Starwood 2004 Annual Report Download - page 88

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
Retained Interests relating to pre-2002 securitizations and sales are classiÑed and accounted for as
""trading'' while Retained Interests relating to subsequent securitizations and sales are classiÑed and accounted
for as ""available-for-sale'' securities, respectively, both in accordance with SFAS No. 115 and SFAS No. 140.
The Company's securitization and sale agreements provide the Company with the option, subject to
certain limitations, to repurchase defaulted VOI notes receivable at their outstanding principal amounts. Such
repurchases totaled $15 million, $19 million and $19 million during 2004, 2003, and 2002, respectively. The
Company has been able to resell the VOIs underlying the VOI notes repurchased under these provisions
without incurring signiÑcant losses. As allowed under the related agreements, the Company replaced the
defaulted VOI notes receivable under the securitization and sale agreements with new VOI notes receivable,
resulting in net gains of approximately $1 million, $6 million and $2 million in 2004, 2003 and 2002,
respectively, which amounts are included in gain on sale of VOI notes receivable in the Company's statements
of income and are not included in the 2004, 2003 and 2002 gain amounts indicated below.
During 2004, the Company sold, in several sales, $113 million of VOI notes receivable pursuant to an
arrangement (the ""2004 Purchase Facility'') with third party purchasers. Under the 2004 Purchase Facility,
the Company can continue to sell VOI notes receivable through June 13, 2005 (may be extended by mutual
agreement) subject to a facility limit at any one time of $150,000,000. The Company's net cash proceeds
received from these sales were approximately $103 million. Total gains from these sales of $13 million are
included in gain on sale of VOI notes receivable in the Company's statements of income. The purchaser's
Öoating contractual yield on the sold VOI notes receivables increases from the purchaser's commercial paper
cost plus 0.8% or LIBOR plus 1.25% to Prime plus 2% in December 2005.
Key assumptions used in measuring the fair value of the Retained Interests at the time of sale at
December 31, 2004 under the 2004 Purchase Facility were as follows: discount rate of 12%; annual
prepayments, which yields an average expected life of the prepayable VOI notes receivable of 99 months; and
expected gross VOI notes receivable balance defaulting as a percentage of the total initial pool of 15.1%. These
key assumptions are based on the Company's experience.
During 2003, the Company securitized (the ""2003 Securitization'') $181 million of VOI notes receivable.
The Company's net cash proceeds from this securitization were approximately $63 million. The related gain of
$9 million is included in gain on sale of VOI notes receivable in the Company's statements of income. In
connection with the 2003 Securitization, the Company repurchased all existing receivables under the 2002
Note Sales described below.
Key assumptions used in measuring the fair value of the Retained Interests at the time of the 2003
Securitization and at December 31, 2004, relating to 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 VOI notes receivable balance defaulting as a percentage of the total initial pool of 17.8%.
During 2002, the Company sold, in several sales, (the ""2002 Note Sales''), $133 million of VOI notes
receivable to a third party purchaser. The Company's aggregate net cash proceeds from these sales was
approximately $120 million. Related gains of $14 million are included in gain on sale of VOI notes receivable
in the Company's statements of income. As discussed above, in connection with the 2003 Securitizations, the
Company repurchased all then existing receivables under the 2002 Note Sales. The Company can no longer
sell VOI notes receivable under the agreements related to the 2002 Asset Sales.
Key assumptions used in measuring the fair value of the Retained Interests at the time of the 2002
Note Sale were as follows: discount rate of 14%; annual prepayments, which yields an average expected life of
prepayable notes receivable of 86 months; and expected gross VOI notes receivable balance defaulting as a
percentage of the total initial pool of 2.2%.
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