Starwood 2005 Annual Report Download - page 89

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
allocated to the sale and the debt to be assumed by Host as held for sale. The Company has also ceased
depreciating these assets.
Under the terms of the Master Agreement and Plan of Merger (""Merger Agreement'') with Host,
Starwood is required to use commercially reasonable eÅorts and Host is required to cooperate with Starwood
in such eÅorts to receive the consent of the bondholders of the $450 million, 2015 Sheraton Holding bonds to
enable these bonds to remain obligations of Sheraton Holding following the transaction with Host. The
Company and Host are currently in discussions regarding the form and timing of this consent, including
whether to amend the Merger Agreement such that a consent would not be pursued. In the event the consent
is not received or the Company and Host agree not to go through the consent process, it is expected that the
Company will seek to retain the debt and, if retained, will be paid an additional $450 million in cash. In
addition, pursuant to the Merger Agreement, Host has given notice that Host is excluding the $150 million,
2025 Sheraton Holding bonds as SpeciÑed Indebtedness (as deÑned in the Merger Agreement), and
therefore, Sheraton Holding will not retain this debt. The Company expects that these bonds will be
redeemed.
As part of the agreement, the hotels sold will generally be encumbered by license and management
agreements with a 20 year initial term and two 10 year extension options exercisable at the Company's
discretion. Accordingly, the operations of the hotels are not classiÑed as discontinued operations and the
expected gain on the sale will be deferred and recognized in earnings over the 20 year initial term of the
agreements. The boards of directors of both companies have approved the proposed transaction. However, the
transaction is subject to the approval of Host shareholders and to customary closing conditions, including
necessary regulatory approvals. The transaction is expected to be completed in the second quarter of 2006.
Note 8. Discontinued Operations
In June 2003, the Company sold the Hotel Principe di Savoia in Milan, Italy (""Principe'') for
275 million euros (approximately $315 million based on exchange rates at the time the sale closed) in gross
cash proceeds. The Company will have no continuing involvement with the Principe. Therefore, in accordance
with SFAS No. 144, the accompanying consolidated Ñnancial statements reÖect the results of operations of
the Principe as a discontinued operation. Interest expense of $7 million for the year ended December 31, 2003
was allocated to discontinued operations based upon the amount of euro denominated debt that was required
to be repaid upon the consummation of the sale. Summary Ñnancial information for discontinued operations is
as follows (in millions):
Year Ended
December 31,
2005 2004 2003
Income Statement Data
Revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $Ì $Ì $ 22
Operating income (loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(2) $Ì $ 5
Interest expense on debt repaid with sales proceeds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $Ì $Ì $ 7
Income tax beneÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1 $Ì $ Ì
Loss from operations, net of tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(1) $Ì $ (2)
Gain on disposition, net of taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $Ì $26 $206
For the year ended December 31, 2005, the loss from operations represents a $2 million sales and use tax
assessment related to periods prior to the Company's disposal of its gaming business which was disposed of in
1999, oÅset by a $1 million income tax beneÑt related to this business.
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