Starwood 2005 Annual Report Download - page 95

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
As a result of the United States Tax Court decision against another taxpayer in August 2005, the
Company has decided to treat this transaction as if it were taxable in 1998 for accounting purposes and
reclassiÑed the taxes associated with this transaction to a current liability. As such, the Company has applied
substantially all of its federal net operating loss carryforwards against this gain and accrued interest, which
resulted in a $360 million obligation to the IRS. In October 2005, the Company made a cash payment to the
IRS of this $360 million obligation in order to eliminate any future interest accrual associated with the
pending dispute. As discussed above, the Company had previously reserved a substantial amount of the
potential liability in connection with the disposition of ITT World Directories, but recorded a charge in 2005
of approximately $52 million, primarily relating to interest that would be owed to the IRS if the Company
does not prevail. This charge is comprised of a federal tax expense of $103 million partially oÅset by a state tax
beneÑt of $51 million. The Company believes that this transaction was completed on a tax deferred basis and
will continue to vigorously defend its position with the IRS.
A reconciliation of the tax provision of the Company at the U.S. statutory rate to the provision for income
tax as reported is as follows (in millions):
Year Ended December 31,
2005 2004 2003
Tax provision (beneÑt) at U.S. statutory rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $225 $144 $ (4)
U.S. state and local income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (14) (37) (6)
Exempt Trust income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (64) (62) (60)
Tax on repatriation of foreign earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11 13 12
Tax on repatriation of foreign earnings under the American Jobs
Creation Act of 2004ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 47 Ì Ì
Foreign tax rate diÅerential ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (28) (6) (1)
Change in tax law and regulations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì (15) Ì
Deferred gain on ITT World Directories disposition ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 52 Ì Ì
Tax settlements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (8) (15) (36)
Basis diÅerence on asset sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì (5)
Change in valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 24 (13)
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (9) (3) Ì
Provision for income tax (beneÑt)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $219 $ 43 $(113)
During 2005, the Company was notiÑed by ITT Industries that a refund of tax and interest had been
approved by the IRS for payment to ITT Industries related to its 1993-1995 tax returns. In connection with its
acquisition of Sheraton Holding, the Company is party to a tax sharing agreement between ITT Industries,
Hartford Insurance and Sheraton Holding as a result of their 1995 split of ITT Industries into these companies
and is entitled to one-third of this refund. As a result of this notiÑcation, the Company recorded an $8 million
tax beneÑt during 2005.
During 2004, the IRS completed its audits of the Company's 1999 and 2000 tax returns and issued its
Ñnal audit adjustments to the Company. As a result of the completion of these audits and the receipt of the
Ñnal audit adjustments, the Company recorded a $5 million tax beneÑt. In addition, the Company recognized
a $10 million tax beneÑt related to the reversal of previously accrued income taxes after an evaluation of the
applicable exposures and the expiration of the related statutes of limitations.
In 2003, the Company Ñled for tax amnesty in Italy for certain of its Italian subsidiaries related to the
1997-2001 tax years. As a result of these Ñlings, the Company recognized a $2 million tax beneÑt, which
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