Starwood 2009 Annual Report Download - page 142

considered impaired. For the Company’s hotel reporting unit the fair value exceeded its carrying value. However,
the fair value of the vacation ownership reporting unit was less than its carrying value, as such goodwill was deemed
to be impaired, and step two of goodwill impairment test was performed. In the second step of the impairment test
the Company determined the implied fair value of goodwill for the vacation ownership reporting unit by deducting
the fair value of all tangible and intangible net assets as if it was acquired in a business combination, from the fair
value determined in step one. This step resulted in an implied goodwill fair value of $151 million compared to an
actual goodwill balance of $241 million, with the difference of $90 million representing the impairment charge. In
determining fair values associated with the goodwill impairment steps, the Company primarily used the income and
the market approaches. Under the income approach, fair value was determined based on the estimated future cash
flows of the reporting units taking into account assumptions such as, REVPAR, operating margins and sales pace of
vacation ownership units and discounting these cash flows using a discount rate commensurate with the risk
inherent in the calculations. Under the market approach, the fair value of the reporting units were determined based
on market valuation techniques such as comparable revenue and EBITDA multiples of similar companies in the
hospitality industry. The vacation ownership goodwill had not been previously impaired.
Based on the economic climate and the deterioration of results in the timeshare industry, it is reasonably
possible that the fair value of the vacation ownership segment could continue to decline, which could result in a
further impairment of its goodwill in the near term.
Intangible assets consisted of the following (in millions):
2009 2008
December 31,
Trademarks and trade names ......................................... $309 $315
Management and franchise agreements .................................. 376 354
Other . . . ....................................................... 76 90
761 759
Accumulated amortization ........................................... (181) (163)
$ 580 $ 596
The intangible assets related to management and franchise agreements have finite lives, and accordingly, the
Company recorded amortization expense of $35 million, $32 million and $26 million, respectively, during the years
ended December 31, 2009, 2008 and 2007. The other intangible assets noted above have indefinite lives.
Amortization expense relating to intangible assets with finite lives for each of the years ended December 31 is
expected to be as follows (in millions):
2010 . .................................................................. $36
2011 . .................................................................. $33
2012 . .................................................................. $32
2013 . .................................................................. $32
2014 . .................................................................. $32
F-19
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)