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## To O ur Shareholders 

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[ r ] J.W. Marriott, Jr. Chairman and Chief Executive Officer 

[ l ] William J. Shaw President and Chief Operating Officer 

Marriott opened nearly 50,000 lodging rooms in 2001, and at year-end we operated or franchised 2,398 lodging properties. 

Over the past 75 years, Marriott has prospered through many economic cycles and political climates. In 2001, the technology sector meltdown and belt-tightening by major industries left the U.S. economy in its worst slump in a decade. Following September 11, the threat of terrorism and a softening global economy provided the most chal- lenging travel environment any of us had ever faced. 

While the entire travel industry was hammered by these unprecedented events, we watched with pride as Marriott associates repeatedly rose above the chal- lenges. The world may have changed forever during 2001, but today we face the future with a renewed sense of pur- pose and conviction. 

Marriott’s performance in 2001 demonstrated that we are well prepared for economic difficulty. 

Net income totaled $236 million, and diluted earnings per share were $.92. Our earnings reflected restructuring and other charges totaling $271 million pretax. These charges were largely due to the downturn in the economy after the terrorist attacks on September 11 and included severance, hotel development cancellations, charges for loans and guarantees primarily related to 15 hotels, the closure of administrative facilities, the decision to exit a companion- style, moderate-priced assisted living brand, as well as other charges for both our lodging and non-lodging businesses. 

Our balance sheet remained strong. We completed $663 million in asset sales, including $46 million in the fourth quar- ter. Earnings before interest expense, taxes, depreciation and amortization (EBITDA) coverage of interest was 4.1 times in 2001. 

Marriott opened nearly 50,000 lodging rooms in 2001, and at year-end, we oper- ated or franchised 2,398 lodging properties across 18 brands in 65 countries. 

Our highly diverse, strategically located portfolio of brands presented clear advan- tages this year. While international travel declined, intra-country demand remained strong in most nations. Drive-to markets were stronger than fly-to destinations. Select-service and extended-stay hotels performed better than large convention properties. Our 71 percent U.S.-operated hotel occupancy remained significantly above the industry average of 60 percent, and we maintained our market share premium (measured in revenue per available room, or “REVPAR”) over our competitive set. 

Marriott Lodging operating profit totaled $756 million in 2001 (excluding restructuring and other charges), a decline of 19 percent from the prior year. While disappointing, our performance compared favorably to the lodging industry’s esti- mated 27 percent profit decline in 2001. 

Over 50 percent of our lodging operating income (excluding the impact of restructuring and other charges) came from relatively stable base management and franchise fees. Base management and franchise fees remained flat with 2000 levels, reflecting the 10 percent decline in REVPAR during the year, offset by the 12 percent increase in the number of rooms under Marriott flags. Despite the decline in REVPAR, we still earned over $200 million in incentive management fee revenue due to strong cost control. 

Marriott Vacation Club International contributed 20 percent of Marriott Lodging operating profit in 2001, and operating profit increased 8 percent over the prior year (excluding restructuring and other charges). While the business successfully rolled out seven new prop- erties and a new brand, profits were constrained by higher marketing costs in a softer demand environment. One- third of sales in 2001 came from repeat 

