Starwood 2007 Annual Report Download - page 95

Equity Earnings and Gains and Losses from Unconsolidated Ventures, Net. Equity earnings and gains and
losses from unconsolidated joint ventures increased to $66 million for the year ended December 31, 2007 from
$61 million in the same period of 2006 partially due to our share of gains on the sale of several hotels in an
unconsolidated joint venture during 2007.
Net Interest Expense. Net interest expense decreased to $147 million for the year ended December 31, 2007
as compared to $215 million in the same period of 2006, primarily due to $37 million of expenses recorded in the
first quarter of 2006 related to the early extinguishment of debt in connection with two transactions whereby we
defeased and were released from certain debt obligations that allowed us to sell certain hotels that previously served
as collateral for such debt. The decrease was also due to an increase in capitalized interest related to vacation
ownership projects under construction and a decrease in our overall interest rate. Our weighted average interest rate
was 6.52% at December 31, 2007 versus 6.97% at December 31, 2006.
Loss on Asset Dispositions and Impairments, Net. During 2007, we recorded a net loss of $44 million,
primarily related to a net loss of $58 million on the sale of eight wholly owned hotels, $20 million of which related
to four hotels that closed in the fourth quarter. These losses were offset in part by $20 million of net gains primarily
on the sale of assets in which we held a minority interest and a gain of $6 million as a result of insurance proceeds
received for property damage caused by storms at two owned hotels in prior years.
During 2006, we recorded a net loss of $3 million primarily related to several offsetting gains and losses,
including the sale of ten wholly-owned hotels, which were sold unencumbered by management agreements,
impairment charges related to various properties, including the Sheraton Cancun which was damaged by Hurricane
Wilma in 2005, and an adjustment to reduce the previously recorded gain on the sale of a hotel consummated in
2004 as certain contingencies associated with the sale became probable in 2006. These losses were primarily offset
by a gain of $29 million on the sale of our interests in two joint ventures and a $13 million gain as a result of
insurance proceeds received as reimbursement for property damage caused by Hurricane Wilma.
Income Tax Expense. We recorded income tax expense from continuing operations of $189 million for the
year ended December 31, 2007 compared to a benefit of $434 million in the corresponding period of 2006. The 2007
expense was favorably impacted by a $114 million benefit related to the reversal of capital loss valuation allowance,
a $28 million benefit associated with the Company’s election to claim foreign tax credits generated in 1999 and
2000 and a $35 million benefit associated with the utilization of capital losses. Offsetting these benefits were a
$97 million charge associated with the Host Transaction and a $13 million charge associated with interest accrued
for uncertain tax positions. The 2006 tax benefit includes a one-time benefit of approximately $524 million realized
in connection with the Host Transaction, a $59 million benefit due primarily to the completion of various state and
federal income tax audits of prior years, a $34 million benefit associated with Company’s election to claim foreign
tax credits in 2006 and 2005 and a $32 million benefit associated with the Trust prior to its acquisition by Host.
Discontinued Operations
For the year ended December 31, 2007, the loss on disposition represented a $1 million tax assessment
associated with the disposition of our gaming business in 1999. For the year ended December 31, 2006, the loss on
disposition represented a $2 million tax assessment associated with the disposition of our gaming business in 1999.
Cumulative Effect of Accounting Change, Net of Tax
On January 1, 2007, we adopted FIN 48 and recorded a benefit of $35 million to the beginning balance of
retained earnings.
On January 1, 2006, we adopted SFAS No. 152 and recorded a charge of $70 million, net of a $46 million tax
benefit, in cumulative effect of accounting change.
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