Starwood 2006 Annual Report Download - page 79

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removed through retained earnings up to the amount of retained earnings that existed at the sale date with the
remaining balance reducing additional paid in capital. This portion of the transaction was treated as a non-cash
exchange by Starwood and, consequently, was excluded from the consolidated statement of cash flows. The portion
of the transaction between the Company and Host was recorded as a disposition under the provisions of
SFAS No. 144. As Starwood sold these hotels subject to long-term management contracts, the calculated gain
on the sale of approximately $955 million has been deferred and is being amortized over the initial management
contract term of 20 years. This transaction also generated a capital loss, net of carry back and current year
utilization, of $2.4 billion for federal tax purposes. The entire tax benefit of the loss has been offset by a valuation
allowance due to the uncertainty of realizing the tax benefit of this capital loss carryforward before its expiration in
2011. See Note 13. The Company sold all of the Host common stock in the second quarter of 2006 and recorded a
net gain of approximately $1 million.
During 2006, the Company sold ten additional hotels in multiple transactions for approximately $437 million
in cash. The Company recorded a net loss of approximately $7 million associated with these sales. In addition, the
Company recorded a $5 million adjustment to reduce the gain on the sale of a hotel consummated in 2004 as certain
contingencies associated with that sale became probable in 2006.
Also in 2006, the Company recorded a loss of approximately $23 million primarily in connection with the
impairment of two properties, one of which is expected to be demolished and rebuilt under the aloft and Element
brands and another which is land that was sold to a developer who plans to build two Starwood branded hotels. This
loss was offset by a gain of approximately $29 million on the sale of the Company’s interests in two joint ventures.
Also during 2006, the Company recorded an impairment charge of $11 million related to the Sheraton Cancun
in Cancun, Mexico that was damaged by Hurricane Wilma in 2005 and will now be completely demolished in order
to build additional vacation ownership units. This impairment charge was offset by a $13 million gain as a result of
insurance proceeds received primarily for the Sheraton Cancun and the Company’s other owned hotel in Cancun,
the Westin Cancun, as reimbursement for property damage caused by the same storm.
In September 2006, a joint venture, in which the Company has a minority interest, completed the sale of the
Westin Kierland hotel in Scottsdale, Arizona and the Company realized net proceeds of approximately $45 million.
The Company continues to manage the hotel subject to a newly amended, long-term management contract.
Accordingly, the Company’s share of the gain on the sale of approximately $46 million was deferred and is being
recognized in earnings over the remaining 21 years of the management contract.
Subsequent to December 31, 2006, Starwood entered into a definitive agreement to sell one hotel with a
carrying value of approximately $24 million for approximately $42 million in cash and received a significant non-
refundable deposit from the buyer. The hotel will be sold subject to a franchise agreement. The sale is expected to be
completed in the first quarter of 2006.
In December 2005, the Company sold the Hotel Danieli in Venice, Italy for approximately 177 million euros
(approximately $213 million based on the exchange rate at the time the sale closed) in cash. The Company
continues to manage the hotel subject to a long-term management contract. Accordingly, the gain on the sale of
approximately $128 million was deferred and is being recognized in earnings over the 10-year life of the
management contract.
The Company sold four additional hotels for approximately $53 million in cash during 2005 and recorded
losses totaling approximately $13 million associated with these sales. The Company had recorded impairment
charges of $17 million in 2004 related to one of these properties.
Also during 2005, the Company sold three hotels unencumbered by long-term management contracts for
approximately $171 million in cash and recorded gains totaling approximately $38 million associated with these
sales.
F-18
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)