Starwood 2003 Annual Report Download - page 38

decreased 0.4%, in Latin America decreased 22.7% and in Asia PaciÑc increased 6.8% when compared to
2001.
The increase in other hotel and leisure revenues, for the year ended December 31, 2002 when compared
to the same period in 2001, resulted from the increase in VOI sales of 14.0% to $276 million in 2002 compared
to $242 million in 2001. Contract sales of VOI inventory increased 16.8% in the year ended December 31,
2002 when compared to the same period in 2001, primarily as a result of sales at the Westin Mission Hills
Resort Villas in Rancho Mirage, California and the Westin Ka'anapali Ocean Resort Villas in Maui, Hawaii.
These increases were partially oÅset by lower management fees, primarily due to reduced incentive
management fees as a result of the previously discussed weakened global economies.
Other revenues and expenses from managed and franchised properties increased to $780 million in 2002
when compared to $740 million in 2001, primarily due to the addition of hotels to the Company's portfolio of
managed and franchised properties. These revenues represent reimbursements of costs incurred on behalf of
managed hotel properties and franchisees. These costs relate primarily to payroll costs at managed properties
where the Company is the employer. Since the reimbursements are made based upon the costs incurred with
no added margin, these revenues and corresponding expenses have no eÅect on the Company's operating
income and net income.
Operating Income. Total Company operating income (which includes $7 million of restructuring and
other special credits and $30 million of foreign exchange gains related to the devaluation of the Argentine Peso
in 2002 and $50 million of restructuring and other special charges and $24 million of foreign exchange gains
related to the initial remeasurement of the Argentine Peso in 2001) was $551 for the years ended
December 31, 2002 compared to $576 million in 2001. Excluding depreciation and amortization of
$488 million and $518 million for the years ended December 31, 2002 and 2001, respectively, operating
income decreased 5.0% or $55 million to $1,039 million for the years ended December 31, 2002 when
compared to $1,094 million in the same period in 2001, primarily due to the decline in operating income at the
Company's owned, leased and consolidated joint venture hotels as a result of the weakened global economies
in the aftermath of the September 11 Attacks. Operating income at the Company's owned, leased and
consolidated joint venture hotels was $589 million in the years ended December 31, 2002 compared to
$663 million in the same period of 2001. These hotels were also negatively impacted by increased energy,
workers compensation insurance and other health beneÑt related costs and reduced cancellation and
telecommunication fees in 2002 when compared to 2001.
Operating income for the vacation ownership segment was $69 million in the years ended December 31,
2002 compared to $39 million in 2001. Excluding depreciation and amortization of $10 million and $15 million
in the years ended December 31, 2002 and 2001, respectively, operating income increased to $79 million for
the years ended December 31, 2002 as compared to $54 million in the prior year primarily due to the increased
sales at the vacation ownership projects previously discussed.
Restructuring and Other Special Charges (Credits). During the year ended December 31, 2002, the
Company reversed $7 million of previously recorded restructuring and other special charges primarily related
to adjustments to the severance liability established in connection with the cost containment eÅorts after the
September 11 Attacks, sales of its investments in certain e-business ventures previously deemed impaired and
the collection of receivables which were previously deemed uncollectible.
Due to the September 11 Attacks and the weakening of the U.S. economy, in the third and fourth
quarters of 2001, the Company implemented a cost reduction plan and conducted a comprehensive review of
the carrying value of certain assets for potential impairment, resulting in 2001 restructuring charges of
$15 million and noncash other special charges aggregating approximately $36 million. The restructuring
charges were primarily for severance costs incurred as part of the cost reduction plan. The other special
charges consisted primarily of employee retention costs associated with the accelerated vesting of 50% of
restricted stock awards granted in February 2001 (approximately $11 million); bad debt expense associated
with receivables no longer deemed collectible (approximately $17 million); impairments of certain invest-
ments and other assets (approximately $5 million); and abandoned pursuit projects (approximately
$3 million).
28