Starwood 2012 Annual Report Download - page 173

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
experience and current cost trends. The amount of the ultimate liability may vary from these estimates. Estimated
costs of these self-insurance programs are accrued, based on the analysis of third-party actuaries.
Costs Incurred to Sell VOIs. We capitalize direct costs attributable to the sale of VOIs until the sales are
recognized. Selling costs capitalized under this methodology were approximately $4 million as of December 31,
2012 and 2011, and all such capitalized costs are included in prepaid expenses and other assets in the
accompanying consolidated balance sheets. Costs eligible for capitalization follow the guidelines of ASC Topic
978, Real Estate – Time Sharing Activities. If a contract is cancelled, we charge the unrecoverable direct selling
costs to expense and record forfeited deposits as income.
VOI and Residential Inventory Costs. Real estate and development costs are valued at the lower of cost or
net realizable value. Development costs include both hard and soft construction costs and together with real
estate costs are allocated to VOIs and residential units on the relative sales value method. Interest, property taxes
and certain other carrying costs incurred during the construction process are capitalized as incurred. Such costs
associated with completed VOI and residential units are expensed as incurred.
Advertising Costs.We enter into multi-media advertising campaigns, including television, radio, internet,
print advertisements and other promotional activities. Costs associated with these campaigns, including
communication and production costs, are aggregated and expensed the first time that the advertising takes place.
If it becomes apparent that the media campaign will not take place, then all costs are expensed at that time.
During the years ended December 31, 2012, 2011 and 2010, we incurred approximately $154 million, $149
million and $132 million of advertising expense and other promotional activities, respectively, a significant
portion of which was reimbursed by managed and franchised hotels.
Use of Estimates. The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications. Certain reclassifications have been made to the prior years’ financial statements to
conform to the current year presentation.
Impact of Recently Issued Accounting Standards.
Adopted Accounting Standards
In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2012-02, “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets
for Impairment”. This topic permits an entity to assess qualitative factors to determine whether it is more likely
than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount as a basis to
determine whether an additional impairment test is necessary. This topic is for annual and interim impairment
tests performed for fiscal years beginning after September 15, 2012 with early adoption allowed. We adopted this
topic during the fourth quarter of 2012 and it had no impact on our consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles-Goodwill and Other (Topic 350):
Testing Goodwill for Impairment”. This topic permits an entity 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 an additional impairment test is necessary. This topic is for annual and interim goodwill
impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption allowed. We
early adopted this topic during the fourth quarter of 2011 in conjunction with our annual impairment testing and
it had no impact on our consolidated financial statements.
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