Starwood 2011 Annual Report Download - page 137

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 7. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the years ended December 31, 2011 and 2010 is as
follows (in millions):
Hotel
Segment
Vacation
Ownership
Segment Total
Balance at January 1, 2010 ................................. $1,332 $151 $1,483
Acquisitions ............................................. 26 — 26
Cumulative translation adjustment ........................... (8) — (8)
Asset dispositions ........................................ (10) — (10)
Other .................................................. 8 — 8
Balance at December 31, 2010 .............................. $1,348 $151 $1,499
Balance at January 1, 2011 ................................. $1,348 $151 $1,499
Acquisitions ............................................. 26 — 26
Cumulative translation adjustment ........................... (11) — (11)
Asset dispositions ........................................ (33) — (33)
Other .................................................. (1) — (1)
Balance at December 31, 2011 .............................. $1,329 $151 $1,480
In 2011, the Company early adopted ASU 2011-08 (the “Topic”) to consider impairment for its two
reporting units, hotel and vacation ownership. The Topic allows companies to perform a qualitative assessment
of goodwill, to determine if the two-step goodwill impairment test is necessary. The determination depends on
whether it is more likely than not that the fair value of a reporting unit is greater than the carrying amount. The
Company concluded that the two-step goodwill impairment test is not required for either the hotel or vacation
ownership reporting unit. The vacation ownership reporting unit results reflected a 30%, or $237 million, excess
of fair value over book value in step 1 of the 2010 impairment test. The Company considered the fact that the
2011 results for the vacation ownership business exceeded expectations and evaluated other factors, such as
discount rates and market rates of return for the business, all of which indicate an excess of fair value over book
value. Based on this evaluation of internal and external qualitative factors, the Company concluded the two-step
goodwill impairment test is not required for the vacation ownership reporting unit.
The Company considered similar factors for the hotel business. In the hotel reporting unit, results reflected a
135%, or $8.6 billion, excess of fair value over book value in step one of the 2010 impairment test. The internal
and external factors affecting this business indicate that the fair value of the hotel reporting unit continues to
significantly exceed its carrying value and therefore, the Company concluded the two-step goodwill impairment
test is not required for the hotel reporting unit.
Prior to the adoption of the Topic in 2011, the Company performed its annual goodwill impairment test as of
October 31, 2010 for its hotel and vacation ownership reporting units and determined that there was no
impairment of its goodwill. The fair value was calculated using a discounted cash flow model, in which the
underlying cash flows were derived from management’s current financial projections. The two key assumptions
used in the fair value calculation are the discount rate and the capitalization rate in the terminal period, which
were 10% and 2%, respectively.
F-20