Starwood 2010 Annual Report Download - page 125

aging of the respective receivables, current default trends by brand and origination year, and the Fair Isaac
Corporation (“FICO”) scores of the buyers.
Given the significance of the Company’s respective pools of VOI notes receivable, a change in the projected
default rate can have a significant impact to its loan loss reserve requirements, with a 0.1% change estimated to have
an impact of approximately $3 million.
The Company considers a VOI note receivable delinquent when it is more than 30 days outstanding. All
delinquent loans are placed on nonaccrual status and the Company does not resume interest accrual until payment is
made. Upon reaching 120 days outstanding, the loan is considered to be in default and the Company commences the
repossession process. Uncollectible VOI notes receivable are charged off when title to the unit is returned to the
Company. The Company generally does not modify vacation ownership notes that become delinquent or upon
default.
For the hotel segment, the Company measures the impairment of a loan based on the present value of expected
future cash flows, discounted at the loan’s original effective interest rate, or the estimated fair value of the collateral.
For impaired loans, the Company establishes a specific impairment reserve for the difference between the recorded
investment in the loan and the present value of the expected future cash flows or the estimated fair value of the
collateral. The Company applies the loan impairment policy individually to all loans in the portfolio and does not
aggregate loans for the purpose of applying such policy. For loans that the Company has determined to be impaired,
the Company recognizes interest income on a cash basis.
Assets Held for Sale. The Company considers properties to be assets held for sale when management
approves and commits to a formal plan to actively market a property or group of properties for sale and a signed
sales contract and significant non-refundable deposit or contract break-up fee exist. Upon designation as an asset
held for sale, the Company records the carrying value of each property or group of properties at the lower of its
carrying value which includes allocable segment goodwill or its estimated fair value, less estimated costs to sell, and
the Company stops recording depreciation expense. Any gain realized in connection with the sale of a property for
which the Company has significant continuing involvement (such as through a long-term management agreement)
is deferred and recognized over the initial term of the related agreement (See Note 13). The operations of the
properties held for sale prior to the sale date, if material, are recorded in discontinued operations unless the
Company will have continuing involvement (such as through a management or franchise agreement) after the sale.
Investments. Investments in joint ventures are generally accounted for under the equity method of account-
ing when the Company has a 20% to 50% ownership interest or exercises significant influence over the venture. If
the Company’s interest exceeds 50% or, if the Company has the power to direct the economic activities of the entity
and the obligation to absorb losses, 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 $2 million,
$2 million and $6 million incurred in 2010, 2009 and 2008, 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 20 years for information technology software and equipment; and the lesser of the lease term or the
F-9
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)