income for trading securities and through the accompanying consolidated statement of comprehensive income for Available for Sale securities. We had interest only strips of $87 million at December 28, 2001 and $67 million at December 29, 2000. 

## New Accounting Standards 

We will adopt FAS No. 144, “Financial Statement Treatment Issues Relating to Assets Held for Sale,” in the first quarter of 2002. The adoption of FAS No. 144 will not have a financial statement impact for assets currently held for sale; however, assets determined to be held for sale beginning in 2002 may result in the classification of the transaction as discontinued operations, if certain criteria are met. 

We will adopt FAS No. 142, “Goodwill and Other Intangible Assets,” in the first quarter of 2002. The new rules require that goodwill is not amortized, but rather reviewed annually for impairment. We estimate that adoption of FAS No. 142 will result in an annual increase in our net income of approximately $30 million. 

In the first quarter of 2001, we adopted FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which resulted in no material impact to our financial statements. 

## RELATIONSHIPS WITH MAJOR CUSTOMERS 

In December 1998, Host Marriott Corporation (Host Marriott) reorganized its business operations to qualify as a real estate investment trust (REIT). In conjunction with its conversion to a REIT, Host Marriott spun off, in a taxable transaction, a new com- pany called Crestline Capital Corporation (Crestline). As part of the Crestline spinoff, Host Marriott transferred to Crestline all of the senior living communities previously owned by Host Marriott, and Host Marriott entered into lease or sublease agreements with subsidiaries of Crestline for substantially all of Host Marriott’s lodging properties. Our lodging and senior living community management and franchise agreements with Host Marriott were also assigned to these Crestline subsidiaries. The lodging agree- ments now provide for us to manage the Marriott, Ritz-Carlton, Courtyard and Residence Inn hotels leased by the lessee. The lessee cannot take certain major actions relating to leased properties that we manage without our consent. Effective as of January 1, 2001, a Host Marriott taxable subsidiary acquired the lessee entities for the full-service hotels in the United States and took an assignment of the lessee entities’ interests in the leases for the hotels in Canada. On January 11, 2002, Crestline closed on the sale of its senior liv- ing communities to an unaffiliated third-party. The Company continues to manage these senior living communities. 

We recognized sales of $2,440 million, $2,746 million and $2,553 million and operating profit before corporate expenses and interest of $162 million, $235 million and $221 million dur- ing 2001, 2000 and 1999, respectively,from lodging properties owned or leased by Host Marriott. Additionally, Host Marriott is a general partner in several unconsolidated partnerships that own lodging properties operated by us under long-term agreements. We recognized sales of $546 million, $622 million and $562 mil- lion and operating profit before corporate expenses and interest of $40 million, $72 million and $64 million in 2001, 2000 and 1999, respectively, from the lodging properties owned by these unconsolidated partnerships. We also leased land to certain of 

these partnerships and recognized land rent income of $19 million in 2001, $21 million in 2000 and $21 million in 1999. 

In December 2000, we acquired 120 Courtyard by Marriott hotels, through an unconsolidated joint venture (the Courtyard Joint Venture) with an affiliate of Host Marriott. Prior to the formation of the Courtyard Joint Venture, Host Marriott was a general partner in the unconsolidated partnerships that owned the 120 Courtyard by Marriott hotels. Sales of $316 million, $345 mil- lion and $334 million, operating profit before corporate expenses and interest of $25 million, $53 million and $50 million and land rent income of $18 million, $19 million and $18 million in 2001, 2000 and 1999, respectively, related to the 120 Courtyard by Marriott hotels are included above in amounts recognized from lodging properties owned by unconsolidated partnerships. In addi- tion, we recognized interest income of $26 million and $5 million in 2001 and 2000, respectively, on the $200 million mezzanine debt provided by us to the joint venture. 

We have provided Host Marriott with financing for a portion of the cost of acquiring properties to be operated or franchised by us, and may continue to provide financing to Host Marriott in the future. The outstanding principal balance of these loans was $7 million and $9 million at December 28, 2001, and at December 29, 2000, respectively, and we recognized $1 million in 2001, 2000 and 1999 in interest and fee income under these credit agreements with Host Marriott. 

We have guaranteed the performance of Host Marriott and certain of its affiliates to lenders and other third parties. These guarantees were limited to $9 million at December 28, 2001. We have made no payments pursuant to these guarantees. As of December 28, 2001, we had the right to purchase up to 20 per- cent of Host Marriott’s outstanding common stock upon the occurrence of certain events generally involving a change of con- trol of Host Marriott. This right expires in 2017, and Host Marriott has granted an exception to the ownership limitations in its charter to permit full exercise of this right, subject to cer- tain conditions related to ownership limitations applicable to REITs generally. We lease land to Host Marriott that had an aggregate book value of $184 million at December 28, 2001. This land has been pledged to secure debt of the lessees. We have agreed to defer receipt of rentals on this land, if necessary, to permit the lessees to meet their debt service requirements. 

We continue to manage the senior living communities that were owned by Crestline but sold to a third party on January 11, 2002. We recognized sales of $194 million, $185 million and $177 million and operating profit before corporate expenses and interest of $6 million, $3 million and $3 million under these agreements during 2001, 2000 and 1999, respectively. 

We are party to management agreements with entities owned by or affiliated with another hotel owner which provide for us to manage hotel properties owned or leased by those entities. We rec- ognized sales of $511 million, $557 million and $531 million dur- ing 2001, 2000 and 1999, respectively, from these properties. 

## NOTES RECEIVABLE 

Our notes receivable at December 28, 2001, and December 29, 2000 comprised the following categories. At December 28, 2001: senior living loans and timeshare loans ($356 million); lodging senior loans ($271 million); lodging mezzanine loans, including the loan to 

