NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year Revenue Recognition Basis of Presentation The consolidated financial statements present the results of operations, financial position and cash flows of Marriott International, Inc. (together with its subsidiaries, we, us or  the Company). The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of sales and expenses during the reporting period and the disclosures of contingent liabilities. Accordingly, ultimate results could dif- fer from those estimates. Certain prior year amounts have been reclassified to conform to the 2001 presentation. Our fiscal year ends on the Friday nearest to December 31. All fiscal years presented include 52 weeks. Our sales include (1) management and franchise fees, (2) sales from our distribution services business, (3) sales from lodging properties and senior living communities owned or leased by us, and sales made by our other businesses; and (4) certain other revenues from properties managed by us. Management fees comprise a base fee, which is a percentage of the revenues of hotels or senior living communities, and an incentive fee, which is generally based on unit profitability. Franchise fees comprise initial application fees and continuing royalties gen- erated from our franchise programs, which permit the hotel owners and operators to use certain of our brand names. Other revenues from managed properties include direct and indirect costs that are reimbursed to us by lodging and senior living community owners for properties that we manage. Other rev- enues include revenues from hotel properties and senior living communities that we own or lease, along with sales from our timeshare and ExecuStay businesses. Management Fees:  We recognize base fees as revenue when earned in accordance with the contract. In interim periods and at year end we recognize incentive fees that would be due as if the contract were to terminate at that date, exclusive of any ter- mination fees payable or receivable by us. Distribution Services:  We recognize revenue from our distri- bution services business when goods have been shipped and title passes to the customer in accordance with the terms of the applicable distribution contract. Timeshare:  We recognize revenue from timeshare interest sales in accordance with Statement of Financial Accounting Standards (FAS) No. 66, “Accounting for Sales of Real Estate.” We recognize sales when a minimum of 10 percent of the pur- chase price for the timeshare interval has been received, the period of cancellation with refund has expired, receivables are deemed collectible and certain minimum sales and construc- tion levels have been attained. For sales that do not meet these criteria, we defer all revenue using the percentage of comple- tion or the deposit method as applicable. Owned and Leased Units:  We recognize room sales and rev- enues from guest services for our owned and leased units, including ExecuStay, when rooms are occupied and services have been rendered. Franchise Revenue:  We recognize franchise fee revenues in accordance with FAS No. 45, “Accounting for Franchise Fee Revenue.” Franchise fees are recognized as revenue in each accounting period as fees are earned and become receivable from the franchisee. Other Revenues from Managed Properties:  We recognize other revenues from managed properties when we incur the related reimbursable costs. We recognized sales and operating profit (loss) in the years ended December 28, 2001, December 29, 2000 and December 31, 1999 as shown in the following tables. Lodging includes our Full-Service, Select-Service, Extended-Stay, and Timeshare business segments. 2001 Senior Living Distribution Lodging Services Services Total ($ in millions) SALES Management and  franchise fees $ 794 $ 35 $ — $ 829 Other 1,755 332 1,637 3,724 2,549 367 1,637 4,553 Other revenues from  managed properties 5,237 362 — 5,599 7,786 729 1,637 10,152 OPERATING COSTS AND EXPENSES Operating costs 1,864 352 1,641 3,857 Other costs from  managed properties 5,237 362 — 5,599 Restructuring costs 44 60 2 106 7,145 774 1,643 9,562 Operating profit (loss)  before corporate  expenses and interest $ 641 $ (45) $ (6) $ 590 25 Marriott International, Inc. 2001 Annual Report