Starwood 2006 Annual Report Download - page 40

accounting and rescission and excluding fractional sales at the St. Regis Aspen, increased 14.7% in the year ended
December 31, 2005 when compared to the same period in 2004.
The increase in management fees, franchise fees and other income of $82 million was primarily a result of
increased management and franchise fees of $59 million to $362 million for the year ended December 31, 2005 due
to improved operating results at the underlying hotels, the addition of new managed and franchised hotels, including
approximately $5 million of fees earned on the Le Méridien hotels for the six week period that we managed and
franchised these hotels in 2005, and certain termination fees offset by lost fees from contracts that were terminated
during 2005. The increase in other income was also due to increased revenues from our Bliss and Remede spas and
from the sales of Bliss and Remede products.
Other revenues and expenses from managed and franchised properties increased to $1.070 billion from
$983 million for the year ended December 31, 2005 and 2004, respectively. These revenues represent reimburse-
ments of costs incurred on behalf of managed hotel properties and franchisees and relate primarily to payroll costs at
managed properties where we are the employer. Since the reimbursements are made based upon the costs incurred
with no added margin, these revenues and corresponding expenses have no effect on our operating income and our
net income.
Operating Income. Our total operating income was $822 million in the year ended December 31, 2005
compared to $653 million in 2004. Excluding depreciation and amortization of $407 million and $431 million for
the years ended December 31, 2005 and 2004, respectively, operating income increased 13.4% or $145 million to
$1.229 billion for the year ended December 31, 2005 when compared to $1.084 billion in the same period in 2004,
primarily due to the improved owned hotel performance and vacation ownership and residential sales discussed
above.
Restructuring and Other Special Charges (Credits), Net. During the twelve months ended December 31,
2005, we recorded $13 million in restructuring and other special charges primarily related to severance costs in
connection with our corporate restructuring as a result of our planned disposition of significant real estate assets and
transition costs associated with the Le Méridien Acquisition. During the twelve months ended December 31, 2004,
we reversed a $37 million reserve previously recorded through restructuring and other special charges due to a
favorable judgment in a litigation matter.
Depreciation and Amortization. Depreciation expense decreased $26 million to $387 million during the
year ended December 31, 2005 compared to $413 million in the corresponding period of 2004 primarily due to
reduced depreciation from assets sold during 2005 and due to the fact that we ceased depreciation in November and
December 2005 on the hotels classified as held for sale at December 31, 2005, partially offset by additional
depreciation expense resulting from capital expenditures at our owned, leased and consolidated joint venture hotels
in the past 12 months. Amortization expense increased to $20 million in the year ended December 31, 2005
compared to $18 million in the corresponding period of 2004.
Gain on Sale of VOI Notes Receivable. Gains from the sale of VOI receivables of $25 million and
$14 million in 2005 and 2004, respectively, were primarily due to the sale of approximately $221 million and
$113 million of vacation ownership receivables during the years ended December 31, 2005 and 2004, respectively.
Equity Earnings and Gains and Losses from Unconsolidated Ventures, Net. Equity earnings and gains and
losses from unconsolidated joint ventures increased to $64 million for the year ended December 31, 2005 from
$32 million in the same period of 2004 primarily due to our share of gains on the sale of several hotels in
unconsolidated joint ventures in 2005.
Net Interest Expense. Net interest expense decreased to $239 million from $254 million for the years ended
December 31, 2005 and 2004, respectively, due to a reduction in our level of debt as well as interest income earned
from significant cash on hand in 2005. Our weighted average interest rate was 6.27% at December 31, 2005 versus
5.81% at December 31, 2004.
Gain (Loss) on Asset Dispositions and Impairments, Net. During 2005, we recorded a net loss of $30 million
primarily related to the impairment of a hotel and impairment charges associated with our owned Sheraton hotel in
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