Starwood 2011 Annual Report Download - page 143

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 12. Deferred Gains
The Company defers gains realized in connection with the sale of a property for which the Company
continues to manage the property through a long-term management agreement and recognizes the gains over the
initial term of the related agreement. As of December 31, 2011 and 2010, the Company had total deferred gains
of $1.018 billion and $1.011 billion, respectively, included in accrued expenses and other liabilities in the
Company’s consolidated balance sheets. Amortization of deferred gains is included in management fees,
franchise fees and other income in the Company’s consolidated statements of income and totaled approximately
$87 million, $81 million and $82 million in 2011, 2010 and 2009, respectively.
Note 13. Restructuring, Goodwill Impairment and Other Special Charges (Credits), Net
Restructuring, Goodwill Impairment and Other Special Charges (Credits) by operating segment are as
follows (in millions):
Year Ended December 31,
2011 2010 2009
Segment
Hotel .......................................................... $70 $(74) $ 21
Vacation Ownership & Residential .................................. (2) (1) 358
Total .......................................................... $68 $(75) $379
During the year ended December 31, 2011, the Company recorded a charge of $70 million related to an
unfavorable decision in a lawsuit (see Note 25) and a credit of $2 million to adjust previously recorded reserves
to the amounts the Company now expects to pay.
During the year ended December 31, 2010, the Company received cash proceeds of $75 million in
connection with the favorable settlement of a lawsuit. The Company recorded this settlement, net of the
reimbursement of legal costs incurred in connection with the litigation, as a credit to restructuring, goodwill
impairment, and other special charges (credits) line item. Additionally, the Company recorded a credit of $8
million as a liability associated with an acquisition in 1998 that was no longer deemed necessary (see Note 25).
During the year ended December 31, 2009, the Company completed a comprehensive review of its vacation
ownership business. The Company decided not to develop certain vacation ownership sites and future phases of
certain existing projects. As a result of these decisions, the Company recorded a primarily non-cash impairment
charge of $255 million. The impairment included a charge of approximately $148 million primarily related to
land held for development; a charge of $64 million for the reduction in inventory values at four properties; the
write-off of fixed assets of $21 million; facility exit costs of $15 million and $7 million in other costs.
Additionally, as a result of this decision and the economic climate at that time, the Company recorded a $90
million non-cash charge for the impairment of goodwill in the vacation ownership reporting unit.
Additionally, in 2009, the Company recorded restructuring and other special charges of $34 million,
primarily related to severance charges and costs to close vacation ownership sales galleries, associated with its
ongoing initiative of rationalizing its cost structure.
In determining the fair value associated with the impairment charges the Company primarily used the
income and market approaches. Under the income approach, fair value was determined based on estimated future
cash flows taking into consideration items such as operating margins and the sales pace of vacation ownership
intervals, discounted using a rate commensurate with the inherent risk of the project. Under the market approach,
fair value was determined with the comparable sales of similar assets and appraisals.
F-26