2006 Annual Report

2004 Dispositions
We sold two lodging properties for $79 million in cash, net of
transaction costs, recognized gains totaling $6 million and
deferred recognition of gains totaling $1 million due to our continuing
involvement with the two properties. None of the deferred
gains were recognized in 2005. We accounted for both sales
under the full accrual method in accordance with FAS No. 66,
“Accounting for Sales of Real Estate,” and will continue to operate
the properties under long-term management agreements.
We also sold 30 land parcels for $55 million in cash, net of transaction
costs, and we recorded gains of $12 million.
Additionally, we sold our Ramada International Hotels &
Resorts franchised brand, which consisted primarily of investments
in franchise contracts and trademarks and licenses outside
of the United States, to Cendant Corporation’s Hotel Group
for $33 million in cash, net of transaction costs, and recorded a
gain of $4 million.
Cendant exercised its option to redeem our interest in the
Two Flags joint venture, and as a result Cendant acquired the
trademarks and licenses for the Ramada and Days Inn lodging
brands in the United States. We recorded a gain of approximately
$13 million in connection with this transaction. We also
sold our interests in two joint ventures for $13 million in cash
and recognized gains totaling $6 million.
9 | GOODWILL AND INTANGIBLE ASSETS
($ in millions) 2006 2005
Contract acquisition costs and other $ 809 $ 679
Accumulated amortization (234) (213)
$ 575 $ 466
Goodwill $1,049 $1,052
Accumulated amortization (128) (128)
$ 921 $ 924
We capitalize costs incurred to acquire management, franchise,
and license agreements that are both direct and incremental.
We amortize these costs on a straight-line basis over the
initial term of the agreements, typically 15 to 30 years. We evaluate
the carrying values of intangible assets for impairment under
the provisions of FAS No. 142,“Goodwill and Other Intangible
Assets.” Amortization expense totaled $33 million in 2006,
$28 million in 2005, and $33 million in 2004.
10 | MARRIOTT AND WHITBREAD JOINT VENTURE
During the 2005 second quarter we established a 50/50 joint
venture with Whitbread to acquire Whitbread’s portfolio of
46 franchised Marriott and Renaissance properties consisting of
more than 8,000 rooms, and for us to take over management of
the entire portfolio of hotels upon the transfer of the hotels to
the new joint venture. Whitbread sold its interest in the 46 hotels
to the joint venture for approximately £995 million. Whitbread
received approximately £710 million in cash (including £620 million
from senior debt proceeds) and 50 percent of the preferred
and ordinary shares of the joint venture and non-voting
deferred consideration shares valued at £285 million. We contributed
approximately £90 million ($171 million) in the second
quarter of 2005 for the remaining 50 percent of the preferred
and ordinary shares of the joint venture.
In the 2006 second quarter we sold our interest in the
Whitbread joint venture and we received approximately
$164 million in cash, net of transaction costs, which was equal to
the investment’s book value at the time the transaction closed.
The change between the initial investment and the book value at
the time of sale primarily related to foreign currency fluctuations.
As we hedged our foreign currency exposure on this investment,
the income statement impact resulting from the change in value
was immaterial. We continue to manage the hotels under the
Marriott Hotels & Resorts and Renaissance Hotels & Resorts
brands pursuant to new long-term management agreements
that were entered into concurrent with the sale.
11 | NOTES RECEIVABLE
($ in millions) 2006 2005
Loans to timeshare owners $ 386 $344
Lodging senior loans 9 59
Lodging mezzanine and other loans 268 274
663 677
Less current portion (103) (48)
$ 560 $629
We classify notes receivable due within one year as current
assets in the caption “Accounts and notes receivable” in the
accompanying Consolidated Balance Sheet, including $70 million
and $33 million, as of year-end 2006 and year-end 2005,
respectively, related to “Loans to timeshare owners.”
Our notes receivable are due as follows: 2007–$103 million;
2008–$65 million; 2009–$40 million; 2010-$120 million;
2011–$69 million; and $266 million thereafter. The 2006 notes
receivable balance is net of unamortized discounts totaling
$28 million and the 2005 notes receivable balance is net of
unamortized discounts totaling $28 million. Gains from the sale
of notes receivable totaled approximately $79 million, $94 million,
and $69 million during 2006, 2005, and 2004, respectively.
Lodging Senior Loans and Lodging Mezzanine and
Other Loans
Interest income associated with “Lodging senior loans” and
“Lodging mezzanine and other loans” was reflected in the
accompanying Consolidated Statement of Income in the
“Interest income” caption. We do not accrue interest on “Lodging
senior loans” and “Lodging mezzanine and other loans” that are
impaired. At year-end 2006, our recorded investment in impaired
“Lodging senior loans” and “Lodging mezzanine and other loans”
was $92 million, and we had a $70 million allowance for credit
losses, leaving $22 million of our investment in impaired loans
for which there was no related allowance for credit losses. At
year-end 2005, our recorded investment in impaired “Lodging
senior loans” and “Lodging mezzanine and other loans” was
$184 million, and we had a $103 million allowance for credit
losses, leaving $81 million of our investment in impaired loans
for which there was no related allowance for credit losses.
During 2006 and 2005, our average investment in impaired
loans totaled $138 million and $182 million, respectively.
MARRIOTT INTERNATIONAL, INC. 2006 | 53