Starwood 2004 Annual Report Download - page 87

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
Note 4. Gain (Loss) on Asset Dispositions and Impairments, Net
During 2004, the Company sold two hotels for net proceeds of $56 million. The Company recorded a net
loss of $33 million primarily related to the sale of these hotels, the impairment of one hotel sold in January
2005, and three investments deemed impaired in 2004.
During 2003, the Company recorded a $183 million charge primarily related to the impairment of
18 non-core domestic hotels that were held for sale. The Company sold 16 of these hotels for net proceeds of
$404 million, the majority of which were sold subject to franchise agreements.
In June 2003, the Company also sold a portfolio of assets including four hotels, a marina and shipyard, a
golf club and a 51% interest in its undeveloped land in Costa Smeralda in Sardinia, Italy (""Sardinia Assets'')
for 290 million Euro (approximately $340 million based on exchange rates at the time the sale closed) in gross
cash proceeds. The Company continues to manage the four hotels subject to long-term management contracts.
Accordingly, the results related to the Sardinia Assets prior to the sale date are not classiÑed as discontinued
operations and the gain on sale of approximately $77 million was deferred and is being recognized in earnings
over the 10.5 year life of the management contracts. The Company recorded a $9 million gain on the sale of
the 51% interest in the undeveloped land. 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, 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 gain of approximately $6 million.
Note 5. Notes Receivable Securitizations and Sales
From time to time, the Company securitizes or sells, without recourse, its Ñxed rate VOI notes receivable.
To accomplish these securitizations, the Company transfers a pool of VOI notes receivable to special purpose
entities (together with the special purpose entities in the next sentence, the ""SPEs'') and the SPEs transfer
the VOI notes receivable to qualifying special purpose entities (""QSPEs''), as deÑned in SFAS No. 140,
""Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities Ì a
Replacement of FASB Statement No. 125.'' To accomplish these sales, the Company transfers a pool of VOI
notes receivable to special purpose entities and the SPEs transfer the VOI notes receivables to a third party
purchaser. The Company continues to service the securitized and sold VOI notes receivable pursuant to
servicing agreements negotiated on an arms-length basis based on market conditions; accordingly, the
Company has not recognized any servicing assets or liabilities. All of the Company's VOI notes receivable
securitizations and sales to date have qualiÑed to be, and have been, accounted for as SFAS No. 140 sales.
With respect to those transactions still outstanding at December 31, 2004, the Company retains economic
interests (the ""Retained Interests'') in securitized and sold VOI notes receivables through SPE ownership of
QSPE beneÑcial interests (securitizations) and the right to a deferred purchase price payable by the
purchaser of the sold VOI notes receivable. The Retained Interest, which is comprised of subordinated
interests and interest only strips in the related VOI notes receivable, provides credit enhancement to the third-
party purchasers of the related QSPE beneÑcial interests (securitizations) and VOI notes receivable (sales).
Retained Interests cash Öows are limited to the cash available from the related VOI notes receivable, after
servicing fees, absorbing 100% of any credit losses on the related VOI notes receivable, QSPE Ñxed rate
interest expense, the third party purchaser's contractual Öoating rate yield (VOI notes receivable sales), and
program fees (VOI note receivables sales).
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