in the 2008 third 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 27 managed properties (6,855 rooms) and 219 franchised properties (27,585 rooms) to our system since the end of the 2008 third quarter, net of properties exiting the system.

Thirty-six Weeks. Revenues decreased by $1,567 million (17 percent) to $7,528 million in the first three quarters of 2009 from $9,095 million in the first three quarters of 2008, as a result of lower: cost reimbursements revenue ($798 million); Timeshare sales and service revenue ($352 million); owned, leased, corporate housing, and other revenue ($165 million); incentive management fees ($134 million (comprised of $90 million for North America and $44 million outside of North America)); base management fees ($85 million (comprised of $59 million for North America and $26 million outside of North America)); and franchise fees ($33 million).

The decrease in Timeshare sales and services revenue, to $746 million in the first three quarters of 2009, from $1,098 million in the first three quarters of 2008, primarily reflected lower revenue for timeshare intervals and to a lesser extent, residential products and the Asia points program, as well as unfavorable reportability due to projects that became reportable in the 2008 third quarter, and lower financing revenue. Favorable reportability from projects that became reportable subsequent to the first three quarters of 2008 partially offset this decrease.

The decrease in owned, leased, corporate housing, and other revenue, to $684 million in the first three quarters of 2009, from $849 million in the first three quarters of 2008, largely reflected $157 million of lower revenue for owned and leased properties, $10 million of lower revenue associated with our corporate housing business, and $10 million of lower hotel agreement termination fees, partially offset by $8 million of increased branding fees associated with affinity card endorsements and a one-time $6 million transaction cancellation fee received in the 2009 third quarter. Branding fees associated with the sale of residential real estate declined by $3 million. Combined branding fees associated with affinity card endorsements and the sale of branded residential real estate totaled $49 million and $44 million in the first three 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 $95 million in the first three quarters of 2009 from $229 million in the first three quarters of 2008, reflected lower property-level revenue, associated with weak demand and the associated lower property-level operating income and margins in the first three quarters of 2009 compared to the first three quarters of 2008. The impact of weak demand on incentive

management fees was partially offset by the impact of strong cost controls. The decreases in base management fees, to $367 million in the first three quarters of 2009 from $452 million in the first three quarters of 2008, and franchise fees, to $281 million in the first three quarters of 2009 from $314 million in the first three quarters of 2008, reflected RevPAR declines driven by weaker demand, partially offset by the impact of unit growth across the system.

The decrease in cost reimbursements revenue, to $5,355 million in the first three quarters of 2009 from $6,153 million in the first three quarters of 2008, reflected lower property-level costs, in response to weaker demand and cost controls, partially offset by the impact of growth across the system.

Timeshare Strategy-Impairment Charges

In response to the difficult business conditions that the Timeshare segment's timeshare, luxury residential, and luxury fractional real estate development businesses continue to experience, we evaluated our entire Timeshare portfolio in the 2009 third quarter. In order to adjust the business strategy to reflect current market conditions, on September 22, 2009, we approved plans for our Timeshare segment to take the following actions: (1) for our luxury residential projects, reduce prices, convert certain proposed projects to other uses, sell some undeveloped land, and not pursue further Marriott-funded residential development projects; (2) reduce prices for existing luxury fractional units;
(3) continue short-term promotions for our U.S. timeshare business and defer the introduction of new projects and development phases; and (4) for our European timeshare and fractional resorts, continue promotional pricing and marketing incentives and not pursue further development. We designed these plans, which primarily relate to luxury residential and fractional resorts, to stimulate sales, accelerate cash flow, and reduce investment spending.

As a result of these decisions, we recorded third quarter 2009 pretax charges totaling $752 million in our Consolidated Statements of Income ($502 million after-tax), including $614 million of pretax charges impacting operating income under the "Timeshare strategy-impairment charges" caption, and $138 million of pretax charges impacting non-operating income under the "Timeshare strategy-impairment charges (non-operating)" caption. These $752 million of pretax impairment charges are non-cash, except for $27 million associated with future mezzanine loan fundings in 2009 and $21 million related to purchase commitments expected to be funded in 2010.

Grouped by product type and/or geographic location, these impairment charges consist of $295 million associated with five luxury residential projects, $299 million associated with nine North American luxury fractional projects, $93 million related to one North American timeshare project, $51 million related to the four projects in our European timeshare and fractional business, and $14 million associated with two Asia Pacific timeshare resorts. The following table details the composition of these charges.

       ($ in millions)                                   Impairment Charge
       Third Quarter 2009 Operating Income Charge
       Inventory impairment                             $               529
       Property and equipment impairment                                 64
       Other impairments                                                 21

       Total operating income charge                                    614

       Third Quarter 2009 Non-Operating Income Charge
       Joint venture impairment                                          71
       Loan impairment                                                   40
       Funding liability                                                 27

       Total non-operating income charge                                138

       Total                                            $               752

In accordance with Financial Accounting Standards ("FAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we made these impairment adjustments to inventory, property and equipment and joint venture investment to adjust the carrying value of each underlying asset to our estimate of its fair value as of the end of the 2009 third quarter, including fully impairing the joint venture investment. We estimated the fair value of the underlying assets using probability-weighted cash flow

models that reflected our expectations of future performance discounted at risk-free interest rates commensurate with the remaining life of the related projects using the procedures specified in FAS No. 157, "Fair Value Measurements ("FAS No. 157")." We used Level 3 inputs for our discounted cash flow analyses. Our assumptions included: growth rate and sales pace projections, additional pricing discounts resulting from the business decisions we made, development cancellations resulting in shorter project life cycles, marketing and sales cost estimates, and in certain instances alternative uses to comply with FAS No. 157's highest and best use provisions. In some instances, we took into account appraisals, which we deemed to be Level 3 inputs, for the fair value of the underlying assets.

We also determined that certain loans likely will not be repaid. As a result, we fully reserved the loans in accordance with FAS No. 114, "Accounting by Creditors for Impairment of a Loan," based on the present value of the loans' expected cash flows discounted at the loans' effective interest rates.

Our funding liability relates to management's intention to provide financial support to one of our variable interest entities through the end of 2009 based upon significant milestones related to the project and our history of support for the entity's operations in order to ensure the completion of this project. We do not anticipate repayment from the variable interest entity and have accordingly expensed these amounts. The funding liability meets the criteria of probable and reasonably estimable, in accordance with the guidance in FAS No. 5, "Accounting for Contingencies."

Other impairments primarily relate to our anticipated fundings in conjunction with certain purchase commitments, a portion of which we do not expect to recover because the projected fair value of the assets to be purchased under the commitments will be below the amount we expect to fund. We measured the projected fair value of the assets using probability-weighted cash flow models with Level 3 inputs, in accordance with FAS No. 157. Our assumptions included:
growth rate and sales pace projections, additional pricing discounts as a result of the business decisions made, marketing and sales cost estimates, and in certain instances alternative uses to comply with FAS No. 157's highest and best use provisions.

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 Annual Report on Form 10-K for the fiscal year ended January 2, 2009 ("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, second, and third quarters associated with our Timeshare segment, hotel development, above-property level management, and corporate overhead. These further measures resulted in additional restructuring costs of $44 million in the first three quarters of 2009, $9 million of

which were incurred in the third quarter. These 2009 restructuring costs included: (1) $16 million in severance costs related to the reduction of 970 employees, $4 million of which we incurred in the third quarter for 116 employees terminated during the quarter (the majority of whom were given notice of termination by September 11, 2009); (2) $27 million in facilities exit costs incurred in the second and third quarters of 2009, $5 million of which we incurred in the third quarter; and (3) $1 million related to the write-off of capitalized costs relating to development projects no longer deemed viable in the second quarter of 2009. The severance costs do not reflect amounts billed out separately to owners for property-level severance costs. The $4 million of . . .