SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| þ |
Quarterly Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2003 |
|
| OR | ||
| o |
Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For the Transition Period from to |
|
| Commission File Number: 1-7959 | Commission File Number: 1-6828 | |
| STARWOOD HOTELS & RESORTS WORLDWIDE, INC. | STARWOOD HOTELS & RESORTS | |
| (Exact name of Registrant as specified in its charter) | (Exact name of Registrant as specified in its charter) | |
| Maryland | Maryland | |
|
(State or other jurisdiction
of incorporation or organization) |
(State or other jurisdiction
of incorporation or organization) |
|
| 52-1193298 | 52-0901263 | |
| (I.R.S. employer identification no.) | (I.R.S. employer identification no.) | |
|
1111 Westchester Avenue
White Plains, NY 10604 |
1111 Westchester Avenue
White Plains, NY 10604 |
|
|
(Address of principal executive
offices, including zip code) |
(Address of principal executive
offices, including zip code) |
|
| (914) 640-8100 | (914) 640-8100 | |
|
(Registrant’s telephone number,
including area code) |
(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 þ No o
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
200,630,997 shares of common stock, par value $0.01 per share, of Starwood Hotels & Resorts Worldwide, Inc. attached to and traded together with 200,630,997 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 April 30, 2003.
TABLE OF CONTENTS
| Page | ||||||
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| PART I. | ||||||
|
Item 1.
|
Financial Statements
|
|||||
|
Starwood Hotels & Resorts Worldwide, Inc.:
|
||||||
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Consolidated Balance Sheets as of
March 31, 2003 and December 31, 2002
|
3 | |||||
|
Consolidated Statements of Operations
for the Three Months Ended March 31, 2003 and 2002
|
4 | |||||
|
Consolidated Statements of
Comprehensive Loss for the Three Months Ended March 31,
2003 and 2002
|
5 | |||||
|
Consolidated Condensed Statements of
Cash Flows for the Three Months Ended March 31, 2003 and
2002
|
6 | |||||
|
Starwood Hotels & Resorts:
|
||||||
|
Consolidated Balance Sheets as of
March 31, 2003 and December 31, 2002
|
7 | |||||
|
Consolidated Statements of Operations
for the Three Months Ended March 31, 2003 and 2002
|
8 | |||||
|
Consolidated Condensed Statements of
Cash Flows for the Three Months Ended March 31, 2003 and
2002
|
9 | |||||
|
Notes to Financial Statements
|
10 | |||||
|
Item 2.
|
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
|
26 | ||||
|
Item 3.
|
Quantitative and Qualitative Disclosures about
Market Risk
|
36 | ||||
|
Item 4.
|
Controls and Procedures
|
37 | ||||
| PART II. | ||||||
|
Item 1.
|
Legal Proceedings
|
37 | ||||
|
Item 2.
|
Changes in Securities and Use of Proceeds
|
37 | ||||
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Item 6.
|
Exhibits and Reports on Form 8-K
|
37 | ||||
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, 2002 filed on February 28, 2003. 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 months ended March 31, 2003 are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2003.
2
STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.
March 31,
December 31,
2003
2002
(Unaudited)
ASSETS
$
158
$
108
146
108
376
398
213
214
148
108
1,041
936
407
434
6,925
6,911
667
839
2,576
2,570
493
500
$
12,109
$
12,190
LIABILITIES AND STOCKHOLDERS’
EQUITY
$
908
$
870
220
223
561
671
166
178
211
188
2,066
2,130
4,597
4,449
909
986
547
538
8,119
8,103
37
39
35
51
Commitments and contingencies
Stockholders’ equity:
—
—
2
2
2
2
4,928
4,905
(19
)
(14
)
(455
)
(474
)
(540
)
(424
)
3,918
3,997
$
12,109
$
12,190
The accompanying notes to financial statements are an integral part of the above statements.
3
STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.
Three Months
Ended March 31,
2003
2002
$
732
$
742
151
142
883
884
190
202
1,073
1,086
586
558
121
88
—
(2
)
111
111
6
5
824
760
190
202
1,014
962
59
124
(77
)
(76
)
(170
)
(3
)
(188
)
45
70
(13
)
1
1
(117
)
33
(1
)
(1
)
2
—
$
(116
)
$
32
$
(0.58
)
$
0.16
—
—
$
(0.58
)
$
0.16
$
(0.58
)
$
0.16
—
—
$
(0.58
)
$
0.16
200
200
200
205
The accompanying notes to financial statements are an integral part of the above statements.
4
STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.
Three Months
Ended
March 31,
2003
2002
$
(116
)
$
32
23
(60
)
(3
)
—
(1
)
8
19
(52
)
$
(97
)
$
(20
)
The accompanying notes to financial statements are an integral part of the above statements.
5
STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.
Three Months
Ended
March 31,
2003
2002
$
(116
)
$
32
(1
)
1
(117
)
33
170
3
154
95
(21
)
(52
)
(58
)
(2
)
10
(25
)
138
52
7
4
145
56
(65
)
(56
)
(1
)
(12
)
—
4
(66
)
(64
)
144
(96
)
15
161
(13
)
(44
)
(170
)
(40
)
(8
)
24
(32
)
5
3
(1
)
50
(4
)
108
107
$
158
$
103
$
30
$
48
$
(3
)
$
15
The accompanying notes to financial statements are an integral part of the above statements.
6
STARWOOD HOTELS & RESORTS
CONSOLIDATED BALANCE SHEETS
March 31,
December 31,
2003
2002
(Unaudited)
ASSETS
$
3
$
2
43
41
4
1
50
44
848
848
26
27
3,332
3,362
471
648
1,829
2,070
223
223
8
8
$
6,787
$
7,230
LIABILITIES AND STOCKHOLDERS’
EQUITY
$
9
$
9
3
8
18
24
—
148
—
170
30
359
436
438
466
797
30
30
32
48
—
—
—
—
2
2
7,708
7,704
(1,451
)
(1,351
)
6,259
6,355
$
6,787
$
7,230
The accompanying notes to financial statements are an integral part of the above statements.
7
STARWOOD HOTELS & RESORTS
Three Months
Ended
March 31,
2003
2002
$
—
$
1
129
154
129
155
1
1
48
54
49
55
80
100
(9
)
(9
)
(170
)
(3
)
(1
)
(1
)
$
(100
)
$
87
The accompanying notes to financial statements are an integral part of the above statements.
8
STARWOOD HOTELS & RESORTS
Three Months
Ended
March 31,
2003
2002
$
(100
)
$
87
170
3
49
54
227
(85
)
346
59
(11
)
(15
)
—
(7
)
(11
)
(22
)
(2
)
(2
)
(170
)
(40
)
(148
)
—
(14
)
4
(334
)
(38
)
1
(1
)
2
3
$
3
$
2
$
9
$
8
$
1
$
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 financial statements represent (i) Starwood Hotels & Resorts Worldwide, Inc. and its subsidiaries (the “Corporation”), including Sheraton Holding Corporation and its subsidiaries and Starwood Hotels & Resorts and its subsidiaries (the “Trust” and together with the Corporation, “Starwood” or the “Company”), and (ii) the Trust.
Starwood is one of the world’s largest hotel and leisure companies. Starwood’s status as one of the leading hotel and leisure companies resulted from the 1998 acquisitions of Westin Hotels & Resorts Worldwide, Inc. and certain of its affiliates (“Westin”) (the “Westin Merger”) and ITT Corporation (the “ITT Merger”), renamed Sheraton Holding Corporation (“Sheraton Holding”).
The Company’s principal business is hotels and leisure, which is comprised of a worldwide hospitality network of more than 700 full-service hotels as well as vacation ownership resorts primarily serving two markets: luxury and upscale.
On October 1, 1999, the Company completed the acquisition of Starwood Vacation Ownership, Inc. (formerly Vistana, Inc.) (“SVO”), whereby SVO merged with and into a subsidiary of the Corporation and thereby became a wholly owned subsidiary of the Corporation. SVO’s principal operations include the acquisition, development and operation of vacation ownership resorts; marketing and selling vacation ownership interests (“VOIs”) in the resorts; and providing financing to customers who purchase such interests. Starwood considers SVO’s vacation ownership operations to be a separate segment from its hotel business.
The Trust was formed in 1969 and elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code (the “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 (“Paired Shares”) consisting of one Corporation Share and one Trust Share. The Trust is one of the largest REITs in the United States.
During 1998, Congress enacted tax legislation that had the effect of eliminating the grandfathering for certain interests in real property acquired after March 26, 1998 by a formation of a “paired share REIT.” In response to this legislation, a reorganization of the Corporation and the Trust (the “Reorganization”) was proposed by the Company and was approved by the Corporation and Trust shareholders on January 6, 1999. As a result of the Reorganization, the Trust became a subsidiary of the Corporation, which indirectly holds all outstanding shares of the new Class A shares of beneficial interest in the Trust (“Class A Shares”). Each outstanding Trust Share was converted into one share of the new 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 Reorganization was accounted for as a reorganization of two companies under common control. As such, there was no revaluation of the assets and liabilities of the combining companies. Unless otherwise stated herein, all information with respect to Shares refers to Shares on or since January 6, 1999 and to Paired Shares for periods before January 6, 1999.
The Corporation, through its subsidiaries, is the general partner of, and held, as of March 31, 2003, an aggregate 98.1% partnership interest in, SLC Operating Limited Partnership (the “Operating Partnership”). The Trust, through its subsidiaries, is the general partner of, and held an aggregate 97.2% partnership interest in, SLT Realty Limited Partnership (the “Realty Partnership” and, together with the Operating Partnership,
10
NOTES TO FINANCIAL STATEMENTS — (Continued)
the “Partnerships”) as of March 31, 2003. 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 March 31, 2003, there were approximately 5.7 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.
| Note 2. | Significant Accounting Policies |
Earnings Per Share. The following reconciliation of basic earnings (losses) per Share to diluted earnings (losses) assumes the conversion of LP Units to Shares (in millions, except per Share data):
| Three Months Ended March 31, | |||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
| 2003 | 2002 | ||||||||||||||||||||||||
|
|
|
||||||||||||||||||||||||
| Earnings | Shares | Per Share | Earnings | Shares | Per Share | ||||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||
|
Basic earnings (losses) from continuing
operations
|
$ | (117 | ) | 200 | $ | (0.58 | ) | $ | 33 | 200 | $ | 0.16 | |||||||||||||
|
Effect of dilutive securities:
|
|||||||||||||||||||||||||
|
Employee options and restricted stock awards
|
— | — | — | 5 | |||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||
|
Diluted earnings (losses) from continuing
operations
|
$ | (117 | ) | 200 | $ | (0.58 | ) | $ | 33 | 205 | $ | 0.16 | |||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||
Included in the Basic Share numbers for the three months ended March 31, 2002 are approximately 1.6 million shares of Class A EPS and Class B EPS. Approximately 1.2 million shares of Class A and Class B EPS are excluded from the Diluted Share numbers for the three months ended March 31, 2003, as they are anti-dilutive. Additionally, approximately 1.3 million shares of employee options and restricted stock awards were also excluded from the Diluted Share numbers for the three months end March 31, 2003 as they are anti-dilutive.
Stock-Based
Compensation.
The Company accounts
for its stock-based employee long-term incentive plans under the
recognition and measurement principles of APB Opinion
No. 25 “Accounting for Stock Issued to Employees”
and related interpretations. No stock-based employee
compensation cost is reflected in net income (loss) as all
options granted to employees under these plans have an exercise
price equal to the fair value of the underlying common stock on
the date of grant. The following table illustrates the effect on
net income (loss) and earnings (loss) per Share if the Company
had applied the fair value recognition provisions of Statement
of Financial Accounting Standards (“SFAS”) No. 123
“Accounting for Stock-Based Compensation” to
stock-based employee compensation:
Three Months
Ended
March 31,
2003
2002
(In millions, except
per Share data)
$
(116
)
$
32
(32
)
(29
)
11
10
11
NOTES TO FINANCIAL STATEMENTS —
(Continued)
Three Months
Ended
March 31,
2003
2002
(In millions, except
per Share data)
$
(137
)
$
13
$
(0.58
)
$
0.16
$
(0.68
)
$
0.07
$
(0.58
)
$
0.16
$
(0.68
)
$
0.07
3.1%
2.5%
43%
47%
2.1%
4.3%
3 yrs
3 yrs
Reclassifications. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.
Recently Issued Accounting Standards. In January 2003, the FASB issued Financial Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities” (VIE’s) in an effort to expand and clarify existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. FIN No. 46 is effective immediately for all enterprises with variable interests in VIE’s created after January 31, 2003. FIN No. 46 provisions must be applied to variable interests in VIE’s created before February 1, 2003 beginning in the third quarter of 2003. If an entity is determined to be a VIE, it must be consolidated by the enterprise that absorbs the majority of the VIE’s expected losses if they occur, receives a majority of the VIE’s expected residual returns if they occur, or both. Where it is reasonably possible that the company will consolidate or disclose information about a VIE, the company must disclose the nature, purpose, size and activity of the VIE and the company’s maximum exposure to loss as a result of its involvement with the VIE in all financial statements issued after January 31, 2003.
The Company is reviewing its different forms of investments and at this time, does not believe that the adoption of FIN No. 46 will result in the consolidation of a significant number of previously unconsolidated entities. The adoption of FIN No. 46 may result in additional disclosure about a limited number of investments in VIE’s. The Company does not expect such disclosure to be material.
FIN No. 46 does not apply to qualifying special purpose entities, such as those typically used by the Company to sell notes receivable originated by the vacation ownership business in connection with the sale of VOIs. These qualifying special purpose entities will continue to be accounted for in accordance with SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a replacement of FASB Statement No. 125”.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”. This statement addresses transition methodologies for companies who intend to adopt the fair valuation methodology of SFAS No. 123 for their employee stock-based compensation, as well
12
NOTES TO FINANCIAL STATEMENTS — (Continued)
as additional annual and quarterly disclosure requirements for stock-based compensation. Starwood has incorporated the new disclosure requirements into this note above.
In November 2002, the FASB issued FIN No. 45 “Guarantor Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. This interpretation modifies the accounting treatment for certain guarantees and is effective for all guarantees issued or modified after December 31, 2002. The new disclosure rules are effective for interim or annual periods ending after December 15, 2002. The Company has incorporated the disclosure requirements into this filing and is monitoring its new guarantees for compliance. FIN No. 45 did not have a material impact on the Company.
In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This statement addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not believe that the adoption of SFAS No. 146 will have a material impact on its consolidated financial position or cash flows; however it may affect the timing of recognizing future restructuring costs.
| Note 3. | Assets Held for Sale |
In March 2003, the Company entered into a binding agreement to sell the Hotel Principe di Savoia in Milan, Italy (“Principe”) for 275 million Euro (approximately $300 million based on exchange rates at March 31, 2003) in cash. This transaction is expected to close by mid-2003. The Company will have no continuing involvement with the Principe after the sale, therefore the Principe results are reported as discontinued operations for both periods presented. See Note 4. Discontinued Operations for further discussion.
In March 2003, the Company also entered into a binding agreement to sell a portfolio of assets including four hotels, a marina and shipyard, a golf club and a 51% interest in its undeveloped land assets in Costa Smeralda in Sardinia, Italy (“Sardinia Assets”). The Sardinia Assets will be sold for 290 million Euro (approximately $317 million based on exchange rates as of March 31, 2003) in cash. The Company will maintain the management contracts on the four hotels and other facilities subsequent to the sale, which is expected to close by mid-2003. Accordingly, the Sardinia Assets are not classified as discontinued operations.
At the end of the first quarter of 2003, the Company approved a plan to sell a portfolio of 18 North American hotels, including several non-proprietary branded hotels (“18 Hotel Portfolio”), the majority of which are expected to be sold subject to management and/or franchise agreements. As a result, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company classified these hotels as held for sale in the accompanying consolidated balance sheets and recorded an impairment charge of approximately $170 million (pre tax) to reflect the fair value less selling costs of this portfolio. The Company expects to sign a definitive agreement in the coming months and expects to close this sale in the second half of 2003.
As of March 31, 2003 and December 31, 2002, the assets held for sale balance was $667 million and $839 million, respectively.
| Note 4. | Discontinued Operations |
In accordance with SFAS No. 144, as a result of the binding agreement to sell the Principe (see Note 3. Assets Held for Sale) with no continuing involvement, the accompanying consolidated financial statements reflect the results of operations of the Principe as a discontinued operation. Interest expense of $4 million for both periods presented was allocated to discontinued operations based upon the amount of Euro denominated debt that is required to be repaid upon the consummation of the sale. The amount of Euro denominated debt
13
NOTES TO FINANCIAL STATEMENTS —
(Continued)
allocated to discontinued operations was
approximately $295 million and $284 million at
March 31, 2003 and December 31, 2002, respectively.
Summary financial information for discontinued operations is as
follows (in millions) (unaudited):
March 31,
December 31,
2003
2002
$
65
$
63
$
57
$
55
$
84
$
81
$
14
$
11
$
295
$
284
$
(4
)
$
(2
)
Three Months
Ended
March 31,
2003
2002
$
12
$
10
$
3
$
3
$
4
$
4
$
—
$
—
$
(1
)
$
(1
)
$
2
$
—
For the three months ended March 31, 2003, the gain from disposition consists of the reversal of $2 million (after tax) of liabilities set up in conjunction with the sale of the Company’s gaming segment which was completed in June 2000. These liabilities are no longer required as the related contingencies have been favorably resolved.
| Note 5. | Restructuring and Other Special Credits |
The Company had remaining accruals related to restructuring charges of $25 million at March 31, 2003 and December 31, 2002, of which $21 million is included in other liabilities in the accompanying March 31, 2003 and December 31, 2002 consolidated balance sheets. During the three months ended March 31, 2002, the Company recorded a reversal of $2 million of other special charges related to a sale of its investment in a certain e-business venture previously deemed impaired and the collections of receivables which were previously deemed uncollectible. The following table summarizes restructuring and other special credits
14
NOTES TO FINANCIAL STATEMENTS —
(Continued)
activity during the three months ended
March 31, 2002 (there was no restructuring or other special
charges activity during the three months ended March 31,
2003):
Noncash
Cash
Expenditures
Total
Charges
Expenditures
Accrued
Credit
$
—
$
—
$
(1
)
$
(1
)
—
—
(1
)
(1
)
$
—
$
—
$
(2
)
$
(2
)
| Note 6. | Notes Receivable Securitizations and Sales |
At March 31, 2003, the Company has approximately $141 million in net timeshare notes receivable. From time to time, the Company securitizes or sells these timeshare notes receivable. The Company accounts for its notes receivable securitizations and sales as transactions in accordance with SFAS No. 140. The Company accounted for both of the transactions described below as SFAS No. 140 sales. The Company retains interests in the assets transferred to qualified and non-qualified special purpose entities which are accounted for as over-collateralizations and interest only strips (“Beneficial or Retained Interests”). These Beneficial or Retained Interests are treated as “trading” for transactions prior to 2002 and “available-for-sale” for transactions thereafter under the provisions of SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities.”
During the three months ended March 31, 2003 and 2002, there were no sales of notes receivables generated in connection with the sale of VOIs.
At March 31, 2003, $131 million of principal balances are outstanding under the sale of receivables in 2001 and an additional $111 million of principal balances are outstanding under the sales of receivables in 2002. Delinquencies of more than 90 days on these receivables at March 31, 2003 amounted to approximately $4 million and $2 million for the sales of receivables in 2001 and 2002, respectively.
Under receivable sales completed in 2001 and 2002, the Company has an option to repurchase defaulted notes (as defined) included in the transactions for their outstanding principal amounts. The Company has been able to resell vacation ownership interests underlying the loans that it repurchased under these provisions without incurring significant losses.
At the time of the receivable sales in 2001 and 2002 and at the end of each financial reporting period, the Company estimates the fair value of its Beneficial and Retained Interests using a discounted cash flow model. All assumptions used in the models are reviewed and updated, if necessary, based on current trends and historical experience.
The Company has completed a sensitivity analysis on the net present value of the Beneficial and Retained Interests to measure the change in value associated with independent changes in individual key variables. The methodology used applied unfavorable changes that would be considered statistically significant for the key variables of prepayment rate, discount rate and expected gross credit losses. The net present value of Beneficial and Retained Interests at March 31, 2003 was approximately $24 million and approximately
15
NOTES TO FINANCIAL STATEMENTS —
(Continued)
$22 million, respectively. The decrease in
value of the Beneficial and Retained Interests as a result of
various changes in key variables are as follows (in millions):
Beneficial
Retained
Interests
Interests
$
0.1
$
0.1
0.5
%
0.6
%
$
0.3
$
0.3
1.1
%
1.2
%
$
0.4
$
0.4
1.6
%
1.9
%
$
0.8
$
0.8
3.2
%
3.8
%
$
1.3
$
1.6
5.4
%
7.4
%
$
2.5
$
3.2
10.6
%
14.6
%
| Note 7. | Derivative Financial Instruments |
The Company enters into interest rate swap agreements to manage interest expense. The Company’s objective is to manage the impact of interest rates on the results of operations, cash flows and the market value of the Company’s debt. At March 31, 2003, the Company had one outstanding interest rate swap agreement under which the Company pays a fixed rate and receives a variable rate of interest (the “Interest Rate Swap Agreement”). The notional amount of the Interest Rate Swap Agreement was approximately $46 million and the estimated fair value of the Interest Rate Swap Agreement was a liability of approximately $200,000 as of March 31, 2003. This agreement is scheduled to mature in December 2003 and, upon maturity, any unrealized gains or losses will be reclassified into earnings.
At March 31, 2003, the Company also had five outstanding interest rate swap agreements under which the Company pays floating rates and receives fixed rates of interest (the “Fair Value Swaps”). The aggregate notional amount of the Fair Value Swaps was $1.050 billion. The Fair Value Swaps hedge the change in fair value of certain fixed rate debt related to fluctuations in interest rates and mature through 2007. The Fair Value Swaps modify the Company’s interest rate exposure by effectively converting debt with a fixed rate to a floating rate. The fair value of the Fair Value Swaps was an asset of approximately $20 million at March 31, 2003.
From time to time, 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 March 31, 2003, the Company did not have any forward foreign exchange contracts outstanding.
The Company does not expect its remaining derivative financial instruments to significantly impact earnings for the next twelve months.
16
NOTES TO FINANCIAL STATEMENTS — (Continued)
| Note 8. | Stockholders’ Equity |
Exchangeable Preferred Shares. During 1998, 5.5 million shares of Class B EPS and approximately 800,000 exchangeable units were issued by the Trust in connection with the Westin Merger. Exchangeable units and Class B EPS have a liquidation preference of $38.50 per share and provide the holders with the right, from the fifth anniversary of the closing date of the Westin Merger which began on January 2, 2003, to require the Trust to redeem such shares at a price of $38.50. Shares of exchangeable units and Class B EPS are convertible on a one-to-one basis (subject to certain adjustments) to Class A EPS. Through March 31, 2003, in accordance with the terms of the Class B EPS discussed above, 425,489 of units of Class B EPS were put back to the Company for approximately $16 million.
| Note 9. | Business Segment Information |
The Company has two operating segments: hotels and vacation ownership. The hotel segment represents a worldwide network of owned, leased and consolidated joint venture hotels and resorts operated primarily under the Company’s proprietary brand names including St. Regis®, The Luxury Collection®, Sheraton®, Westin®, W® and Four Points® by Sheraton as well as hotels and resorts which are managed or franchised under these brand names in exchange for fees. Also included are earnings and losses from the Company’s interest in unconsolidated joint ventures. The vacation ownership segment includes the development, ownership and operation of vacation ownership resorts, marketing and selling VOIs and providing financing to customers who purchase such interests.
The performance of the hotels and vacation ownership segments is evaluated primarily on operating profit before corporate selling, general and administrative expense, interest, gains on the sale of real estate, investments, restructuring and other special charges and income taxes. The Company does not allocate these items to its segments.
The following table presents revenues, operating
income, capital expenditures and assets for the Company’s
reportable segments (in millions):
Three Months
Ended
March 31,
2003
2002
$
790
$
803
93
81
$
883
$
884
$
71
$
137
19
15
$
90
$
152
$
35
$
42
24
6
6
8
$
65
$
56
17
NOTES TO FINANCIAL STATEMENTS —
(Continued)
March 31,
December 31,
2003
2002
$
11,025
$
11,183
956
882
128
125
$
12,109
$
12,190
| (a) | Balance excludes other revenues from managed and franchised properties of $190 million and $202 million for the three months ended March 31, 2003 and 2002, respectively. |
| (b) | The following costs are not allocated to the hotel and vacation ownership segments in evaluating operating income (in millions): |
| 2003 | 2002 | |||||||
|
|
|
|||||||
|
Corporate selling, general and administrative
|
$ | 31 | $ | 30 | ||||
|
Restructuring and other special credits, net
|
$ | — | $ | (2 | ) | |||
| (c) | Includes assets held for sale of $667 million and $839 million at March 31, 2003 and December 31, 2002, respectively. |
| Note 10. | Commitments and Contingencies |
Guaranteed Loans and Commitments. In limited cases, the Company has made loans to owners of or partners in hotel or resort ventures for which the Company has a management or franchise agreement. Loans outstanding under this program totaled $151 million at March 31, 2003. Unfunded loan commitments aggregating $33 million were outstanding at March 31, 2003, of which $2 million are expected to be funded in 2003 and $10 million are expected to be funded in total. These loans typically are secured by pledges of project ownership interests and/or mortgages on the projects.
The Company participates in programs with unaffiliated lenders in which the Company may partially guarantee loans made to facilitate third-party ownership of hotels that the Company manages or franchises. At March 31, 2003, the Company was a guarantor for loans that could reach a maximum of $164 million relating to three projects: the St. Regis in Monarch Beach, California, which opened in mid-2001; the Westin Kierland Resort and Spa in Scottsdale, Arizona, which opened in November 2002; and the Westin in Charlotte, North Carolina, which opened in April 2003. In connection with the loan guarantee for the Westin Charlotte, the Company also entered into a guarantee to fund working capital shortfalls for this resort through 2005. No fundings are anticipated under this working capital guarantee. With respect to the Westin Kierland, the guarantee is joint and several with another equity partner. The Company does not anticipate any significant funding under these loan guarantees in 2003, as all projects are well capitalized. Furthermore, since each of these properties was funded with significant equity financing and subordinated debt financing, if the Company’s loan guarantees were to be called, the Company could take an equity position in these properties at values significantly below construction costs.
Surety bonds issued on behalf of the Company as of March 31, 2003 totaled $66 million, the majority of which were required by state or local governments relating to our vacation ownership operations and by our insurers to secure large deductible insurance programs.
In order to secure management contracts, the Company may provide performance guarantees to third-party owners. Most of these performance guarantees allow the Company to terminate the contract rather than fund shortfalls if certain performance levels are not met. In limited cases, the Company is obliged to fund shortfalls in performance levels. As of March 31, 2003, the Company had eight management contracts with performance guarantees with possible cash outlays of up to $74 million, $50 million of which, if required,
18
NOTES TO FINANCIAL STATEMENTS — (Continued)
would be funded over a period of 25 years and would be largely offset by management fees received under these contracts. Many of the performance tests are multi-year tests, are tied to the results of a competitive set of hotels, and have exclusions for force majeure and acts of war and terrorism. The Company does not anticipate any significant funding under the performance guarantees in 2003. In addition, the Company has agreed to guarantee certain performance levels at a managed hotel that has authorized VOI sales and marketing. The exact amount and nature of the guaranty is currently under dispute. However, the Company does not believe that any payments under this guaranty will be significant. Lastly, the Company does not anticipate losing any significant management or franchise contracts in 2003.
Litigation. From time to time in the course of general business activities, the Company becomes involved in legal disputes and proceedings. The Company does not expect the resolution of these matters to have a material adverse affect on the financial position or on the results of operations and cash flows of the Company, except as disclosed in the Company’s Joint Annual Report on Form 10-K for the year ended December 31, 2002 incorporated herein by reference. However, depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect the Company’s future results of operations or cash flows in a particular period.
| Note 11. | Guarantor Subsidiary |
The Company’s payment obligations under the senior credit facility, the senior notes and the notes are fully and unconditionally guaranteed by the Sheraton Holding Corporation, a wholly-owned subsidiary (the “Guarantor Subsidiary”). The obligation of the Guarantor Subsidiary under its guarantee of the senior credit facility, senior notes and the notes is equal in right of payment to its obligations under the Sheraton Holding public debt.
Presented below is condensed consolidating financial information for the Company (“the Parent”), the Guarantor Subsidiary and all other legal entities that are consolidated into the Company, including the Trust, but which are not the Guarantor Subsidiary (“the Non-Guarantor Subsidiaries”). Investments in subsidiaries are accounted for by the Parent and the Guarantor Subsidiary on the equity method of accounting. Earnings of subsidiaries are, therefore, reflected in the Parent’s and Guarantor Subsidiary’s investments in subsidiaries’ accounts. The elimination entries eliminate investments in subsidiaries and intercompany balances and transactions .
19
NOTES TO FINANCIAL STATEMENTS —
(Continued)
Balance Sheet
March 31, 2003
(In millions)
Non-
Guarantor
Guarantor
Parent
Subsidiary
Subsidiaries
Eliminations
Consolidated
$
9
$
—
$
149
$
—
$
158
6
—
140
—
146
27
—
186
—
213
143
3
378
—
524
185
3
853
—
1,041
(5,769
)
(4,326
)
10,095
—
—
11,156
9,476
—
(20,632
)
—
350
—
6,575
—
6,925
1
—
666
—
667
1,727
1
848
—
2,576
159
62
679
—
900
$
7,809
$
5,216
$
19,716
$
(20,632
)
$
12,109
$
(1
)
$
250
$
659
$
—
$
908
428
54
676
—
1,158
427
304
1,335
—
2,066
2,626
1,074
897
—
4,597
800
—
109
—
909
34
148
365
—
547
3,887
1,526
2,706
—
8,119
1
—
36
—
37
3
—
32
—
35
Total stockholders’ equity
3,918
3,690
16,942
(20,632
)
3,918
$
7,809
$
5,216
$
19,716
$
(20,632
)
$
12,109
20
NOTES TO FINANCIAL STATEMENTS —
(Continued)
Balance Sheet
December 31, 2002
(In millions)
Non-
Guarantor
Guarantor
Parent
Subsidiary
Subsidiaries
Eliminations
Consolidated
$
3
$
1
$
104
$
—
$
108
4
—
104
—
108
29
—
185
—
214
133
3
370
—
506
169
4
763
—
936
(5,773
)
(4,280
)
10,053
—
—
11,156
9,407
—
(20,563
)
—
360
—
6,551
—
6,911
1
—
838
—
839
1,726
2
842
—
2,570
163
60
711
—
934
$
7,802
$
5,193
$
19,758
$
(20,563
)
$
12,190
$
—
$
250
$
620
$
—
$
870
422
33
805
—
1,260
422
283
1,425
—
2,130
2,462
1,074
913
—
4,449
861
—
125
—
986
54
149
335
—
538
3,799
1,506
2,798
—
8,103
3
—
36
—
39
3
—
48
—
51
Total stockholders’ equity
3,997
3,687
16,876
(20,563
)
3,997
$
7,802
$
5,193
$
19,758
$
(20,563
)
$
12,190
21
NOTES TO FINANCIAL STATEMENTS —
(Continued)
Statement of Operations
Three Months Ended March 31, 2003
(In millions)
Non-
Guarantor
Guarantor
Parent
Subsidiary
Subsidiaries
Eliminations
Consolidated
$
264
$
—
$
468
$
—
$
732
13
1
212
(75
)
151
(24
)
52
—
(28
)
—
253
53
680
(103
)
883
170
—
20
—
190
423
53
700
(103
)
1
,
073
287
—
374
(75
)
586
51
(1
)
71
—
121
14
—
103
—
117
352
(1
)
548
(75
)
824
170
—
20
—
190
522
(1
)
568
(75
)
1,014
(99
)
54
132
(28
)
59
(46
)
(90
)
59
—
(77
)
—
—
(170
)
—
(170
)
(145
)
(36
)
21
(28
)
(188
)
27
31
12
—
70
1
—
—
—
1
(117
)
(5
)
33
(28
)
(117
)
(1
)
(1
)
(1
)
2
(1
)
2
—
—
—
2
$
(116
)
$
(6
)
$
32
$
(26
)
$
(116
)
22
NOTES TO FINANCIAL STATEMENTS —
(Continued)
Statement of Operations
Three Months Ended March 31, 2002
(In millions)
Non-
Guarantor
Guarantor
Parent
Subsidiary
Subsidiaries
Eliminations
Consolidated
$
274
$
—
$
468
$
—
$
742
14
—
222
(94
)
142
105
69
—
(174
)
—
393
69
690
(268
)
884
184
—
18
—
202
577
69
708
(268
)
1,086
307
—
345
(94
)
558
34
—
54
—
88
(2
)
—
—
—
(2
)
12
—
104
—
116
351
—
503
(94
)
760
184
—
18
—
202
535
—
521
(94
)
962
42
69
187
(174
)
124
(48
)
(88
)
60
—
(76
)
—
—
(3
)
—
(3
)
(6
)
(19
)
244
(174
)
45
38
31
(82
)
—
(13
)
1
—
—
—
1
33
12
162
(174
)
33
(1
)
(1
)
(1
)
2
(1
)
$
32
$
11
$
161
$
(172
)
$
32
23
NOTES TO FINANCIAL STATEMENTS —
(Continued)
Statement of Cash Flows
Three Months Ended March 31, 2003
(In millions)
Non-
Guarantor
Guarantor
Parent
Subsidiary
Subsidiaries
Eliminations
Consolidated
$
(116
)
$
(6
)
$
32
$
(26
)
$
(116
)
(1
)
1
1
(2
)
(1
)
(117
)
(5
)
33
(28
)
(117
)
(33
)
6
254
28
255
(150
)
1
287
—
138
—
—
7
—
7
(150
)
1
294
—
145
(6
)
—
(59
)
—
(65
)
—
—
(1
)
—
(1
)
(6
)
—
(60
)
—
(66
)
150
—
(6
)
—
144
—
—
15
—
15
—
—
(13
)
—
(13
)
—
—
(170
)
—
(170
)
12
(2
)
(18
)
—
(8
)
162
(2
)
(192
)
—
(32
)
—
—
3
—
3
6
(1
)
45
—
50
3
1
104
—
108
$
9
$
—
$
149
$
—
$
158
24
NOTES TO FINANCIAL STATEMENTS —
(Continued)
Statement of Cash Flows
Three Months Ended March 31, 2002
(In millions)
Non-
Guarantor
Guarantor
Parent
Subsidiary
Subsidiaries
Eliminations
Consolidated
$
32
$
11
$
161
$
(172
)
$
32
1
1
1
(2
)
1
33
12
162
(174
)
33
268
(12
)
(411
)
174
19
301
—
(249
)
—
52
—
—
4
—
4
301
—
(245
)
—
56
(8
)
—
(48
)
—
(56
)
—
—
(12
)
—
(12
)
5
—
(1
)
—
4
(3
)
—
(61
)
—
(64
)
(287
)
—
191
—
(96
)
—
—
161
—
161
(26
)
—
(18
)
—
(44
)
—
—
(40
)
—
(40
)
24
—
—
—
24
(289
)
—
294
—
5
—
—
(1
)
—
(1
)
9
—
(13
)
—
(4
)
7
—
100
—
107
$
16
$
—
$
87
$
—
$
103
25
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 duration and the severity of the current global economic downturn, the hospitality industry’s pace of recovery from the continuing war on terrorism and the situation in the Middle East; traveler fear of exposure to contagious disease; 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 impact of internet reservation channels, our reliance on technology, the cycliclity of the real estate business and the hotel and leisure business; foreign exchange fluctuations and exchange control restrictions; political, geopolitical 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; risks associated with Starwood’s level of indebtedness and its ability to refinance its indebtedness; 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.
The following table presents systemwide
revenues
(1)
and a reconciliation of operating income
to EBITDA
(2)
(in millions):
Three Months
Ended
March 31,
2003
2002
$
1,958
$
1,870
$
59
$
124
117
117
6
5
4
4
$
186
$
250
EBITDA includes $2 million of restructuring credits and $24 million of foreign exchange gains relating to the devaluation of the Argentine Peso for the three months ended March 31, 2002.
| (1) | Systemwide revenues include gross operating revenues generated by owned, leased, consolidated joint venture and managed hotels. |
| (2) | EBITDA represents operating income before interest expense, depreciation and amortization. The Company believes that this metric is useful to investors and management as a measure of the Company’s operating performance due to the significance of the Company’s long-lived assets and level of indebtedness and because such metric can be used to measure the Company’s ability to service debt, fund capital expenditures and pay cash distributions. EBITDA is not intended to represent cash flow from operations as defined by accounting principals generally accepted in the United States (GAAP) and such metric should not be considered as an alternative to net income, cash flow from operations or any other performance measure prescribed by GAAP. The Company’s calculation of EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited. |
| (3) | Includes depreciation expense of unconsolidated joint ventures. |
26
RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and costs and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments, including those relating to revenue recognition, bad debts, inventories, investments, plant, property and equipment, goodwill and intangible assets, income taxes, financing operations, frequent guest program liability, self-insurance claims payable, restructuring costs, retirement benefits and contingencies and litigation.
Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions and conditions.
The Company believes the following to be its critical accounting policies:
Revenue Recognition. The Company’s revenues are primarily derived from the following sources: (1) hotel and resort revenues at the Company’s owned, leased and consolidated joint venture properties; (2) management and franchise fees; (3) vacation ownership revenues; and (4) other revenues which are ancillary to the Company’s operations. Generally, revenues are recognized when the services have been rendered. The following is a description of the composition of revenues for the Company:
| • | Owned, Leased and Consolidated Joint Ventures – Represents revenue primarily derived from hotel operations, including the rental of rooms and food and beverage sales, from a worldwide network of owned, leased or consolidated joint venture hotels and resorts operated primarily under the Company’s proprietary brand names including St. Regis, The Luxury Collection, Sheraton, Westin, W and Four Points by Sheraton. Revenue is recognized when rooms are occupied and services have been rendered. | |
| • | Management and Franchise Fees – Represents fees earned on hotels managed worldwide, usually under long-term contracts with the hotel owner, and franchise fees received in connection with the franchise of the Company’s Sheraton, Westin, Four Points by Sheraton and Luxury Collection brand names. Management fees are comprised of a base fee, which is generally based on a percentage of gross revenues, and an incentive fee, which is generally based on the property’s profitability. Base fee revenues are recognized when earned in accordance with the terms of the contract. For any time during the year, incentive fees are recognized for the fees due and earned as if the contract was terminated at that date, exclusive of any termination fees due or payable. Franchise fees are generally based on a percentage of hotel room revenues and are recognized in accordance with SFAS No. 45, “Accounting for Franchise Fee Revenue,” as the fees are earned and become due from the franchisee. Management and franchise fees are recognized in other hotel and leisure revenues in the consolidated statements of income. | |
| • | Vacation Ownership – The Company recognizes revenue from VOI sales in accordance with SFAS No. 66, “Accounting for Sales of Real Estate.” The Company recognizes sales when a minimum of 10% of the purchase price for the VOI has been received in cash, the period of cancellation with refund has expired and receivables are deemed collectible. For sales that do not qualify for full revenue recognition as the project has progressed beyond the preliminary stages but has not yet reached completion, all revenue and profit are initially deferred and recognized in earnings through the percentage- of-completion method. Vacation ownership revenues are recognized in other hotel and leisure revenues in the consolidated statements of income. From time to time, the Company may also securitize or sell its VOI receivables. These securitizations are accounted for as sales transactions under the guidance of SFAS No. 140 “Accounting for Transfers |
27
| and Servicing of Financial Assets and Extinguishments of Liabilities — replacement of FASB Statement No. 125”. |
Frequent Guest Program. SPG is the Company’s frequent guest incentive marketing program. SPG members earn points based on their spending at the Company’s properties and, to a lesser degree, through participation in affiliated partners’ programs, such as those offered by airlines. Points can be redeemed at most Company owned, leased, managed and franchised properties.
SPG is provided as a marketing program to the Company’s properties, including as incentives to first time buyers of VOIs. The cost of operating the program, including the estimated cost of award redemption, is charged to properties based on members’ qualifying expenditures. Revenue is recognized by participating hotels and resorts when points are redeemed for hotel stays.
The Company, through the services of third-party actuarial analysts, determines the fair value of the future redemption obligation based on statistical formulas which project the timing of future point redemption based on historical experience, including an estimate of the “breakage” for points that will never be redeemed, and an estimate of the points that will eventually be redeemed. These factors determine the required liability for outstanding points. The Company’s management and franchise agreements require that the Company be reimbursed currently for the costs of operating the program, including marketing, promotion, communications with, and performing member services for the SPG members. Actual expenditures for SPG may differ from the actuarially determined liability.
The liability for the SPG program is included in other long-term liabilities and accrued expenses in the accompanying consolidated balance sheets. The total actuarially determined liability as of March 31, 2003 and December 31, 2002 is $176 million and $175 million, respectively.
Asset Valuations. The Company continually evaluates the carrying value of its assets for impairment. Asset impairment analysis is conducted on the following classes of assets: (1) long lived assets; (2) investments; and (3) goodwill and intangible assets.
| • | Long Lived Assets – The expected undiscounted future cash flows of the assets are compared to the net book value of the assets. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value is charged to current earnings. Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals and, if appropriate, current estimated net sales proceeds from pending offers. The Company evaluates the carrying value of its long-lived assets based on its plans, at the time, for such assets. Changes to the Company’s plans, including a decision to dispose of an asset, can have a material impact on the carrying value of the asset, the Company’s financial position and the Company’s results from operations. | |
| • | Investments – The Company also assesses the carrying value of its long-term investments. The fair market value of investments is based on the market prices for the last day of the accounting period if the investment trades on quoted exchanges. For non-traded investments, fair value is estimated based on the underlying value of the investment, which is dependent on the performance of the companies or ventures in which the Company has invested, as well as the volatility inherent in external markets for these types of investments. | |
| In assessing potential impairment for these investments, the Company will consider these factors as well as forecasted financial performance of its investees. If these forecasts are not met, the Company may have to record impairment charges. Thus, fair value of investments, which is based on market prices or the value of the underlying collateral, exceeds the carrying value of investments at March 31, 2003 and December 31, 2002. | ||
| • | Goodwill and Intangible Assets – Goodwill and intangible assets arise in connection with acquisitions, including the acquisition of management contracts. The Company has ceased amortizing goodwill in connection with the adoption of SFAS No. 142 “Goodwill and Other Intangible |
28
| Assets”. Intangible assets with finite lives continue to amortize on a straight-line basis over their respective useful lives. The Company reviews all goodwill and intangible assets with indefinite lives for impairment by comparisons of fair value to net book value annually, or upon the occurrence of a trigger event. Impairments, excluding those in the year of adoption, are recognized in operating results. Intangibles with finite lives are assessed for impairment on a basis consistent with the analysis conducted for long-lived assets described above. |
Beneficial and Retained Interests. The Company periodically sells notes receivable originated by its vacation ownership business in connection with the sale of VOIs. The Company retains interests in the assets transferred to qualified and non-qualified special purpose entities, which are accounted for as over-collateralizations and interest only strips (“Beneficial or Retained Interests”). These Beneficial or Retained Interests are treated as “trading” for transactions prior to 2002 and “available-for-sale” for transactions thereafter under the provisions of SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities.” The Company reports changes in the fair values of these Beneficial or Retained Interests through the accompanying consolidated statements of income for trading securities and through the accompanying consolidated statements of comprehensive income for available-for-sale securities. The Company had Beneficial and Retained Interests of $46 million and $47 million at March 31, 2003 and December 31, 2002, respectively.
Legal Contingencies. The Company is subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. SFAS No. 5, “Accounting for Contingencies,” requires that an estimated loss from a loss contingency should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a significant loss has been incurred. The Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact the Company’s financial position or its results of operations.
Income Taxes. SFAS No. 109, “Accounting for Income Taxes,” establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact the Company’s financial position or its results of operations.
The following discussion presents an analysis of results of our operations for the three months ended March 31, 2003 and 2002.
Three Months Ended March 31, 2003 Compared with Three Months Ended March 31, 2002
Continuing Operations
The Company’s operating results for the first quarter of 2003 were significantly impacted by the weakened worldwide economic environment, the war in Iraq and the lead-up to it, all of which have resulted in a dramatic slowdown in business and international travel. The decrease in business transient demand, when compared to the first quarter of 2002, had an adverse impact on the Company’s majority owned hotels, many of which are located in major urban markets.
Revenues. Total revenues, including other revenues from managed and franchised properties, were $1.073 billion, down slightly from 2002 levels. Total revenues, excluding other revenues from managed and franchised properties (“Total Revenues”), declined slightly to $883 million for the three months ended March 31, 2003 when compared to $884 million in the corresponding period in 2002. Total Revenues reflect a 1.3% decrease in revenues from the Company’s owned, leased and consolidated joint venture hotels to $732 million for the three months ended March 31, 2003 when compared to $742 million in the corresponding
29
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 (“Same-Store Owned Hotels”) (156 hotels for the three months ended March 31, 2003 and 2002, excluding 7 hotels held for sale or without comparable results and 2 hotels sold in 2002). Revenues at the Company’s Same-Store Owned Hotels decreased 0.9% to $730 million for the three months ended March 31, 2003 when compared to the same period of 2002 due primarily to a decrease in revenue per available room (“REVPAR”). REVPAR at the Company’s Same-Store Owned Hotels decreased 1.7% to $88.60 for the three months ended March 31, 2003 when compared to the corresponding 2002 period. The decrease in REVPAR was primarily attributed to decreases in average daily rate (“ADR”). ADR at these Same-Store Owned Hotels decreased to $147.60 for the three months ended March 31, 2003 compared to $149.20 for the corresponding 2002 period. Occupancy rates at these hotels decreased slightly to 60.0% in the three months ended March 31, 2003 when compared to 60.4% in the same period in 2002. REVPAR at Same-Store Owned Hotels in North America decreased 3.0% for the three months ended March 31, 2003 when compared to the same period of 2002. As discussed above, the decrease in REVPAR and revenues from owned, leased and consolidated joint venture hotels in North America was primarily due to the decline in business transient demand as a result of the weakened global economies, the war in Iraq and the lead-up to it, as well as the severe winter weather in the Northeast United States in February 2003 which significantly restricted travel in these regions. REVPAR at the Company’s international Same-Store Owned Hotels, which increased by 3.1% for the three months ended March 31, 2003 when compared to the same period of 2002, was also impacted by weakened global economies, and the situation in the Middle East, but was offset by favorable effects of foreign currency translation. REVPAR for Same-Store Owned Hotels in Europe, where the Company has its biggest concentration of international owned hotels, decreased 9.2% excluding the favorable effect of foreign currency translation.
The increase in other hotel and leisure revenues, for the three months ended March 31, 2003 when compared to the same period in 2002, resulted from the increase in vacation ownership revenues of 14.4% to $93 million in 2003 compared to $81 million in 2002. Contract sales of VOI inventory increased 14.0% in the three months ended March 31, 2003 when compared to the same period in 2002, primarily as a result of sales at the Westin Ka’anapali Ocean Resort Villas in Maui, Hawaii. These increases were partially offset by higher property insurance claims.
Other revenues and expenses from managed and franchised properties were $190 million and $202 million for the three months ended March 31, 2003 and 2002, respectively. These revenues represent reimbursements of costs incurred on behalf of managed hotel properties and franchisees. These costs relate primarily to payroll costs at managed properties where the Company is 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 the Company’s operating income, net income or profit margins.
EBITDA. Total Company EBITDA (which includes $2 million of restructuring and other special credits and $24 million of foreign exchange gains related to the devaluation of the Argentine Peso in 2002) decreased 25.6% or $64 million to $186 million for the three months ended March 31, 2003 when compared to $250 million the same period in 2002, primarily due to EBITDA declines at the Company’s owned, leased and consolidated joint venture hotels. EBITDA for the Company’s owned, leased and consolidated joint venture hotels decreased $38 million or 20.7% to $146 million for the three months ended March 31, 2003 when compared to the corresponding period in 2002. This decrease was primarily due to a $36 million or 18.8% decrease in EBITDA at the Company’s Same-Store Owned Hotels to $156 million resulting primarily from the weakened global economies, the war in Iraq and the lead-up to it and the severe winter storm in the Northeast United States in February 2003, as discussed earlier. The decrease in EBITDA at these hotels was due primarily to the $30 million decrease in EBITDA over the same period in 2002 at the Company’s Same-Store Owned Hotels in North America. In addition to the geopolitical climate discussed previously, these hotels were adversely impacted by increased energy and insurance costs and reduced cancellation fees in 2003 when compared to 2002. Furthermore, the 2002 first quarter results benefited from the short-term lease of the Sheraton Manhattan and part of the Sheraton New York Hotel and Towers to a major tenant for office use
30
Selling, General, Administrative and Other. Selling, general, administrative and other expenses were $121 million and $88 million for the three months ended March 31, 2003 and 2002, respectively. The increase in selling, general, administrative and other expenses is primarily due to the $24 million of foreign exchange gains related to the devaluation of the Argentine Peso recorded in 2002 as well as additional costs related to increased vacation ownership sales volume in 2003.
Restructuring and Other Special Charges. During the first quarter of 2002, the Company recorded a $2 million reversal of other special charges related to the sale of the Company’s investment in an e-business venture previously deemed impaired and the collection of receivables which were previously deemed uncollectible.
Depreciation and Amortization. Depreciation expense remained constant at $111 million in the three months ended March 31, 2003 compared the corresponding period of 2002. Additional depreciation expense resulting from capital expenditures at the Company’s owned, leased and consolidated joint venture hotels in the past 12 months was offset by the reduced depreciation expense from fully depreciated furniture, fixtures and equipment, as the Company reached the five year anniversary of the merger with ITT Corporation in February 2003. Amortization expense increased to $6 million in the three months ended March 31, 2003 compared to $5 million in the corresponding period of 2002.
Net Interest Expense. Interest expense for the three months ended March 31, 2003 and 2002, which is net of interest income of $0 million and discontinued operations allocations of $4 million in both periods, increased to $77 million from $76 million. This slight increase was due primarily to higher interest rates compared to the first quarter of 2002 and the impact of certain financing transactions, including the issuance of Senior Notes in April 2002. The Company’s weighted average interest rate was 5.44% at March 31, 2003 versus 5.26% at March 31, 2002.
Loss On Asset Dispositions, Net. During the first quarter of 2003, the Company recorded an impairment charge of approximately $170 million (pretax) to write down a portfolio of 18 North American hotels, including several non-proprietary branded hotels (“18 Hotel Portfolio”) to fair value less selling costs due to the Company’s plan to dispose of these assets subject to management and/or franchise agreements. During the first quarter of 2002, the Company recorded an impairment charge to reduce the carrying value of one hotel, which was later sold, to fair value less selling costs.
Discontinued Operations. For the three months ended March 31, 2003 and 2002, loss from discontinued operations represents the results of the Hotel Principe di Savoia in Milan, Italy (“Principe”) along with $4 million in each period of allocated interest expense. The Company entered into a binding agreement to sell the Principe in March 2003, with no continuing involvement. The gain on dispositions for the three months ended March 31, 2003 consists of the reversal of $2 million (after tax) of liabilities set up in conjunction with the sale of the Company’s gaming segment which was completed in June 2000. These liabilities are no longer required as the related contingencies have been favorably resolved.
Income Tax Expense. The effective income tax rate for the first quarter of 2003 was zero percent compared to 22.3% in the corresponding quarter in 2002. 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. The tax rate for the quarter ended March 31, 2003 is significantly lower than the prior year due to the combination of the expected lower pretax earnings for 2003 and the level of the Company’s 2003 dividend, which at this time, is expected to be consistent with the $0.84 per Share in annual dividends paid for 2002. The income tax benefit recorded for the three months ended March 31, 2003 related only to tax benefits recorded on the impairment charge discussed above, as well as $4 million in various adjustments related to the successful settlement of certain foreign and domestic tax matters.
31
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 generally been lower in the first quarter than in the second, third or fourth quarters.
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
occupancy for the Company’s Same-Store Owned Hotels for the
three months ended March 31, 2003 and 2002. The results for
the three months ended March 31, 2003 and 2002 represent
results for 156 owned, leased and consolidated joint
venture hotels (excluding 7 hotels held for sale or which
comparable results are not available and 2 hotels sold in
2002).
Three Months Ended
March 31,
2003
2002
Variance
$
88.60
$
90.16
(1.7
)%
$
147.60
$
149.20
(1.1
)%
60.0
%
60.4
%
(0.4
)
$
90.15
$
92.97
(3.0
)%
$
147.16
$
151.87
(3.1
)%
61.3
%
61.2
%
0.1
$
83.55
$
81.02
3.1
%
$
149.14
$
139.99
6.5
%
56.0
%
57.9
%
(1.9
)
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 weakened global economies, the impact of the war in Iraq and the lead-up to it, the Company anticipates that cash flow provided by operating activities will be sufficient to service these cash requirements. In 2002, the Company shifted from a quarterly distribution to an annual distribution, declaring a distribution of $0.84 per share to shareholders of record on December 31, 2002. The Company paid the 2002 distribution in January 2003. The Company believes that existing borrowing availability together with capacity from additional borrowings and cash from operations will be adequate to meet all funding requirements for the foreseeable future.
Cash Flow from Investing Activities
In limited cases, the Company has made loans to owners of or partners in hotel or resort ventures for which the Company has a management or franchise agreement. Loans outstanding under this program totaled
32
The Company participates in programs with unaffiliated lenders in which the Company may partially guarantee loans made to facilitate third-party ownership of hotels that the Company manages or franchises. As of March 31, 2003, the Company was a guarantor for loans which could reach a maximum of $164 million relating to three projects: the St. Regis in Monarch Beach, California, which opened in mid-2001; the Westin Kierland Resort and Spa in Scottsdale, Arizona, which opened in November 2002; and the Westin in Charlotte, North Carolina, which opened in April 2003. In connection with the loan guarantee for the Westin Charlotte, the Company also entered into a guarantee to fund working capital shortfalls for this resort through 2005. No fundings are anticipated under this working capital guarantee. With respect to the Westin Kierland, the guarantee is joint and several with another equity partner. The Company does not anticipate any funding under these loan guarantees in 2003, as all projects are well capitalized. Furthermore, since each of these properties was funded with significant equity and subordinated debt financing, if the Company’s loan guarantees were to be called, the Company could take an equity position in these properties at values significantly below construction costs.
Surety bonds issued on behalf of the Company as of March 31, 2003 totaled $66 million, the majority of which were required by state or local governments relating to our vacation ownership operations and by our insurers to secure large deductible insurance programs.
In order to secure management and franchise contracts, the Company may provide performance guarantees to third-party owners. Most of these performance guarantees allow the Company to terminate the contract rather than fund shortfalls if certain performance levels are not met. In limited cases, the Company is obliged to fund shortfalls in performance levels. As of March 31, 2003, the Company had eight management contracts with performance guarantees with possible cash outlays of up to $74 million, $50 million of which, if required, would be funded over a period of 25 years and would be largely offset by management fees received under these contracts. Many of the performance tests are multi-year tests, are tied to the results of a competitive set of hotels, and have exclusions for force majeure and acts of war and terrorism. The Company does not anticipate any significant funding under the performance guarantees in 2003. In addition, the Company has agreed to guarantee certain performance levels at a managed hotel that has authorized VOI sales and marketing. The exact amount and nature of the guaranty is currently under dispute. However, the Company does not believe that any payments under this guaranty will be significant. Lastly, the Company does not anticipate losing a significant number of management or franchise contracts in 2003.
The Company had the following contractual
obligations outstanding as of March 31, 2003
(in millions):
Due in Less
Due in
Due in
Due After
Total
Than 1 Year
1-3 Years
4-5 Years
5 Years
$
5,502
$
907
$
1,092
$
1,417
$
2,086
3
1
—
—
2
901
62
98
89
652
167
72
72
19
4
6
—
6
—
—
$
6,579
$
1,042
$
1,268
$
1,525
$
2,744
| (1) | Included in these balances are commitments that may be satisfied by the Company’s managed and franchised properties. |
33
The Company had the following commercial
commitments outstanding as of March 31, 2003
(in millions):
Amount of Commitment Expiration Per Period
Less Than
After
Total
1 Year
1-3 Years
4-5 Years
5 Years
$
143
$
140
$
—
$
—
$
3
164
89
45
—
30
—
—
—
—
—
$
307
$
229
$
45
$
—
$
33
The Company intends to finance the acquisition of additional hotel properties (including equity investments), hotel renovations, VOI construction, capital improvements, technology spend and other core business acquisitions and investments and provide for general corporate purposes through its credit facilities described below, through the net proceeds from dispositions and when market conditions warrant, through the issuance of additional equity or debt securities.
The Company periodically reviews its business with a view to identifying properties or other assets that we believe either are non-core, no longer complement our business, are in markets which may not benefit us as much as other markets during an economic recovery or could be sold at significant premiums. The Company is focused on restructuring and enhancing real estate returns and monetizing investments. In the first quarter of 2003, the Company entered into binding agreements to sell the Principe and a portfolio of assets including four hotels, a marina and shipyard, a golf club and a 51% interest in its undeveloped land assets in Costa Smeralda in Sardinia, Italy (“Sardinia Assets”), for 275 million Euro and 290 million Euro, respectively (aggregate of $617 million based on exchange rates as of March 31, 2003). These assets sales are expected to close in mid-2003. Also at the end of the first quarter of 2003, the Company approved a plan to sell the 18 Hotel Portfolio and the Company expects to enter into a definitive agreement in the second quarter and close this transaction in the second half of 2003. Total proceeds from all three transactions, are expected to be approximately $1.1 billion. There can be no assurance, however, that the Company will be able to complete any of these dispositions on commercially reasonable terms or at all.
Cash Used for Financing Activities
In October 2002, the Company refinanced its previous senior credit facility with a new four-year $1.3 billion facility, comprised of a $1.0 billion revolving facility and a $300 million term loan, each maturing in 2006, with a one-year extension option, and an initial interest rate of LIBOR + 1.625% (the “Senior Credit Facility”). The proceeds of the new Senior Credit Facility were used to pay off all amounts owed under the Company’s previous senior credit facility, which was due to mature in February 2003. The Company incurred approximately $1 million in charges in connection with this early extinguishment of debt.
In September 2002, the Company terminated certain fair value swaps, resulting in a $78 million cash payment to the Company. These proceeds were used to pay down the previous revolving credit facility and will result in a decrease to the interest expense on the hedged debt through its maturity in 2007. In order to retain its fixed versus floating rate debt position, the Company immediately entered into five new fair value swaps on the same underlying debt as the terminated swaps.
In April 2002, the Company sold $1.5 billion of senior notes in two tranches — $700 million principal amount of 7 3/8% senior notes due 2007 and $800 million principal amount of 7 7/8% senior notes due 2012 (the “Senior Notes Offering”). The Company used the proceeds to repay all of its senior secured notes facility and a portion of its previous senior credit facility. In connection with the repayment of debt, the Company incurred charges of approximately $29 million including approximately $23 million for the early termination of interest rate swap agreements associated with repaid debt, and $6 million write-off of deferred financing costs and termination fees for the early extinguishment of debt.
34
The Company maintains non-U.S.-dollar-denominated debt, which provides a hedge of the Company’s international net assets and operations but also exposes its debt balance to fluctuations in foreign currency exchange rates. At March 31, 2003 and at December 31, 2002, the effect of changes in foreign currency exchange rates was a net increase in debt of approximately $37 million and $135 million, respectively. The Company’s debt balance is also affected by changes in interest rates as a result of the Company’s fair value swaps. The fair market value of the fair value swaps is recorded as an asset or liability and as the fair value swaps are deemed to be effective, an adjustment is recorded against the corresponding debt. At March 31, 2003 and December 31, 2002, the Company’s debt included an increase of approximately $76 million and $75 million, respectively related to the unamortized gain on terminated fair value swaps and the fair market value of current fair value swap assets.
Approximately $250 million of the Sheraton Holdings public debt matures in November 2003. In addition, the 450 million Euro loan matures in December 2003. The proceeds from the sales of the Principe and Sardinia Assets will be used to repay this Euro debt, as required by the debt agreement. 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 $379 million at March 31, 2003), available borrowings from international revolving lines of credit (approximately $118 million at March 31, 2003), capacity from additional borrowings and proceeds from non-core asset sales, will be adequate to meet anticipated requirements for scheduled maturities, dividends, working capital, capital expenditures, marketing and advertising program expenditures, other discretionary investments, interest and scheduled principal payments for the foreseeable future. However, Starwood has a substantial amount of indebtedness and had a working capital deficiency of $1.025 billion at March 31, 2003. There can be no assurance that the Company will be able to repay or refinance its indebtedness as it becomes due and, if financed, on favorable terms, nor can there be assurance that the Company’s business will continue to generate cash flow at or above historical levels or that currently anticipated results will be achieved.
At March 31, 2003, the Company’s overall Corporate Credit Rating by Standard & Poor’s (“S&P”) was BBB- (investment grade rating on Credit Watch with negative implications), and the Company’s Senior Implied Issuer Rating by Moody’s was Ba1 (the highest non-investment grade rating). On May 6, 2003, S&P announced its decision to downgrade the company’s Credit Rating to BB+ (non-investment grade with a stable outlook). The downgrading of the Company’s credit rating will likely result in higher borrowing costs on future financings.
On May 8, 2003, the Company announced that it has agreed to sell $300 million aggregate principal amount of convertible senior notes due 2023 in a private placement transaction. The notes will bear interest at 3.50% per annum.
In the first quarter of 2003, the Company amended its Senior Credit Facility related to its leverage covenant for that quarter. The Company believes that further amendments may be necessary but expects to obtain them.
At March 31, 2003, approximately 904,000 shares of Class B Exchangeable Preferred Shares and Limited Partnership Units of SLC Operating Limited Partnership and SLT Realty Limited partnership (“Exchangeable Units”) can be put to the Company at $38.50 per unit, aggregating $35 million.
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 additional 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 vacation ownership industries and to general economic, political, financial, competitive, legislative and regulatory factors beyond the Company’s control, including the severity and duration of the current economic downturn.
35
The following is a summary of the Company’s
debt portfolio as of March 31, 2003:
Amount
Outstanding at
Interest Rate at
Average
March 31, 2003
(a)
Interest Terms
March 31, 2003
Maturity
(Dollars in millions)
$
300
LIBOR
(c)
+ 162.5
2.93
%
2.8 years
483
Various
3.58
%
3.5 years
492
Euribor
(d)
+ 195
4.47
%
0.7 years
252
Various
5.41
%
2.0 years
1,004
5.21
%
—
$
2,531
4.50
%
2.2 years
$
1,324
(e)
6.52
%
8.0 years
1,543
(e)
7.04
%
6.8 years
318
3.25
%
1.2 years
(b)
793
7.27
%
9.1 years
(1,004
)
7.25
%
—
$
2,974
6.25
%
7.2 years
$
5,505
5.44
%
5.8 years
| (a) | Excludes approximately $394 million of the Company’s share of unconsolidated joint venture debt, all of which is non-recourse, except as noted earlier. |
| (b) | Maturity reflects the earliest date the debt can be put to the Company. |
| (c) | At March 31, 2003, one-month LIBOR was 1.30% |
| (d) | At March 31, 2003, one-month Euribor was 2.57% |
| (e) | Included approximately $27 million and $49 million at March 31, 2003 of fair value adjustments related to the fixed-to-floating interest rate swaps for the Sheraton Holding public debt and the Senior Notes, respectively. |
Stock Sales and Repurchases
The Company did not repurchase any Shares in the open market during the three months ended March 31, 2003. On April 2, 2001, the Company’s Board of Directors authorized the repurchase, in addition to the existing Share program, of up to an additional $500 million of Shares, subject to the terms of the senior credit facility. At March 31, 2003, remaining availability under the Share Repurchase Program was $633 million.
During the three months ended March 31, 2003, 425,489 Exchangeable Units and Class B Exchangeable Preferred Shares were put to the Company for $16 million.
| 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.
36
| Item 4. | Controls and Procedures |
Based on their evaluation, as of a date within 90 days of the filing of this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded the Company’s disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended) are effective.
There have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
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. |
The Company did not repurchase any Shares in the open market during the three months ended March 31, 2003.
| Item 6. | Exhibits and Reports on Form 8-K. |
(a) Exhibits
| 3.1 | First Amendment to Bylaws (1) | |||
| 10.1 | First Amendment to the Starwood Hotels & Resorts Worldwide, Inc. 2002 Long-Term Incentive Compensation Plan (1) | |||
| 10.2 | Second Amendment to Starwood Hotels & Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation Plan (1) | |||
| 10.3 | Second Amendment to Starwood Hotels & Resorts Worldwide, Inc. 1995 Long-Term Incentive Compensation Plan (1) | |||
| 10.4 | Second Amendment to Starwood Hotels & Resorts 1995 Long-Term Incentive Compensation Plan (1) | |||
| 10.5 | First Amendment to Credit Agreement (1) | |||
| 99.1 | Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code — Chief Executive Officer — Corporation (1) | |||
| 99.2 | Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code — Chief Financial Officer — Corporation (1) | |||
| 99.3 | Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code — Chief Executive Officer — Trust (1) | |||
| 99.4 | Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code — Chief Financial and Accounting Officer — Trust (1) | |||
| 99.5 | Letter to the Holders of Starwood & Resorts Worldwide, Inc.’s Series B Zero Coupon Convertible Senior Notes due 2001 (1) |
| (1) | Filed herewith. |
(b) Reports on Form 8-K
During the first quarter of 2003, Starwood filed a Current Report on Form 8-K dated January 29, 2003, reporting under Items 5 and 7 its press release announcing earnings for the 4th quarter of 2002.
37
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.
|
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
By: /s/ BARRY S. STERNLICHT Barry S. Sternlicht Chairman, Chief Executive Officer and Director By: /s/ RONALD C. BROWN Ronald C. Brown Executive Vice President and Chief Financial Officer Date: May 8, 2003 |
STARWOOD HOTELS & RESORTS
By: /s/ BARRY S. STERNLICHT Barry S. Sternlicht Chairman, Chief Executive Officer and Trustee By: /s/ RONALD C. BROWN Ronald C. Brown Vice President and Chief Financial and Accounting Officer |
|
38
I, Barry S. Sternlicht, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Starwood Hotels & Resorts Worldwide, Inc.; | |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| a. | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | |
| b. | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and | |
| c. | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a. | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: May 8, 2003
| /s/ BARRY S. STERNLICHT | |
|
|
|
| Barry S. Sternlicht | |
| Chairman, Chief Executive Officer and | |
| Director |
39
I, Ronald C. Brown, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Starwood Hotels & Resorts Worldwide, Inc.; | |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| a. | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | |
| b. | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and | |
| c. | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a. | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: May 8, 2003
| /s/ RONALD C. BROWN | |
|
|
|
| Ronald C. Brown | |
| Executive Vice President and Chief Financial Officer |
40
I, Barry S. Sternlicht, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Starwood Hotels & Resorts; | |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| a. | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | |
| b. | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and | |
| c. | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a. | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: May 8, 2003
| /s/ BARRY S. STERNLICHT | |
|
|
|
| Barry S. Sternlicht | |
| Chairman, Chief Executive Officer and | |
| Trustee |
41
I, Ronald C. Brown, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Starwood Hotels & Resorts; | |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| a. | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | |
| b. | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and | |
| c. | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a. | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
| b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: May 8, 2003
| /s/ RONALD C. BROWN | |
|
|
|
| Ronald C. Brown | |
| Vice President and Chief Financial and Accounting Officer |
42
Exhibit Index
3.1
First Amendment to Bylaws
(1)
10.1
First Amendment to the Starwood Hotels &
Resorts Worldwide, Inc. 2002 Long-Term Incentive Compensation
Plan
(1)
10.2
Second Amendment to Starwood Hotels & Resorts
Worldwide, Inc. 1999 Long-Term Incentive Compensation
Plan
(1)
10.3
Second Amendment to Starwood Hotels &
Resorts Worldwide, Inc. 1995 Long-Term Incentive Compensation
Plan
(1)
10.4
Second Amendment to Starwood Hotels &
Resorts 1995 Long-Term Incentive Compensation Plan
(1)
10.5
First Amendment to Credit Agreement
(1)
99.1
Certification Pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States
Code — Chief Executive Officer —
Corporation
(1)
99.2
Certification Pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States
Code — Chief Financial Officer —
Corporation
(1)
99.3
Certification Pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States
Code — Chief Executive Officer —
Trust
(1)
99.4
Certification Pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States
Code — Chief Financial and Accounting
Officer — Trust
(1)
99.5
Letter to the Holders of Starwood &
Resorts Worldwide, Inc.’s Series B Zero Coupon
Convertible Senior Notes due 2001
(1)
(1)
Filed herewith.
EXHIBIT 3.1
FIRST AMENDMENT TO BYLAWS
OF
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
FIRST AMENDMENT to Bylaws of Starwood Hotels & Resorts Worldwide, Inc. (the "Bylaws"), dated as of March 28, 2003.
Article II, Section 5 of the Bylaws is hereby amended in its entirety and shall read as follows:
SECTION 5. PROXIES. Whenever the vote or consent of stockholders is required or permitted, such vote or consent may be given by a stockholder in person or by proxy. The appointment of a proxy or proxies shall be made by any means permitted by law. No proxy shall be valid after the expiration of eleven (11) months from the date of its execution or authorization unless the stockholder executing or authorizing it specifies therein the length of time for which it is to continue in force. At a meeting of stockholders all questions concerning the qualification of voters, the validity of proxies, and the acceptance or rejection of votes, shall be decided by the secretary of the meeting unless inspectors of election are appointed pursuant to Section 6 of this Article II, in which event such inspectors shall pass upon all questions and shall have all other duties specified in said section.
IN WITNESS WHEREOF, the undersigned has executed this First Amendment as of the date above first written.
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
EXHIBIT 10.1
FIRST AMENDMENT TO THE
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
2002 LONG-TERM INCENTIVE COMPENSATION PLAN
This First Amendment to the Starwood Hotels & Resorts Worldwide, Inc. 2002 Long-Term Incentive Compensation Plan (the "Plan") is dated as of July 30, 2002.
Background
The Compensation Committee of Starwood Hotels & Resorts Worldwide, Inc. (the "Company") has determined that it is advisable and in the best interests of the Company to amend certain provisions of the Plan as set forth below.
Amendment
1. Amendment. Section 5.6 of the Plan is deleted in its entirety and the following language is substituted:
5.6 Payment. Options shall be exercised by the delivery of an oral, written or electronic notice of exercise to the Company or its designated representative, setting forth the number of Shares with respect to which the Option is to be exercised. Full payment of the Option Price (less any amount previously paid by the Participant to acquire the Option) must be made on or prior to the Payment Date, as defined below. The Option Price shall be payable to the Company, either: (a) in cash, (b) cash equivalent approved by the Committee, (c) if approved by the Committee, by tendering previously acquired Shares (or delivering a certification or attestation of ownership of such Shares) having an aggregate Fair Market Value at the time of exercise equal to the total Option Price (provided that the tendered Shares must have been held by the Participant for any period required by the Committee), or (d) by a combination of (a), (b) and (c). The Committee also may allow cashless exercises as permitted under Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law. "Payment Date" shall mean the date on which a sale transaction in connection with a cashless exercise (whether or not payment is actually made pursuant to a cashless exercise) would have settled in connection with the subject option exercise. No certificate representing a Share shall be delivered until the full Option Price has been paid.
2. Defined Terms. All capitalized terms used in this Amendment and not defined in this Amendment shall have the definitions assigned in the Plan.
3. No Other Changes. All other provisions of the Plan remain in effect.
4. Governing Law. To the extent not preempted by federal law, this Amendment shall be construed in accordance with and governed by the laws of the State of Maryland.
This Amendment is effective as of July 30, 2002 and shall apply to all exercises of stock options under the Plan made after the effective date.
STARWOOD HOTELS &
RESORTS WORLDWIDE, INC.
By:___________________________
David Norton
Executive Vice President
EXHIBIT 10.2
SECOND AMENDMENT TO THE
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
1999 LONG-TERM INCENTIVE COMPENSATION PLAN
This Second Amendment to the Starwood Hotels & Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation Plan (the "Plan") is dated as of July 30, 2002.
Background
The Compensation Committee of Starwood Hotels & Resorts Worldwide, Inc. (the "Company") has determined that it is advisable and in the best interests of the Company to amend certain provisions of the Plan as set forth below.
Amendment
1. Amendment. Section 6.6 of the Plan is deleted in its entirety and the following language is substituted:
6.6. PAYMENT. Options granted under this Article 6 shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Units with respect to which the Option is to be exercised. Full payment of the Option Price (less any amount previously paid by the Participant to acquire the Option) must be made on or prior to the Payment Date, as defined below. The Option Price shall be payable to the Company either: (a) in cash or its equivalent, or (b) by tendering previously acquired Units having an aggregate Fair Market Value at the time of exercise equal to the total Option Price (provided that the Units which are tendered must have been held by the Participant for at least six (6) months prior to their tender to satisfy the Option Price), or (c) by a combination of (a) and (b).
The Committee also may allow cashless exercise as permitted under Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law.
"Payment Date" shall mean the date on which a sale transaction in connection with a cashless exercise (whether or not payment is actually made pursuant to a cashless exercise) would have settled in connection with the subject option exercise.
Subject to any governing rules or regulations, as soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant's name, certificates in an appropriate amount based upon the number of Units purchased under the Option(s). No certificate representing a Unit shall be delivered until the full Option Price has been paid.
2. Defined Terms. All capitalized terms used in this Amendment and not defined in this Amendment shall have the definitions assigned in the Plan.
3. No Other Changes. All other provisions of the Plan remain in effect.
4. Governing Law. To the extent not preempted by federal law, this Amendment shall be construed in accordance with and governed by the laws of the State of Maryland.
This Amendment is effective as of July 30, 2002 and shall apply to all exercises of stock options under the Plan made after the effective date.
STARWOOD HOTELS &
RESORTS WORLDWIDE, INC.
By: __________________________
David Norton
Executive Vice President
Authorized Officer
EXHIBIT 10.3
SECOND AMENDMENT TO THE
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
1995 LONG-TERM INCENTIVE COMPENSATION PLAN
This Second Amendment to the Starwood Hotels & Resorts Worldwide, Inc. 1995 Long-Term Incentive Compensation Plan, amended and restated as of December 3, 1998 and further amended as of January 28, 1999 (the "Plan") is dated as of July 30, 2002.
Background
The Compensation Committee of Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation") has determined that it is advisable and in the best interests of the Corporation to amend certain provisions of the Plan as set forth below.
Amendment
1. Amendment. Section 2.2 (c) of the Plan is deleted in its entirety and the following language is substituted:
2.2 (C) METHOD OF EXERCISE. A Paired Option may be exercised by the delivery of a written notice of exercise to the Corporation, setting forth the number of Paired Shares with respect to which the Paired Option is to be exercised. Full payment of the option price must be made on or prior to the Payment Date, as defined below. The option price shall be payable to the Corporation either: (a) in cash or its equivalent, or (b) by tendering previously acquired Paired Shares having an aggregate Fair Market Value at the time of exercise equal to the total option price (provided that the Paired Shares which are tendered must have been held by the holder for at least six (6) months prior to their tender to satisfy the option price), or (c) by a combination of (a) and (b).
The Committee also may allow cashless exercise as permitted under Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law. No certificate representing a Paired Share shall be delivered until the full purchase price has been paid.
Any fraction of a Paired Share that would be required to pay such purchase price shall be disregarded and the holder shall pay the remaining amount due in cash.
"Payment Date" shall mean the date on which a sale transaction in connection with a cashless exercise (whether or not payment is actually made pursuant to a cashless exercise) would have settled in connection with the subject option exercise.
2. Defined Terms. All capitalized terms used in this Amendment and not defined in this Amendment shall have the definitions assigned in the Plan.
3. No Other Changes. All other provisions of the Plan remain in effect.
4. Governing Law. To the extent not preempted by federal law, this Amendment shall be construed in accordance with and governed by the laws of the State of Maryland.
This Amendment is effective as of July 30, 2002 and shall apply to all exercises of stock options under the Plan made after the effective date.
STARWOOD HOTELS &
RESORTS WORLDWIDE, INC.
By: __________________________
David Norton
Executive Vice President
Authorized Officer
EXHIBIT 10.4
SECOND AMENDMENT TO THE
STARWOOD HOTELS & RESORTS
1995 LONG-TERM INCENTIVE COMPENSATION PLAN
This Second Amendment to the Starwood Hotels & Resorts 1995 Long-Term Incentive Compensation Plan, amended and restated as of December 3, 1998 and further amended as of January 28, 1999 (the "Plan") is dated as of July 30, 2002.
Background
The Compensation Committee of Starwood Hotels & Resorts (the "Trust") has determined that it is advisable and in the best interests of the Trust to amend certain provisions of the Plan as set forth below.
Amendment
1. Amendment. Section 2.2 (c) of the Plan is deleted in its entirety and the following language is substituted:
2.2 (C) METHOD OF EXERCISE. A Paired Option may be exercised by the delivery of a written notice of exercise to the Trust, setting forth the number of Paired Shares with respect to which the Paired Option is to be exercised. Full payment of the option price must be made on or prior to the Payment Date, as defined below. The option price shall be payable to the Trust either: (a) in cash or its equivalent, or (b) by tendering previously acquired Paired Shares having an aggregate Fair Market Value at the time of exercise equal to the total option price (provided that the Paired Shares which are tendered must have been held by the holder for at least six (6) months prior to their tender to satisfy the option price), or (c) by a combination of (a) and (b).
The Committee also may allow cashless exercise as permitted under Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law. No certificate representing a Paired Share shall be delivered until the full purchase price has been paid.
Any fraction of a Paired Share that would be required to pay such purchase price shall be disregarded and the holder shall pay the remaining amount due in cash.
"Payment Date" shall mean the date on which a sale transaction in connection with a cashless exercise (whether or not payment is actually made pursuant to a cashless exercise) would have settled in connection with the subject option exercise.
2. Defined Terms. All capitalized terms used in this Amendment and not defined in this Amendment shall have the definitions assigned in the Plan.
3. No Other Changes. All other provisions of the Plan remain in effect.
4. Governing Law. To the extent not preempted by federal law, this Amendment shall be construed in accordance with and governed by the laws of the State of Maryland.
This Amendment is effective as of July 30, 2002 and shall apply to all exercises of stock options under the Plan made after the effective date.
STARWOOD HOTELS & RESORTS
By: __________________________
David Norton
Authorized Officer
FIRST AMENDMENT TO CREDIT AGREEMENT
FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of March 28, 2003, among STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (the "Corporation"), each additional ALTERNATE CURRENCY REVOLVING LOAN BORROWER from time to time party to the Credit Agreement (as referred to below) (together with the Corporation, collectively, the "Borrowers"), the LENDERS from time to time party to the Credit Agreement (the "Lenders"), DEUTSCHE BANK AG, NEW YORK BRANCH, as Administrative Agent (in such capacity, the "Administrative Agent"), J.P. MORGAN CHASE BANK, as Syndication Agent (in such capacity, the "Syndication Agent"), BANK OF AMERICA, N.A., FLEET NATIONAL BANK and SOCIETE GENERALE, as Co-Documentation Agents (in such capacity, collectively, the "Co-Documentation Agents" and each, a "Co-Documentation Agent"), and DEUTSCHE BANK SECURITIES INC. and JP MORGAN SECURITIES INC. as Co-Lead Arrangers and Joint Book Running Managers (in such capacity, collectively, the "Managers"). Unless otherwise defined herein, all capitalized terms used herein shall have the respective meanings provided such terms in the Credit Agreement referred to below.
W I T N E S S E T H:
WHEREAS, the Corporation, the Lenders, the Administrative Agents, the Syndication Agents, the Co-Documentation Agents and the Managers are parties to that certain Credit Agreement, dated as of October 9, 2002 (the "Credit Agreement");
WHEREAS, the Corporation and its Subsidiaries desire to modify the maximum Consolidated Leverage Ratio set forth in Section 9.06 of the Credit Agreement for the last day of the fiscal quarter ended March 31, 2003; and
WHEREAS, in connection with the foregoing, the Corporation and its Subsidiaries wish to request certain modifications to provisions in the Credit Agreement in order to permit the matters described herein, subject to all of the terms and provisions contained in this Amendment and only to the extent set forth in this Amendment.
NOW, THEREFORE, it is agreed:
PART I. Amendments to the Credit Agreement.
SECTION 1. Maximum Consolidated Leverage Ratio; Section 9.06. From and after the First Amendment Effective Date (as defined below), Section 9.06 of the Credit Agreement shall be amended by (i) deleting the ratio "5.25:1.00" set forth opposite the date "March 31, 2003" appearing in the table in said Section 9.06 and inserting the ratio "5.75:1.00" in lieu thereof.
PART II. Miscellaneous Provisions
A. Each Guarantor and each Borrower, by their signatures below, hereby confirms that the Guaranty shall remain in full force and effect and the Guaranty covers the obligations of each of the Borrowers under the Credit Agreement, as modified and amended by this Amendment.
B. In order to induce the Lenders to enter into this Agreement, the Corporation represents and warrants to the Lenders that, on the First Amendment Effective Date, before, as of and after giving effect to the execution, delivery and performance by the Corporation of this Amendment and the transactions contemplated hereby, (i) there shall exist no Default or Event of Default and (ii) all representations and warranties contained in the Credit Agreement and in other Credit Documents are true and correct in all material respects with the same effect as though such representations and warranties had been made on the First Amendment Effective Date (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be true and correct in all material respects only as of such specified date).
C. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document.
D. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Corporation and the Administrative Agent.
E. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
F. This Amendment shall become effective on the date (the "First Amendment Effective Date") when each of the Borrowers, each Guarantor and the Required Lenders shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Administrative Agent (or its designee). Administrative Agent shall promptly deliver notice to the Corporation of the occurrence of the First Amendment Effective Date.
G. From and after the First Amendment Effective Date, all references in the Credit Agreement and each of the other Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as modified hereby. This Amendment shall constitute a Credit Document for all purposes under the Credit Agreement and the other Credit Documents.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.,
as the Borrower and Guarantor
By: /s/ Jeff S. Drew --------------------------------------- Name: Jeff S. Drew Title: Senior Vice President and Treasurer |
STARWOOD CANADA CORP., as an Alternate Currency Revolving Loan Borrower
By: /s/ Jeff S. Drew --------------------------------------- Name: Jeff S. Drew Title: Authorized Signatory |
STARWOOD HOLDING CORPORATION, as Guarantor
By: /s/ Jeff S. Drew --------------------------------------- Name: Jeff S. Drew Title: Vice President and Treasurer |
DEUTSCHE BANK AG, NEW YORK BRANCH,
Individually and as Administrative Agent
Title:
Title:
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.,
as the Borrower and Guarantor
Title:
STARWOOD CANADA CORP., as an Alternate
Currency Revolving Loan Borrower
Title:
STARWOOD HOLDING CORPORATION, as Guarantor
Title:
DEUTSCHE BANK AG, NEW YORK BRANCH
Individually and as Administrative Agent
By: /s/ Steven P. Lapham --------------------------------------- Name: Steven P. Lapham Title: Director By: /s/ Brenda Casey --------------------------------------- Name: Brenda Casey Title: Vice President |
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 31,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
NAME OF INSTITUTION:
By: /s/ Ansel McDowell
--------------------
Name: Ansel McDowell
Title: Principal
|
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 28,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
NAME OF INSTITUTION:
By: /s/ Luke Yeh
--------------------
Name: Luke Yeh
Title: Vice President
|
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 31,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
BANK OF MONTREAL
/S/ G. K. Steele --------------------- |
By: ------------------- Name: Greg K. Steele Title: Vice President |
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 28,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
NAME OF INSTITUTION:
By: /s/ Joung H. Hong
--------------------
Name: Joung H. Hong
Title: Vice President
|
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 28,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
NAME OF INSTITUTION:
By: /s/ T. J. McNaught
--------------------------
Name: T. J. McNaught
Title: Director
|
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 28,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
NAME OF INSTITUTION:
By: /s/ Dennis J. Redpath
--------------------
Name: Dennis J. Redpath
Title: Director, Capital Markets
|
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 28,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
NAME OF INSTITUTION:
By: /s/ Janice S. H. Ho
--------------------
Name: Janice S. H. Ho
Title: Director
/s/ Tjalling Terpstra
---------------------
Director
|
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 28,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
NAME OF INSTITUTION:
By: /s/ David Bowers
--------------------
Name: David Bowers
Title: Vice President
|
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 28,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
ERSTE BANK, NEW YORK BRANCH:
By: /s/ Gregory T. Aptman
--------------------
Name: Gregory T. Aptman
Title: Vice President
By: /s/ Bryan Lynch
--------------------
Name: Bryan Lynch
Title: First Vice President
|
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 28,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
NAME OF INSTITUTION:
By: /s/ Charles L. Jenkins
--------------------
Name: Charles L. Jenkins
Title: Vice President, Manager
|
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 28,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
NAME OF INSTITUTION:
FLEET NATIONAL BANK
By: /s/ Kathleen M. Ahern
--------------------
Name: Kathleen M. Ahern
Title: Director
|
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 28,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
JPMorgan Chase Bank
By: /s/ John Mix
--------------------
Name: John Mix
Title: V.P.
|
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 28,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
NAME OF INSTITUTION:
ING Capital LLC
By: /s/ David A. Mazujian
--------------------
Name: David A. Mazujian
Title: Managing Director
|
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 28,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
NAME OF INSTITUTION:
By: /s/ Suzanne Flynn
--------------------
Name: Suzanne Flynn
Title: Authorized Signatory
|
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 28,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
NAME OF INSTITUTION:
By: /s/ Cathy R. Lesse
--------------------
Name: Cathy R. Lesse
Title: Vice President
By: /s/ Renato Carducci
---------------------
Name: Renato Carducci
Title: EVP/General Manager
|
SIGNATURE PAGE TO THE FIRST
AMENDMENT DATED AS OF MARCH 31,
2003, TO THE CREDIT AGREEMENT,
DATED AS OF OCTOBER 9, 2002,
AMONG STARWOOD HOTELS & RESORTS
WORLDWIDE, INC., CERTAIN ADDITIONAL
ALTERNATE CURRENCY REVOLVING LOAN
BORROWERS, THE VARIOUS LENDERS
PARTY THERETO, DEUTSCHE BANK AG,
NEW YORK BRANCH, AS ADMINISTRATIVE
AGENT, JPMORGAN CHASE BANK, AS
SYNDICATION AGENT AND BANK OF
AMERICA, N.A., FLEET NATIONAL
BANK AND SOCIETE GENERALE, AS
CO-DOCUMENTATION AGENTS
NAME OF INSTITUTION:
By: /s/ Jason Dean
--------------------
Name: Jason Dean
Title: Vice President
|
Exhibit 99.1
Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code
I, Barry S. Sternlicht, the Chief Executive Officer of Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”), certify that (i) the Form 10-Q for the quarter ended March 31, 2003 (the “Form 10-Q1”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q1 fairly presents, in all material respects, the financial condition and results of operations of Starwood.
| /s/ Barry S. Sternlicht | |||
|
|
|||
|
Barry S. Sternlicht
Chief Executive Officer Starwood Hotels & Resorts Worldwide, Inc. |
|||
| May 8, 2003 |
A signed copy of this written statement required by Section 906 has been provided to Starwood and will be retained by Starwood and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 99.2
Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code
I, Ronald C. Brown, the Chief Financial Officer of Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”), certify that (i) the Form 10-Q for the quarter ended March 31, 2003 (the “Form 10-Q1”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q1 fairly presents, in all material respects, the financial condition and results of operations of Starwood.
| /s/ Ronald C. Brown | |||
|
|
|||
|
Ronald C. Brown
Chief Financial Officer Starwood Hotels & Resorts Worldwide, Inc. |
|||
| May 8, 2003 |
A signed copy of this written statement required by Section 906 has been provided to Starwood and will be retained by Starwood and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 99.3
Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code
I, Barry S. Sternlicht, the Chief Executive Officer of Starwood Hotels & Resorts (“Starwood”), certify that (i) the Form 10-Q for the quarter March 31, 2003 (the “Form 10-Q1”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q1 fairly presents, in all material respects, the financial condition and results of operations of Starwood.
| /s/ Barry S. Sternlicht | |||
|
|
|||
|
Barry S. Sternlicht
Chief Executive Officer Starwood Hotels & Resorts |
|||
| May 8, 2003 |
A signed copy of this written statement required by Section 906 has been provided to Starwood and will be retained by Starwood and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 99.4
Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code
I, Ronald C. Brown, the Chief Financial and Accounting Officer of Starwood Hotels & Resorts (“Starwood”), certify that (i) the Form 10-Q for the quarter ended March 31, 2003 (the “Form 10-Q1”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q1 fairly presents, in all material respects, the financial condition and results of operations of Starwood.
| /s/ Ronald C. Brown | |||
|
|
|||
|
Ronald C. Brown
Chief Financial Officer Starwood Hotels & Resorts |
|||
| May 8, 2003 |
A signed copy of this written statement required by Section 906 has been provided to Starwood and will be retained by Starwood and furnished to the Securities and Exchange Commission or its staff upon request.
To: The Holders of Starwood Hotels & Resorts Worldwide, Inc.'s ("Starwood") Series B Zero Coupon Convertible Senior Notes due 2021
(the "Series B Notes")
We sent you a letter in August of last year which explained that, due to some additional audit requirements associated with registering the Series B Notes and the fact that we were in the process of switching corporate auditors, we would not meet the August 18, 2002 registration deadline for the Series B Notes and expected them to be registered sometime in the first quarter of 2003. We are writing to inform you that on March 3, 2003, the registration statement which covers your Series B Notes was declared effective by the SEC. As a result, your Series B Notes, which have been accruing penalty interest since August 19, 2002, stopped accruing penalty interest on March 3, 2003. The penalty interest that has accrued from November 25, 2002 through March 3, 2003 will be paid in arrears on May 25, 2003 to holders of record on close of business May 1, 2003.
You can obtain copies of the prospectus registering Series B Notes by contacting David Matheson in Starwood's Corporate Affairs Department. If sales of your Series B Notes have not been included on the shelf registration statement because you failed to properly complete a selling security holder questionnaire, you can obtain a questionnaire from David Matheson. If we have not included the sale of your Series B Notes on the shelf registration statement due to your failure to complete a questionnaire, in accordance with the terms of the registration rights agreement, we will amend the shelf registration statement to include the sale of your Series B Notes once we have obtained a properly completed questionnaire
Very truly yours,
Jeff S. Drew Senior Vice President & Treasurer