Timeshare Strategy – Impairment Charges
In response to the difficult business conditions that the Timeshare segment's timeshare, luxury residential, and luxury fractional real estate development businesses continued to experience, we evaluated our entire Timeshare portfolio in the 2009 third quarter. In order to adjust the business strategy to reflect current market conditions at that time, on September 22, 2009, we approved plans for our Timeshare segment to take the following actions: (1) for our luxury residential projects, reduce prices, convert certain proposed projects to other uses, sell some undeveloped land, and not pursue further Marriott-funded residential development projects; (2) reduce prices for existing luxury fractional units; (3) continue short-term promotions for our U.S. timeshare business and defer the introduction of new projects and development phases; and (4) for our European timeshare and fractional resorts, continue promotional pricing and marketing incentives and not pursue further development. We designed these plans, which primarily relate to luxury residential and fractional resorts, to stimulate sales, accelerate cash flow, and reduce investment spending.

As a result of these decisions, in 2009, we recorded pretax charges totaling $752 million in our Consolidated Statements of Income ($502 million after-tax), including $614 million of pretax charges impacting operating income under the "Timeshare strategy – impairment charges" caption, and $138 million of pretax charges impacting non-operating income under the "Timeshare strategy – impairment charges (non-operating)" caption. The $752 million of pretax impairment charges were non-cash, other than $27 million of charges associated with ongoing mezzanine loan fundings and $21 million of charges for purchase commitments that we expected to fund in 2010.

The following table details the composition of these charges.

For additional information related to these impairment charges, including how these impairments were determined and the impairment charges grouped by product type and/or geographic location, see Footnote No. 20, "Timeshare Strategy – Impairment Charges."

Restructuring Costs and Other Charges
During the latter part of 2008, we experienced a significant decline in demand for hotel rooms both domestically and internationally as a result, in part, of the failures and near failures of a number of large financial service companies in the fourth quarter of 2008 and the dramatic downturn in the economy. Our capital intensive Timeshare business was also hurt both domestically and internationally by the downturn in market conditions and particularly the significant deterioration in the credit markets, which resulted in our decision not to complete a note sale in the fourth quarter of 2008 (although we did complete a note sale in the first quarter of 2009). These declines resulted in reduced management and franchise fees, cancellation of development projects, reduced timeshare contract sales, and anticipated losses under guarantees and loans. In the fourth quarter of 2008, we put certain company-wide cost-saving measures in place in response to these declines, with individual company segments and corporate departments implementing further cost-saving measures. Upper-level management responsible for the Timeshare segment, lodging development, and above-property level management of the various corporate departments and brand teams individually led these decentralized management initiatives. The various initiatives resulted in aggregate restructuring costs of $55 million that we recorded in the fourth quarter of 2008. We also recorded $137 million of other charges in the 2008 fourth quarter. For information regarding the fourth quarter 2008 charges, see Footnote No. 20, "Restructuring Costs and Other Charges," in our Annual Report on Form 10-K for 2008 ("2008 Form 10-K").

Restructuring Costs
As part of the restructuring actions we began in the fourth quarter of 2008, we initiated further cost savings measures in 2009 associated with our Timeshare segment, hotel development, above-property level management, and corporate overhead. These further measures resulted in additional restructuring costs of $51 million in 2009. For additional information on these restructuring costs, including the types of restructuring costs incurred in total and by segment, a roll forward of the restructuring liability, and cumulative restructuring costs to date since inception of the restructuring, please see Footnote No. 21, "Restructuring Costs and Other Charges."

As a result of our Timeshare segment's restructuring efforts, we are projecting $112 million to $117 million ($68 million to $72 million after-tax) of annual cost savings in 2010. In 2009 we realized approximately $80 million to $85 million ($48 million to $52 million after-tax) compared to the $70 million to $80 million we had projected for 2009. The 2009 savings primarily were, and we expect that future savings will primarily be, reflected in the "Timeshare-direct" and the "General, administrative, and other" expense captions in our Consolidated Statements of Income.

As a result of the hotel development restructuring efforts across several of our Lodging segments, we are projecting approximately $12 million ($7 million after-tax) of annual cost savings in 2010. In 2009, we realized $9 million ($5 million after-tax) of savings. The 2009 savings primarily were, and we expect that future savings will primarily be, reflected in the "General, administrative, and other" expense caption in our Consolidated Statements of Income.

The restructuring initiatives we implemented by reducing above property-level lodging management personnel and corporate overhead are projected to result in $10 million to $11 million ($6 million to $7 million after-tax) of annual cost savings in 2010, and in 2009 we realized all of the $8 million ($5 million after-tax) of savings we had projected for 2009. These savings primarily were, and are expected to be, reflected in the "General, administrative, and other" expense caption in our Consolidated Statements of Income.

We anticipate that the remaining restructuring liability related to the workforce reduction will be substantially paid by the third quarter of 2010 for the Timeshare segment and by the fourth quarter of 2010 for hotel development and for above-property level management. The amounts related to the space reduction and resulting lease expense due to the consolidation of facilities in the Timeshare segment will be paid over the respective lease terms through 2014. The remaining liability related to expected fundings under guarantees will likely be substantially paid by year-end 2010.

Other Charges
We also incurred $162 million of other charges in 2009, which include $100 million recorded in the "General, administrative, and other" expense caption, a net $23 million recorded in Timeshare sales and services, net of direct expenses and $39 million of joint venture impairments recorded in the "Equity in (losses) earnings" caption of our Consolidated Statements of Income. The charges recorded in the "General, administrative, and other" expense caption include: (1) $49 million security deposit impairment; (2) $43 million in loan impairments now classified in "General, administrative, and other"; (3) $11 million reversal of the related expected funding liability; (4) $4 million of accounts receivable and guarantee charges; (5) $7 million software development write-off; and (6) $8 million other asset impairment to write-off contract acquisition costs related to one property. The charges recorded in the "Timeshare sales and services" caption and Timeshare sales and services, net of direct expenses include: (1) $20 million in charges related to residual interest valuation; and (2) net contract cancellation allowances of $3 million. For a detailed discussion of these charges, as well as a table summarizing them by type, please see Footnote No. 21, "Restructuring Costs and Other Charges." Also, for segment discussion of these charges, see the "Business Segments" caption that follows.

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