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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

OR

For the Fiscal Year Ended January 2, 2004

Commission File No. 1-13881

MARRIOTT INTERNATIONAL, INC.

10400 Fernwood Road

Bethesda, Maryland 20817

(301) 380-3000

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

The aggregate market value of shares of common stock held by non-affiliates at June 20, 2003, was $6,973,761,505.

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, and (2) has been subject to such filing requirements for the past 90 days.

Yes x        No ¨

Indicate by check mark if disclosure by delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by checkmark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).

Yes x        No ¨

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement prepared for the 2004 Annual Meeting of Shareholders are incorporated by

reference into Part III of this report.

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MARRIOTT INTERNATIONAL, INC.

FORM 10-K TABLE OF CONTENTS

FISCAL YEAR ENDED JANUARY 2, 2004

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Throughout this report, we refer to Marriott International, Inc., together with its subsidiaries, as “we,” “us,” or “the Company.”

Forward-Looking Statements

We make forward-looking statements 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 in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings “Business 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 involve risks, uncertainties and assumptions, and our actual results may differ materially from those expressed in our forward-looking statements. We therefore caution you not to rely unduly on any forward-looking statement.

Risks and Uncertainties

You should understand that the following important factors, as well as those discussed in Exhibit 99 and elsewhere in this report, could cause results to differ materially from those expressed in such forward-looking statements. 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.

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PART I

ITEMS 1 and 2. BUSINESS AND PROPERTIES

We are a worldwide operator and franchisor of hotels and related lodging facilities. Our operations are grouped into the following five business segments:

Prior to January 3, 2003, our operations included our Senior Living Services and Distribution Services businesses, which we now classify as discontinued operations. 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.”

In our Lodging business, which includes our Full-Service, Select-Service, Extended-Stay and Timeshare segments, we develop, operate and franchise hotels and corporate housing properties under 14 separate brand names and we develop, operate, and market Marriott timeshare properties under four separate brand names.

Our Synthetic Fuel operation consists of our minority interest in four coal-based synthetic fuel production facilities whose operations qualify for tax credits based on Section 29 of the Internal Revenue Code.

Financial information by industry segment and geographic area as of January 2, 2004 and for the three fiscal years then ended, appears in the Business Segments note to our Consolidated Financial Statements included in this annual report.

Lodging

We operate or franchise 2,718 lodging properties worldwide, with 490,564 rooms as of January 2, 2004. In addition, we provide 2,978 furnished corporate housing rental units. We believe that our portfolio of lodging brands is the broadest of any company in the world, and that we are the leader in the quality tier of the vacation timesharing business. Consistent with our focus on management and franchising, we own very few of our lodging properties. Our lodging brands include:

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Company-Operated Lodging Properties

At January 2, 2004, we operated 947 properties (249,503 rooms) under long-term management or lease agreements with property owners (together, the Operating Agreements) and six properties (1,413 rooms) as owned.

Terms of our management agreements vary, but typically we earn a management fee which comprises a base 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 (both direct and indirect) of operations. Such agreements are generally for initial periods of 20 to 30 years, with options to renew for up to 50 additional years. Our lease agreements also vary, but typically 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, most of the Operating Agreements permit the owners to terminate the agreement if financial returns fail to meet defined levels for a period of time and we have not cured such deficiencies.

For lodging facilities that we manage, we are responsible for hiring, training and supervising the managers and employees required to operate the facilities and for purchasing supplies, 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. For lodging facilities that we manage, we prepare and implement annual operating budgets that are subject to owner review and approval.

Franchised Lodging Properties

We have franchising programs that permit the use of certain of our brand names and our lodging systems by other hotel owners and operators. Under these programs, we generally receive an initial application fee and continuing royalty fees, which typically range from 4 percent to 6 percent of room revenues for all brands, plus 2 percent to 3 percent of food and beverage revenues for certain full-service hotels. In addition, franchisees contribute to our national marketing and advertising programs, and pay fees for use of our centralized reservation systems. At January 2, 2004, we had 1,765 franchised properties (239,648 rooms).

Summary of Properties by Brand

As of January 2, 2004 we operated or franchised the following properties by brand (excluding 2,978 corporate housing rental units):

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We plan to open over 175 hotels (25,000 to 30,000 rooms) during 2004. We believe that we have access to sufficient financial resources to finance our growth, as well as to support our ongoing operations and meet debt service and other cash requirements. Nonetheless, our ability to sell properties that we develop, and the ability of hotel developers to build or acquire new Marriott properties, important parts of our growth plan, is partially dependent on their access to and the availability and cost of capital. See “Liquidity and Capital Resources” caption in Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Summary of Properties by Country

As of January 2, 2004 we operated or franchised properties in the following 68 countries and territories:

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Full-Service Lodging

Marriott Hotels & Resorts (including JW Marriott Hotels & Resorts and Marriott Conference Centers) is our global flagship brand, primarily serving business and leisure travelers and meeting groups at locations in downtown, urban, and suburban areas, near airports and at resort locations. Marriott full-service hotels is a quality tier brand, with most hotels typically containing from 400 to 700 rooms, internet access, swimming pools, gift shops, convention and banquet facilities, a variety of restaurants and lounges, room service, concierge lounges, and parking facilities. Many Marriott resort hotels have additional recreational and entertainment facilities, such as tennis courts, golf courses, additional restaurants and lounges, and many have spa facilities. Unless otherwise indicated, our references to Marriott Hotels & Resorts throughout this report include JW Marriott Hotels & Resorts and Marriott Conference Centers.

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JW Marriott Hotels & Resorts is the Marriott brand’s luxury collection of distinctive hotels that cater to accomplished, discerning travelers seeking an elegant environment and personal service. These 31 hotels and resorts are primarily located in gateway cities and upscale locations throughout the world. In addition to the features found in a typical Marriott full-service hotel, the facilities and amenities at JW Marriott Hotels & Resorts normally include larger guest rooms, higher end décor and furnishings, upgraded in-room amenities, upgraded business centers and fitness centers/spas, and 24-hour room service.

We operate 14 Marriott Conference Centers (3,457 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 hotel, the centers typically include expanded meeting room space, banquet and dining facilities, guest rooms and recreational facilities.

Rooms revenue contributed the majority of Marriott Hotels & Resorts’ revenues for fiscal year 2003, with the remainder coming from food and beverage operations, recreational facilities and other services. Overall hotel system profits are usually relatively stable and include only moderate seasonal fluctuations. Business at resort properties may be seasonal depending on location.

The Ritz-Carlton hotels and resorts are renowned for their distinctive architecture and for the quality of their facilities, dining and exceptional personalized guest service. Most Ritz-Carlton hotels have 250 to 400 guest rooms and typically include meeting and banquet facilities, a variety of restaurants and lounges, gift shops, swimming pools and parking facilities. Guests at most of the Ritz-Carlton resorts have access to additional recreational amenities, such as tennis courts, golf courses and health spas.

Renaissance Hotels & Resorts is a distinctive and global quality-tier brand, that targets individual business and leisure travelers, and group meetings seeking stylish and personalized environments. Renaissance hotels are generally located at downtown locations in major cities, in suburban office parks, near major gateway airports and in destination resorts. Most hotels contain from 300 to 500 rooms; however, a few of the convention oriented hotels are larger, and some hotels in non-gateway markets, particularly in Europe, are smaller. Renaissance products and services typically include stylish décor, internet access, restaurants and lounges, room service, swimming pools, gift shops, concierge lounges, and meeting and banquet facilities. Renaissance resort properties have additional recreational and entertainment facilities and services including golf courses, tennis courts, water sports, additional restaurants and spa facilities.

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Ramada International is a moderately-priced brand targeted at business and leisure travelers outside the United States. Each full-service Ramada International property includes a restaurant, a cocktail lounge and full-service meeting and banquet facilities. Ramada International hotels are located primarily in Europe and Asia in major cities, near major international airports and suburban office park locations. In 2002, Marriott and Cendant Corporation (Cendant) completed the formation of a joint venture to further develop and expand the Ramada and Days Inn brands in the United States. In addition to management and franchise fees associated with Ramada International, we receive a royalty fee for the use of the Ramada name in Canada and we recognize our share of the joint venture’s earnings. In 2003, we opened 49 hotels with the Ramada brand name outside the United States and Canada.

Bulgari Hotels & Resorts. As part of our ongoing strategy to expand our reach through partnerships with pre-eminent world-class companies, in early 2001 we entered into a joint venture with Bulgari SpA to create and introduce distinctive new luxury hotel properties in prime locations – Bulgari Hotels & Resorts. The first property, the Bulgari Hotel Milano, is scheduled to open in Milan, Italy in May 2004. The second property announced is the Bulgari Resort Bali, currently in development and scheduled to open in late 2005. Other projects are currently in development in Europe, Asia, and North America.

Select-Service Lodging

Courtyard is our upper moderate-price select-service hotel product. Aimed at individual business and leisure travelers as well as families, Courtyard hotels maintain a residential atmosphere and typically contain 90 to 150 rooms. Well landscaped grounds typically include a courtyard with a pool and social areas. Most hotels feature functionally designed quality guest rooms and meeting rooms, limited restaurant facilities, a swimming pool and an exercise room. In 2003, most Courtyard hotels introduced free in-room high-speed internet and in 2004, this will be a standard feature along with The Market (a self-serve food store open 24 hours a day). The operating systems developed for these hotels allow Courtyard to be price-competitive while providing better value through superior facilities and guest service. At year end, there were 616 Courtyards operating in 15 countries.

Fairfield Inn is our hotel brand that competes in the lower moderate-price tier. Aimed at value-conscious individual business and leisure travelers, a typical Fairfield Inn or Fairfield Inn & Suites has 60 to 140 rooms and offers a swimming pool, complimentary continental breakfast and free local phone calls. At year-end there were 445 Fairfield Inns and 79 Fairfield Inn & Suites (524 hotels total), operating in the United States and Mexico.

SpringHill Suites is our all-suite brand in the upper moderate-price tier targeting business travelers, leisure travelers and families. SpringHill Suites typically have 90 to 165 studio suites that are 25 percent larger than a typical hotel guest room. The brand offers a broad range of amenities including complimentary continental breakfast and exercise facilities. In 2004, the brand will also introduce free in-room high-speed internet and The Market (a self-serve food store open 24 hours a day). There were 110 properties located in the United States and Canada at January 2, 2004.

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Extended-Stay Lodging

Residence Inn, North America’s leading extended-stay brand, allows guests on long-term trips to maintain balance between work and life while away from home. Spacious suites with full kitchens and separate areas for sleeping, working, relaxing and eating offer home-like comfort with functionality. A friendly staff and welcome services like complimentary hot breakfast and evening social hours add to the sense of community. There are 449 Residence Inn hotels across North America.

TownePlace Suites is a moderately priced extended-stay hotel product that is designed to appeal to business and leisure travelers who stay for five nights or more. The typical TownePlace Suites hotel contains 100 studio, one-bedroom and two-bedroom suites. Each suite has a fully equipped kitchen and separate living area with a comfortable, residential feel. Each hotel provides housekeeping services and has on-site exercise facilities, an outdoor pool, 24-hour staffing and laundry facilities. At January 2, 2004, 111 TownePlace Suites (11,381 rooms) were located in 34 states.

Marriott ExecuStay provides furnished corporate apartments for stays of one month or longer nationwide. ExecuStay owns no residential real estate and provides units primarily through short-term lease agreements with apartment owners and managers and franchise agreements. In 2003, consistent with our plan to shift the business toward franchising, the total number of units leased by ExecuStay decreased and 10 franchise markets were added. At January 2, 2004, Marriott ExecuStay’s franchise program, launched in July 2002, included eight franchisees covering 11 U.S. markets.

Marriott Executive Apartments and other. We provide temporary housing (serviced apartments) for business executives and others who need quality accommodations outside their home country, usually for 30 or more days. Some serviced apartments operate under the Marriott Executive Apartments brand, which is designed specifically for the long-term international traveler. At January 2, 2004, 13 serviced apartment properties (2,322 units), including nine Marriott Executive Apartments, were located in eight countries and territories. All Marriott Executive Apartments are located outside the United States.

Timeshare

Marriott Vacation Club International develops, sells and operates vacation timesharing resorts under four brands. Revenues are generated from three primary sources: (1) selling fee simple and other forms of timeshare intervals, (2) financing consumer purchases of timesharing intervals, and (3) operating the resorts.

Many timesharing resorts are located adjacent to Marriott hotels, and timeshare owners have access to certain hotel facilities during their vacation. Owners can trade their annual interval for intervals at other Marriott timesharing resorts or for intervals at certain timesharing resorts not otherwise sponsored by Marriott through a third party exchange company. Owners can also trade their unused interval for points in the Marriott Rewards frequent stay program, enabling them to stay at over 2,400 Marriott hotels worldwide.

Marriott Vacation Club International (MVCI) brand offers full service villas featuring living and dining areas, one, two and three bedroom options, full kitchen and washer/dryer. In 41 locations worldwide this brand draws U.S. and international customers who vacation regularly with a focus on family, relaxation, and recreational activities. In the U.S., MVCI is located in beach and golf communities in California, Hawaii, the Carolinas and Florida and in ski resorts in Colorado, California and Utah. MVCI has a growing international presence with resorts in Thailand, France and Spain.

The Ritz-Carlton Club brand is a luxury tier real estate fractional brand that combines the benefits of second home ownership with personalized services and amenities. This brand is designed as a private club whose members have access to all Ritz-Carlton Clubs. This brand is offered in ski, golf and beach destinations in Colorado, St. Thomas, U.S.V.I., and Florida.

Marriott Grand Residence Club is an upper quality tier fractional ownership brand for corporate and leisure customers. This new brand is currently offering ownership in projects located in Lake Tahoe, California and London.

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Horizons by Marriott Vacation Club International is Marriott Vacation Club’s moderately priced timeshare brand whose product offerings and customer base are currently focused on facilitating family vacations in entertainment communities. Today, Horizons resorts are located in Orlando and Branson, Missouri.

We expect that our future timeshare growth will increasingly reflect opportunities presented by partnerships, joint ventures, and other business structures. In 2003 MVCI entered into a joint venture with a third-party builder to build a new project in Las Vegas. We also entered into a sales and marketing agreement in connection with an existing non-Marriott project. Marriott Vacation Club International opened six resorts in 2003: four under the MVCI brand (Ko’Olina and Waiohai in Hawaii, Playa Andaluza in Spain, and Village d’Ile de France outside of Paris) together with The Ritz-Carlton Club in Jupiter, Florida and the Grand Residence Club in London. Our project in Myrtle Beach, South Carolina opened for sales in 2003, and we expect that the resort will open in June 2004. MVCI continues to offer timeshare intervals in its moderate-tier brand, Horizons by Marriott Vacation Club International.

Marriott Vacation Club International’s owner base continues to expand, with 256,000 owners at year end 2003, compared to 223,000 in 2002.

Other Activities

Marriott Golf manages 23 golf course facilities as part of our management of hotels and for other golf course owners.

We operate 19 systemwide hotel reservation centers, 13 of them in the United States and Canada and six in other countries and territories, that handle reservation requests for Marriott lodging brands worldwide, including franchised properties. We own one of the U.S. facilities and lease the others.

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 their management or franchise contracts. Consistent with 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. There are approximately 600 lodging management companies in the United States, including several 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. 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.

Affiliation with a national or regional brand is prevalent in the U.S. lodging industry. In 2003, approximately two-thirds 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 fairly concentrated, with the three 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. 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 an 8 percent share of the U.S. hotel market (based on number of rooms), and less than a 1 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

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generate higher occupancies and Revenue per Available Room (REVPAR) than direct competitors in most market areas. We attribute this performance premium to our success in achieving and maintaining strong customer preference. Approximately 34 percent of our timeshare ownership resort sales come from additional purchases by or referrals from existing owners. We believe that the location and quality of our lodging facilities, our marketing programs, our reservation systems and our emphasis on guest service and satisfaction are contributing factors across all of our brands.

Properties that we operate or franchise are regularly upgraded to maintain their competitiveness. Our management, lease, and franchise agreements provide for the allocation of funds, generally a fixed percentage of revenue, for periodic renovation of buildings and replacement of furnishings. We believe that these ongoing refurbishment programs are adequate to preserve the competitive position and earning power of the hotels and timeshare properties. We also strive to update and improve the products and services we offer. We believe that by operating a number of hotels among our brands, we stay in direct touch with customers and react to changes in the marketplace more quickly than chains that rely exclusively on franchising.

The vacation ownership industry is one of the fastest growing segments in hospitality and is comprised of a number of highly competitive companies including several branded hotel companies. Since entering the timeshare industry in 1984, we have become a recognized leader in vacation ownership worldwide. Competition in the timeshare business is based primarily on the quality and location of timeshare resorts, the pricing of timeshare intervals and the availability of program benefits, such as exchange programs. We believe that our focus on offering distinct vacation experiences, combined with our financial strength, diverse market presence, strong brands and well-maintained properties, will enable us to remain competitive.

Marriott Rewards is a frequent guest program with nearly 20 million members and nine participating Marriott brands. The Marriott Rewards program yields repeat guest business by rewarding frequent stays with points toward free hotel stays and other rewards, or airline miles with any of 24 participating airline programs. We believe that Marriott Rewards generates substantial repeat business that might otherwise go to competing hotels. In addition, the ability of Marriott Vacation Club International timeshare owners to convert unused intervals into Marriott Rewards points enhances the competitive position of our timeshare brand.

Synthetic Fuel

Our synthetic fuel operation consists of our minority ownership interest in four coal-based synthetic fuel production facilities, two of which are located at a coal mine in Saline County, Illinois and the remaining two are located at a coal mine in Jefferson County, Alabama. The operation creates a fuel that qualifies for tax credits pursuant to Section 29 of the Internal Revenue Code. This tax credit program expires on December 31, 2007. We held all of the ownership in the synthetic fuel business prior to June 21, 2003, when we completed a previously announced sale of an approximately 50 percent ownership interest in the operation.

At both of the locations, the synthetic fuel operation has entered into long-term site leases at sites that are adjacent to large underground mines as well as barge load-out facilities on navigable rivers. In addition, the synthetic fuel operation has entered into long-term fixed-price coal purchase agreements with the owners of the adjacent coal mines and long-term fixed-price synthetic fuel sales contracts with the Tennessee Valley Authority and with Alabama Power Company, two major utilities. These contracts ensure that the operation has long-term agreements to purchase coal and sell synthetic fuel, covering approximately 80 percent of the productive capacity of the facilities. From time to time, the synthetic fuel operation supplements these base contracts, as opportunities arise, by entering into short-term spot contracts to buy coal from other coal mines and sell synthetic fuel to these or different end users. The operation is slightly seasonal as the synthetic fuel is mainly burned to produce electricity and electricity use peaks in the Summer in the markets served by the synthetic fuel operation.

In addition, the synthetic fuel operation has entered into a long-term operations and maintenance agreement with an experienced manager of synthetic fuel facilities. This manager is responsible for staffing the facilities, operating and maintaining the machinery and conducting routine maintenance on behalf of the synthetic fuel operation.

Finally, the synthetic fuel operation has entered into a long-term license and binder supply agreement with Headwaters Incorporated, which permits the operation to utilize a carboxylated polystyrene copolymer emulsion patented by Headwaters and manufactured by Dow Chemical to facilitate converting the coal into a qualified synthetic fuel.

On November 7, 2003, the U.S. Internal Revenue Service issued private letter rulings to the synthetic fuel joint venture confirming that the synthetic fuel produced by the facilities is a “qualified fuel” under Section 29 of the Internal Revenue Code and that the resulting tax credit may be allocated among the members of the Synthetic Fuel joint venture.

Discontinued Operations

Marriott Senior Living Services

On December 17, 2002, we sold 12 senior living communities to CNL Retirement Properties, Inc. (“CNL”) for approximately $89 million in cash. We accounted for the sale under the full accrual method in accordance with Statement of Financial Accounting Standards (“FAS”) No. 66, and we recorded an after-tax loss of approximately $13 million. On December 30, 2002, we entered into definitive agreements to sell our senior living management

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business to Sunrise Senior Living, Inc. (Sunrise) and to sell nine senior living communities to CNL. We completed these sales to Sunrise and CNL in addition to the related sale of a parcel of land to Sunrise on March 28, 2003, for $266 million and recognized a gain, net of taxes, of $23 million.

Also, on December 30, 2002, we purchased 14 senior living communities for approximately $15 million in cash, plus the assumption of $227 million in debt, from an unrelated owner. We had previously agreed to provide a form of credit enhancement on the outstanding debt related to these communities. Management approved and committed to a plan to sell these communities within 12 months. As part of that plan, on March 31, 2003, we acquired all of the subordinated credit-enhanced mortgage securities relating to the 14 communities in a transaction in which we issued $46 million of unsecured Marriott International, Inc. notes, due April 2004. In the 2003 third quarter, we sold the 14 communities to CNL for approximately $184 million. We provided a $92 million acquisition loan to CNL in connection with the sale. Sunrise currently operates and will continue to operate the 14 communities under long-term management agreements. We accounted for the sale in accordance with FAS No. 66 and recorded a gain, net of taxes, of $1 million.

For the year ended January 3, 2003, we recorded an after-tax charge of $131 million associated with our agreement to sell our senior living management business.

As a result of the above transactions we now report this business in discontinued operations.

Marriott Distribution Services

Prior to its discontinuance, Marriott Distribution Services (MDS) was a United States limited-line distributor of food and related supplies to Marriott businesses and unrelated third parties. In the third quarter of 2002, we completed a strategic review of the Distribution Services business and decided to exit the business. As of January 3, 2003, through a combination of sale and transfer of nine facilities and the termination of all operations at four facilities, we completed our exit of the Distribution Services business. Accordingly, we now report this business in discontinued operations.

Employee Relations

At January 2, 2004, we had approximately 128,000 employees. Approximately 7,100 employees were represented by labor unions. We believe relations with our employees are positive.

Other Properties

In addition to the operating properties discussed above, we lease five office buildings with combined space of approximately 1,140,000 square feet in Bethesda, Maryland, Chevy Chase, Maryland and Orlando, Florida where our corporate, Ritz-Carlton and Marriott Vacation Club International headquarters are located, respectively.

We believe our properties are in generally good physical condition with the need for only routine repairs and maintenance and periodic capital improvements.

Internet Address and Company SEC Filings

Our internet address is www.marriott.com. On our website, we provide a link to our electronic SEC filings, 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.

Executive Officers of the Registrant

See Item 10 on page 79 of this report for information about our executive officers.

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Current Proceedings

The CTF/HPI arbitration and litigation and the Strategic Hotel litigation are described under the caption heading “Litigation and Arbitration” in Footnote 19 of the Notes to Consolidated Financial Statements set forth in Part II, Item 8 of this annual report and are hereby incorporated by reference. We believe that the claims made against us in each of those proceedings are without merit, and we intend to vigorously defend against them. However, we cannot assure you as to the outcome of these lawsuits, nor can we currently estimate the range of potential losses to the Company.

From time to time we are also subject to certain legal proceedings and claims in the ordinary course of business. We currently are not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.

Recently Terminated Proceedings

Senior Housing and Five Star litigation. The Company and Marriott Senior Living Services, Inc. (“SLS”) (which on March 28, 2003, became a subsidiary of Sunrise Senior Living) were parties to actions in the Circuit Court for Montgomery County, Maryland and the Superior Court for Middlesex County, Massachusetts both initiated on November 27, 2002 (the Massachusetts court subsequently dismissed the Massachusetts action on March 4, 2003). These actions related to 31 senior living communities that SLS operates for Senior Housing Properties Trust (“SNH”) and Five Star Quality Care, Inc. (“FVE”), and SNH/FVE’s attempt to terminate the operating agreements for these communities. In the fourth quarter of 2003, the parties entered into settlement discussions and on January 7, 2004, the parties settled the suit on terms not material to us. The parties expect to receive formal notice of dismissal from the Maryland court in the near future.

Whitehouse Hotel litigation. On April 7, 2003, Whitehouse Hotel Limited Partnership and WH Holdings, L.L.C., the owners of the New Orleans Ritz-Carlton Hotel, filed suit against us and The Ritz-Carlton Hotel Company, L.L.C. (“Ritz-Carlton”) in the Civil District Court for the Parish of New Orleans, Louisiana. On October 24, 2003 the parties settled the suit on terms not material to us and on November 3, 2003 the suit was dismissed with prejudice upon joint motion of the parties.

Shareholders Derivative Actions (also recently resolved)

On January 16, 2003, Daniel and Raizel Taubenfeld filed a shareholder’s derivative action in Delaware Chancery Court against each member of our Board of Directors and against Avendra LLC. The company was named as a nominal defendant. The individual defendants were accused of exposing the company to accusations and lawsuits which allege wrongdoing on the part of the company. The complaint alleged that, as a result, the company’s reputation had been damaged leading to business losses and the compelled renegotiation of some management contracts. The substantive allegations of the complaint were derived exclusively from prior press reports. The plaintiffs made no damage claim against us, nor did they assert any specific damage amount against the individual defendants. Both the directors and the Company moved to dismiss this action. The court granted that motion on October 28, 2003, dismissing the complaint with prejudice as to the named plaintiffs only.

On July 2, 2003, the Taubenfelds also initiated an action in Delaware Chancery Court pursuant to Section 220 of the Delaware General Corporation Law, to obtain access to certain of the Company’s books and records, which remains outstanding. Amalgamated Bank brought a similar shareholder action for access to books and records under Section 220 in Delaware Chancery Court on July 8, 2003. During the fourth quarter of 2003, we entered into separate settlement agreements with the Taubenfelds and with Amalgamated Bank pursuant to which we will produce a limited number of documents. Once confidentiality agreements are entered into, these two proceedings will also be dismissed.

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None.

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Part II

Market Information and Dividends

The range of prices of our common stock and dividends declared per share for each quarterly period within the last two years are as follows:

At January 30, 2004, there were 230,054,286 shares of Class A Common Stock outstanding held by 47,202 shareholders of record. Our Class A Common Stock is traded on the New York Stock Exchange, Chicago Stock Exchange, Pacific Stock Exchange and Philadelphia Stock Exchange. The year-end closing price for our stock was $34.28 on January 3, 2003 and $46.15 on January 2, 2004.

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The following table presents summary selected historical financial data for the Company derived from our financial statements as of and for the five fiscal years ended January 2, 2004.

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 Consolidated Financial Statements.

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BUSINESS AND OVERVIEW

We are a worldwide operator and franchisor of 2,718 hotels and related facilities. Our operations are grouped into five business segments, Full-Service Lodging, Select-Service Lodging, Extended-Stay Lodging, Timeshare and Synthetic Fuel. In our Lodging business, we operate, develop and franchise under 14 separate brand names in 68 countries. We also operate and develop Marriott timeshare properties under four separate brand names.

We earn base, incentive and franchise fees based upon the terms of our management and franchise agreements. Revenues are also generated from the following sources associated with our timeshare business: (1) selling timeshare intervals, (2) operating the resorts, and (3) financing customer purchases of timesharing intervals. In addition, we earn revenues and generate tax credits from our Synthetic Fuel joint venture.

We evaluate the performance of our segments based primarily on the results of the segment without allocating corporate expenses, interest expense, and interest income. With the exception of our Synthetic Fuel segment, we do not allocate income taxes to our segments. As timeshare note sales are an integral part of the timeshare business, we include timeshare note sale gains in our timeshare segment results and we allocate other gains as well as equity income (losses) from our joint ventures to each of our segments.

This historically challenging time in the lodging industry has demonstrated Marriott International’s resilience, the strength of our business model, superior brands, strong management team and dedicated associates. We are optimistic about a stronger business climate in 2004. And with the final disposition of our senior living and distribution services businesses in 2003, we look forward to operating as a focused lodging and timeshare company for the first time in our 76-year history. In 2003, we grew productivity at the hotel level leveraging our buying power and systems. Greater integration of sophisticated scheduling systems reduced hours worked per occupied room by over 10 percent in 2003 over 2000 levels for participating hotels. In addition, food and supply costs were reduced due to greater participation in our centralized procurement and accounts payable systems. By pooling risk among our managed hotel portfolio, we continued to purchase insurance at a lower cost than any property could purchase alone.

By the end of 2003, we had high-speed internet access available in approximately 1,400 hotels, far outpacing our competition. We also introduced wireless internet access in lobbies, meeting rooms and public spaces in over 900 hotels in the U.S. during the year.

CONSOLIDATED RESULTS

The following discussion presents an analysis of results of our operations for fiscal years ended January 2, 2004, January 3, 2003 and December 28, 2001.

Continuing Operations

Revenues

($ in millions)

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Income from Continuing Operations

2003 Compared to 2002

Revenues from continuing operations increased 7 percent to $9 billion in 2003 reflecting revenue from new lodging properties, partially offset by lower demand for hotel rooms and consequently lower fees to us.

Income from continuing operations, net of taxes, increased 8 percent to $476 million, and diluted earnings per share from continuing operations advanced 11 percent to $1.94. Synthetic Fuel operations contributed $96 million in 2003 compared to $74 million in 2002. Our lodging financial results declined $5 million, to $702 million in 2003. The comparisons from 2002 benefit from the $50 million pretax charge to write-down acquisition goodwill for ExecuStay in 2002, offset by the $44 million pretax gain on the sale of our investment in Interval International in 2002, and further benefit from our 2003 receipt of a $36 million insurance settlement for lost management fees associated with the New York Marriott World Trade Center hotel, which was destroyed in the 2001 terrorist attacks.

2002 Compared to 2001

Revenues from continuing operations increased 8 percent to $8.4 billion in 2002 reflecting the sales of our new Synthetic Fuel operation and revenue from new lodging properties, partially offset by a slowdown in the economy and the resulting decline in lodging demand.

Income from continuing operations, net of taxes, increased 63 percent to $439 million, and diluted earnings per share from continuing operations advanced 66 percent to $1.74. Income from continuing operations reflected $74 million associated with our synthetic fuel operation, the results also reflected a $44 million pretax 2002 gain on the sale of our investment in Interval International, offset by the $50 million pretax 2002 charge to write-down the acquisition goodwill for ExecuStay and the decreased 2002 demand for hotel rooms and executive apartments. The comparisons to 2001 include the impact of the $204 million pretax restructuring and other charges that we recorded against continuing operations in the fourth quarter of 2001.

Operating Income

2003 Compared to 2002

Operating income increased 17 percent to $377 million in 2003. The favorable comparisons to 2002 include the impact of the $50 million write-down of goodwill recorded in 2002 associated with our ExecuStay business, the 2003 receipt of $36 million of insurance proceeds associated with lost management fees resulting from the destruction of the Marriott World Trade Center hotel and lower 2003 operating losses from our Synthetic Fuel operation. In 2003, our Synthetic Fuel business generated operating losses of $104 million, compared to $134 million in 2002. Operating income in 2003 was hurt by $53 million of lower incentive fees, which resulted from the weak operating environment in domestic lodging.

2002 Compared to 2001

Operating income decreased 24 percent to $321 million largely as a result of the $50 million write-down of goodwill associated with our ExecuStay business. In addition, we recorded $134 million of operating losses associated with our Synthetic Fuel operation, which commenced operations in 2002. The comparisons to 2001 are impacted by the $155 million restructuring and other charges recorded against operating income in 2001 and a $40 million reduction in incentive fees resulting from the decline in hotel demand.

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Marriott Lodging

We consider lodging revenues and lodging financial results to be meaningful indicators of our performance because they measure our growth in profitability as a lodging company and enable investors to compare the sales and results of our lodging operations to those of other lodging companies.

2003 Compared to 2002

Lodging, which includes our Full-Service, Select-Service, Extended-Stay, and Timeshare segments, reported financial results of $702 million in 2003, compared to $707 million in 2002 and revenues of $8,712 million in 2003, a 6 percent increase, compared to revenues of $8,222 million in 2002. The lodging revenue and financial results include the receipt of a $36 million insurance settlement for lost revenues associated with the New York World Trade Center hotel. Our revenues from base management fees totaled $388 million, an increase of 2 percent, reflecting 3 percent growth in the number of managed rooms and a 1.9 percent decline in REVPAR for our North American managed hotels. Incentive management fees were $109 million, a decline of 33 percent, reflecting the decline in REVPAR as well as lower property level house profit. House profit margins declined 2.7 percentage points, largely due to lower average room rates, higher wages, insurance and utility costs, and lower telephone profits, offset by continued productivity improvements. Franchise fees totaled $245 million, an increase of 6 percent. The comparison to 2002 includes the impact of the $50 million pretax write-down of ExecuStay goodwill recorded in 2002, partially offset by a $44 million pretax gain related to the sale of our investment in Interval International.

2002 Compared to 2001

Lodging financial results increased 10 percent to $707 million, and revenues increased 6 percent to $8,222 million. Results reflected a $44 million pretax gain related to the sale of our investment in Interval International, a timeshare exchange company, and increased revenue associated with new properties partially offset by lower fees due to the decline in demand for hotel rooms. Our revenues from base management fees totaled $379 million, an increase of 2 percent. Franchise fees totaled $232 million, an increase of 5 percent and incentive management fees were $162 million, a decline of 20 percent. The $50 million write-down of acquisition goodwill associated with our executive housing business, ExecuStay, reduced Lodging results in 2002. The 2002 comparisons are also impacted by $115 million restructuring costs and other charges recorded against lodging results in 2001.

Lodging Development

Marriott Lodging opened 185 properties totaling over 31,000 rooms across its brands in 2003, while 24 hotels (approximately 4,000 rooms) exited the system. Highlights of the year included:

At year-end 2003, we had over 300 hotel properties and approximately 50,000 rooms under construction, awaiting conversion, or approved for development. We expect to open over 175 hotels and timeshare resorts (approximately 25,000 to 30,000 rooms) in 2004. These growth plans are subject to numerous risks and uncertainties, many of which are outside our control. See “Forward-Looking Statements” above and “Liquidity and Capital Resources” below.

REVPAR

We consider Revenue per Available Room (REVPAR) to be a meaningful indicator of our performance because it measures the period over period change in room revenues for comparable properties. We calculate REVPAR by dividing room sales for comparable properties by room nights available to guests for the period. REVPAR may not be comparable to similarly titled measures such as revenues.

The following table shows occupancy, average daily rate and REVPAR for each of our comparable principal established brands. We have not presented statistics for company-operated North American Fairfield Inn and SpringHill Suites properties here (or in the comparable information for the prior years presented later in this report) because we operate only a small number of properties as both these brands are predominantly franchised and such information would not be meaningful for those brands (identified as “nm” in the tables below). Systemwide

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statistics include data from our franchised properties, in addition to our owned, leased and managed properties. Systemwide International statistics by region are based on comparable worldwide units, excluding North America.