SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
x
Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
OR
o
Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
Commission File Number: 1-7959
Commission File Number: 1-6828
STARWOOD HOTELS &
RESORTS WORLDWIDE, INC.
(Exact name of Registrant as
specified in its charter)
STARWOOD HOTELS &
RESORTS
(Exact name of Registrant as
specified in its charter)
Maryland
(State or other jurisdiction
of incorporation or organization)
Maryland
(State or other jurisdiction
of incorporation or organization)
52-1193298
(I.R.S. employer identification no.)
52-0901263
(I.R.S. employer identification no.)
1111 Westchester Avenue
White Plains, NY 10604
(Address of principal executive
offices, including zip code)
1111 Westchester Avenue
White Plains, NY 10604
(Address of principal executive
offices, including zip code)
(914) 640-8100
(Registrant’s telephone
number,
including area code)
(914) 640-8100
(Registrant’s telephone
number,
including area code)
Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes x No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
197,748,788 shares of common stock, par value $0.01 per share, of Starwood Hotels & Resorts Worldwide, Inc. attached to and traded together with 197,748,788 Class B shares of beneficial interest, par value $0.01 per share, of Starwood Hotels & Resorts, and 100 Class A shares of beneficial interest, par value $0.01 per share, of Starwood Hotels & Resorts, all outstanding as of November 9, 2001.
TABLE OF CONTENTS
| Page | |||||||
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| PART I. FINANCIAL INFORMATION | |||||||
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Item 1.
|
Financial Statements
|
||||||
|
Starwood Hotels & Resorts Worldwide, Inc.:
|
|||||||
|
Consolidated Balance Sheets as of
September 30, 2001 and December 31, 2000
|
3 | ||||||
|
Consolidated Statements of Income for the Three
and Nine Months Ended September 30, 2001 and 2000
|
4 | ||||||
|
Consolidated Statements of Comprehensive Income
for the Three and Nine Months Ended September 30, 2001 and
2000
|
5 | ||||||
|
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2001 and 2000
|
6 | ||||||
|
Starwood Hotels & Resorts:
|
|||||||
|
Consolidated Balance Sheets as of
September 30, 2001 and December 31, 2000
|
7 | ||||||
|
Consolidated Statements of Income for the Three
and Nine Months Ended September 30, 2001 and 2000
|
8 | ||||||
|
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2001 and 2000
|
9 | ||||||
|
Notes to Financial Statements
|
10 | ||||||
|
Item 2.
|
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
|
15 | |||||
|
Item 3.
|
Quantitative and Qualitative Disclosures about
Market Risk
|
21 | |||||
| PART II. OTHER INFORMATION | |||||||
|
Item 1.
|
Legal Proceedings
|
22 | |||||
|
Item 2.
|
Changes in Securities and Use of Proceeds
|
22 | |||||
|
Item 6.
|
Exhibits and Reports on Form 8-K
|
22 | |||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following unaudited consolidated financial statements of Starwood Hotels & Resorts Worldwide, Inc. (the “Corporation”) and Starwood Hotels & Resorts (the “Trust” and, together with the Corporation, “Starwood” or the “Company”) are provided pursuant to the requirements of this Item. In the opinion of management, all adjustments necessary for fair presentation, consisting of normal recurring adjustments, have been included. The consolidated financial statements presented herein have been prepared in accordance with the accounting policies described in the Company’s Joint Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 30, 2001. See the notes to financial statements for the basis of presentation. The consolidated financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere herein. Results for the three and nine months ended September 30, 2001 are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2001.
2
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||||
| 2001 | 2000 | |||||||||
|
|
|
|||||||||
| (Unaudited) | ||||||||||
| ASSETS | ||||||||||
|
Current assets:
|
||||||||||
|
Cash and cash equivalents
|
$ | 204 | $ | 189 | ||||||
|
Accounts receivable, net of allowance for
doubtful accounts of $47 and $45
|
437 | 502 | ||||||||
|
Inventories
|
224 | 238 | ||||||||
|
Prepaid expenses and other
|
139 | 119 | ||||||||
|
|
|
|||||||||
|
Total current assets
|
1,004 | 1,048 | ||||||||
|
Investments
|
455 | 412 | ||||||||
|
Plant, property and equipment, net
|
7,864 | 7,889 | ||||||||
|
Goodwill and intangible assets, net
|
2,869 | 2,881 | ||||||||
|
Other assets
|
490 | 430 | ||||||||
|
|
|
|||||||||
| $ | 12,682 | $ | 12,660 | |||||||
|
|
|
|||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
|
Current liabilities:
|
||||||||||
|
Short-term borrowings and current maturities of
long-term debt
|
$ | 592 | $ | 585 | ||||||
|
Accounts payable
|
211 | 186 | ||||||||
|
Accrued expenses
|
614 | 544 | ||||||||
|
Accrued salaries, wages and benefits
|
138 | 164 | ||||||||
|
Accrued taxes and other
|
351 | 326 | ||||||||
|
|
|
|||||||||
|
Total current liabilities
|
1,906 | 1,805 | ||||||||
|
Long-term debt
|
4,915 | 4,957 | ||||||||
|
Deferred income taxes
|
1,413 | 1,444 | ||||||||
|
Other liabilities
|
478 | 438 | ||||||||
|
|
|
|||||||||
| 8,712 | 8,644 | |||||||||
|
|
|
|||||||||
|
Minority interest
|
42 | 48 | ||||||||
|
|
|
|||||||||
|
Class B exchangeable preferred shares of the
Trust, at redemption value of $38.50
|
42 | 117 | ||||||||
|
|
|
|||||||||
|
Commitments and contingencies
|
||||||||||
|
Stockholders’ equity:
|
||||||||||
|
Class A exchangeable preferred shares of the
Trust; $0.01 par value; authorized 30,000,000 shares;
outstanding 549,951 and 609,576 shares at September 30,
2001 and December 31, 2000, respectively
|
— | — | ||||||||
|
Corporation common stock; $0.01 par value;
authorized 1,050,000,000 shares; outstanding 197,761,424 and
194,485,448 shares at September 30, 2001 and
December 31, 2000, respectively
|
2 | 2 | ||||||||
|
Trust Class B shares of beneficial interest;
$0.01 par value; authorized 1,000,000,000 shares; outstanding
197,761,424 and 194,485,448 shares at September 30, 2001
and December 31, 2000, respectively
|
2 | 2 | ||||||||
|
Additional paid-in capital
|
4,855 | 4,796 | ||||||||
|
Deferred compensation
|
(33 | ) | (4 | ) | ||||||
|
Accumulated other comprehensive income
|
(426 | ) | (353 | ) | ||||||
|
Accumulated deficit
|
(514 | ) | (592 | ) | ||||||
|
|
|
|||||||||
|
Total stockholders’ equity
|
3,886 | 3,851 | ||||||||
|
|
|
|||||||||
| $ | 12,682 | $ | 12,660 | |||||||
|
|
|
|||||||||
The accompanying notes to financial statements are an integral part of the above statements.
3
STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2001
2000
2001
2000
$
802
$
926
$
2,597
$
2,740
163
176
492
500
965
1,102
3,089
3,240
576
616
1,790
1,834
116
97
323
312
4
—
3
—
109
95
321
287
25
26
70
69
830
834
2,507
2,502
135
268
582
738
(89
)
(104
)
(281
)
(317
)
(1
)
(1
)
—
1
45
163
301
422
(14
)
(54
)
(93
)
(145
)
(1
)
(6
)
(3
)
(7
)
30
103
205
270
—
—
—
5
—
—
(6
)
(3
)
$
30
$
103
$
199
$
272
$
0.15
$
0.51
$
1.02
$
1.34
—
—
—
0.02
—
—
(0.03
)
(0.01
)
$
0.15
$
0.51
$
0.99
$
1.35
$
0.14
$
0.50
$
0.99
$
1.32
—
—
—
0.02
—
—
(0.03
)
(0.01
)
$
0.14
$
0.50
$
0.96
$
1.33
200
203
201
202
206
207
207
205
The accompanying notes to financial statements are an integral part of the above statements.
4
STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2001
2000
2001
2000
$
30
$
103
$
199
$
272
27
(66
)
(52
)
(138
)
(1
)
(4
)
1
(10
)
(9
)
—
(22
)
—
17
(70
)
(73
)
(148
)
$
47
$
33
$
126
$
124
The accompanying notes to financial statements are an integral part of the above statements.
5
STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.
Nine Months Ended
September 30,
2001
2000
$
199
$
272
—
(5
)
6
3
205
270
391
356
10
9
2
—
(1
)
—
1
15
3
7
10
3
—
(1
)
67
(65
)
—
(42
)
(18
)
—
17
2
57
24
(26
)
7
14
21
(65
)
(28
)
667
578
—
3
667
581
(326
)
(330
)
21
239
(25
)
36
(45
)
(287
)
(73
)
(36
)
(13
)
(13
)
(461
)
(391
)
(30
)
(26
)
757
38
(720
)
(261
)
(116
)
(99
)
(96
)
(40
)
17
29
(188
)
(359
)
(3
)
(25
)
15
(194
)
189
436
$
204
$
242
$
254
$
288
$
98
$
139
The accompanying notes to financial statements are an integral part of the above statements.
6
STARWOOD HOTELS & RESORTS
| September 30, | December 31, | |||||||||
| 2001 | 2000 | |||||||||
|
|
|
|||||||||
| (Unaudited) | ||||||||||
| ASSETS | ||||||||||
|
Current assets:
|
||||||||||
|
Cash and cash equivalents
|
$ | 6 | $ | 9 | ||||||
|
Receivable, Corporation
|
36 | 34 | ||||||||
|
Prepaid expenses and other
|
1 | 4 | ||||||||
|
|
|
|||||||||
|
Total current assets
|
43 | 47 | ||||||||
|
Investments, Corporation
|
848 | 848 | ||||||||
|
Investments
|
33 | 35 | ||||||||
|
Plant, property and equipment, net
|
4,216 | 4,260 | ||||||||
|
Long-term receivables, net, Corporation
|
1,797 | 1,604 | ||||||||
|
Goodwill and intangible assets, net
|
234 | 239 | ||||||||
|
Other assets
|
14 | 15 | ||||||||
|
|
|
|||||||||
| $ | 7,185 | $ | 7,048 | |||||||
|
|
|
|||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
|
Current liabilities:
|
||||||||||
|
Short-term borrowings and current maturities of
long-term debt
|
$ | 36 | $ | 35 | ||||||
|
Accounts payable
|
3 | 5 | ||||||||
|
Accrued expenses
|
65 | 57 | ||||||||
|
|
|
|||||||||
|
Total current liabilities
|
104 | 97 | ||||||||
|
Long-term debt
|
449 | 483 | ||||||||
|
|
|
|||||||||
| 553 | 580 | |||||||||
|
|
|
|||||||||
|
Minority interest
|
31 | 39 | ||||||||
|
|
|
|||||||||
|
Class B exchangeable preferred shares, at
redemption value of $38.50
|
42 | 117 | ||||||||
|
|
|
|||||||||
|
Commitments and contingencies
|
||||||||||
|
Stockholders’ equity:
|
||||||||||
|
Class A exchangeable preferred shares; $0.01
par value; authorized 30,000,000 shares; outstanding 549,951 and
609,576 shares at September 30, 2001 and December 31,
2000, respectively
|
— | — | ||||||||
|
Class A shares of beneficial interest; $0.01
par value; authorized 5,000 shares; outstanding 100 shares at
September 30, 2001 and December 31, 2000
|
— | — | ||||||||
|
Trust Class B shares of beneficial interest;
$0.01 par value; authorized 1,000,000,000 shares; outstanding
197,761,424 and 194,485,448 shares at September 30, 2001
and December 31, 2000, respectively
|
2 | 2 | ||||||||
|
Additional paid-in capital
|
7,703 | 7,630 | ||||||||
|
Accumulated deficit
|
(1,146 | ) | (1,320 | ) | ||||||
|
|
|
|||||||||
|
Total stockholders’ equity
|
6,559 | 6,312 | ||||||||
|
|
|
|||||||||
| $ | 7,185 | $ | 7,048 | |||||||
|
|
|
|||||||||
The accompanying notes to financial statements are an integral part of the above statements.
7
STARWOOD HOTELS & RESORTS
Three Months Ended
Nine Months Ended
September 30,
September 30,
2001
2000
2001
2000
$
1
$
1
$
2
$
2
154
182
486
518
155
183
488
520
—
—
2
2
51
47
151
135
2
2
5
5
53
49
158
142
102
134
330
378
(9
)
(10
)
(28
)
(29
)
1
(2
)
1
1
(3
)
(1
)
(4
)
(1
)
—
(1
)
(1
)
(2
)
$
91
$
120
$
298
$
347
The accompanying notes to financial statements are an integral part of the above statements.
8
STARWOOD HOTELS & RESORTS
Nine Months Ended
September 30,
2001
2000
$
298
$
347
156
140
1
2
2
3
(1
)
(1
)
(2
)
(18
)
(2
)
(4
)
3
(14
)
3
2
458
457
(128
)
(157
)
21
32
—
(1
)
(187
)
(145
)
—
9
(294
)
(262
)
—
23
(33
)
(104
)
(116
)
(99
)
(3
)
—
(14
)
(6
)
(1
)
4
(167
)
(182
)
(3
)
13
9
1
$
6
$
14
$
27
$
28
$
4
$
1
The accompanying notes to financial statements are an integral part of the above statements.
9
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Note 1. Basis of Presentation
The accompanying consolidated balance sheets as of September 30, 2001 and December 31, 2000 and the consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2001 and 2000 and cash flows for the nine months ended September 30, 2001 and 2000 represent (i) Starwood Hotels & Resorts Worldwide, Inc. (the “Corporation”) and its subsidiaries, including Starwood Hotels & Resorts (the “Trust”) and its subsidiaries (together with the Corporation, “Starwood” or the “Company”), and (ii) the Trust.
The Trust was formed in 1969 and elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code. In 1980, the Trust formed the Corporation and made a distribution to the Trust’s shareholders of one share of common stock, par value $0.01 per share, of the Corporation (a “Corporation Share”) for each common share of beneficial interest, par value $0.01 per share, of the Trust (a “Trust Share”). Until January 6, 1999, the Corporation Shares and Trust Shares were paired on a one-for-one basis and, pursuant to an agreement between the Corporation and the Trust, could be held or transferred only in units consisting of one Corporation Share and one Trust Share.
As a result of the January 6, 1999 reorganization of the Corporation and the Trust, the Trust became a subsidiary of the Corporation, which indirectly holds all outstanding Class A shares of beneficial interest in the Trust. Each outstanding Trust Share was converted into one share of the non-voting Class B shares of beneficial interest in the Trust (a “Class B Share”). The Corporation Shares and the Class B Shares trade together on a one-for-one basis, and pursuant to an agreement between the Corporation and the Trust, may be transferred only in units (“Shares”) consisting of one Corporation Share and one Class B Share.
The Company is one of the largest hotel and leisure companies in the world and the Trust is one of the largest REITs in the United States. The Company’s principal business is hotel and leisure, which is comprised of a worldwide hospitality network of more than 725 full-service hotels as well as vacation ownership resorts primarily serving two markets: luxury and upscale. The Company’s hotel operations are represented in nearly every major world market.
The Corporation, through its subsidiaries, is the general partner of, and held, as of September 30, 2001, an aggregate 97.8% partnership interest in, SLC Operating Limited Partnership (the “Operating Partnership”). The Trust, through its subsidiaries, is the general partner of, and held an aggregate 97.1% partnership interest in, SLT Realty Limited Partnership (the “Realty Partnership” and, together with the Operating Partnership, the “Partnerships”) as of September 30, 2001. The units of the Partnerships (“LP Units”) held by the limited partners of the respective Partnerships are exchangeable on a one-for-one basis for Shares. At September 30, 2001, there were approximately 6.0 million LP Units outstanding (including 4.3 million LP Units held by the Corporation). For all periods presented, the LP Units are assumed to have been converted to Shares for purposes of calculating basic and diluted weighted average Shares outstanding.
10
NOTES TO FINANCIAL STATEMENTS —
(Continued)
Note 2. Significant Accounting
Policies
Earnings Per Share.
The following reconciliation of
basic earnings per Share to diluted earnings per Share for
income from continuing operations assumes the conversion of LP
Units to Shares (in millions, except per Share data):
Three Months Ended September 30,
2001
2000
Earnings
Shares
Per Share
Earnings
Shares
Per Share
$
30
$
103
—
—
30
200
$
0.15
103
203
$
0.51
—
5
—
4
—
1
—
—
$
30
206
$
0.14
$
103
207
$
0.50
Nine Months Ended September 30,
2001
2000
Earnings
Shares
Per Share
Earnings
Shares
Per Share
$
205
201
$
1.02
$
270
202
$
1.34
—
6
—
3
$
205
207
$
0.99
$
270
205
$
1.32
| (1) | Class A Exchangeable Preferred Shares |
| (2) | Class B Exchangeable Preferred Shares |
In April 2001, the Emerging Issues Task Force (“EITF”) issued Topic No. D-95, “Effect of Participating Convertible Securities on the Computation of Basic Earnings Per Share.” EITF Topic No. D-95 clarifies Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share,” as it relates to convertible securities that participate in the Company’s dividends. The EITF Topic notes that these securities should be included in the computation of basic earnings per share, if dilutive. The Class A and B EPS were antidilutive for the three months ended September 30, 2001. Prior to the adoption of this Topic, the Company included these securities (Class A and B EPS) in the computation of diluted earnings per share. Prior periods affected by this EITF Topic have been restated. The adoption of this Topic had no effect on diluted earnings per share.
Recently Issued Accounting Standards. In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” The new rules apply to goodwill and intangible assets acquired after June 30, 2001 and to existing goodwill and intangible assets upon adoption of SFAS No. 142 in the first quarter of 2002. The new rules establish one method of accounting for all business combinations and the resulting goodwill and other intangible assets. Intangible assets with a finite life will generally continue to be amortized over their lives while intangibles
11
NOTES TO FINANCIAL STATEMENTS — (Continued)
without a finite life, including goodwill, will no longer be amortized. Tests for impairment will be performed annually or upon the occurrence of a triggering event. The Company is in the process of evaluating the potential impact of the new rules. Preliminary estimates based on existing goodwill and intangible assets indicate that adoption could result in an annual increase in net income of approximately $50 million.
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The new rules will apply to the classification and impairment analysis conducted on long-lived assets other than intangible assets and will become effective January 1, 2002. The new rules resolve existing conflicting treatment on the impairment of long-lived assets, as well as provide implementation guidance regarding impairment calculations. The adoption of SFAS No. 144 is not anticipated to have a material impact on the Company.
Reclassifications. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.
Note 3. Discontinued Operations
In April 1999, management developed a formal plan to dispose of the Company’s gaming operations. On June 23, 2000, the Company completed this plan with the sale of the Desert Inn Resort and Casino, resulting in a disposition gain of $5 million, net of tax. Proceeds from this sale totaling approximately $270 million were used to reduce the Company’s revolving credit facility.
The accompanying consolidated financial
statements reflect the results of operations of the gaming
segment as a discontinued operation. Interest expense of
$6 million through the date of disposition was allocated to
the discontinued operation. This allocation was based upon the
ratio of net gaming segment assets to the Company’s total
capitalization. During 1999, the Company provided for the
estimated loss on disposal of the gaming segment, which included
estimated operating losses through the disposal date. Summary
financial information of the discontinued gaming operations is
as follows (in millions):
Nine Months
Ended
September 30, 2000
$
57
$
(3
)
$
(6
)
$
1
$
(8
)
Note 4. Restructuring and Other Special Charges
During the third quarter of 2001, the Company recorded a $4 million charge primarily related to severance and other costs incurred as part of the Company’s cost reduction efforts.
During the first quarter of 2001, the Company wrote down its investments in various e-business ventures by approximately $19 million based on current market conditions in the technology sector and management’s assessment that these investments were permanently impaired. This charge was offset by the reversal of a $20 million bad debt charge taken in 1998 relating to a note receivable which is now fully performing.
The Company had remaining accruals related to restructuring and other special charges of $97 million at September 30, 2001 and $100 million at December 31, 2000, of which $22 million is included in other liabilities
12
NOTES TO FINANCIAL STATEMENTS — (Continued)
in the accompanying consolidated balance sheets for both periods. At September 30, 2001 and December 31, 2000, these accruals consist of $67 million and $72 million, respectively, for certain litigation costs and $30 million and $28 million, respectively, primarily related to remaining lease commitments which expire through 2006.
Note 5. Derivative Financial Instruments
The Company enters into interest rate swap agreements to manage interest expense. At September 30, 2001, the Company had four outstanding interest rate swap agreements under which the Company pays a fixed rate and receives variable rates of interest. The aggregate notional amount of these interest rate swaps was approximately $950 million and the estimated unrealized loss was approximately $22 million, net of tax, as of September 30, 2001. The unrealized loss represents the fair value of the interest rate swap agreements. These agreements mature at various dates from November 2002 through February 2003. Upon maturity, any unrealized gains or losses will be reclassified into earnings.
The Company also enters into forward foreign exchange contracts to hedge the foreign currency exposure associated with the Company’s foreign currency denominated assets and liabilities. At September 30, 2001, the Company had three forward foreign exchange contracts outstanding with a U.S. dollar equivalent of the contractual amounts of these hedges of approximately $13 million. These contracts mature from December 2001 through March 2002 and have all been deemed effective. Approximately $2 million of expense relating to forward contract premiums is included in interest expense for the nine months ended September 30, 2001.
The Company does not expect its current derivative financial instruments to significantly impact earnings for the next twelve months.
Note 6. Business Segment Information
The Company has one operating segment, hotel and leisure. The hotel and leisure segment represents a worldwide network of owned, leased and consolidated joint venture hotels and vacation ownership resorts operated primarily under the Company’s proprietary brand names including Sheraton®, Westin®, St. Regis®, The Luxury Collection®, Four Points® by Sheraton and W®. This segment also includes hotels and resorts operated or flagged under these brand names in exchange for management and/or franchise fees. Also included are earnings from the Company’s interest in unconsolidated joint ventures and from the development and sale of vacation ownership interests.
The performance of the hotel and leisure segment is evaluated primarily on operating income before corporate selling, general and administrative expense, interest expense, gains and losses on asset dispositions and restructuring and other special charges. The Company does not allocate these items to the segment.
13
NOTES TO FINANCIAL STATEMENTS —
(Continued)
The following table presents revenues, operating
income, capital expenditures and assets for the Company’s
reportable segment (in millions):
Three Months Ended
Nine Months Ended
September 30,
September 30,
2001
2000
2001
2000
$
965
$
1,102
$
3,089
$
3,240
$
163
$
286
$
642
$
807
$
122
$
104
$
326
$
330
September 30,
December 31,
2001
2000
$
12,557
$
12,529
125
131
$
12,682
$
12,660
| (1) | The following costs are not allocated to hotel and leisure in evaluating operating income: |
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
|
|
|
|||||||||||||||
| 2001 | 2000 | 2001 | 2000 | |||||||||||||
|
|
|
|
|
|||||||||||||
|
Corporate selling, general and administrative
|
$ | 24 | $ | 18 | $ | 57 | $ | 69 | ||||||||
|
Restructuring and other special charges, net
|
$ | 4 | $ | — | $ | 3 | $ | — | ||||||||
Note 7. Supplementary Financial Information
The following table presents a reconciliation of operating income to EBITDA (1) (in millions):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
|
|
|
|||||||||||||||
| 2001 | 2000 | 2001 | 2000 | |||||||||||||
|
|
|
|
|
|||||||||||||
|
Operating income
|
$ | 135 | $ | 268 | $ | 582 | $ | 738 | ||||||||
|
Depreciation
(2)
|
116 | 101 | 341 | 304 | ||||||||||||
|
Amortization
(2)
|
25 | 26 | 70 | 69 | ||||||||||||
|
Interest expense of unconsolidated joint ventures
|
6 | 6 | 19 | 16 | ||||||||||||
|
Interest income
|
2 | 5 | 9 | 14 | ||||||||||||
|
Restructuring and other special charges, net
|
4 | — | 3 | — | ||||||||||||
|
|
|
|
|
|||||||||||||
|
EBITDA
|
$ | 288 | $ | 406 | $ | 1,024 | $ | 1,141 | ||||||||
|
|
|
|
|
|||||||||||||
| (1) | EBITDA is defined as income before interest expense, income tax expense and depreciation and amortization. Non-recurring items and gains and losses from asset dispositions are also excluded from EBITDA as these items do not impact operating results on a recurring basis. Management considers EBITDA to be one measure of the cash flows from operations of the Company before debt service that provides a relevant basis for comparison, and EBITDA is presented to assist investors in analyzing the performance of the Company. This information should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States, nor should it be considered as an indicator of the overall financial performance of the Company. The Company’s calculation of EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited. |
| (2) | Includes depreciation and amortization expense of unconsolidated joint ventures. |
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
Certain statements contained in this report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, but are not limited to, statements relating to the Company’s objectives, strategies and plans, and all statements (other than statements of historical fact) that address actions, events or circumstances that the Company or its management expects, believes or intends will occur in the future. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated at the time the forward-looking statements are made, including, without limitation, risks and uncertainties associated with the following: general real estate, travel and national and international economic conditions, including the severity and duration of the downturn resulting from the September 11, 2001 terrorist attacks on New York and Washington, D.C. (the “September 11 Attacks”); the continued ability of the Trust to qualify for taxation as a REIT; Starwood’s ability to attract and retain personnel; identification, completion, terms and timing of future acquisitions and dispositions; the availability and terms of capital for acquisitions and for renovations; execution of hotel renovation and expansion programs; the ability to maintain existing management or franchise agreements and to obtain new agreements on favorable terms; competition within the hotel and leisure industry; the cyclicality of the real estate business and the hotel and leisure business; foreign exchange fluctuations and exchange control restrictions; political and financial conditions and uncertainties in countries in which Starwood owns or operates properties; changes in current laws, rules or regulations of governmental or other regulatory bodies; and the other risks and uncertainties set forth in the annual, quarterly and current reports and proxy statements of the Trust and the Corporation. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
RESULTS OF OPERATIONS
The following discussion presents an analysis of results of our operations for the three and nine months ended September 30, 2001 and 2000.
Three Months Ended September 30, 2001 Compared with Three Months Ended September 30, 2000
Continuing Operations
The Company’s operating results for the third quarter of 2001 were dramatically impacted by the continued weakening of the U.S. economy which was exacerbated by the September 11 Attacks, leading to an unprecedented decline in industry-wide demand. The initial closing of all airports in the United States and the significant decline in business and leisure travel following the September 11 Attacks resulted in significant decreases in revenues and earnings for September 2001 when compared to September 2000. Historically, September results were key to the third quarter, representing more than 50% of the Company’s third quarter net income in prior years. Immediately following the September 11 Attacks, the Company began developing operating plans commensurate with the reduced demand levels and began implementing cost reduction plans at all owned and managed hotels worldwide as well as corporate and division offices.
Revenues. Total revenues decreased 12.4% from $1.102 billion to $965 million for the three months ended September 30, 2001 when compared to the corresponding period in 2000. The decrease in revenues reflects a 13.4% decrease in revenues from the Company’s owned, leased and consolidated joint venture hotels to $802 million for the three months ended September 30, 2001 when compared to $926 million in the corresponding period of 2000 and a decrease in other hotel and leisure revenues to $163 million for the three months ended September 30, 2001 when compared to $176 million in the corresponding period of 2000.
The decrease in revenues from owned, leased and consolidated joint venture hotels is due primarily to decreased revenues at the Company’s hotels owned during both periods (“Comparable Owned Hotels”) (160 hotels for the three months ended September 30, 2001, excluding six hotels sold and five hotels without comparable results during 2000 and 2001). Revenues at the Company’s Comparable Owned Hotels decreased
15
The decrease in other hotel and leisure revenues resulted from lower management fees, primarily due to reduced incentive management fees as a result of the previously discussed industry-wide drop in demand, and equity earnings from joint ventures, offset by the slight increase in revenues from Starwood Vacation Ownership, Inc. (“SVO”).
EBITDA. EBITDA for the Company’s owned, leased and consolidated joint venture hotels decreased $84 million or 27.1% to $226 million for the three months ended September 30, 2001 when compared to the corresponding period in 2000. This decrease was primarily due to an $89 million or 29.1% decrease in EBITDA at the Company’s Comparable Owned Hotels to $216 million. The decrease in EBITDA at these hotels was primarily due to the $83 million decrease in EBITDA over the same period in 2000 at the Company’s Comparable Owned Hotels in North America resulting primarily from the September 11 Attacks, which exacerbated an already weakening U.S. economy and lead to an unprecedented drop in industry-wide demand, the sale of five hotels and the effective closure of one hotel in Chicago (as noted above).
Selling, General, Administrative and Other. Selling, general, administrative and other expenses were $116 million and $97 million for the three months ended September 30, 2001 and 2000, respectively. The increase in selling, general, administrative and other expenses is due primarily to increased expenses associated with SVO.
Restructuring and Other Special Charges. During the three months ended September 30, 2001, the Company incurred $4 million in severance and other costs as part of the Company’s cost reduction efforts.
As noted earlier, after the September 11 Attacks, the Company experienced a significant reduction in demand. As a result, the Company immediately began analyzing and implementing a cost reduction plan. This plan will result in further severance costs in the fourth quarter of 2001. In addition, as a result of the September 11 Attacks, the Company is reviewing the carrying value of certain assets for potential impairment. These charges could aggregate $75 million to $150 million and will primarily be non-cash.
Depreciation and Amortization. Depreciation and amortization expense increased to $134 million in the three months ended September 30, 2001 compared to $121 million in the corresponding period of 2000. The increase in depreciation and amortization expense for the three months ended September 30, 2001 was primarily attributable to the additional depreciation resulting from capital expenditures at many of the Company’s owned, leased and consolidated joint venture hotels in the past 15 months.
16
Net Interest Expense. Interest expense for the three months ended September 30, 2001 and 2000, which is net of interest income of $2 million and $5 million, respectively, decreased to $89 million from $104 million. This decrease was due primarily to lower interest rates compared to the third quarter of 2000 due to reduced LIBOR rates and the impact of certain financing transactions, including the issuance of zero coupon convertible debt in May 2001. The Company’s weighted average interest rate was 5.90% for the three months ended September 30, 2001 versus 7.33% for the same period in 2000.
Income Tax Expense. The effective income tax rate for the third quarter of 2001 decreased to 30.8% compared to 33.1% in the corresponding quarter in 2000. The Company’s effective income tax rate is determined by the level and composition of pretax income subject to varying foreign, state and local taxes and other items.
Nine Months Ended September 30, 2001 Compared with Nine Months Ended September 30, 2000
Continuing Operations
Revenues. Total revenues decreased 4.7% from $3.240 billion to $3.089 billion for the nine months ended September 30, 2001 when compared to the corresponding period in 2000. The decrease in revenues reflects a 5.2% decrease in revenues from the Company’s owned, leased and consolidated joint venture hotels to $2.597 billion for the nine months ended September 30, 2001 when compared to $2.740 billion in the corresponding period of 2000 and a slight decrease in other hotel and leisure revenues to $492 million for the nine months ended September 30, 2001 when compared to $500 million in the corresponding period of 2000 due primarily to a decline in management and franchise fees, offset by a slight increase in revenues at SVO.
The decrease in revenues from owned, leased and consolidated joint venture hotels is due primarily to decreased revenues at the Company’s Comparable Owned Hotels. Revenues at the Company’s Comparable Owned Hotels (158 hotels for the nine months ended September 30, 2001, excluding nine hotels sold and seven hotels without comparable results during 2000 and 2001) decreased 7.2% to $2.499 billion for the nine months ended September 30, 2001 when compared to the same period of 2000 due primarily to a decrease in REVPAR. REVPAR at the Company’s 155 Same-Store Owned Hotels (excluding nine hotels sold and ten hotels under significant renovation or for which comparable results are not available for the nine months ended September 30, 2001) decreased 7.1% to $107.85 for the nine months ended September 30, 2001 when compared to the corresponding 2000 period. The decrease in REVPAR at these 155 Same-Store Owned Hotels was attributed to a decrease in occupancy to 67.3% from 72.4% in the nine months ended September 30, 2001 when compared to the same period of 2000. ADR decreased slightly to $160.32 for the nine months ended September 30, 2001 when compared to $160.43 in the corresponding 2000 period. REVPAR at Same-Store Owned Hotels in North America decreased 7.9% for the nine months ended September 30, 2001 when compared to the same period of 2000 due to the weakening of the U.S. economy which was exacerbated by the September 11 Attacks, resulting in an unprecedented decline in industry-wide demand, particularly in New York City, where the Company has seven owned hotels with a total of approximately 3,900 rooms, offset by the acquisition of the 50% interest in the Sheraton Centre Toronto not previously owned by the Company in April 2001. REVPAR at the Company’s international Same-Store Owned Hotels, which decreased by 4.6% for the nine months ended September 30, 2001 when compared to the same period of 2000, was also impacted by the September 11 Attacks, the unfavorable effect of foreign currency translation and adverse political and economic conditions, primarily in countries like Argentina and Australia. REVPAR for Same-Store Owned Hotels in Europe increased 5.6% excluding the unfavorable effect of foreign currency translation.
EBITDA. EBITDA for the Company’s owned, leased and consolidated joint venture hotels decreased $99 million to $807 million for the nine months ended September 30, 2001 when compared to the corresponding period in 2000. This decrease was primarily due to a $106 million or 11.8% decrease in EBITDA at the Company’s Comparable Owned Hotels. This decrease is primarily due to the $99 million decrease in EBITDA over the same period in 2000 at the Company’s Comparable Owned Hotels in North America resulting primarily from the weakening U.S. economy, the September 11 Attacks, the sale of eight hotels and the effective closure of one hotel in Chicago which was being converted to a W hotel.
Selling, General, Administrative and Other. Selling, general, administrative and other expenses were $323 million and $312 million for the nine months ended September 30, 2001 and 2000, respectively. The increase in
17
Restructuring and Other Special Charges. During the nine months ended September 30, 2001, the Company incurred $4 million in severance and other costs as part of the Company’s cost reduction efforts. The Company also wrote down its investments in various e-business ventures by approximately $19 million based on current market conditions in the technology sector and management’s assessment that these investments were permanently impaired. These charges were offset in part by the reversal of a $20 million bad debt charge taken in 1998 relating to a note receivable which is now fully performing.
As previously discussed, the Company expects to take a charge in the fourth quarter of 2001 related to additional severance costs and potential asset impairments as a result of the September 11 Attacks.
Depreciation and Amortization. Depreciation and amortization expense increased to $391 million in the nine months ended September 30, 2001 compared to $356 million in the corresponding period of 2000. The increase in depreciation and amortization expense for the nine months ended September 30, 2001 was primarily attributable to the additional depreciation resulting from capital expenditures at many of the Company’s owned, leased and consolidated joint venture hotels over the past two years.
Net Interest Expense. Interest expense for the nine months ended September 30, 2001 and 2000, which is net of interest income of $9 million and $14 million, respectively, and discontinued gaming operations allocations of $6 million in the nine months ended September 30, 2000, decreased to $281 million from $317 million. This decrease was due primarily to lower interest rates compared to the first nine months of 2000 due to reduced LIBOR rates and the impact of certain financing transactions, including the issuance of zero coupon convertible debt in May 2001. The Company’s weighted average interest rate was 6.41% for the nine months ended September 30, 2001 versus 7.32% for the same period in 2000.
Income Tax Expense. The effective income tax rate for the first nine months of 2001 decreased to 30.8% compared to 34.5% in the corresponding period in 2000. The Company’s effective income tax rate is determined by the level and composition of pretax income subject to varying foreign, state and local taxes and other items.
Seasonality and Diversification
The hotel and leisure industry is seasonal in nature; however, the periods during which the Company’s properties experience higher hotel revenue activities vary from property to property and depend principally upon location. The Company’s revenues historically have been lower in the first quarter than in the second, third or fourth quarters. However, as a result of the September 11 Attacks and the resulting unprecedented industry-wide decline in demand, the fourth quarter of 2001 is expected to be significantly lower than the same period in prior years.
Same-Store Owned Hotels Results
Starwood continually updates and renovates its owned, leased and consolidated joint venture hotels. While undergoing renovation, these hotels are generally not operating at full capacity and, as such, these renovations can negatively impact Starwood’s hotel revenues. Starwood expects to continue renovating its owned, leased and consolidated joint venture hotels as it pursues its brand and quality strategies.
The following table summarizes REVPAR, ADR and average occupancy for the Company’s Same-Store Owned Hotels for the three and nine months ended September 30, 2001 and 2000. The results for the three and nine months ended September 30, 2001 and 2000 represent results for 157 and 155 owned, leased and
18
| Three Months Ended | ||||||||||||
| September 30, | ||||||||||||
|
|
||||||||||||
| 2001 | 2000 | Variance | ||||||||||
|
|
|
|
||||||||||
|
Worldwide
(157
hotels with approximately 54,000 rooms)
|
||||||||||||
|
REVPAR
|
$ | 99.03 | $ | 118.56 | (16.5) | % | ||||||
|
ADR
|
$ | 151.14 | $ | 158.59 | (4.7) | % | ||||||
|
Occupancy
|
65.5 | % | 74.8 | % | (9.3) | |||||||
|
North America
(111
hotels with approximately 40,000 rooms)
|
||||||||||||
|
REVPAR
|
$ | 93.69 | $ | 116.29 | (19.4) | % | ||||||
|
ADR
|
$ | 141.23 | $ | 150.46 | (6.1) | % | ||||||
|
Occupancy
|
66.3 | % | 77.3 | % | (11.0) | |||||||
|
International
(46
hotels with approximately 14,000 rooms)
|
||||||||||||
|
REVPAR
|
$ | 115.21 | $ | 125.47 | (8.2) | % | ||||||
|
ADR
|
$ | 182.75 | $ | 187.08 | (2.3) | % | ||||||
|
Occupancy
|
63.0 | % | 67.1 | % | (4.1) | |||||||
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
|
|
||||||||||||
| 2001 | 2000 | Variance | ||||||||||
|
|
|
|
||||||||||
|
Worldwide
(155
hotels with approximately 53,000 rooms)
|
||||||||||||
|
REVPAR
|
$ | 107.85 | $ | 116.11 | (7.1) | % | ||||||
|
ADR
|
$ | 160.32 | $ | 160.43 | (0.1) | % | ||||||
|
Occupancy
|
67.3 | % | 72.4 | % | (5.1) | |||||||
|
North America
(110
hotels with approximately 40,000 rooms)
|
||||||||||||
|
REVPAR
|
$ | 105.27 | $ | 114.35 | (7.9) | % | ||||||
|
ADR
|
$ | 154.86 | $ | 154.84 | — | |||||||
|
Occupancy
|
68.0 | % | 73.9 | % | (5.9) | |||||||
|
International
(45
hotels with approximately 13,000 rooms)
|
||||||||||||
|
REVPAR
|
$ | 116.10 | $ | 121.72 | (4.6) | % | ||||||
|
ADR
|
$ | 178.59 | $ | 180.04 | (0.8) | % | ||||||
|
Occupancy
|
65.0 | % | 67.6 | % | (2.6) | |||||||
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Provided by Operating Activities
Cash flow from operating activities is the principal source of cash used to fund the Company’s operating expenses, interest payments on debt, maintenance capital expenditures and distribution payments by the Trust. Despite the unprecedented decline in industry-wide demand following the September 11 Attacks, the Company anticipates that cash flow provided by operating activities will be sufficient to service these cash requirements. The Company is currently evaluating the timing and level of future dividends. As discussed below, the Company believes that existing borrowing availability, together with additional borrowings, will be adequate to meet all funding requirements for the foreseeable future. The Trust’s quarterly dividend increased 16% in the third quarter of 2001 over the same period in 2000 to $0.20 per Share. The third quarter dividend was paid in October 2001 to shareholders of record as of September 30, 2001.
19
Cash Flow from Investing and Financing Activities
The Company intends to finance the acquisition of additional hotel properties (including equity investments), hotel renovations, capital improvements and other core business acquisitions and provide for general corporate purposes through its credit facilities described below, through the net proceeds from dispositions of certain non-core assets and, when market conditions warrant, through the issuance of additional equity or debt securities.
Following is a summary of the Company’s debt
portfolio as of September 30, 2001:
Amount
Outstanding at
Interest Rate at
Average
September 30, 2001
Interest Terms
September 30, 2001
Maturity
(Dollars in millions)
$
800
LIBOR+0.625%
3.26
%
1.2 years
423
LIBOR+1.25%
3.88
%
1.4 years
622
LIBOR+0.625%
3.26
%
1.4 years
500
LIBOR+2.75%
5.38
%
1.4 years
524
Various
5.27
%
1.8 years
(950
)
3.35
%
—
1,919
4.45
%
1.4 years
1,296
7.08
%
9.5 years
504
2.35
%
2.2 years
838
7.35
%
10.1 years
950
6.50
%
—
3,588
6.32
%
8.3 years
$
5,507
5.67
%
4.7 years
Starwood has a substantial amount of indebtedness and had a working capital deficiency of $902 million at September 30, 2001, including $592 million of current maturities of long-term debt. Based upon the current level of operations, management believes that the Company’s cash flow from operations, together with available borrowings under the Revolving Credit Facility (approximately $440 million at September 30, 2001), available borrowings from international revolving lines of credit (approximately $171 million at September 30, 2001), capacity from additional borrowings and proceeds from non-core asset sales, will be adequate to meet anticipated requirements for working capital, capital expenditures, marketing and advertising program expenditures, other discretionary investments, interest and scheduled principal payments for the foreseeable future. There can be no assurance, however, that the Company’s business will continue to generate cash flow at or above historical levels or that currently anticipated improvements will be achieved.
In May 2001, the Company sold an aggregate face amount of $815,828,000 zero coupon convertible senior notes due 2021. The notes have a blended yield to maturity of 2.35%. The notes, consisting of two series, are convertible, subject to certain conditions, into an aggregate 9,657,000 Shares. Commencing in May 2002, each Series A holder may require the Company to purchase the notes, subject to certain conditions. Total Series A notes that may be presented to the Company in May 2002 is approximately $200 million. Series B holders may first present their aggregate notes of approximately $330 million to the Company in May 2004. The Company received gross proceeds from these sales of approximately $500 million, which was used to repay a portion of its Senior Secured Notes that bore interest at LIBOR plus 275 basis points.
20
Additionally, in January 2001 and May 2001, the Company completed add-on financings to its credit facility of $150 million and $100 million, respectively.
In April 2001, the Company completed the acquisition of the 50% interest not previously owned by the Company in the 1,377-room Sheraton Centre Toronto for $75 million Canadian dollars (approximately $48 million U.S. dollars). Starwood owned 50% of this property before completion of this acquisition.
If Starwood is unable to generate sufficient cash flow from operations in the future to service the Company’s debt, the Company may be required to sell assets, reduce capital expenditures, refinance all or a portion of its existing debt or obtain additional financing. The Company’s ability to make scheduled principal payments, to pay interest on or to refinance the Company’s indebtedness depends on its future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the hotel and leisure industry and to general economic, political, financial, competitive, legislative and regulatory factors beyond the Company’s control, including the severity and duration of the economic downturn resulting from the September 11 Attacks. There can be no assurance that sufficient funds will be available to enable Starwood to service its indebtedness or to make necessary capital expenditures, marketing and advertising program expenditures and other discretionary investments. Since the September 11 Attacks, the Company has had discussions with its primary lenders and expects to amend its bank facilities to provide for certain covenant relief as may be necessary.
Stock Sales and Repurchases
Pursuant to the 1998 Board-approved Share repurchase program (the “Share Repurchase Program”), the Company repurchased 3,245,800 Shares in the open market at an average purchase price of $29.65 during the nine months ended September 30, 2001. On April 2, 2001, the Company’s Board of Directors authorized the repurchase of up to an additional $500 million of Shares, subject to the terms of the Senior Credit Facility. At September 30, 2001, remaining availability under the Share Repurchase Program was $633 million.
OTHER MATTERS
European Union Currency Conversions
On January 1, 1999, certain member countries of the European Union established fixed conversion rates between their existing sovereign currencies and the Euro. As of the date of this filing, 12 of the 15 member countries (the “Participating Countries”) have established these fixed conversion rates. Following the introduction of the Euro, the legacy currencies of the Participating Countries will remain legal tender during a transition period ending on January 1, 2002. During the transition period, both the legacy currency and the Euro will be legal tender in the respective Participating Countries. During the transition period, currency conversions will be computed by a triangulation with reference to conversion rates between the respective currencies and the Euro. The Company currently operates in substantially all of the Participating Countries. As of the date of this report, primarily all affected owned and managed properties have converted to the Euro without any significant impact to the properties’ operations or information systems; however, there is no assurance that the Company or third-party vendors of applications used by the Company will continue to be successful. There is some uncertainty as to the impact on business with the introduction of the Euro notes and coins on January 1, 2002. Prior to January 1, 2002, the Company will have trained primarily all associates in identifying the new currency.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
There were no material changes to the information provided in Item 7A in the Company’s Joint Annual Report on Form 10-K regarding the Company’s market risk.
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is involved in various claims and lawsuits arising in the ordinary course of business, none of which, in the opinion of management, is expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.
Item 2. Changes in Securities and Use of Proceeds.
Pursuant to the Share Repurchase Program, the Company repurchased 3,245,800 Shares in the open market at an average purchase price of $29.65 during the nine months ended September 30, 2001.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
| 10.1 | First Amendment to the Starwood Hotels & Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation Plan, dated as of August 1, 2001. (1) |
| (1) | Filed herewith. |
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter of 2001.
22
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, each Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto
duly authorized.
23
STARWOOD HOTELS & RESORTS WORLDWIDE,
INC
STARWOOD HOTELS & RESORTS
By: /s/ RONALD C. BROWN
Ronald C. Brown
Executive Vice President and
Chief Financial Officer
By: /s/ RONALD C. BROWN
Ronald C. Brown
Vice President and Chief Financial
and Accounting Officer
Table of Contents
EXHIBIT INDEX
Exhibit
Number
Description
First Amendment to the Starwood Hotels &
Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation
Plan, dated as of August 1, 2001.
(1)
(1)
Filed herewith.
EXHIBIT 10.1
FIRST AMENDMENT TO THE
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
1999 LONG-TERM INCENTIVE COMPENSATION PLAN
Amendment, dated as of August 1, 2001, to the Starwood Hotels & Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation Plan (the "Plan").
WHEREAS, the Board of Directors of Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation") has determined that it is advisable and in the best interests of the Corporation that the Plan be amended as set forth in this First Amendment.
NOW, THEREFORE, the Corporation agrees, for its benefit and the benefit of the Plan Participants, as follows:
1. Article 2 of the Plan is hereby amended by adding the following defined term and renumbering the sections following the new definition accordingly:
"2.29 "Retirement" means termination of employment other than for Cause after a Participant has reached the age of 55 years and has completed at least five years of service (full-time or full-time equivalent), provided that the sum of the age of Participant plus the number of years of service (full-time or full-time equivalent) is equal to at least 65."
2. Section 3.2 is hereby amended by capitalizing the terms "retirement" and "disability" that appear in such Section of the Plan. Such terms shall appear as "Retirement" and "Disability."
3. Article 6 is hereby amended by adding the following paragraph (f) under Section 6.8 of the Plan:
"(f) Retirement. Unless otherwise specified in the Award Agreement relating to an Option, upon Retirement, a Participant's Option shall continue to vest as set forth in the Award Agreement relating to such Option and the Participant may exercise any vested portion of an Option up until and including the earliest to occur of (i) the fifth anniversary of the Participant's effective date of Retirement and (ii) the expiration date of the term of such Option; provided, however, that any unvested portion of an Option not exercised by the fifth anniversary of the Participant's effective date of Retirement shall be canceled. The foregoing notwithstanding, during the five year period beginning from the date of Retirement, all vested but unexercised Options and all unvested Options held by Participant will be canceled in the event Participant accepts any employment, assignment, position of responsibility, or acquires any ownership interest (other than holding and making investments in common equity securities of any corporation, limited partnership or other entity that has its common equity securities traded in a generally recognized market, provided such equity interest therein does not exceed 5% of the
outstanding shares or equity interests in such corporation, limited partnership or other entity), which involves the Participant's participation in a hotel and leisure company engaged in the operation of owned hotels, management of hotels, franchising hotels, development and operation of vacation ownership resorts or the marketing and selling of vacation ownership interests."
4. Article 8 is hereby amended by adding the following paragraph (c) under Section 8.7:
"(c) Retirement. Unless otherwise specified in the Award Agreement relating to a Restricted Stock Award, upon Retirement, a Restricted Stock Award will continue to vest as set forth in the Award Agreement relating to such Restricted Stock Award, provided that any unvested portion of a Restricted Stock Award will be canceled on the fifth anniversary of the Participant's effective date of Retirement. The foregoing notwithstanding, during the five year period beginning from the date of Retirement, all unvested Restricted Stock Awards held by Participant will be canceled in the event Participant accepts any employment, assignment, position or responsibility, or acquires any ownership interest (other than holding and making investments in common equity securities of any corporation, limited partnership or other entity that has its common equity securities traded in a generally recognized market, provided such equity interest therein does not exceed 5% of the outstanding shares or equity interests in such corporation, limited partnership or other entity), which involves the Participant's participation in a hotel and leisure company engaged in the operation of owned hotels, management of hotels, franchising hotels, development and operation of vacation ownership resorts and the marketing or selling of vacation ownership interests."
5. The first paragraph of Section 9.5 shall be amended in its entirety as follows:
"9.5 Termination of Employment Due to Death, Disability or Retirement. Unless determined otherwise by the Committee and set forth in the Participant's Award Agreement, in the event the employment of a Participant is terminated by reason of death, Disability or Retirement, the Participant shall receive a payout of the Performance Units/Shares which is prorated, as specified by the Committee its discretion."
6. All capitalized terms used in this First Amendment and not otherwise defined herein shall have the respective meanings assigned thereto in the Plan.
7. Except as otherwise specifically set forth herein, all terms and provisions of the Plan shall remain in full force and effect and shall be unmodified by the effectiveness of this First Amendment.
IN WITNESS WHEREOF, Starwood Hotels & Resorts Worldwide, Inc. has adopted this First Amendment to the 1999 Long-Term Incentive Compensation
Plan
on August 1, 2001 and such Amendment shall apply as of such date of adoption to all awards made on or after February 1, 2001.
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
By: /s/ David K. Norton
--------------------------------
Name: David K. Norton
Title: Executive Vice President,
Human Resources
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