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Fair Value of Financial Instruments
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<div>
<div>
<div style="font-family: 'Times New Roman',Times,serif;">
<div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>Note 19. Fair Value of Financial Instruments</b> </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> The following table presents the carrying amounts and estimated fair values of the Company's financial instruments (in millions): </div>
<table style="font-size: 10pt; text-align: left;" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr valign="bottom"><td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" nowrap="nowrap" align="center" colspan="6"><b>June 30, 2010</b></td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" nowrap="nowrap" align="center" colspan="6"><b>December 31, 2009</b></td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Carrying</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Carrying</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair</b></td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom"><td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" nowrap="nowrap" align="center" colspan="2"><b>Amount</b></td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" nowrap="nowrap" align="center" colspan="2"><b>Value</b></td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" nowrap="nowrap" align="center" colspan="2"><b>Amount</b></td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" nowrap="nowrap" align="center" colspan="2"><b>Value</b></td>
<td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td>
<div style="margin-left: 15px; text-indent: -15px;">Assets:</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr valign="bottom"><td>
<div style="margin-left: 30px; text-indent: -15px;">Restricted cash</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">8</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">8</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">7</td>
<td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td>
<div style="margin-left: 30px; text-indent: -15px;">VOI notes receivable</div></td>
<td> </td>
<td> </td>
<td align="right">199</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">228</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">222</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">253</td>
<td> </td></tr>
<tr valign="bottom"><td>
<div style="margin-left: 30px; text-indent: -15px;">Other notes receivable</div></td>
<td> </td>
<td> </td>
<td align="right">44</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">44</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">36</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">36</td>
<td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td>
<div style="margin-left: 30px; text-indent: -15px;">Securitized vacation ownership notes receivable</div></td>
<td> </td>
<td> </td>
<td align="right">346</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">408</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td></tr>
<tr style="font-size: 1px;"><td>
<div style="margin-left: 15px; text-indent: -15px;"> </div></td>
<td> </td>
<td style="border-top: #000000 1px solid;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td></tr>
<tr valign="bottom"><td>
<div style="margin-left: 45px; text-indent: -15px;">Total financial assets</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">597</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">688</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">265</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">296</td>
<td> </td></tr>
<tr style="font-size: 1px;"><td>
<div style="margin-left: 15px; text-indent: -15px;"> </div></td>
<td> </td>
<td style="border-top: #000000 3px double;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 3px double;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 3px double;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 3px double;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td></tr>
<tr valign="bottom"><td>
<div style="margin-left: 15px; text-indent: -15px;"> </div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td>
<div style="margin-left: 15px; text-indent: -15px;">Liabilities:</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr valign="bottom"><td>
<div style="margin-left: 30px; text-indent: -15px;">Long-term debt</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,972</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,112</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,955</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,071</td>
<td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td>
<div style="margin-left: 30px; text-indent: -15px;">Long-term securitized vacation ownership debt</div></td>
<td> </td>
<td> </td>
<td align="right">267</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">279</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td></tr>
<tr valign="bottom"><td>
<div style="margin-left: 30px; text-indent: -15px;">Other long-term liabilities</div></td>
<td> </td>
<td> </td>
<td align="right">9</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8</td>
<td> </td></tr>
<tr style="font-size: 1px;"><td>
<div style="margin-left: 15px; text-indent: -15px;"> </div></td>
<td> </td>
<td style="border-top: #000000 1px solid;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td>
<div style="margin-left: 45px; text-indent: -15px;">Total financial liabilities</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,248</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,400</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,963</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,079</td>
<td> </td></tr>
<tr style="font-size: 1px;"><td>
<div style="margin-left: 15px; text-indent: -15px;"> </div></td>
<td> </td>
<td style="border-top: #000000 3px double;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 3px double;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 3px double;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 3px double;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td></tr>
<tr valign="bottom"><td>
<div style="margin-left: 15px; text-indent: -15px;"> </div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr valign="bottom"><td>
<div style="margin-left: 15px; text-indent: -15px;">Off-Balance sheet:</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td>
<div style="margin-left: 30px; text-indent: -15px;">Letters of credit</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">153</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">168</td>
<td> </td></tr>
<tr valign="bottom"><td>
<div style="margin-left: 30px; text-indent: -15px;">Surety bonds</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">22</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">21</td>
<td> </td></tr>
<tr style="font-size: 1px;"><td>
<div style="margin-left: 15px; text-indent: -15px;"> </div></td>
<td> </td>
<td style="border-top: #000000 1px solid;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td>
<div style="margin-left: 45px; text-indent: -15px;">Total off-balance sheet</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">175</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">189</td>
<td> </td></tr>
<tr style="font-size: 1px;"><td>
<div style="margin-left: 15px; text-indent: -15px;"> </div></td>
<td> </td>
<td style="border-top: #000000 3px double;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 3px double;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 3px double;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 3px double;" nowrap="nowrap" align="right" colspan="2"> </td>
<td> </td></tr></table></div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> 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 8 for recorded amounts and the method and assumption used to estimate fair value. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> 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 Fair Isaac Corporation ("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. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> 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. The carrying value of this liability approximates its fair value based on expected funding under the guarantee. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> The fair values of the Company's letters of credit and surety bonds are estimated to be the same as the contract values based on the nature of the fee arrangements with the issuing financial institutions.</div></div>
<div> </div> </div>
Note 19. Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the
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This item represents the complete disclosure regarding the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the Company is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risk is are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15B
-Subparagraph a, b
Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 3, 10, 14, 15
Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 44A, 44B
Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 157
-Paragraph 32, 33, 34
Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15C, 15D
Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15A
-Subparagraph a-d
Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 159
-Paragraph 17-22, 27, 28
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