Starwood 2011 Annual Report Download - page 129

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
lease term or the economic useful life for leasehold improvements. Gains or losses on the sale or retirement of
assets are included in income when the assets are retired or sold provided there is reasonable assurance of the
collectability of the sales price and any future activities to be performed by the Company relating to the assets
sold are insignificant.
The Company evaluates the carrying value of its assets for impairment. For assets in use when the trigger
events specified in ASC 360, Property Plant, and Equipment occur, the expected undiscounted future cash flows
of the assets are compared to the net book value of the assets. If the expected undiscounted future cash flows are
less than the net book value of the assets, the excess of the net book value over the estimated fair value is charged
to current earnings. Fair value is based upon discounted cash flows of the assets at rates deemed reasonable for
the type of asset and prevailing market conditions, comparative sales for similar assets, appraisals and, if
appropriate, current estimated net sales proceeds from pending offers.
Goodwill and Intangible Assets. Goodwill and intangible assets arise in connection with acquisitions,
including the acquisition of management contracts. The Company does not amortize goodwill and intangible
assets with indefinite lives. Intangible assets with finite lives are amortized on a straight-line basis over their
respective useful lives. The Company reviews all goodwill and intangible assets for impairment annually, or
upon the occurrence of a trigger event. Impairment charges, if any, are recognized in operating results.
Frequent Guest Program. Starwood Preferred Guest®(“SPG”) is the Company’s frequent guest incentive
marketing program. SPG members earn points based on spending at the Company’s owned, managed and
franchised hotels, as incentives to first-time buyers of VOIs and residences, and through participation in affiliated
partners’ programs such as co-branded credit cards. Points can be redeemed at substantially all of the Company’s
owned, leased, managed and franchised hotels as well as through other redemption opportunities with third
parties, such as conversion to airline miles.
The Company charges its owned, managed and franchised hotels the cost of operating the SPG program,
including the estimated cost of its future redemption obligation, based on a percentage of its SPG members
qualified expenditures. The Company’s management and franchise agreements require that the Company be
reimbursed for the costs of operating the SPG program, including marketing, promotions and communications,
and performing member services for the SPG members. As points are earned, the Company increases the SPG
point liability for the amount of cash it receives from its managed and franchised hotels related to the future
redemption obligation. For its owned hotels the Company records an expense for the amount of its future
redemption obligation with the offset to the SPG point liability. When points are redeemed by the SPG members,
the hotels recognize revenue and the SPG point liability is reduced.
The Company, through the services of third-party actuarial analysts, determines the value of the future
redemption obligation based on statistical formulas which project the timing of future point redemptions based
on historical experience, including an estimate of the “breakage” for points that will never be redeemed, and an
estimate of the points that will eventually be redeemed as well as the cost of reimbursing hotels and other third-
parties in respect of other redemption opportunities for point redemptions.
The Company consolidates the assets and liabilities of the SPG program including the liability associated
with the future redemption obligation which is included in other long-term liabilities and accrued expenses in the
accompanying consolidated balance sheets. The total actuarially determined liability (see Note 17), as of
December 31, 2011 and 2010, is $844 million and $753 million, respectively, of which $251 million and $225
million, respectively, is included in accrued expenses.
Legal Contingencies. The Company is subject to various legal proceedings and claims, the outcomes of
which are subject to significant uncertainty. ASC 450, Contingencies requires that an estimated loss from a loss
contingency be accrued with a corresponding charge to income if it is probable that an asset has been impaired or
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