Starwood 2004 Annual Report Download - page 79

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
Plant, Property and Equipment. Plant, property and equipment, including capitalized interest of
$5 million, $7 million and $6 million incurred in 2004, 2003 and 2002, respectively, applicable to major project
expenditures, are recorded at cost. The cost of improvements that extend the life of plant, property and
equipment are capitalized. These capitalized costs may include structural improvements, equipment and
Ñxtures. Costs for normal repairs and maintenance are expensed as incurred. Depreciation is provided on a
straight-line basis over the estimated useful economic lives of 15 to 40 years for buildings and improvements; 3
to 10 years for furniture, Ñxtures and equipment; 3 to 7 years for information technology software and
equipment and the lesser of the lease term or the economic useful life for leasehold improvements. Gains or
losses on the sale or retirement of assets are included in income when the assets are sold provided there is
reasonable assurance of the collectibility of the sales price and any future activities to be performed by the
Company relating to the assets sold are insigniÑcant.
The Company evaluates the carrying value of its assets for impairment. For assets in use when the trigger
events speciÑed in Statement of Financial Accounting Standards (""SFAS'') No. 144, ""Accounting for the
Impairment or Disposal of Long-Lived Assets,'' are met, the expected undiscounted future cash Öows of the
assets are compared to the net book value of the assets. If the expected undiscounted future cash Öows are less
than the net book value of the assets, the excess of the net book value over the estimated fair value is charged
to current earnings. When assets are identiÑed by management as held for sale, the Company discontinues
depreciating the assets and estimates the fair value of such assets. If the fair value of the assets which have
been identiÑed for sale is less than the net book value of the assets, the carrying value of the assets is reduced
to fair value less selling costs. Fair value is determined based upon discounted cash Öows of the assets at rates
deemed reasonable for the type of property and prevailing market conditions, appraisals and, if appropriate,
current estimated net sales proceeds from pending oÅers.
Goodwill and Intangible Assets. Goodwill and intangible assets arise in connection with acquisitions,
including the acquisition of management contracts. EÅective January 1, 2002, the Company adopted SFAS
No. 141, ""Business Combinations,'' and SFAS No. 142, ""Goodwill and Other Intangible Assets.'' In
accordance with this guidance, the Company ceased amortizing goodwill and intangible assets with indeÑnite
lives. Intangible assets with Ñnite lives continue to amortize on a straight-line basis over their respective useful
lives. The Company reviews all goodwill and intangible assets with indeÑnite lives for impairment by
comparisons of fair value to book value annually, or upon the occurrence of a trigger event. Impairment
charges, if any, will be recognized in operating results. In connection with the adoption of this standard, the
Company has completed its initial and subsequent annual recoverability tests on goodwill and intangible
assets, which did not result in any impairment charges.
Frequent Guest Program. Starwood Preferred Guest» (""SPG'') is the Company's frequent guest
incentive marketing program. SPG members earn points based on their spending at the Company's properties,
as incentives to Ñrst-time buyers of VOIs, and, to a lesser degree, through participation in aÇliated partners'
programs, such as those oÅered by airlines. Points can be redeemed at most of the Company's owned, leased,
managed and franchised properties. The cost of operating the program, including the estimated cost of award
redemption, is charged to hotel and vacation ownership properties based on members' qualifying expenditures.
Revenue is recognized by participating hotels and resorts when points are redeemed for hotel stays.
The Company, through the services of third-party actuarial analysts, determines the fair value of the
future redemption obligation based on statistical formulas which project the timing of future point redemption
based on historical experience, including an estimate of the ""breakage'' for points that will never be redeemed,
and an estimate of the points that will eventually be redeemed. The Company's management and franchise
agreements require that the Company be reimbursed currently for the costs of operating the program,
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