Starwood 2010 Annual Report Download - page 158

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Note 25. Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Company’s financial
instruments (in millions):
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
December 31, 2010 December 31, 2009
Assets:
Restricted cash ............................... $ 10 $ 10 $ 7 $ 7
VOI notes receivable ........................... 132 153 222 253
Securitized vacation ownership notes receivable ....... 408 492 — —
Other notes receivable .......................... 19 19 14 14
Total financial assets ......................... $ 569 $ 674 $ 243 $ 274
Liabilities:
Long-term debt ............................... $2,848 $3,120 $2,955 $3,071
Long-term securitized debt ...................... 367 373 — —
Other long-term debt liabilities ................... — — 8 8
Total financial liabilities ...................... $3,215 $3,493 $2,963 $3,079
Off-Balance sheet:
Letters of credit .............................. $ — $ 159 $ — $ 168
Surety bonds . . ............................... — 23 — 21
Total Off-Balance sheet ....................... $ — $ 182 $ — $ 189
The Company believes the carrying values of its financial instruments related to current assets and liabilities
approximate fair value. The Company records its derivative assets and liabilities at fair value. See Note 12 for
recorded amounts and the method and assumption used to estimate fair value.
The carrying value of the Company’s restricted cash approximates its fair value. The Company estimates the
fair value of its VOI notes receivable and securitized VOI notes receivable using assumptions related to current
securitization market transactions. The amount is then compared to a discounted expected future cash flow model
using a discount rate commensurate with the risk of the underlying notes, primarily determined by the credit
worthiness of the borrowers based on their FICO scores. The results of these two methods are then evaluated to
conclude on the estimated fair value. The fair value of other notes receivable is estimated based on terms of the
instrument and current market conditions. These financial instrument assets are recorded in the other assets line
item in the Company’s consolidated balance sheet.
The Company estimates the fair value of its publicly traded debt based on the bid prices in the public debt
markets. The carrying amount of its floating rate debt is a reasonable basis of fair value due to the variable nature of
the interest rates. The Company’s non-public, securitized debt, and fixed rate debt fair value is determined based
upon discounted cash flows for the debt rates deemed reasonable for the type of debt, prevailing market conditions
and the length to maturity for the debt. Other long-term liabilities represent a financial guarantee. The carrying
value of this liability approximates its fair value based on expected funding under the guarantee.
The fair values of the Company’s letters of credit and surety bonds are estimated to be the same as the contract
values based on the nature of the fee arrangements with the issuing financial institutions.
F-42
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)