Starwood 2011 Annual Report Download - page 160

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 24. Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Company’s financial
instruments (in millions):
December 31, 2011 December 31, 2010
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Assets:
Restricted cash ................................. $ 2 $ 2 $ 10 $ 10
VOI notes receivable ............................ 93 109 132 153
Securitized vacation ownership notes receivable ...... 446 551 408 492
Other notes receivable ........................... 26 26 19 19
Total financial assets .......................... $ 567 $ 688 $ 569 $ 674
Liabilities:
Long-term debt ................................. $2,194 $2,442 $2,848 $3,120
Long-term securitized debt ....................... 402 412 367 373
Total financial liabilities ....................... $2,596 $2,854 $3,215 $3,493
Off-Balance sheet:
Letters of credit ................................ $ — $ 171 $ — $ 159
Surety bonds ................................... — 21 — 23
Total Off-Balance sheet ........................ $ — $ 192 $ — $ 182
The Company believes the carrying values of its financial instruments related to current assets and liabilities
approximate fair value. The Company records its derivative assets and liabilities at fair value. See Note 11 for
recorded amounts and the method and assumption used to estimate fair value.
The carrying value of the Company’s restricted cash approximates its fair value. The Company estimates the
fair value of its VOI notes receivable and securitized VOI notes receivable using assumptions related to current
securitization market transactions. The amount is then compared to a discounted expected future cash flow model
using a discount rate commensurate with the risk of the underlying notes, primarily determined by the credit
worthiness of the borrowers based on their FICO scores. The results of these two methods are then evaluated to
conclude on the estimated fair value. The fair value of other notes receivable is estimated based on terms of the
instrument and current market conditions. These financial instrument assets are recorded in the other assets line
item in the Company’s consolidated balance sheet.
The Company estimates the fair value of its publicly traded debt based on the bid prices in the public debt
markets. The carrying amount of its floating rate debt is a reasonable basis of fair value due to the variable nature
of the interest rates. The Company’s non-public, securitized debt, and fixed rate debt fair value is determined
based upon discounted cash flows for the debt rates deemed reasonable for the type of debt, prevailing market
conditions and the length to maturity for the debt. Other long-term liabilities represent a financial guarantee that
the Company expects to fund. The carrying value of this liability approximates its fair value based on expected
funding amount under the guarantee.
F-43