Starwood 2012 Annual Report Download - page 169

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
Plant, Property and Equipment.Plant, property and equipment are recorded at cost. We recorded
capitalized interest of $7 million, $5 million and $2 million incurred in 2012, 2011 and 2010, respectively. The
cost of improvements that extend the life of plant, property and equipment, such as structural improvements,
equipment and fixtures, are capitalized. 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 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 us relating to the assets sold are insignificant.
We evaluate the carrying value of our assets for impairment in accordance with ASC Topic 360, Property
Plant, and Equipment. When a trigger event occurs for assets in use, we compare the expected undiscounted
future cash flows of the assets 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, we charge the excess of the net book value over the estimated fair
value to current earnings. Fair value is based upon the 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. We do not amortize goodwill and intangible assets with
indefinite lives. Intangible assets with finite lives are amortized over their respective useful lives. In accordance
with ASC Topic 350, Intangibles – Goodwill and Other, we review all goodwill and intangible assets for
impairment annually, or upon the occurrence of a trigger event. ASC Topic 350 permits us to assess qualitative
factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its
carrying amount as a basis to determine whether the two-step impairment test is necessary. We also have the
option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to
performing the first step of the two-step goodwill impairment test. Impairment charges, if any, are recognized in
operating results.
Frequent Guest Program. Starwood Preferred Guest®(“SPG”) is our frequent guest incentive marketing
program. SPG members earn points based on spending at our 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 (see Note 17). Points may be redeemed at substantially all of our owned, leased,
managed and franchised hotels as well as through other redemption opportunities with third parties, such as
conversion to airline miles.
We charge our owned, managed and franchised hotels the cost of operating the SPG program, including the
estimated cost of our future redemption obligation, based on a percentage of our SPG members’ qualified
expenditures. Our management and franchise agreements require that we are 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, we increase the SPG point liability for the amount of cash
we receive from our managed and franchised hotels related to the future redemption obligation. For our owned
hotels, we record an expense for the amount of our 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.
Through the services of third-party actuarial analysts, we determine the value of the future redemption
obligation. This value is 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
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