Starwood 2004 Annual Report Download - page 37

ended December 31, 2003 compared to $15 million in the corresponding period of 2002 due to the additional
amortization of intangible assets associated with costs incurred in connection with new management contracts.
Gain on Sale of VOI Notes Receivable. Gains from the sale of VOI receivables of $15 million and
$16 million in 2003 and 2002, respectively, are primarily due to the sale of $181 million and $133 million of
vacation ownership receivables during the years ended December 31, 2003 and 2002, respectively. Included in
the $181 million of VOI receivable sales in 2003 are $89 million of VOI receivables which were repurchased
from existing securitizations.
Net Interest Expense. Interest expense for the years ended December 31, 2003 and 2002, which is net of
interest income of $5 million and $2 million, respectively, and discontinued operations allocations of $7 million
and $15 million for 2003 and 2002, respectively, decreased to $282 million from $323 million, due primarily to
the pay down of debt with $1.1 billion of proceeds from the hotel sales discussed previously, $30 million of
early debt extinguishment charges recorded in the second quarter of 2002, lower interest rates in 2003
compared to 2002 and the impact of certain Ñnancing transactions, including the issuance of debt in April
2002 and May 2003. Our weighted average interest rate was 5.46% at December 31, 2003 versus 5.64% at
December 31, 2002.
Gain (loss) on Asset Dispositions and Impairments, Net. During 2003, we recorded a $181 million
charge related to the impairment of 18 non-core domestic hotels that were held for sale. We sold 16 of these
hotels for net proceeds of $404 million. We also recorded a $9 million gain on the sale of a 51% interest in
undeveloped land in Costa Smeralda in Sardinia, Italy. This gain was oÅset by a $9 million write down of the
value of a hotel which was formerly 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, we sold our investment in Interval International, for a gain of $6 million. This gain is oÅset in
part by a net loss of $3 million on the disposition of two hotels.
Income Tax Expense. The income tax beneÑt of $113 million on the pre-tax loss of $11 million for 2003
is primarily the result of tax exempt Trust income and the favorable settlement of various tax matters. The
2002 income tax provision of $2 million on pre-tax income of $255 million is primarily the result of tax exempt
Trust income and net tax beneÑts primarily related to approximately $39 million of various adjustments to
federal and state tax liabilities resulting from the successful settlement of tax matters dating back to 1993. Our
eÅective income tax rate is determined by the level and composition of pretax income subject to varying
foreign, state and local taxes and other items. The tax rate for the year ended December 31, 2003 is
signiÑcantly lower than the prior year due to the combination of lower pretax income and the distribution of
$0.84 per Share.
Discontinued Operations. For the years ended 2003 and 2002, loss from discontinued operations
represents the results of the Principe, net of $7 million and $15 million, of allocated interest expense,
respectively. We sold the Principe with no continuing involvement in June 2003. The net gain on dispositions
for 2003 consists of $174 million of gains recorded in connection with the sale of the Principe and the reversal
of a $32 million accrual relating to our gaming businesses disposed of in 1999 and 2000 which are no longer
required as the related contingencies have been resolved.
During 2002, we recorded an after tax gain of $109 million from discontinued operations primarily related
to the issuance of new Internal Revenue Service (""IRS'') regulations in early 2002, which allowed us to
recognize a $79 million tax beneÑt from a tax loss on the 1999 sale of the former gaming business. The tax loss
was previously disallowed under the old regulations. In addition, we recorded a $25 million gain resulting from
an adjustment to our tax basis in ITT World Directories, a subsidiary which was disposed of in early 1998
through a tax deferred reorganization. The increase in the tax basis has the eÅect of reducing the deferred tax
charge recorded on the disposition in 1998. This gain also included the reversal of $5 million of liabilities set
up in conjunction with the sale of the former gaming business that are no longer required as the related
contingencies have been resolved.
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