Arizona, California, the Carolinas,South Carolina, Florida, and Hawaii and in ski resorts in California, Colorado, and Utah. Internationally, MVCIMVC has resorts in Aruba, France, Spain, St. Thomas (U.S. Virgin Islands), the West Indies, and Thailand.

The Ritz-Carlton Club brand is a luxury-tier real estate fractional ownership and personal residence brand that combines the benefits of second homesecond-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 brandClubs, and is offered in ski, golf, and beach destinations in the Bahamas, California, Colorado, St. Thomas U.S.V.I.(U.S. Virgin Islands), Florida, and Florida.Hawaii. Customers typically purchase three-to-five-week intervals, but may also purchase a residence outright.

Marriott Grand Residence ClubResidences by Marriott is an upper-quality-tier fractional ownership and personal residence brand for corporate and leisure customers. This brand is currently offering ownership in projects located in Lake Tahoe, California, Panama City, Florida, and London, England. Customers typically purchase three-to-13-week intervals.

Horizons by Marriott Vacation Club Internationalis Marriott Vacation Club’s moderately priced timeshare brand whose product offerings and customer base are currently focused on facilitatingoffering family vacations in entertainment communities. Horizons resorts are located in Orlando, Florida and Branson, Missouri. Customers may purchase a one-week interval or more at each resort.

We expect that our futurelong-term timeshare growth will increasingly reflect opportunities presented by partnerships, joint ventures,various third-party business structures, as well as a continued focus on our core and other business structures. In 2004, we initiated sales at our Las Vegas joint venture, and we expect to open the Las Vegas resort in the third quarter of 2005.predominantly wholly owned Marriott Vacation Club International openedbrand. We also anticipate that residential and fractional products, especially of the following three resorts in 2004 underluxury The Ritz-Carlton Club brand, will offer the MVCI brand: Aruba Surf Club in Aruba, Canyon Villas in Phoenix, Arizona, and Ocean Watch in Myrtle Beach, South Carolina. Our project in Hilton Head, South Carolina, opened for sales in 2004, and we expect thatfastest growth opportunity over the resort will open inshort-term within the second quarter of 2005.Timeshare segment.

Marriott Vacation Club International’sThe Timeshare segment’s owner base continues to expand, with approximately 281,500371,000 owners at year-end 2004,2007, compared to approximately 256,000343,000 at year-end 2003.2006.

Timeshare (all brands)New Lodging Products

Nickelodeon Resorts by Marriott. In May 2007, we announced our new brand of family-friendly resorts and spas, “Nickelodeon Resorts by Marriott.” These upscale, self-contained resorts are expected to feature Nickelodeon signature activities, state-of-the-art pools, water parks, entertainment starring Nickelodeon’s characters such as Dora the Explorer and SpongeBob SquarePants, and spas for adults and kids. Projects are in various stages of development in the United States, and we expect to open the first property in San Diego in 2010. Other potential resort locations being considered for development include major family-oriented destinations in the United States, Caribbean and Mexican resort areas, the United Kingdom and Europe, Asia, Australia, and the Middle East.

Edition. In June 2007, we announced that we had joined forces with hotel innovator Ian Schrager to create next-generation lifestyle boutique hotels. Edition combines a personal, intimate, individualized, and unique lodging experience on a global scale. These new lifestyle boutique hotels attempt to push the boundaries, break new ground, and take the hotel industry to a new level. Plans include building and operating up to 100 distinct hotels around the world.

Other Activities

Marriott Golf manages 3144 golf course facilities as part of our management of hotels and for other golf course owners.

We operate 1814 systemwide hotel reservation centers, 10eight in the United States and Canada and eightsix in other countries and territories, thatwhich handle reservation requests for Marriottour lodging brands worldwide, including franchised properties. We own one of the U.S. facilities and lease the others.

Additionally, we focus on increasing value for the consumer and “selling the way the customer wants to buy.” Our Look No Further^® Best Rate Guarantee, which givesassures customers access to the samethat they won’t find cheaper rates whether they bookthan those available through our telephone reservation system, our webWeb site or any other Marriott reservation channel;channel, our

strong Marriott Rewards loyalty program;program, and our information-rich and easy to use Marriott.com webeasy-to-usewww.Marriott.com Web site all encourage customers to make reservations using the Marriott webWeb site. We have complete control over ourOur reservation system manages and controls inventory availability and pricing set by our hotels, and allows us to utilize online and offline agents on an as-needed basis. The shift of hotel bookings to our web site from other online channels results in higher revenue, margins and profitability.where cost effective. With over 2,600almost 3,000 hotels economies of scale enable us to reduceminimize costs per occupied room, drive profits for our owners, and increasemaximize our fee revenue.

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 theirour management or franchise contracts. Consistent withSimilar to third-party contractors, A&C provides these services for owners and franchisees of Marriott-branded properties on a fee basis.

Competition

We encounter strong competition both as a lodging operator and as a franchisor. We believe that by operating a number of hotels among our brands, we stay in direct touch with customers and react to changes in the marketplace more quickly than chains that rely exclusively on franchising. There are approximately 675770 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. ManagementOur 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 2004,2007, 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 threesix largest franchisors operating multiple brands accounting for a significant proportion of all U.S. rooms.

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

Based on lodging industry data, we have less than an 8.4a 9 percent share of the U.S. hotel market (based on number of rooms), and we estimate 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 generate higher occupancies and Revenue per Available Room (REVPAR)(“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. OurMost of 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 theseThese ongoing refurbishment programs, along with periodic brand initiatives, are generally adequate to preserve or enhance the competitive position and earning power of the hotels and timeshare properties.

While service excellence is Marriott’s hallmark, we continually look for new ways to delight our guests. Currently, we are focused on elevating the Marriott experience beyond that of a traditional hotel stay to a total guest experience that encompasses exceptional style, personal luxury, and superior service. This approach to hospitality, “The New Look and Feel of Marriott Now,” is influenced by the world’s foremost innovations in design, technology, culinary expertise, service, and comfort.

This evolution can begin to be seen across all of our brands, in new and stylish hotel designs, luxurious bedding, exotic destinations, enhancedworld-class spas and fitness centers, sumptuous spas and expanded culinary offerings.inspired cuisine. Each brand, whetherfrom luxury orto moderately priced, will be more upscale and attuned to customer needs than ever before. We believe

Our At Your Service^®program focuses on the total guest experience from point of reservation to checkout. As part of the pre-arrival planning service, guests receive a personalized email prior to check-in that by operatingincludes local transportation, weather, and restaurant information, as well as directions and maps. At a growing number of hotels amongand resorts, service has been expanded to include a “virtual concierge.” Guests are able to reserve spa treatments, room service for delivery upon arrival, and other amenities specific to each property. Guests may also request complimentary amenities such as extra pillows, miniature refrigerators, and early check-in or late checkout. We have also streamlined the travel planning and booking process with the addition of Marriott Flexrez to At Your Service. In addition to booking hotel rooms onwww.Marriott.com, our brands, we stay in direct touch withonline customers can now find competitive airfare and react to changes in the marketplace more quickly than chains that rely exclusively on franchising.car rental rates there as well.

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,over 20 years ago, we have become a recognized leader in vacation ownership worldwide. Competition in the timeshare interval, fractional, and residential business is based primarily on the quality and location of timeshare resorts, trust in the brand, the pricing of timeshare intervalsproduct offerings, 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.

Approximately 40 percent of our timeshare ownership resort sales come from additional purchases by or referrals from existing owners.

Marriott Rewards is a frequent guest program with over 2128 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 2629 participating airline programs. We believe that Marriott Rewards generates substantial repeat business that might otherwise go to competing hotels. In 2004, approximately 402007, over 50 percent of our room nights were purchased by Marriott Rewards members. 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 FuelDiscontinued Operations

OperationsSynthetic Fuel

Our synthetic fuel operation currently consistsconsisted of our interest in four coal-based synthetic fuel production facilities (the “Facilities”), two of which are located at a coal mine in Saline County, Illinois, with the remaining two located at a coal mine in Jefferson County, Alabama. Three. Because tax credits under Section 45K of the four plants are held in one entity, and one of the plants is held in a separate entity. The synthetic fuel produced at the Facilities through 2007 qualifies for tax credits based on Section 29 of the Internal Revenue Code (creditsIRC are not available for fuel produced after 2007). Although the Facilities incur significant losses, these losses are more than offset by the tax credits generated under Section 29, which reduce our income tax expense.

At bothproduction and sale 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 coal purchase agreements with the owners of the adjacent coal mines and long-term 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 spot contracts to buy coal from these or other coal mines and sell synthetic fuel to 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. The long-term contracts can generally be cancelled by us in the event that we choose not to operate the Facilities or that the synthetic fuel produced at the Facilities does not qualify for tax credit under Section 29 of the Internal Revenue Code.

In addition, the synthetic fuel operation has entered into a long-term operationsfrom coal after calendar year-end 2007, 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 purchase agreement with Headwaters Incorporated, which permits the operation to utilize a carboxylated polystyrene copolymer emulsion patented by Headwaters and manufactured by Dow Chemical that is mixed with coal to produce a qualified synthetic fuel.

Our Investment

We acquired the Facilities from PacifiCorp Financial Services (“PacifiCorp”) in October 2001 for $46 million in cash. We began operating these Facilitiesbecause high oil prices during 2007 will result in the first quarter of 2002.

On June 21, 2003, we sold an approximately 50 percent ownership interest in the synthetic fuel entities. We received cash and promissory notes totaling $25 million at closing, and we are receiving additional profits that we expect will continue over the life of the ventures based on the actual amount of tax credits allocated to the purchaser.

On November 7, 2003, the U.S. Internal Revenue Service (“IRS”) 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.

As a resultphase-out of a put option associated with the June 21, 2003, sale of a 50 percent ownership interest, we consolidated the two synthetic fuel joint ventures from that date through November 6, 2003. Effective November 7, 2003, because the put option was voided, we began accounting for the synthetic fuel joint ventures using the equity method of accounting. Beginning March 26, 2004, as a result of adopting FIN 46(R), “Consolidation of Variable Interest Entities,” we have again consolidated the synthetic fuel joint ventures, and we reflect our partner’s share of the operating losses as minority interest.

Internal Revenue Service Placed-in-Service Challenge

In July 2004, IRS field auditors issued a notice of proposed adjustment and later a Summary Report to PacifiCorp that included a challenge to the placed-in-service dates of three of the four synthetic fuel facilities owned by one of our synthetic fuel joint ventures. One of the conditions to qualify for tax credits under Section 29 of the Internal Revenue Code is that the production facility must have been placed in service before July 1, 1998.

We strongly believe that all the Facilities meet the placed-in-service requirement. Although we are engaged in discussions with the IRS and are confident this issue will be resolved in our favor and not result in a material charge to us, we cannot assure you as to the ultimate outcome of this matter.If ultimately resolved against us, we could be prevented from realizing projected future tax credits and cause us to reverse previously utilized tax credits, requiring payment of substantial additional taxes. Since acquiring the plants, we have recognized approximately $435 million of tax credits from all four plants through December 31, 2004. The tax credits recognized through December 31, 2004, associated with the three facilities in question totaled approximately $330 million.

On October 6, 2004, we entered into amendment agreements with our synthetic fuel partner that result in a shift in the allocation of tax credits between us. On the synthetic fuel facility that is not being reviewed by the IRS, our partner increased its allocation of tax credits from approximately 50 percent to 90 percent through March 31, 2005, and pays a higher price per tax credit to us for that additional share of tax credits. With respect to the three synthetic fuel facilities under IRS review, our partner reduced its allocation of tax credits from approximately 50 percent to an average of roughly 5 percent through March 31, 2005. If the IRS’ placed-in-service challenge regarding the three facilities is not successfully resolved by March 31, 2005, our partner will have the right to return its ownership interest in those three facilities to us at that time. We will have the flexibility to continue to operate at current levels, reduce production and/or sell an interest to another party. If there is a successful resolution by March 31, 2005, our partner’s sharesignificant portion of the tax credits from all four facilities will return to approximately 50 percent. In any event,available for synthetic fuel produced and sold in 2007, on March 31, 2005, our shareNovember 3, 2007, we shut down the Facilities and permanently ceased production of the tax credits from the one facility not under review will return to approximately 50 percent.

Discontinued Operations

Senior Living Services

On December 30, 2002, we entered into definitive agreements to sell our senior living management business to Sunrise Senior Living, Inc. (“Sunrise”) and to sell nine senior living communities to CNL Retirement Properties, Inc. (“CNL”), and we recorded after-tax charges of $131 million in 2002 associated with our agreement to sell our senior living management business. We completed the sales to Sunrise and CNL, in addition to the related sale of a parcel of land to Sunrise in March 2003, for $266 million. We recorded after-tax gains of $19 million in 2003.

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

Distribution Services

In the third quarter of 2002, we completed a strategic review of our Distribution Services business and decided to exit that 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. We recorded after-tax charges of $40 million in 2002 in connection with the decision to exit this business.synthetic fuel. Accordingly, we now report this business segment as a discontinued operation. The book value of the Facilities was zero at year-end 2007, as the Facilities have been transferred to third parties. Under the site leases for the Facilities, we were required to restore the leased premises to substantially the condition the premises were in discontinued operations.when the leases were originally executed. However, we executed agreements with the lessors of the sites pursuant to which we transferred the Facilities to the lessors in exchange for the release of our obligations to restore the leased premises to their original conditions. Costs associated with shutting down the synthetic fuel operation and transferring the Facilities to the site lessors were not material.

Employee Relations

At year-end 2007, we had approximately 151,000 employees, approximately 8,700 of which were represented by labor unions. We believe relations with our employees are positive.

Environmental Compliance

Our compliance with laws and regulations relating to environmental protection and discharge of hazardous materials has not had a material impact on our capital expenditures, earnings or competitive position, and we do not anticipate any material impact from such compliance in the future.

Internet Address and Company SEC Filings

Our Internet address iswww.Marriott.com. On the investor relations portion of our Web site,www.Marriott.com/investor, 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. The information found on our Web site is not part of this or any other report we file with or furnish to the United States Securities and Exchange Commission (the “SEC”).

Item 1A.

Risk Factors.

Forward-Looking Statements

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

Forward-looking statements involveare 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 assumptions, including risksuncertainties described below and other risks thatfactors we describe from time to time in our periodic filings with the SEC, and our actual results may differ materially from those expressed in our forward-looking statements.SEC. We therefore caution you not to rely unduly on any forward-looking statement.statements. The forward-looking statements in this report speak only as of the date of thethis report, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

Risks and Uncertainties

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

Lodging Industry Risks

The lodging industry is highly competitive, which may impact our ability to compete successfully with other hotel and timeshare properties for customers. We generally operate in markets that contain numerous competitors. Each of our hotel and timeshare brands competes with major hotel chains in national and international venues and with independent companies in regional markets. Our ability to remain competitive and to attract and retain business and leisure travelers depends on our success in distinguishing the quality, value, and efficiency of our lodging products and services from those offered by others. If we are unable to compete successfully in these areas, this could limit our operating margins, diminish our market share, and reduce our earnings.

We are subject to the range of operating risks common to the hotel, timeshare, and corporate apartment industries. The profitability of the hotels, vacation timeshare resorts, and corporate apartments that we operate or franchise may be adversely affected by a number of factors, including:

Any one or more of these factors could limit or reduce the demand and thereforeor the prices we are able to obtain for hotel rooms, timeshare units, residential units, and corporate apartments. In addition, reducedapartments or could increase our costs and therefore reduce the profit of our lodging businesses. Reduced demand for hotels could also give rise to losses under loans, guarantees, and minority equity investments that we have made in connection with hotels that we manage.

Even where such factors do not reduce demand, our profit margins may suffer if we are unable to fully recover increased operating costs from our customers.

The uncertain pace ofenvironment in the lodging industry’s recoveryindustry will continue to impact our financial results and growth.Both the Company and the lodging industry were hurt by several events occurring over the last fewseveral years, including the global economic downturn, the terrorist attacks on New York and Washington Severe Acute Respiratory Syndrome (SARS)in September 2001, the global outbreak of SARS in 2003, and military action in Iraq. Business and leisure travel decreased and remained depressed as some potential travelers reduced or avoided discretionary travel in light of increased delays and safety concerns and economic declines stemming from an erosion in consumer confidence. Weaker hotel performance reduced management and franchise fees and gave rise to fundings or losses under loans, guarantees and minority investments that we have made in connection with some hotels that we manage, which, in turn, has had a material adverse impact on our financial performance. Although by 2007 both the lodging and travel industries are recovering,had recovered from the pace, duration and full extentdepressed levels during those years, recent concerns over the possibility of that recovery remain unclear.an economic slowdown have left it unclear whether the recent growth environment will continue. Accordingly, our financial results and growth could be harmed if thatthe industry recovery stalls or is reversed.

Operational Risks

Our new branded hotel products may not be successful.We recently announced two new branded hotel products, Nickelodeon Resorts by Marriott^® and Edition, and may launch additional branded hotel products in the future. We cannot assure that these brands will be accepted by hotel owners, potential franchisees, or the traveling public, that we will recover the costs we incurred in developing the brands, or that the brands will be successful. In addition, each of these new brands involves cooperation and/or consultation with a third party, including some shared control over product design and development, sales and marketing and brand standards. Disagreements between us and these third parties regarding areas of consultation or shared control could slow the development of these new brands and/or impair Marriott’s ability to take actions it believes to be advisable for the success and profitability of such brands.

Our lodging operations are subject to international, national, and regional conditions. Because we conduct our business on a national and international platform, our activities are susceptible to changes in the performance of regional and global economies. In recent years, our business has beenwas hurt by decreases in travel resulting from recent economic conditions, the military action in Iraq, and the heightened travel security measures that have resulted from the threat of further terrorism. Our future economic performance is similarly subject to the uncertain magnitude and duration of the economic recoveryenvironment in the United States the prospects of improving economic performance inand other regions, the resulting unknown pace of any business travel, recovery that results, and the occurrence of any future incidents in the countries in whichwhere we operate.

Our growth strategy depends upon third-party owners/operators,Risks relating to natural disasters, contagious disease, terrorist activity, and future arrangements withwar could reduce the demand for lodging, which may adversely affect our revenues. So called “Acts of God,” such as hurricanes, earthquakes and other natural disasters, and the spread of contagious diseases, such as Avian Flu and SARS, in locations where we own, manage or franchise significant properties, and areas of the world from which we draw a large number of customers can cause a decline in the level of business and leisure travel and reduce the demand for lodging. Actual or threatened war, terrorist activity, political unrest, civil strife, and other geopolitical uncertainty can have a similar effect. Any one or more of these third partiesevents may be less favorable. Our present growth strategyreduce the overall demand for development of additional lodging facilities entails entering intohotel rooms, timeshare units, and maintaining various arrangements with property owners. The terms of our management agreements, franchise agreements and leases for each of our lodging facilitiescorporate apartments or limit the prices that we are influenced by contract terms offered by our competitors, among other things. We cannot assure you that any of our current arrangements will continue. Moreover, we may not be able to enter into future collaborations, or to renew or enter into agreements in the future, on terms that are as favorable to us as those under existing collaborations and agreements.obtain for them, both of which could adversely affect our profits.

We may have disputes with the owners of the hotels that we manage or franchise. Consistent with our focus on management and franchising, we own very few of our lodging properties. The nature of our responsibilities under our management agreements to manage each hotel and enforce the standards required for our brands under both management and franchise agreements may in some instances, be subject to interpretation and may give rise to disagreements.disagreements in some instances. We seek to resolve any disagreements in order to develop and maintain positive relations with current and potential hotel owners and joint venture partners but have not always been able to do so. Failure to resolve such disagreements has in the past resulted in litigation, and could do so in the future.

Damage to or other potential losses involving properties that we own, manage or franchise may not be covered by insurance. We have comprehensive property and liability insurance policies with coverage features and insured limits that we believe are customary. Market forces beyond our control may nonetheless limit the scope of insurance coverage that we can obtain and our ability to obtain coverage at reasonable rates. Certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods, or terrorist acts, may be uninsurable or too expensive to justify obtaining insurance. As a result, we may not be successful in obtaining insurance without increases in cost or decreases in coverage levels. In addition, in the event of a substantial loss, the insurance coverage we carry may not be sufficient to pay the full market value or replacement cost of our lost investment or that of hotel owners or in some cases could result in certain losses being totally uninsured. As a result, we could lose some or all of the capital we have invested in a property, as well as the anticipated future revenue from the property, and we could remain obligated for guarantees, debt, or other financial obligations related to the property.

Development and Financing Risks

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

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

We depend on capital to buy and maintain hotels, and hotel owners or we may be unable to access capital when necessary. In order to fund new hotel investments, as well as refurbish and improve existing hotels, both the Company and current and potential hotel owners must periodically spend money. The availability of funds for new investments and maintenance of existing hotels depends in large measure on capital markets and liquidity factors over which we can exert little control. Our ability to recover loan and guarantee advances from hotel operations or from owners through the proceeds of hotel sales, refinancing of debt or otherwise may also affect our ability to recycle and raise new capital. In addition, downgrades of our public debt ratings by Standard & Poor’s, Moody’s Investor Service or similar companies could increase our cost of capital.

InFurther volatility in the eventcredit markets could adversely impact our ability to sell the loans that our Timeshare business generates. Our Timeshare business provides financing to purchasers of damageour timeshare and fractional properties, and we periodically sell interests in those loans in the securities markets. While we do not believe that recent volatility in the credit markets will prevent us from continuing to sell those notes on attractive terms,further volatility could cause future sale terms to be materially less favorable to us or prevent us from selling our timeshare notes entirely, which in turn would reduce future gains and could result in increased borrowings to provide capital to replace anticipated proceeds from such sales.

Our development activities expose us to project cost, completion, and resale risks. We develop new hotel, timeshare interval, fractional ownership, and residential properties, both directly and through partnerships, joint ventures, and other potential losses involvingbusiness structures with third parties. Our involvement in the development of properties presents a number of risks, including that: (1) construction delays, cost overruns, or so called “Acts of God” such as earthquakes, hurricanes, floods or fires may increase overall project costs or result in project cancellations; (2) we may be unable to recover development costs we incur for projects that are not pursued to completion; (3) conditions within capital markets may limit our ability, or that of third parties with whom we do business, to raise capital for completion of projects that have commenced or development of future properties; and (4) properties that we own, managedevelop could become less attractive due to changes in mortgage rates, market absorption or franchise, potential losses may not be covered by insurance. We have comprehensive property and liability insurance policiesoversupply, with coverage features and insured limitsthe result that we believe are customary. Market forces beyond our control may nonetheless limit both the scope of property and liability insurance coverage that we can obtain and our ability to obtain coverage at reasonable rates. There are certain types of losses, generally of a catastrophic nature, such as earthquakes and floods or terrorist acts, that may be uninsurable or may be too expensive to justify insuring against. As a result, we may not be successful in obtaining insurance without increases in costable to sell such properties for a profit or decreases in coverage levels. In addition,at the prices or selling pace we may carry insurance coverageanticipate.

Development activities that in the event of a substantial loss, would not be sufficient to pay the full current market value or current replacement cost ofinvolve our lost investment or that of hotel owners, or in some cases could alsoco-investment with third parties may result in certain losses being totally uninsured. As a result, wedisputes that could lose all,increase project costs, impair project operations, or a portionincrease project completion risks. Partnerships, joint ventures, and other business structures involving our co-investment with third parties generally include some form of shared control over the operations of the capitalbusiness and create additional risks, including the possibility that other investors in such ventures could become bankrupt or otherwise lack the financial resources to meet their obligations, or could have or develop business interests, policies or objectives that are inconsistent with ours. Although we have investedactively seek to minimize such risks before investing in a property, as well as the anticipated future revenue from the property, and we could remain obligated for guarantees, debtpartnerships, joint ventures or other financial obligations related to the property.similar structures, actions by another investor may present additional risks of project delay, increased project costs, or operational difficulties following project completion.

Risks relating to actsassociated with development and sale of God, terrorist activityresidential properties that are associated with our lodging and wartimeshare properties or brands may reduce our profits. In certain hotel and timeshare projects we participate, through minority interests and/or licensing fees, in the development and sale of residential properties associated with

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

Technology, Information Protection, and Privacy Risks

A failure to keep pace with developments in locations wheretechnology could impair our operations or competitive position. The lodging and timeshare industries continue to demand the use of sophisticated technology and systems, including those used for our reservation, revenue management and property management systems, our Marriott Rewards program, and technologies we own, manage make available to our guests. These technologies and systems must be refined, updated, and/or franchise significant propertiesreplaced with more advanced systems on a regular basis. If we are unable to do so as quickly as our competitors or within budgeted costs and areas oftime frames, our business could suffer. We also may not achieve the worldbenefits that we anticipate from which we drawany new technology or system, and a large number of customers can cause a declinefailure to do so could result in higher than anticipated costs or could impair our operating results.

An increase in the level of business and leisure travel and reduce the demand for lodging. Wars (including the potential for war), terrorist activity (including threats of terrorist activity), political unrest and other forms of civil strife and geopolitical uncertainty can have a similar effect. Any one or more of these events may reduce the overall demand for hotel rooms, timeshare units and corporate apartments, or limit the prices that we are able to obtain for them, both of which could adversely affect our revenues.

Increasing use of internetthird-party Internet reservation services maycould adversely impact our revenues. Some of our hotel rooms are booked through internetInternet travel intermediaries, such as Expedia.com^®, Travelocity.com^®, and Priceline.com^®, serving both the leisure and, increasingly, the corporate travel and group meeting sectors. While Marriott’s Look No Further^® Best Rate Guarantee has greatly reduced the ability of these internetInternet travel intermediaries to undercut the published rates of Marriottat our hotels, these internet travel intermediaries continue their attempts to commoditize hotel rooms by aggressively marketing to price-sensitive travelers and corporate accounts and increasing the importance of general indicators of quality (such as “three-star downtown hotel”) at the expense of brand identification. These agencies hope that consumers will eventually develop brand loyalties to their travel services rather than to our lodging brands. Although we expect to continue to maintain and even increase the strength of our brands in the online marketplace, if the amount of sales made through internetInternet intermediaries increases significantly, our business and profitability may be harmed.

Failure to maintain the integrity of internal or customer data could result in faulty business decisions, damage of reputation and/or subject us to costs, fines or lawsuits. Our businesses require collection and retention of large volumes of internal and customer data, including credit card numbers and other personally identifiable information of our customers as they are entered into, processed by, summarized by, and reported by our various information systems. We also maintain personally identifiable information about our employees. The integrity and protection of that customer, employee, and company data is critical to us. If that data is not accurate or complete we could make faulty decisions. Our customers also have a high expectation that we will adequately protect their personal information, and the regulatory environment surrounding information security and privacy is increasingly demanding, both in the U.S. and other international jurisdictions in which we operate. A significant theft, loss or fraudulent use of customer, employee or company data could adversely impact our reputation and could result in remedial and other expenses, fines and litigation.

Changes in privacy law could adversely affect our ability to market our products effectively. Our timeshare business,Timeshare segment, and to a lesser extent our other lodging segments, rely on a variety of direct marketing techniques, including telemarketing, email marketing, and masspostal mailings. Recent initiatives,Any further restrictions in laws such as the National Do Not Call RegistryTelemarketing Sales Rule, CANSPAM Act, and various U.S. state laws, or new federal laws, regarding marketing and solicitation including anti-spam legislation, have created some concern aboutor international data protection laws that govern these activities could adversely affect the continuing effectiveness of telemarketing, email, and masspostal mailing techniques and could force further changes in our marketing strategy. If this occurs, we may not be able to develop adequate alternative marketing strategies, which could impact the amount and timing of our sales of timeshare units and other products. We also obtain lists ofaccess to potential customers from travel service providers or other companies with whom we have substantial relationships and market to some individuals on these lists directly.directly or by including our marketing message in the other company’s marketing materials. If the acquisition of these lists were outlawedwas prohibited or otherwise restricted, our ability to develop new customers and introduce them to our products could be impaired.

Other Risks

Activities relatingIf we cannot attract and retain talented associates our business could suffer. We compete with other companies both within and outside of our industry for talented personnel. If we are not able to our synthetic fuel operationsrecruit, train, develop and retain sufficient numbers of talented associates, we could increase our tax liabilities. The Company earns revenues and generates tax credits from its synthetic fuel operations, which create a fuel that qualifies for tax credits pursuant to Section 29experience increased associate turnover, decreased guest satisfaction, low morale, inefficiency or internal control failures. Insufficient numbers of the Internal Revenue Code. The performance of the synthetic fuel operations depends in part ontalented associates could also limit our ability to utilizegrow and expand our businesses.

Delaware law and our governing corporate documents contain, and our board of directors could implement, anti-takeover provisions that could deter takeover attempts. Under the tax credits,Delaware business combination statute, a stockholder holding 15 percent or more of our outstanding voting stock could not acquire us without board of director’s consent for at least three years after the date the stockholder first held 15 percent or more of the voting stock. Our governing corporate documents also, among other things, require supermajority votes in connection with mergers and similar transactions. In addition, our Board of Directors could, without stockholder approval, implement other anti-takeover defenses, such as a stockholder rights plan to replace the existing stockholder’s rights plan that will expire in March 2008 and which in turn is dependent on our financial performance. If our businesseswe do not generate sufficient profits, we might suffer losses associatedpresently plan to renew.

None.