Starwood 2010 Annual Report Download - page 134

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Note 8. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the year ended December 31, 2010 are as follows (in
millions):
Hotel
Segment
Vacation
Ownership
Segment Total
Balance at January 1, 2009 ............................... $1,324 $241 $1,565
Cumulative translation adjustment .......................... 7 — 7
Impairment charge ..................................... — (90) (90)
Other ............................................... 1 — 1
Balance at December 31, 2009 ............................ $1,332 $151 $1,483
Balance at January 1, 2010 ............................... $1,332 $151 $1,483
Acquisitions .......................................... 26 — 26
Cumulative translation adjustment .......................... (8) — (8)
Asset dispositions ...................................... (10) — (10)
Other ............................................... 8 — 8
Balance at December 31, 2010 ............................ $1,348 $151 $1,499
The Company performed its annual goodwill impairment test as of October 31, 2010 for its hotel and vacation
ownership reporting units and determined that there was no impairment of its goodwill. The vacation ownership
reporting unit’s fair value at October 31, 2010 exceeded its carrying value by approximately $237 million, or 30%.
The fair value was calculated using a discounted cash flow model, in which the underlying cash flows were derived
from management’s current financial projections. The two key assumptions used in the fair value calculation are the
discount rate and the capitalization rate in the terminal period, which were 10% and 2%, respectively. The Company
completed a sensitivity analysis on the fair value of the vacation ownership reporting unit to measure the change in
value associated with independent changes in the two key assumptions. The decreases in the fair value that would
result from various changes in the key assumptions are shown in the chart below (in millions). The factors may not
move independently of each either.
Discount
Rate
Terminal Period
Capitalization
Rate
50 basis points-dollars ....................................... $51 $29
50 basis points-percentage .................................... 4.9% 2.8%
100 basis points-dollars ...................................... $98 $55
100 basis points-percentage ................................... 9.5% 5.3%
The Company performed its annual goodwill impairment test as of October 31, 2009 for its hotel and vacation
ownership reporting units and determined that the vacation ownership goodwill was impaired, resulting in a charge
of $90 million ($90 million after-tax) to the restructuring, goodwill, impairment and other charges (credits) line
item in the consolidated statements of income.
During the year ended December 31, 2009, the Company completed a comprehensive review of its vacation
ownership business (see Note 14). As a result of this review, the Company decided not to develop certain vacation
ownership sites and future phases of certain existing projects. These actions reduced the future expected cash flows
of the vacation ownership reporting unit which contributed to impairment of its goodwill.
In 2009, the Company’s hotel reporting unit’s fair value exceeded its carrying value. However, as discussed
above, the fair value of the vacation ownership reporting unit was less than its carrying value, as such goodwill was
F-18
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)