Starwood 2003 Annual Report Download - page 87

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
operated together with one of the non-core domestic hotels and is now closed and under review for alternative
use and a $2 million charge related to an impairment of an investment.
During 2002, the Company sold two hotels for net proceeds of $51 million. The Company recorded a net
loss on these sales of $3 million in 2002.
In September 2002, the Company sold its 2% investment in Interval International, a timeshare exchange
company. The Company received gross proceeds of approximately $8 million as a result of this sale and
recorded a pretax gain of approximately $6 million.
Due to the September 11, 2001 terrorist attacks in New York, Washington, D.C. and Pennsylvania (the
""September 11 Attacks'') and the weakening of the U.S. economy, the Company conducted a comprehensive
review of the carrying value of certain assets for potential impairment. As a result, in the fourth quarter of
2001 the Company recorded a net charge totaling $57 million relating primarily to the impairment of certain
investments.
Note 5. Asset Securitizations
At December 31, 2003 and 2002, the Company has approximately $119 million and $157 million,
respectively, in vacation ownership notes receivable, representing receivables from over 20,000 customers.
From time to time, the Company securitizes or sells these vacation ownership notes receivable.
The Company accounts for its notes receivable securitizations and sales as transactions in accordance
with SFAS No. 140. The Company accounted for both of the transactions described below as SFAS No. 140
sales.
During 2003, the Company sold, without recourse, through a bankruptcy-remote qualiÑed special purpose
entity (the ""QSPE''), the beneÑcial interest in $181 million of notes receivable originated in connection with
the sale of VOIs (the ""2003 Securitization''). The Company continues to service the notes. This sale and
servicing arrangement was negotiated on an arms-length basis based on market conditions. The Company has
retained interests in the 2003 Securitization in the form of a security (the ""BeneÑcial Interests'') that is
equivalent to over-collateralization and an interest-only strip, which provides credit enhancement to the third
party investors in the QSPE. The Company's right to receive cash Öows from the BeneÑcial Interests is limited
to cash available after paying the QSPE's Ñnancing expenses, program fees and absorbing the QSPE's credit
losses related to the sold notes. Gains from the 2003 Securitization totaled $9 million for the year ended
December 31, 2003. In connection with the 2003 Securitization, the Company repurchased all existing
receivables under the 2002 Note Sales described below.
The key assumptions used in measuring the fair value of the BeneÑcial Interests at the time of the 2003
Securitization were as follows: discount rate of 14%; annual prepayments, which yields an average expected
life of prepayable notes receivable of 89 months; and expected gross mortgage balance defaulting as a
percentage of the total initial pool of 17.8%.
During 2002, the Company sold, without recourse, through a special purpose entity (the ""SPE''),
$133 million of notes receivable originated in connection with the sale of VOIs (""the 2002 Note Sales''). The
Company continued to service the sold notes. This sale and servicing arrangement was negotiated on an arms-
length basis based on market conditions. The Company retained an interest (the ""Retained Interests'') in the
sold notes that was economically equivalent to over-collateralization and an interest-only strip that provides
credit enhancement to the third-party purchaser of the notes. The Company's right to receive cash Öows from
the Retained Interests was limited to cash available after paying the SPE's Ñnancing expenses, program fees
and absorbing credit losses related to the sold notes. Net cash proceeds received from this sale of notes
receivable were approximately $120 million. Gains from the sale of these notes totaled $14 million for the year
F-21