Starwood 2009 Annual Report Download - page 134

flow hedges, and their change in fair value is recorded as a component of other comprehensive income. As a
forecasted transaction occurs, the gain or loss is reclassified from other comprehensive income to management fees,
franchise fees and other income.
The Company does not enter into derivative financial instruments for trading or speculative purposes and
monitors the financial stability and credit standing of its counterparties.
Foreign Currency Translation. Balance sheet accounts are translated at the exchange rates in effect at each
period end and income and expense accounts are translated at the average rates of exchange prevailing during the
year. The national currencies of foreign operations are generally the functional currencies. Gains and losses from
foreign exchange and the effect of exchange rate changes on intercompany transactions of a long-term investment
nature are generally included in other comprehensive income. Gains and losses from foreign exchange rate changes
related to intercompany receivables and payables that are not of a long-term investment nature are reported
currently in costs and expenses and amounted to a net gain of $6 million in 2009, a net gain of $5 million in 2008 and
a net loss of $11 million in 2007.
Income Taxes. The Company provides for income taxes in accordance with ASC 740, Income Taxes. The
objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current
year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an
entity’s financial statements or tax returns.
Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in earnings in the period when the new rate is enacted.
Stock-Based Compensation. The Company calculates the fair value of share-based awards on the date of
grant. Restricted stock awards are valued based on the share price. The Company has determined that a lattice
valuation model would provide a better estimate of the fair value of options granted under its long-term incentive
plans than a Black-Scholes model. The lattice valuation option pricing model requires the Company to estimate key
assumptions such as expected life, volatility, risk-free interest rates and dividend yield to determine the fair value of
share-based awards, based on both historical information and management judgment regarding market factors and
trends. The Company amortizes the share-based compensation expense over the period that the awards are expected
to vest, net of estimated forfeitures. If the actual forfeitures differ from management estimates, additional
adjustments to compensation expense are recorded. Please refer to Note 21, Stock-Based Compensation.
Revenue Recognition. The Company’s revenues are primarily derived from the following sources: (1) hotel
and resort revenues at the Company’s owned, leased and consolidated joint venture properties; (2) vacation
ownership and residential revenues; (3) management and franchise revenues; (4) revenues from managed and
franchised properties; and (5) other revenues which are ancillary to the Company’s operations. Generally, revenues
are recognized when the services have been rendered. Taxes collected from customers and submitted to taxing
authorities are not recorded in revenue. The following is a description of the composition of revenues for the
Company:
• Owned, Leased and Consolidated Joint Ventures — Represents revenue primarily derived from hotel
operations, including the rental of rooms and food and beverage sales, from owned, leased or consolidated
joint venture hotels and resorts. Revenue is recognized when rooms are occupied and services have been
rendered.
• Vacation Ownership and Residential — The Company recognizes sales when the buyer has demonstrated a
sufficient level of initial and continuing investment, the period of cancellation with refund has expired and
receivables are deemed collectible. For sales that do not qualify for full revenue recognition as the project
has progressed beyond the preliminary stages but has not yet reached completion, all revenue and profit are
initially deferred and recognized in earnings through the percentage-of-completion method. Interest income
F-11
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)