Starwood 2011 Annual Report Download - page 106

LIQUIDITY AND CAPITAL RESOURCES
Cash From Operating Activities
Cash flow from operating activities is generated primarily from management and franchise revenues,
operating income from our owned hotels and resorts and sales of VOIs and residential units. Other sources of
cash are distributions from joint ventures, servicing financial assets and interest income. These are the principal
sources of cash used to fund our operating expenses, interest payments on debt, capital expenditures, dividend
payments and property and income taxes. We believe that our existing borrowing availability together with
capacity for additional borrowings and cash from operations will be adequate to meet all funding requirements
for our operating expenses, principal and interest payments on debt, capital expenditures, dividends and share
repurchases.
The majority of our cash flow is derived from corporate and leisure travelers and is dependent on the supply
and demand in the lodging industry. In a recessionary economy, we experience significant declines in business
and leisure travel. The impact of declining demand in the industry and higher hotel supply in key markets could
have a material impact on our cash flow from operating activities.
Our day-to-day operations are financed through net working capital, a practice that is common in our
industry. The ratio of our current assets to current liabilities was 1.27 and 1.21 as of December 31, 2011 and
2010, respectively. Consistent with industry practice, we sweep the majority of the cash at our owned hotels on a
daily basis and fund payables as needed by drawing down on our existing revolving credit facility.
The majority of our restricted cash balance relates to cash used as collateral to reduce fees on letters of
credit. Additionally, state and local regulations governing sales of VOIs and residential properties allow the
purchaser of such a VOI or property to rescind the sale subsequent to its completion for a pre-specified number
of days. In addition, cash payments received from buyers of units under construction are held in escrow during
the period prior to obtaining a certificate of occupancy. These payments and the deposits collected from sales
during the rescission period are another component of our restricted cash balances in our consolidated balance
sheets. At December 31, 2011 and 2010, we had short-term restricted cash balances of $232 million and $53
million, respectively.
During 2011, we completed the securitization of vacation ownership receivables resulting in proceeds of
approximately $177 million and received a tax refund from the IRS of $45 million (see Note 14).
Cash From Investing Activities
Gross capital spending during the full year ended December 31, 2011 was as follows (in millions):
Maintenance Capital Expenditures (1):
Owned, Leased and Consolidated Joint Venture Hotels .............................. $129
Corporate and information technology ............................................ 124
Subtotal ..................................................................... 253
Vacation Ownership and Residential Capital Expenditures (2):
Net capital expenditures for inventory (excluding St. Regis Bal Harbour) ................ (43)
Capital expenditures for inventory — St. Regis Bal Harbour .......................... 58
Subtotal ..................................................................... 15
Development Capital .......................................................... 209
Total Capital Expenditures ..................................................... $477
(1) Maintenance capital expenditures includes renovations, asset replacements and improvements that extend
the useful life of the asset.
(2) Represents gross inventory capital expenditures of $165 less cost of sales of $150.
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