Starwood 2010 Annual Report Download - page 94

supplement the process by evaluating certain qualitative data, including the 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 our 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.
We consider a VOI note receivable delinquent when it is more than 30 days outstanding. All delinquent loans
are placed on nonaccrual status and we do not resume interest accrual until payment is made. Upon reaching
120 days outstanding, the loan is considered to be in default and we commence the repossession process.
Uncollectible VOI notes receivable are charged off when title to the unit is returned to us. We generally do not
modify vacation ownership notes that become delinquent or upon default.
For the hotel segment, we measure 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, we establish 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. We apply the
loan impairment policy individually to all loans in the portfolio and do not aggregate loans for the purpose of
applying such policy. For loans that we have determined to be impaired, we recognize interest income on a cash
basis.
Assets Held for Sale. We consider 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, we
record 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 we stop recording
depreciation expense. Any gain realized in connection with the sale of a property for which we have significant
continuing involvement (such as through a long-term management agreement) is deferred and recognized over the
initial term of the related agreement. The operations of the properties held for sale prior to the sale date are recorded
in discontinued operations unless we will have continuing involvement (such as through a management or franchise
agreement) after the sale.
Legal Contingencies. We are subject to various legal proceedings and claims, the outcomes of which are
subject to significant uncertainty. An estimated loss from a loss contingency should be accrued by a charge to
income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can
be reasonably estimated. We evaluate, among other factors, the degree of probability of an unfavorable outcome and
the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our
financial position or our results of operations.
Income Taxes. We provide for income taxes in accordance with principles contained in ASC 740, Income
Taxes. Under these principles, we recognize the amount of income tax payable or refundable for the current year
and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our
financial statements or tax returns. We also measure and recognize the amount of tax benefit that should be recorded
for financial statement purposes for uncertain tax positions taken or expected to be taken in a tax return. With
respect to uncertain tax positions, we evaluate the recognized tax benefits for derecognition, classification, interest
and penalties, interim period accounting and disclosure requirements. Judgment is required in assessing the future
tax consequences of events that have been recognized in our financial statements or tax returns.
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