Starwood 2003 Annual Report Download - page 36

Restructuring and Other Special Credits, Net. During 2003, the Company received $12 million in a
favorable settlement of a litigation matter. This credit was oÅset by an increase of $13 million in a reserve for
legal defense costs associated with a separate litigation matter. Additionally, the Company reversed a
$9 million liability that was originally established in 1997 for the ITT Excess Pension Plan and is no longer
required as the Company Ñnalized the settlement of its remaining obligations associated with the plan and
reversed $1 million related to the collection of receivables previously deemed impaired. During the year ended
December 31, 2002, the Company reversed $7 million of previously recorded restructuring and other special
charges primarily related to adjustments to the severance liability established in connection with the cost
containment eÅorts after the September 11 Attacks, sales of its investments in certain e-business ventures
previously deemed impaired and the collection of receivables which were previously deemed uncollectible.
Depreciation and Amortization. Depreciation expense decreased to $410 million in the year ended
December 31, 2003 compared to $473 million in the corresponding period of 2002. Additional depreciation
resulting from capital expenditures at the Company's owned, leased and consolidated joint venture hotels was
more than oÅset by the reduced depreciation expense from fully depreciated furniture, Ñxtures and equipment,
as the Company reached the Ñve year anniversary of the merger with ITT Corporation in February 2003 and
the 16 non-core domestic hotels, and the four Costa Smeralda hotels which were initially classiÑed as held for
sale and depreciation suspended eÅective March 31, 2003. Amortization expense increased to $19 million in
the year ended December 31, 2003 compared to $15 million in the corresponding period of 2002 due to the
additional amortization of intangible assets associated with costs incurred in connection with new management
contracts.
Gain on Sale of VOI Notes Receivable. Gains from the sale of VOI receivables of $15 million and
$16 million in 2003 and 2002, respectively, are primarily due to the sale of $181 million and $133 million of
vacation ownership receivables during the years ended December 31, 2003 and 2002, respectively. Included in
the $181 million of VOI receivable sales in 2003 are $89 million of VOI receivables which were repurchased
from existing securitizations.
Net Interest Expense. Interest expense for the years ended December 31, 2003 and 2002, which is net of
interest income of $5 million and $2 million, respectively, and discontinued operations allocations of $7 million
and $15 million for 2003 and 2002, respectively, decreased to $282 million from $323 million, due primarily to
the pay down of debt with $1.1 billion of proceeds from the hotel sales discussed previously, $30 million of
early debt extinguishment charges recorded in the second quarter of 2002, lower interest rates in 2003
compared to 2002 and the impact of certain Ñnancing transactions, including the issuance of debt in April
2002 and May 2003. The Company's weighted average interest rate was 5.46% at December 31, 2003 versus
5.64% at December 31, 2002.
Gain (loss) on Asset Dispositions and Impairments, Net. Loss on asset dispositions and impairment for
the year ended December 31, 2003 primarily represents the impairment charges recorded due to the
classiÑcation of a portfolio of 18 domestic non-core hotels as held for sale, 16 of which were sold in 2003, oÅset
in part by the $9 million gain on sale of undeveloped land in Sardinia, Italy in the second quarter of 2003.
During 2002, the Company sold its investment in Interval International, for a gain of $6 million. This gain is
oÅset in part by a net loss of $3 on the disposition of two hotels.
Income Tax Expense. The income tax beneÑt of $113 million on the pre-tax loss of $11 million for 2003
is primarily the result of tax exempt Trust income and the favorable settlement of various tax matters. The
2002 income tax provision of $2 million on pre-tax income of $255 million is primarily the result of tax exempt
Trust income and net tax beneÑts primarily related to approximately $39 million of various adjustments to
federal and state tax liabilities resulting from the successful settlement of tax matters dating back to 1993. The
Company's eÅective income tax rate is determined by the level and composition of pretax income subject to
varying foreign, state and local taxes and other items. The tax rate for the year ended December 31, 2003 is
signiÑcantly lower than the prior year due to the combination of lower pretax income and the distribution of
$0.84 per Share.
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