Starwood 2011 Annual Report Download - page 128

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
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 $4 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 12).
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
accounting 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 $5
million, $2 million and $2 million incurred in 2011, 2010 and 2009, 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
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