Starwood 2009 Annual Report Download - page 133

useful lives. The Company reviews all goodwill and intangible assets for impairment by comparisons of fair value to
book value annually, or upon the occurrence of a trigger event. Impairment charges, if any, are recognized in
operating results.
The Company recorded a goodwill impairment charge of $90 million to the vacation ownership reporting unit.
It is reasonably possible that the remaining carrying value of vacation ownership goodwill may become further
impaired if future operating results are below the Company’s estimates.
Frequent Guest Program. Starwood Preferred Guest»(“SPG”) is the Company’s frequent guest incentive
marketing program. SPG members earn points based on spending at the Company’s properties, as incentives to first-
time buyers of VOIs and residences, and through participation in affiliated partners’ programs such as co-branded
credit cards. Points can be redeemed at substantially all of the Company’s owned, leased, managed and franchised
properties as well as through other redemption opportunities with third parties, such as conversion to airline miles.
Properties are charged based on hotel guests’ expenditures. Revenue is recognized by participating hotels and
resorts when points are redeemed for hotel stays.
The Company, through the services of third-party actuarial analysts, determines the fair value of the future
redemption obligation based on statistical formulas which project the timing of future point redemption based on
historical experience, including an estimate of the “breakage” for points that will never be redeemed, and an
estimate of the points that will eventually be redeemed as well as the cost of reimbursing hotels and other third
parties in respect of other redemption opportunities for point redemptions. The Company’s management and
franchise agreements require that the Company be reimbursed currently for the costs of operating the program,
including marketing, promotion, communications with, and performing member services for the SPG members.
Actual expenditures for SPG may differ from the actuarially determined liability.
The liability for the SPG program is included in other long-term liabilities and accrued expenses in the
accompanying consolidated balance sheets. The total actuarially determined liability (see Note 16), as of
December 31, 2009 and 2008, is $689 million and $662 million, respectively, of which $244 million and
$232 million, respectively, is included in accrued expenses.
Legal Contingencies. The Company is subject to various legal proceedings and claims, the outcomes of
which are subject to significant uncertainty. ASC 450, Contingencies requires that an estimated loss from a loss
contingency be accrued with a corresponding charge to income if it is probable that an asset has been impaired or a
liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is
required if there is at least a reasonable possibility that a loss has been incurred. The Company evaluates, among
other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of
the amount of loss. Changes in these factors could materially impact the Company’s financial position or its results
of operations.
Derivative Financial Instruments. The Company periodically enters into interest rate swap agreements,
based on market conditions, to manage interest rate exposure. The net settlements paid or received under these
agreements are accrued consistent with the terms of the agreements and are recognized in interest expense over the
term of the related debt.
The Company enters into foreign currency hedging contracts to manage exposure to foreign currency
fluctuations. All foreign currency hedging instruments have an inverse correlation to the hedged assets or liabilities.
Changes in the fair value of the derivative instruments are classified in the same manner as the classification of the
changes in the underlying assets or liabilities due to fluctuations in foreign currency exchange rates. These forward
contracts do not qualify as hedges.
The Company periodically enters into forward contracts to manage foreign exchange risk based on market
conditions. The Company enters into forward contracts to hedge fluctuations in forecasted transactions based on
foreign currencies that are billed in United States dollars. These forward contracts have been designated as cash
F-10
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)