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## Ground Leases 

We are both the lessor and lessee of land under long-term operating leases, which include scheduled increases in mini- mum rents. We recognize these scheduled rent increases on a straight-line basis over the initial lease terms. 

## Real Estate Sales 

We account for the sales of real estate in accordance with FAS No. 66. We reduce gains on sales of real estate by the maximum exposure to loss if we have continuing involvement with the property and do not transfer substantially all of the risks and 

rewards of ownership. We reduced gains on sales of real estate due to maximum exposure to loss by $16 million in 2001, $18 million in 2000 and $8 million in 1999. 

## Profit Sharing Plan 

We contribute to a profit sharing plan for the benefit of employees meeting certain eligibility requirements and electing participation in the plan. Contributions are determined based on a specified percentage of salary deferrals by participating employees. We rec- ognized compensation cost from profit sharing of $58 million in 2001, $55 million in 2000 and $46 million in 1999. 

## Self-Insurance Programs 

We are self-insured for certain levels of general liability, workers’ compensation, employment practices and employee medical cover- age. We accrue estimated costs of these self-insurance programs at the present value of projected settlements for known and incurred but not reported claims. We use a discount rate of 5 percent to deter- mine the present value of the projected settlements, which we con- sider to be reasonable given our history of settled claims, including payment patterns and the fixed nature of the individual settlements. 

## Marriott Rewards 

Marriott Rewards is our frequent guest incentive marketing pro- gram. Marriott Rewards members earn points based on their spending at our lodging operations and, to a lesser degree, through participation in affiliated partners’ programs, such as those offered by airlines and credit card companies. Points can be redeemed at most Marriott company-operated and franchised properties. Points cannot be redeemed for cash. 

Points which we accumulate and track on the members’ behalf can be redeemed for hotel stays at most of our lodging operations, airline tickets, airline frequent flier program miles, rental cars, and a variety of other awards. 

We provide Marriott Rewards as a marketing program to participating hotels. We charge the cost of operating the pro- gram, including the estimated cost of award redemption, to hotels based on members’ qualifying expenditures. 

Effective January 1, 2000, we changed certain aspects of our method of accounting for the Marriott Rewards program in accor- dance with Staff Accounting Bulletin (SAB) No. 101. Under the new accounting method, we defer revenue received from managed, fran- chised, and Marriott-owned/leased hotels and program partners equal to the fair value of our future redemption obligation. We deter- mine the fair value of the future redemption obligation based on statistical formulas which project timing of future point redemption based on historical levels, including an estimate of the “breakage” for points that will never be redeemed, and an estimate of the points that will eventually be redeemed. These factors determine the required liability for outstanding points. Our management and franchise agreements require that we be reimbursed currently for the costs of operating the program, including marketing, promotion, and com- municating with, and performing member services for the Marriott Rewards members. Due to the requirement that hotels reimburse us for program operating costs as incurred, we receive and recognize the balance of the revenue from hotels in connection with the Marriott Rewards program at the time such costs are incurred and expensed. We recognize the component of revenue from program partners that corresponds to program maintenance services over the expected life of the points awarded. Upon the redemption of points, we recognize 

