2001 Compared to 2000 2000 Compared to 1999 Net income and diluted earnings per share decreased 51 per- cent to $236 million and $.92, respectively. Net income was pri- marily impacted by pretax restructuring and other charges totaling $271 million and lower lodging operating profits due to the decline in hotel performance. Sales of $10 billion in 2001 were flat compared to last year, reflecting a decline in hotel performance, partially offset by rev- enue from new Lodging and Distribution Services business and contributions from established Senior Living communities. Systemwide sales increased slightly to $20 billion. Net income increased 20 percent to $479 million and diluted earnings per share advanced 25 percent to $1.89. Profit growth was driven by our strong U.S. lodging operations, lower system- related costs associated with the year 2000 and the impact on the 1999 financial results of a $39 million pretax charge to reflect a litigation settlement. Results were also impacted by a $15 million one-time write-off of a contract investment in our Distribution Services segment in the first quarter of 2000. Sales increased 15 percent to $10 billion in 2000, reflecting strong revenue resulting from new and established hotels, contri- butions from established Senior Living communities, as well as new customers in our Distribution Services business. Systemwide sales increased by 12 percent to $19.8 billion in 2000. Across our Lodging brands, REVPAR for comparable company- operated U.S. properties declined by an average of 10.4 percent in 2001. Average room rates for these hotels declined 2 percent and occupancy declined 6.7 percentage points. Occupancy, aver- age daily rate and REVPAR for each of our principal established brands are shown in the following table. MARRIOTT LODGING 2001 Compared to 2000 Annual Change 2001/ 2000/ 2001 2000 1999 2000 1999 ($ in millions) Sales $7,786 $7,911 $7,041 –2% +12% Operating profit before restructuring costs  and other charges 756 936 827 –19% +13% Restructuring costs (44) — — nm — Other charges (71) — — nm — Operating profit, as reported $ 641 $ 936 $ 827 –32% +13% Comparable Comparable U.S. properties systemwide Change Change 2001 vs. 2000 2001 vs. 2000 MARRIOTT HOTELS, RESORTS AND SUITES Occupancy 70.4% –7.1%pts. 68.8% –5.9%pts. Average daily rate $142.96 –2.9% $132.55 –2.4% REVPAR $100.62 –11.8% $ 91.19 –10.1% RITZ-CARLTON Occupancy 66.9% –10.4%pts. 67.6% –8.1%pts. Average daily rate $249.94 +2.3% $226.58 +4.1% REVPAR $167.21 –11.5% $153.25 –7.0% RENAISSANCE HOTELS, RESORTS AND SUITES Occupancy 65.6% –7.7%pts. 66.2% –4.4%pts. Average daily rate $137.79 –2.9% $112.51 –4.3% REVPAR $ 90.39 –13.1% $ 74.43 –10.4% RESIDENCE INN Occupancy 77.8% –5.1%pts. 77.9% –3.9%pts. Average daily rate $105.46 –1.4% $102.71 –0.3% REVPAR $ 82.05 –7.5% $ 80.02 –5.0% COURTYARD Occupancy 71.6% –6.4%pts. 71.0% –4.9%pts. Average daily rate $ 99.45 +1.2% $ 94.68 +1.1% REVPAR $ 71.24 –7.0% $ 67.21 –5.6% FAIRFIELD INN Occupancy 66.3% –3.2%pts. 66.3% –3.2%pts. Average daily rate $ 64.70 +2.1% $ 64.70 +2.1% REVPAR $ 42.91 –2.6% $ 42.91 –2.7% Marriott Lodging, which includes our Full-Service, Select-Service, Extended-Stay, and Timeshare segments, reported a 32 percent decrease in operating profit and 2 percent lower sales in 2001. Results reflected restructuring costs of $44 million and other charges of $71 million, including a $36 million reserve for third- party guarantees we expect to fund and not recover out of future cash flow, $12 million of reserves for accounts receivable deemed uncollectible, a write-off of two investments in management contracts and other assets of $8 million, $13 million of losses on the anticipated sale of three lodging properties, and a $2 million write-off associated with capitalized software costs arising from a decision to change a technology platform. Results also reflect lower fees due to the decline in demand for hotel rooms, par- tially offset by increased revenue associated with new proper- ties. Lodging management and franchise fee revenue declined Marriott International, Inc. 2001 Annual Report 13 12 percent in 2001. Incentive fee revenue declined 36 percent, base fees revenue declined 3 percent, and franchise fee revenue increased 6 percent. Lodging operating profit in 2001 (including overhead but excluding restructuring costs and other charges) was attributable to base management fees (33 percent of total), franchise fees (21 percent) and land rent (3 percent) that are based on fixed dollar amounts or percentages of sales. The bal- ance was attributable to our timesharing business (20 percent), and to incentive management fees and other income based on the profits of the underlying properties (23 percent). Franchise Fees 21% Land Rent 3% Profit Participations 23% Timesharing Resorts 20% Base Management Fees 33% 2001 LODGING OPERATING PROFIT ($641 million)