Starwood 2008 Annual Report Download - page 126

control over the venture, the results of the joint venture are consolidated herein. All other investments are generally
accounted for under the cost method.
The fair market value of investments is based on the market prices for the last day of the period if the
investment trades on quoted exchanges. For non-traded investments, fair value is estimated based on the underlying
value of the investment, which is dependent on the performance of the investment as well as the volatility inherent in
external markets for these types of investments. In assessing potential impairment for these investments, the
Company will consider these factors as well as forecasted financial performance of its investment. If these forecasts
are not met, the Company may have to record impairment charges.
Plant, Property and Equipment. Plant, property and equipment, including capitalized interest of $10 mil-
lion, $10 million and $5 million incurred in 2008, 2007 and 2006, 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 fixtures. Costs for normal
repairs and maintenance are expensed as incurred. Depreciation is recorded 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,
fixtures 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 insignificant.
The Company evaluates the carrying value of its assets for impairment. For assets in use when the trigger
events specified in Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impair-
ment or Disposal of Long-Lived Assets,” occur, the expected undiscounted future cash flows of the assets are
compared to the net book value of the assets. If the expected undiscounted future cash flows 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.
Fair value is based upon discounted cash flows of the assets at rates deemed reasonable for the type of asset and
prevailing market conditions, appraisals and, if appropriate, current estimated net sales proceeds from pending
offers.
Goodwill and Intangible Assets. Goodwill and intangible assets arise in connection with acquisitions,
including the acquisition of management contracts. In accordance with the guidance in SFAS No. 141, “Business
Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company does not amortize
goodwill and intangible assets with indefinite lives. Intangible assets with finite lives are amortized on a straight-
line basis over their respective useful lives. The Company reviews all goodwill and intangible assets for impairment
by comparisons of fair value to book value annually, or upon the occurrence of a trigger event. Impairment charges,
if any, are recognized in operating results.
Frequent Guest Program. Starwood Preferred Guest»(“SPG”) is the Company’s frequent guest incentive
marketing program. SPG members earn points based on spending at the Company’s properties, as incentives to first-
time buyers of VOIs and residences, and through participation in affiliated partners’ programs such as co-branded
credit cards. Points can be redeemed at substantially all of the Company’s owned, leased, managed and franchised
properties as well as through other redemption opportunities with third parties, such as conversion to airline miles.
Properties are charged based on hotel guests’ 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 as well as the cost of reimbursing hotels and other third
parties in respect of other redemption opportunities for point redemptions. The Company’s management and
franchise agreements require that the Company be reimbursed currently for the costs of operating the program,
F-10
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)