ACQUISITIONS AND DISPOSITIONS

Starwood Combination

The following table presents the fair value of each type of consideration that we transferred in the Starwood Combination:



(in millions, except per share amounts)
Equivalent shares of Marriott common stock issued in exchange for Starwood outstanding shares	134.4
Marriott common stock price as of Merger Date	$	68.44
Fair value of Marriott common stock issued in exchange for Starwood outstanding shares	9,198
Cash consideration to Starwood shareholders, net of cash acquired of $1,116	2,412
Fair value of Marriott equity-based awards issued in exchange for vested Starwood equity-based awards	71
Total consideration transferred, net of cash acquired	$	11,681

Fair Values of Assets Acquired and Liabilities Assumed. The following table presents our estimates of fair values of the assets that we acquired and the liabilities that we assumed on the Merger Date as preliminarily reported at year-end 2016 and as finalized at the end of the 2017 third quarter:



($ in millions)	September 23, 2016 (as reported at December 31, 2016)			Adjustments ⁽²⁾			September 23, 2016 (as finalized)
Working capital	$	(180	)	$	(56	)	$	(236	)
Property and equipment, including assets held for sale	1,999			(293		)	1,706
Identified intangible assets	7,957			(719		)	7,238
Equity and cost method investments	579			(42		)	537
Other noncurrent assets	224			(24		)	200
Deferred income taxes, net	(1,516		)	52			(1,464		)
Guest loyalty program	(1,631		)	(7		)	(1,638		)
Debt	(1,871		)	(6		)	(1,877		)
Other noncurrent liabilities	(654		)	(323		)	(977		)
Net assets acquired	4,907			(1,418		)	3,489
Goodwill ⁽¹⁾	6,774			1,418			8,192
	$	11,681		$	—		$	11,681


⁽¹⁾	Goodwill primarily represents the value that we expect to obtain from synergies and growth opportunities from our combined operations, and it is not deductible for tax purposes. See Footnote 11 “Business Segments” for our assignment of goodwill by reportable segment.

⁽²⁾

Adjustments primarily reflect refinements of our valuation models related to certain acquired IT systems, our assumptions for capital expenditures of owned and leased hotels, discount rates, certain assumptions related to operating lease agreements, and our assumptions related to certain brands and management and franchise agreements, including contract terms (including renewal assumptions), tax rates, and royalty and growth rates used in the relief-from-royalty valuation models.

We estimated the value of the acquired property and equipment using a combination of the income, cost, and market approaches, which are primarily based on significant Level 2 and Level 3 assumptions, such as estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the hotel properties. Our equity method investments consist primarily of partnership and joint venture interests in entities that own hotel real estate. We estimated the value of the underlying real estate using the same methods as for property and equipment described above. We primarily valued debt using quoted market prices, which are considered Level 1 inputs as they are observable in the market.

The following table presents our estimates of the fair values of Starwood’s identified intangible assets and their related estimated useful lives:



	Estimated Fair Value ($ in millions)		Estimated Useful Life (in years)
Brands	$	5,664	indefinite
Management agreements and lease contract intangibles	751		10 - 25
Franchise agreements	746		10 - 80
Loyalty program marketing rights	77		30
	$	7,238

We estimated the value of Starwood’s brands using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value. We estimated the value of management and franchise agreements using the multi-period excess earnings method, which is a variation of the income approach. This method estimates an intangible asset’s value based on the present value of the incremental after-tax cash flows attributable to the intangible asset. We valued the lease contract intangibles using an income approach. These valuation approaches utilize Level 3 inputs.

In connection with the Starwood Combination, we are currently assessing various regulatory compliance matters at several foreign Legacy-Starwood locations, including compliance with the U.S. Foreign Corrupt Practices Act (“FCPA”). The results of this assessment may give rise to contingencies that could require us to accrue expenses. While any such amounts are not currently estimable, we will continue to evaluate potential contingencies as we gather more information.

Pro Forma Results of Operations. For the nine months ended September 30, 2016, pro forma revenues totaled $17,033 million, and pro forma net income totaled $878 million. Pro forma net income includes $54 million of integration costs, and it excludes $295 million of transaction and employee termination costs. As required by GAAP, these unaudited pro forma results assume we completed the Starwood Combination on January 1, 2015, use our estimates of the fair values of assets and liabilities as of the Merger Date, and do not reflect any cost saving synergies from operating efficiencies. They are not necessarily indicative of what the actual results of operations of the combined company would have been if the Starwood Combination had occurred on January 1, 2015, nor are they indicative of future results of operations.

Dispositions and Planned Dispositions

In the 2017 fourth quarter, we announced that the owners of Avendra LLC have reached a binding agreement to sell Avendra LLC to Aramark. We expect to receive approximately $650 million for our 55 percent interest in Avendra LLC. We committed to the owners of the hotels in our system that the benefits derived from Avendra LLC, including any dividends or sale proceeds above our original investment, would be used for the benefit of the hotels in our system. Accordingly, our share of the proceeds will be invested for the benefit of our system of hotels. We are currently developing these investment plans.

At the end of the 2017 third quarter, we held $297 million of assets classified as “Assets held for sale” on our Balance Sheets related to a North American Full-Service hotel acquired in the Starwood Combination and the remaining Miami Beach EDITION residences. In the 2017 fourth quarter, we sold the North American Full-Service hotel and received C$337 million ($269 million) in cash.

In the 2017 second quarter, we sold a North American Full-Service hotel and received $169 million in cash. We recognized a $24 million gain in the “Gains and other income, net” caption of our Income Statements.

In the 2017 first quarter, we sold a North American Full-Service hotel, which we had acquired in the Starwood Combination and previously classified as “Assets held for sale,” and received $306 million in cash. In conjunction with the sale, we also transferred the associated ground lease, as a result of which our future minimum operating lease obligations decreased by approximately $194 million as of the date of the sale as follows: $3 million in 2017, $4 million in 2018, $4 million in 2019, $4 million in 2020, $4 million in 2021, and $175 million thereafter.