SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] 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 & STARWOOD HOTELS &
RESORTS WORLDWIDE, INC. RESORTS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS
CHARTER) CHARTER)
MARYLAND MARYLAND
(STATE OR OTHER JURISDICTION (STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION) OF INCORPORATION OR ORGANIZATION)
52-1193298 52-0901263
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
777 WESTCHESTER AVENUE 777 WESTCHESTER AVENUE
WHITE PLAINS, NY 10604 WHITE PLAINS, NY 10604
(ADDRESS OF PRINCIPAL EXECUTIVE (ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES, INCLUDING ZIP CODE) OFFICES, INCLUDING ZIP CODE)
(914) 640-8100 (914) 640-8100
(REGISTRANT'S TELEPHONE NUMBER, (REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE) INCLUDING AREA CODE)
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Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Yes [X] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
178,338,161 shares of common stock, par value $0.01 per share, of Starwood Hotels & Resorts Worldwide, Inc. attached to and traded together with 178,338,161 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 August 13, 1999.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Starwood Hotels & Resorts Worldwide, Inc.:
Consolidated Balance Sheets as of June 30, 1999 and December
31, 1998.................................................... 3
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 1999 and 1998.................... 4
Consolidated Statements of Comprehensive Income for the
Three and Six Months Ended June 30, 1999 and 1998...... 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998........................... 6
Starwood Hotels & Resorts:
Consolidated Balance Sheets as of June 30, 1999 and December
31, 1998.................................................... 7
Consolidated Statements of Operations for the Three Months
Ended June 30, 1999 and 1998, for the Six Months Ended
June 30, 1999 and for the Period from February 23, 1998
to June 30, 1998............................................ 8
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and for the Period from February
23, 1998 to June 30, 1998................................... 9
Notes to Financial Statements............................... 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 31
Item 2. Changes in Securities and Use of Proceeds................... 31
Item 4. Submission of Matters to a Vote of Security Holders......... 31
Item 6. Exhibits and Reports on Form 8-K............................ 31
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following unaudited consolidated financial statements of Starwood Hotels & Resorts Worldwide, Inc. ("Starwood") and Starwood Hotels & Resorts (the "Trust"), collectively referred to herein as 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, as amended, for the year ended December 31, 1998 and should be read in conjunction therewith, and with the Form 8-K filed on July 23, 1999, which reflects Starwood's gaming segment as a discontinued operation. See the notes to the consolidated financial statements for the basis of presentation. The consolidated financial statements should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. Results for the three and six months ended June 30, 1999 are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 1999.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 169 $ 157
Accounts receivable, net of allowance for doubtful
accounts of $49 and $55................................. 510 484
Inventories............................................... 60 58
Prepaid expenses and other................................ 78 75
------- -------
Total current assets............................... 817 774
Investments................................................. 401 336
Plant, property and equipment, net.......................... 7,712 7,857
Goodwill and intangible assets, net......................... 2,717 2,714
Other assets................................................ 558 570
Net assets held for sale.................................... -- 63
Net assets of discontinued operations....................... 883 1,103
------- -------
$13,088 $13,417
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 172 $ 169
Accrued expenses.......................................... 801 782
Short-term borrowings and current maturities of long-term
debt.................................................... 209 687
Other current liabilities................................. 200 183
------- -------
Total current liabilities.......................... 1,382 1,821
Long-term debt.............................................. 5,925 5,802
Deferred income taxes....................................... 1,522 529
Other liabilities........................................... 359 384
Minority interest........................................... 213 244
------- -------
9,401 8,780
------- -------
Equity put options.......................................... -- 32
------- -------
Class B exchangeable preferred shares of the Trust, at
redemption value of $38.50................................ 148 149
------- -------
Commitments and contingencies
Stockholders' equity:
Class A exchangeable preferred shares of the Trust; $0.01
par value; authorized 30,000,000 shares; outstanding
3,944,642 and 4,373,457 shares at June 30, 1999 and
December 31, 1998, respectively......................... -- --
Corporation common stock; $0.01 par value; authorized
1,050,000,000 shares; outstanding 178,689,625 and
175,574,135 shares at June 30, 1999 and December 31,
1998, respectively...................................... 2 2
Trust common shares of beneficial interest; $0.01 par
value; authorized 1,200,000,000 shares; outstanding
175,574,135 shares at December 31, 1998................. -- 2
Trust Class B shares of beneficial interest; $0.01 par
value; authorized 1,000,000,000 shares; outstanding
178,689,625 shares at June 30, 1999..................... 2 --
Additional paid-in capital................................ 4,595 4,570
Cumulative translation and marketable securities
adjustments............................................. (214) (120)
Retained earnings (accumulated deficit)................... (846) 2
------- -------
Total stockholders' equity......................... 3,539 4,456
------- -------
$13,088 $13,417
======= =======
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The accompanying notes to financial statements are an integral part of the above statements.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------- ----------------
1999 1998 1999 1998
----- ----- ------ ------
REVENUES
Owned, leased and consolidated joint venture hotels...... $ 871 $ 848 $1,641 $1,354
Management and franchise fees............................ 66 62 125 108
Unconsolidated joint ventures and other.................. 31 35 53 48
----- ----- ------ ------
968 945 1,819 1,510
----- ----- ------ ------
COSTS AND EXPENSES
Owned, leased and consolidated joint venture hotels...... 581 567 1,122 925
Selling, general and administrative...................... 38 59 86 101
Restructuring and other special credits.................. (41) -- (41) --
Depreciation and amortization............................ 117 131 236 204
----- ----- ------ ------
695 757 1,403 1,230
----- ----- ------ ------
273 188 416 280
Interest expense, net of interest income of $5, $9, $10
and $16................................................ (119) (111) (239) (164)
Gain on sale of real estate and investments.............. 22 39 30 51
Miscellaneous expense.................................... -- -- (15) --
----- ----- ------ ------
176 116 192 167
Income tax expense....................................... (29) (26) (971) (36)
Minority equity.......................................... (5) (8) (4) (7)
----- ----- ------ ------
Income (loss) from continuing operations................. 142 82 (783) 124
Discontinued operations:
Net loss from operations, net of tax expense (benefits)
of $2, $1, $2 and $8................................ -- (9) -- (32)
Net gain (loss) on dispositions, net of tax of $90,
$121 and $604....................................... -- 163 (7) 1,140
----- ----- ------ ------
Net income (loss)........................................ $ 142 $ 236 $ (790) $1,232
===== ===== ====== ======
EARNINGS PER SHARE -- BASIC
Continuing operations.................................... $0.76 $0.38 $(4.21) $ 0.59
Discontinued operations.................................. -- 0.77 (0.04) 5.74
----- ----- ------ ------
Net income (loss)........................................ $0.76 $1.15 $(4.25) $ 6.33
===== ===== ====== ======
EARNINGS PER SHARE -- DILUTED
Continuing operations.................................... $0.73 $0.38 $(4.21) $ 0.58
Discontinued operations.................................. -- 0.72 (0.04) 5.64
----- ----- ------ ------
Net income (loss)........................................ $0.73 $1.10 $(4.25) $ 6.22
===== ===== ====== ======
Weighted average number of Shares........................ 187 201 186 193
===== ===== ====== ======
Weighted average number of Shares assuming dilution...... 196 213 186 196
===== ===== ====== ======
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The accompanying notes to financial statements are an integral part of the above statements.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN MILLIONS)
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------ ---------------
1999 1998 1999 1998
---- ---- ----- ------
Net income (loss).......................................... $142 $236 $(790) $1,232
Other comprehensive income:
Foreign currency translation adjustments --
Foreign currency translation arising during the period... (23) (14) (94) (46)
Unrealized holding losses arising during the period...... -- (1) -- (1)
Reclassification adjustment for losses included in net
income................................................ -- -- -- 33
---- ---- ----- ------
(23) (15) (94) (14)
---- ---- ----- ------
Comprehensive income (loss)................................ $119 $221 $(884) $1,218
==== ==== ===== ======
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The accompanying notes to financial statements are an integral part of the above statements.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
------------------
1999 1998
------- -------
OPERATING ACTIVITIES
Net income (loss)........................................... $ (790) $ 1,232
Exclude:
Discontinued operations --
Net loss from operations.................................. -- 32
Net loss (gain) on dispositions........................... 7 (1,140)
------- -------
Income (loss) from continuing operations.................... (783) 124
Adjustments to income (loss) from continuing operations:
Depreciation and amortization............................. 236 204
Amortization of deferred loan costs....................... 9 --
Non-cash portion of Reorganization charge................. 936 --
Provision for doubtful accounts........................... 5 3
Minority equity........................................... 4 7
Equity income, net of dividends received.................. (17) (9)
Gain on sale of real estate and investments............... (30) (51)
Changes in working capital:
Accounts receivable....................................... (49) (37)
Inventories............................................... (3) --
Accounts payable.......................................... 11 (13)
Accrued expenses.......................................... (109) (407)
Accrued and deferred income taxes........................... (11) 31
Other, net.................................................. (83) (39)
------- -------
Cash from (used for) continuing operations................ 116 (187)
Cash from (used for) discontinued operations.............. 74 (227)
------- -------
Cash from (used for) operating activities................. 190 (414)
------- -------
INVESTING ACTIVITIES
Additions to plant, property and equipment.................. (190) (206)
Proceeds from asset sales................................... 429 2,772
Collection of notes receivable.............................. 58 --
Acquisitions, net of acquired cash.......................... -- (51)
Investments................................................. (56) --
Employee benefit trust...................................... -- 90
Other, net.................................................. -- (83)
------- -------
Cash from investing activities............................ 241 2,522
------- -------
FINANCING ACTIVITIES
Short-term debt, net........................................ (529) 519
Long-term debt issued....................................... 2,128 2,016
Long-term debt repaid....................................... (1,938) (1,386)
Proceeds from forward equity contracts and settlement of
equity put options........................................ (16) 245
Distributions paid.......................................... (58) (3,145)
Other, net.................................................. (6) (84)
------- -------
Cash used for financing activities........................ (419) (1,835)
------- -------
Increase in cash and cash equivalents....................... 12 273
Cash and cash equivalents -- beginning of period............ 157 126
------- -------
Cash and cash equivalents -- end of period.................. $ 169 $ 399
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ 214 $ 147
======= =======
Income taxes, net of refunds.............................. $ 63 $ 46
======= =======
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The accompanying notes to financial statements are an integral part of the above statements.
STARWOOD HOTELS & RESORTS
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3 $ 12
Accounts receivable....................................... 5 24
Receivable, Corporation................................... 42 42
Prepaid expenses and other................................ 5 3
------ ------
Total current assets.............................. 55 81
Investments, Corporation.................................... 1,056 1,057
Investments................................................. 84 86
Plant, property and equipment, net.......................... 4,438 4,411
Long-term receivables, net, Corporation..................... 2,584 2,583
Goodwill and intangible assets, net......................... 249 258
Other assets................................................ 137 152
Net assets held for sale.................................... -- 18
------ ------
$8,603 $8,646
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2 $ 6
Accrued expenses.......................................... 90 68
Short-term borrowings and current maturities of long-term
debt................................................... 105 1
------ ------
Total current liabilities......................... 197 75
Long-term debt.............................................. 391 737
Minority interest........................................... 35 39
------ ------
623 851
------ ------
Equity put options and forward equity contracts............. -- 23
------ ------
Class B exchangeable preferred shares, at redemption value
of $38.50................................................. 148 149
------ ------
Commitments and contingencies
Stockholders' equity:
Class A exchangeable preferred shares; $0.01 par value;
authorized 30,000,000 shares; outstanding 3,944,642 and
4,373,457 shares at June 30, 1999 and December 31,
1998, respectively..................................... -- --
Trust common shares of beneficial interest; $0.01 par
value; authorized 1,200,000,000 shares; outstanding
175,574,135 shares at December 31, 1998................ -- 2
Class A shares of beneficial interest; $0.01 par value;
authorized 5,000 shares; outstanding 100 shares at June
30, 1999............................................... -- --
Trust Class B shares of beneficial interest; $0.01 par
value; authorized 1,000,000,000 shares; outstanding
178,689,625 shares at June 30, 1999.................... 2 --
Additional paid-in capital................................ 7,567 7,557
Retained earnings......................................... 263 64
------ ------
Total stockholders' equity........................ 7,832 7,623
------ ------
$8,603 $8,646
====== ======
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The accompanying notes to financial statements are an integral part of the above statements.
STARWOOD HOTELS & RESORTS
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS
ENDED
JUNE 30, SIX MONTHS PERIOD FROM
-------------- ENDED FEBRUARY 23, 1998
1999 1998 JUNE 30, 1999 TO JUNE 30, 1998
----- ----- ------------- -----------------
REVENUES
Unconsolidated joint ventures and other............ $ 3 $ -- $ 8 $ 1
Rent and interest, Corporation..................... 186 174 365 255
----- ----- ----- -----
189 174 373 256
----- ----- ----- -----
COSTS AND EXPENSES
Selling, general and administrative................ -- 5 -- 6
Depreciation and amortization...................... 45 58 89 75
----- ----- ----- -----
45 63 89 81
----- ----- ----- -----
144 111 284 175
Interest expense, net of interest income of $1, $0,
$2
and $0........................................... (10) (5) (25) (8)
Income tax expense................................. -- (1) (1) (1)
Minority equity.................................... (1) (1) (1) (1)
----- ----- ----- -----
Net income......................................... $ 133 $ 104 $ 257 $ 165
===== ===== ===== =====
Net income per share -- basic...................... $0.69 $0.48 $1.34 $0.79
===== ===== ===== =====
Net income per share -- diluted.................... $0.66 $0.48 $1.29 $0.79
===== ===== ===== =====
Weighted average number of shares.................. 191 201 190 193
===== ===== ===== =====
Weighted average number of shares assuming
dilution......................................... 200 214 200 208
===== ===== ===== =====
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The accompanying notes to financial statements are an integral part of the above statements.
STARWOOD HOTELS & RESORTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
SIX MONTHS PERIOD FROM
ENDED FEBRUARY 23, 1998
JUNE 30, 1999 TO JUNE 30, 1998
---------------- -----------------
OPERATING ACTIVITIES
Net income.................................................. $ 257 $ 165
Adjustments to net income:
Depreciation and amortization............................. 89 75
Minority equity........................................... 1 1
Equity income, net of dividends received.................. 8 --
Changes in working capital:
Accounts receivable....................................... 4 (1)
Accounts payable.......................................... (4) (4)
Accrued expenses.......................................... 15 (13)
Other, net.................................................. 5 3
----- -----
Cash from operating activities............................ 375 226
----- -----
INVESTING ACTIVITIES
Additions to plant, property and equipment.................. (89) (92)
Proceeds from asset sales................................... 6 250
Collection of notes receivable.............................. 42 --
Acquisitions, net of acquired cash.......................... -- (13)
Investments................................................. 3 --
Notes receivable, Corporation............................... (15) (110)
Other, net.................................................. (24) (45)
----- -----
Cash used for investing activities........................ (77) (10)
----- -----
FINANCING ACTIVITIES
Long-term debt issued....................................... 291 --
Long-term debt repaid....................................... (533) (1)
Proceeds from equity offering............................... -- 171
Dividends paid.............................................. (58) (109)
Other, net.................................................. (7) (58)
----- -----
Cash from financing activities............................ (307) 3
----- -----
Increase (decrease) in cash and cash equivalents............ (9) 219
Cash and cash equivalents -- beginning of period............ 12 --
----- -----
Cash and cash equivalents -- end of period.................. $ 3 $ 219
===== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest.................... $ 13 $ 10
===== =====
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The accompanying notes to financial statements are an integral part of the above statements.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated balance sheets as of June 30, 1999 and
December 31, 1998 and the consolidated statements of operations, comprehensive
income and cash flows for the three and six months ended June 30, 1999 represent
(i) Starwood Hotels & Resorts Worldwide, Inc. and its subsidiaries (the
"Corporation"), including ITT Corporation and its subsidiaries ("ITT") and
Starwood Hotels & Resorts and its subsidiaries (the "Trust"), and (ii) the
Trust. Because the acquisition of ITT (the "ITT Merger") was treated as a
reverse purchase for financial accounting purposes, the consolidated statements
of operations, comprehensive income and cash flows for the three and six months
ended June 30, 1998 include the accounts of ITT for the three and six months
ended June 30, 1998 and the accounts of the Corporation and the Trust for the
period from the closing of the ITT Merger on February 23, 1998 through June 30,
1998.
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"). Through 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.
Through January 6, 1999, the combined Corporation and Trust entity was a "paired share REIT" under the grandfathering provisions of the Code. During 1998, Congress enacted tax legislation that had the effect of eliminating this grandfathering for certain interests in real property acquired after March 26, 1998. 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 combined Corporation and Trust entity is no longer a "grandfathered paired share REIT." The Trust became a subsidiary of the Corporation, which holds all outstanding shares of the new Class A shares of beneficial interest in the Trust. 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 are attached 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. Any further references in this filing to Starwood Hotels & Resorts Worldwide, Inc. ("Starwood" or the "Company") include the Trust and its subsidiaries. Unless otherwise stated herein, all information with respect to Shares refers to Shares since January 6, 1999 and to Paired Shares for periods before January 6, 1999.
During the first quarter of 1999, the Company recorded pretax charges of $15 million for costs directly attributable to the Reorganization, such as legal, accounting and investment banking fees, which are included in miscellaneous expense in the accompanying 1999 consolidated statements of operations. As a result of the Reorganization, the Company also recorded a one-time charge of $936 million in the first quarter to establish a deferred tax liability relating to the difference between the book and tax basis in the assets of the Trust. This charge is included in income tax expense in the accompanying consolidated statements of operations.
The Company, through its subsidiaries, is the general partner of, and holds an aggregate 85.6% partnership interest in, SLC Operating Limited Partnership (the "Operating Partnership") as of June 30, 1999. The Trust, through its subsidiaries, is the general partner of, and owns an aggregate 93.5% partnership interest in, SLT Realty Limited Partnership (the "Realty Partnership" and, together with the Operating Partnership, the "Partnerships") as of June 30, 1999. The Realty Partnership principally owns, directly or indirectly, fee, ground lease and mortgage loan interests in hotel properties. The Operating Partnership,
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
directly or indirectly, principally leases hotel properties from the Realty Partnership and also owns fee interests in other hotel properties and manages hotels for third parties. The units of these Partnerships ("LP Units") held by the limited partners of the respective Partnership ("Limited Partners") are exchangeable on a one-to-one basis for Shares of the Company. At June 30, 1999, there were approximately 12.7 million LP Units outstanding. 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.
The Company is one of the largest hotel companies in the world and the Trust is one of the largest REITs in the United States. The hotel business is comprised of a worldwide hospitality network of approximately 700 full-service hotels primarily serving three markets: luxury, upscale and mid-price. The Company's hotel operations are represented on six continents and in nearly every major world market.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
EARNINGS PER SHARE. The following reconciliation of basic earnings per Share to diluted earnings per Share for income (loss) from continuing operations assumes the conversion of LP Units to Shares (in millions, except per Share data):
THREE MONTHS ENDED JUNE 30,
-------------------------------------------------------------
1999 1998
----------------------------- -----------------------------
EARNINGS SHARES PER SHARE EARNINGS SHARES PER SHARE
-------- ------ --------- -------- ------ ---------
Income from continuing operations............ $142 $82
Dividends on Class A and Class B EPS......... (1) (4)
---- ---
Basic earnings............................... 141 187 $0.76 78 201 $0.38
Effect of dilutive securities:
Employee options........................... -- 2 -- 3
Class A and Class B EPS.................... 1 7 4 9
---- --- --- ---
Diluted earnings............................. $142 196 $0.73 $82 213 $0.38
==== === ===== === === =====
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SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------
1999 1998
----------------------------- -----------------------------
EARNINGS SHARES PER SHARE EARNINGS SHARES PER SHARE
-------- ------ --------- -------- ------ ---------
Income (loss) from continuing operations..... $(783) $124
Dividends on Class A and Class B EPS......... (2) (11)
----- ----
Basic earnings (loss)........................ (785) 186 $(4.21) 113 193 $0.59
Effect of dilutive securities:
Employee options........................... -- -- -- 3
----- --- ---- ---
Diluted earnings (loss)...................... $(785) 186 $(4.21) $113 196 $0.58
===== === ====== ==== === =====
|
As a result of antidilutive effects, approximately 8 million Class A and Class B Exchangeable Preferred Shares ("EPS") of the Trust and approximately 2 million employee options and other common stock equivalents were not included in the computation of diluted earnings per Share for the six months ended June 30, 1999. Additionally, as a result of antidilutive effects, approximately 10 million Class A and Class B EPS of the Trust were not included in the computation of diluted earnings per Share for the six months ended June 30, 1998.
RECLASSIFICATIONS. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. ACQUISITIONS
On July 18, 1999, the Corporation entered into a definitive merger agreement with Vistana, Inc. ("Vistana"), pursuant to which Vistana will merge with and into a subsidiary of the Corporation and thereby become a wholly-owned subsidiary of the Corporation. Vistana's principal operations include the acquisition, development and operation of vacation ownership resorts, marketing and selling vacation ownership interests in the resorts, and providing financing to customers who purchase such interests.
The merger agreement provides, subject to satisfaction or waiver of certain conditions set forth therein, for each outstanding share of Vistana common stock, par value $0.01 per share, not owned by Starwood, Vistana or their respective wholly-owned subsidiaries, to be converted in the merger into $5.00 in cash and a fraction of a Share, with such fraction valued at $14.00 per Share, assuming that Starwood's average Share price for the 20-day trading period immediately prior to the fifth trading day preceding the date of the merger is between $30 and $36 per Share. Vistana had approximately 22 million shares outstanding at June 30, 1999.
The merger, which is subject to customary closing conditions, has been approved by the respective boards of directors of both Starwood and Vistana. The principal shareholders of Vistana, who own more than 50% of the outstanding voting securities of Vistana, have executed consents to approve the merger and, accordingly, no further action is required to be taken by the Vistana shareholders in connection with the merger agreement. Under certain circumstances, either Starwood or Vistana may terminate the merger agreement if the market price of the Shares is below $23 per Share.
NOTE 4. DISCONTINUED OPERATIONS
GAMING. In April 1999, management developed a formal plan to dispose of the Company's gaming operations. On April 27, 1999, the Company entered into a definitive agreement to sell its gaming operations, excluding the Desert Inn Resort & Casino in Las Vegas, Nevada (the "Desert Inn"), for cash proceeds of approximately $3.0 billion to Park Place Entertainment Corporation (New York Stock Exchange ("NYSE"): PPE). This sale, which is subject to customary closing conditions including obtaining approvals from certain gaming regulatory authorities, is expected to close prior to the end of 1999. On May 18, 1999, the Company entered into a definitive agreement with Sun International (NYSE: SIH) to sell the Desert Inn for approximately $275 million in cash. This sale, which is also subject to customary closing conditions including approvals by the Nevada gaming authorities, is expected to close in the second quarter of 2000.
As a result of the definitive agreements to sell the gaming operations, the accompanying consolidated financial statements reflect the results of operations and net assets of the gaming segment as a discontinued operation. Long-term debt of approximately $2.1 billion and the related interest expense of $40 million and $80 million for each of the three and six months ended June 30, 1999 and 1998, respectively, has been allocated to the discontinued operation. This allocation was based upon the ratio of net gaming segment assets to the Company's total capitalization. During the first quarter of 1999, the Company provided for estimated after-tax losses on the disposal of the discontinued operations of $180 million ($158 million pretax), which included anticipated operating results through the expected closing date prior to the end of 1999 of
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
approximately $50 million prior to the disposal. Summary financial information of the discontinued gaming operations is as follows (in millions) (unaudited):
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
BALANCE SHEET DATA
Total assets.......................................... $ 3,566 $ 3,751
Total liabilities..................................... (347) (368)
Debt related to discontinued operations............... (2,336) (2,316)
------- -------
Net assets of the discontinued gaming operations...... $ 883 $ 1,067
======= =======
|
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
INCOME STATEMENT DATA
Revenues...................................... $384 $333 $762 $652
Operating income.............................. $ 34 $ 29 $ 78 $ 49
Interest expense, including allocated
interest.................................... $(44) $(40) $(88) $(80)
Income tax (expense) benefit.................. $ (2) $ 2 $ (2) $ 6
Minority equity............................... $ 2 $ 1 $ 2 $ 2
Loss from discontinued operations............. $(10) $ (8) $(10) $(23)
|
ITT EDUCATIONAL SERVICES, INC. In June 1998, the Company sold approximately 13.0 million shares of ITT Educational Services, Inc. ("Educational Services") for net proceeds of approximately $304 million, recognizing a gain of $163 million, net of income taxes of $190 million. In February 1999, the Company completed the sale of its remaining interest in Educational Services, selling 8.0 million shares of common stock of Educational Services in an underwritten public offering at a price per share of $34.00. Concurrently, Educational Services repurchased the Company's remaining 1.5 million shares of Educational Services common stock at $32.73 per share. Starwood received aggregate net proceeds of approximately $310 million from these transactions, which were used to repay a portion of the Company's outstanding debt. As a result of this sale, the Company recognized a gain of $173 million, net of taxes of $99 million in the first quarter of 1999. Net assets of discontinued operations includes $36 million related to Educational Services as of December 31, 1998.
ITT WORLD DIRECTORIES. In February 1998, the Company disposed of ITT World Directories ("WD"), the subsidiary through which ITT conducted its telephone directories publishing business, to VNU International B.V., a leading international publishing and information company based in the Netherlands, for gross consideration of $2.1 billion. The Company recorded a gain of $977 million, net of income taxes of $514 million, on the disposition.
NOTE 5. UNAUDITED PRO FORMA RESULTS
The following unaudited pro forma information reflects the ITT Merger, the acquisition ("Westin Merger") of Westin Hotels & Resorts Worldwide, Inc. and certain of its affiliates ("Westin") and certain actual and planned asset dispositions (including the disposition of the gaming operations) as if they occurred on January 1, 1998 and does not purport to present what actual results would have been had such transactions,
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
in fact, occurred on January 1, 1998, or to project results for any future period (in millions, except per Share data):
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------- ----------------
1999 1998 1999 1998
----- ----- ------ ------
Revenues.................................................. $ 968 $ 945 $1,819 $1,771
Income (loss) from continuing operations.................. $ 161 $ 88 $ (739) $ 119
Net income (loss)......................................... $ 161 $ 242 $ (746) $1,227
Basic income (loss) from continuing operations per
Share................................................... $0.86 $0.42 $(3.98) $ 0.54
Diluted income (loss) from continuing operations per
Share................................................... $0.82 $0.41 $(3.98) $ 0.53
|
NOTE 6. DISPOSITIONS
At December 31, 1998, net assets held for sale in the accompanying consolidated balance sheet included the Company's investment in Madison Square Garden, L.P. ("MSG"). In April 1999, the Company disposed of its remaining interest in MSG for net cash proceeds of approximately $87 million and recorded a pretax gain of $42 million.
In July 1999, the Company sold the Westin Central Park South for approximately $63 million in net cash proceeds. During the second quarter of 1999, the Company recognized a pretax loss of $23 million in anticipation of this sale.
NOTE 7. RESTRUCTURING AND OTHER SPECIAL CHARGES/CREDITS
In connection with the ITT Merger in 1998, the Company recorded restructuring and other special charges totaling $204 million (pretax) for (i) ITT Merger-related costs, (ii) write-down of certain assets and (iii) adjustments to ITT 1997 other special charges. At June 30, 1999, the Company had remaining accruals related to these 1998 restructuring and other special charges of approximately $31 million primarily related to costs to be incurred to integrate the Company's frequent guest programs and close down duplicate facilities, which will be paid out over the remainder of the year.
During the second quarter of 1999, the Company reversed approximately $50 million in restructuring charges recorded during 1997 due to the resolution of certain employment related contingencies, net of restructuring and other special charges of $5 million attributed to the rationalization of one of Starwood's technical centers and $4 million attributed to the severance benefits for the former president and chief operating officer. Additionally, in the second quarter of 1999, the Company recorded a tax benefit of $37 million primarily related to the resolution of certain employment related contingencies, which is included in income tax expense in the accompanying statements of operations.
During 1997, ITT recorded pretax charges totaling $260 million to restructure and rationalize operations at its World Headquarters and the headquarters of its field operations. Additionally, ITT recorded restructuring and other special charges in connection with the ITT Merger totaling $600 million. At June 30, 1999, the Company had remaining accruals related to these restructuring and other special charges of approximately $91 million primarily related to remaining lease commitments which expire through 2006 and certain employee benefits scheduled to be completed in the first quarter of 2000.
NOTE 8. DEBT
In February 1999, the Company completed a $542 million long-term mortgage financing ("Mortgage Loan"), secured by the assets of the special purpose subsidiaries, which assets consist primarily of a portfolio
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of 11 hotels. This obligation bears interest at a blended rate of 6.98%, matures February 2009 and includes various restrictive covenants including, but not limited to, various cash restrictions, capital expenditure requirements and restrictions on the sale of assets. The proceeds from this facility were used to pay down the asset sale loan under the Company's senior credit facility ("Senior Credit Facility").
On March 8, 1999, the Company entered into an $83 million long-term debt obligation secured by mortgages on two international hotels. This obligation bears interest at LIBOR plus 1.35%, matures in March 2006 and is subject to various restrictive covenants including maintaining a minimum debt service coverage ratio. The proceeds from this financing were used to pay down certain intercompany loans due from the international hotels.
NOTE 9. EQUITY PUT OPTIONS
As a part of its Share repurchase program, the Company sold equity put options during 1998 for $1.8 million in premiums, which options entitled the holder, at the expiration date, to sell one million Shares to the Company at contractually specified prices. During the first quarter of 1999, the Company repurchased 500,000 Shares for $16 million under certain of the equity put option contracts. In the first quarter, all of the remaining equity put option contracts had expired.
NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate swap agreements to manage interest rate fluctuations on its variable rate debt. The Company currently has five outstanding interest rate swap agreements under which the Company pays a fixed rate and receives variable rates of interest. The aggregate notional amount of these interest rate swaps was approximately $1.032 billion and the estimated unrealized gain on these interest rate swaps was approximately $6 million at June 30, 1999. The unrealized gain represents the amount the Company would receive upon the termination of the swap agreements based on current interest rates.
The Company enters into forward foreign exchange contracts to hedge the foreign currency exposure associated with the Company's foreign currency denominated assets and liabilities. The Company currently has two forward foreign exchange contracts outstanding with a U.S. dollar equivalent of the contractual amounts of these hedges at June 30, 1999 of approximately $45 million. These contracts mature on September 9, 1999.
NOTE 11. BUSINESS SEGMENT INFORMATION
The Company has one operating segment, Hotels. The Hotels 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 Sheraton, Westin, St. Regis/Luxury Collection, Four Points and
W) and hotels operated or flagged under these brand names in exchange for
management and franchise fees. The segment also includes earnings from the
Company's interest in unconsolidated joint ventures.
The performance of the Hotels segment is evaluated primarily on operating profit before corporate selling, general and administrative expense, interest, gains and losses on the sale of real estate and investments, and restructuring and other special credits. The Company does not allocate these items to the segment.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents revenues, operating profit, assets and capital expenditures for the Company's reportable segment:
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------ ----------------
1999 1998 1999 1998
---- ---- ------ ------
Revenues........................................... $968 $945 $1,819 $1,510
==== ==== ====== ======
Operating profit(a)(b)............................. $241 $201 $ 408 $ 303
==== ==== ====== ======
|
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
Assets:
Hotels.................................................... $11,816 $11,827
Corporate................................................. 389 487
Discontinued operations................................... 883 1,103
------- -------
$13,088 $13,417
======= =======
|
SIX MONTHS
ENDED
JUNE 30,
------------
1999 1998
---- ----
Capital expenditures........................................ $190 $206
---- ----
|
(b) The following costs are not allocated to Hotels in evaluating operating profit:
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
Corporate selling, general and administrative.......... $ 20 $21 $ 45 $31
Restructuring and other special credits................ $(41) $-- $(41) $--
|
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Forward-looking statements contained herein 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: the Reorganization; the Trust's continued ability to qualify for taxation as a REIT; completion of future acquisitions and dispositions, including the pending sale of the Company's gaming operations and the pending acquisition by the Company of Vistana; the availability of capital for acquisitions and for renovations; execution of hotel renovation and expansion programs; the ability to maintain existing management, franchise or representation agreements and to obtain new agreements on favorable terms; competition within the lodging industry; the cyclicality of the real estate business and the hotel business; foreign exchange fluctuations; general real estate and national and international economic conditions; political, financial and economic conditions and uncertainties in countries in which the Company owns property or operates; the ability of the Company, owners of properties it manages or franchises and others with which it does business to address the Year 2000 issue, and the costs associated therewith; the adoption by several European countries of the Euro as their national currency; and the other risks and uncertainties set forth in Starwood's annual, quarterly and current reports and proxy statements of the Company and the Trust. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
RESULTS OF OPERATIONS
To facilitate a meaningful comparison between periods, this Management's Discussion and Analysis focuses on the comparison of historical information for the three and six months ended June 30, 1999 with the historical information for the three months ended June 30, 1998 and the Historical As Adjusted (as defined below) information for the six months ended June 30, 1998, respectively. Pro forma information for selling, general and administrative and interest expense for these same periods is also provided. Management believes this information provides the most meaningful comparison among periods presented. The Historical As Adjusted information reflects the historical results of ITT, inclusive of Starwood and Westin, for the period from January 1, 1998 through June 30, 1998 as if the ITT Merger had taken place on January 1, 1998. The pro forma information reflects the ITT Merger and certain actual and planned asset dispositions as if they had occurred on January 1, 1998. Period-to-period comparisons of the Company's historical information are, in management's view, less relevant to an understanding of the Company due to the significance of the ITT Merger and the Westin Merger.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
The following unaudited condensed consolidated pro forma statements of operations for the three and six months ended June 30, 1999 give effect as of January 1, 1999 to certain actual and planned asset dispositions and certain cost savings relating to the ITT Merger. The pro forma information is based upon the historical financial information for the Company for the three and six months ended June 30, 1999 and the assumptions and adjustments set forth below. The pro forma information does not purport to present what actual results would have been had such transactions, in fact, occurred at January 1, 1999, or to project results for any future period.
THREE MONTHS ENDED JUNE 30, 1999
--------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
REVENUES
Owned, leased and consolidated joint venture hotels........ $ 871 $ -- $ 871
Management and franchise fees.............................. 66 -- 66
Unconsolidated joint ventures and other.................... 31 -- 31
----- ----- -----
968 -- 968
----- ----- -----
COSTS AND EXPENSES
Owned, leased and consolidated joint venture hotels........ 581 -- 581
Selling, general and administrative........................ 38 -- 38
Restructuring and other special credits.................... (41) -- (41)
Depreciation and amortization.............................. 117 -- 117
----- ----- -----
695 -- 695
----- ----- -----
273 -- 273
Interest expense, net...................................... (119) 27(a) (91)
1(b)
Gain on sale of real estate and investments................ 22 -- 22
Miscellaneous expense...................................... -- -- --
----- ----- -----
176 28 204
Income tax expense......................................... (29) (9) (38)
Minority equity............................................ (5) -- (5)
----- ----- -----
Income from continuing operations.......................... $ 142 $ 19 $ 161
===== ===== =====
Earnings per Share -- basic................................ $0.76 $0.86
===== =====
Earnings per Share -- diluted.............................. $0.73 $0.82
===== =====
Weighted average number of Shares.......................... 187 187
===== =====
Weighted average number of Shares assuming dilution........ 196 196
===== =====
|
(b) Represents reduced deferred loan fee amortization on debt assumed to have been paid down as of January 1, 1999 with proceeds from actual and planned asset dispositions.
SIX MONTHS ENDED JUNE 30, 1999
--------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
REVENUES
Owned, leased and consolidated joint venture hotels........ $1,641 $-- $1,641
Management and franchise fees.............................. 125 -- 125
Unconsolidated joint ventures and other.................... 53 -- 53
------ --- ------
1,819 -- 1,819
------ --- ------
COSTS AND EXPENSES
Owned, leased and consolidated joint venture hotels........ 1,122 -- 1,122
Selling, general and administrative........................ 86 (7)(a) 79
Restructuring and other special credits.................... (41) -- (41)
Depreciation and amortization.............................. 236 -- 236
------ --- ------
1,403 (7) 1,396
------ --- ------
416 7 423
Interest expense, net...................................... (239) 53(b) (176)
4(c)
6(d)
Gain on sale of real estate and investments................ 30 -- 30
Miscellaneous expense...................................... (15) -- (15)
------ --- ------
192 70 262
Income tax expense......................................... (971) (26) (997)
Minority equity............................................ (4) -- (4)
------ --- ------
Income (loss) from continuing operations................... $ (783) $44 $ (739)
====== === ======
Earnings per Share -- basic................................ $(4.21) $(3.98)
====== ======
Earnings per Share -- diluted.............................. $(4.21) $(3.98)
====== ======
Weighted average number of Shares.......................... 186 186
====== ======
Weighted average number of Shares assuming dilution........ 186 186
====== ======
|
(b) Represents the reduction of interest expense assuming the paydown of the Company's Senior Secured Notes Facility with the estimated $3.2 billion of proceeds from the pending sale of the Company's gaming operations (including the Desert Inn), net of the interest allocated to discontinued operations in the historical results (see Note 4 in the notes to the consolidated financial statements).
(c) Represents the reduction of interest expense assuming the paydown of a portion of the Senior Credit Facility with the net proceeds of approximately $397 million from the disposition of MSG and Educational Services as if the dispositions had occurred on January 1, 1999.
(d) Represents reduced deferred loan fee amortization on debt assumed to have been paid down as of January 1, 1999 with proceeds from actual and planned asset dispositions.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998
The following unaudited condensed consolidated pro forma statements of operations for the three and six months ended June 30, 1998 give effect as of January 1, 1998 to the ITT Merger and certain actual and planned asset dispositions. The pro forma information for the three months ended June 30, 1998 is based upon the historical information for the Company for the three months ended June 30, 1998 and the assumptions and adjustments set forth below. The pro forma information for the six months ended June 30, 1998 is based upon the total of historical information for the Company for the six months ended June 30, 1998 combined with the historical results of the Corporation (including Westin) and the Trust prior to the ITT Merger on February 23, 1998 ("Historical As Adjusted") and other assumptions and adjustments set forth below. These statements do not purport to present what actual results would have been had such transactions, in fact, occurred at January 1, 1998, or to project results for any future period.
THREE MONTHS ENDED JUNE 30, 1998
--------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
REVENUES
Owned, leased and consolidated joint venture hotels........ $ 848 $ -- $ 848
Management and franchise fees.............................. 62 -- 62
Unconsolidated joint ventures and other.................... 35 -- 35
----- ---- -----
945 -- 945
----- ---- -----
COSTS AND EXPENSES
Owned, leased and consolidated joint venture hotels........ 567 -- 567
Selling, general and administrative........................ 59 (5)(a) 54
Depreciation and amortization.............................. 131 2(b) 133
----- ---- -----
757 (3) 754
----- ---- -----
188 3 191
Interest expense, net...................................... (111) 14(c) (71)
21(d)
5(e)
Gain on sale of real estate and investments................ 39 -- 39
----- ---- -----
116 43 159
Income tax expense......................................... (26) (37)(f) (63)
Minority equity............................................ (8) -- (8)
----- ---- -----
Income from continuing operations.......................... $ 82 $ 6 $ 88
===== ==== =====
Earnings per Share -- basic................................ $0.38 $0.42
===== =====
Earnings per Share -- diluted.............................. $0.38 $0.41
===== =====
Weighted average number of Shares.......................... 201 201
===== =====
Weighted average number of Shares assuming dilution........ 213 213
===== =====
|
(b) Represents the additional amortization expense related to purchase price adjustments to goodwill and intangible assets initially recorded as a result of the ITT Merger, as if the transactions had taken place on January 1, 1998.
(c) Represents the reduction of interest expense assuming the paydown of a portion of the Senior Credit Facility with the net proceeds of approximately $932 million from the following asset dispositions, as if the dispositions had occurred on January 1, 1998. The dispositions include ITT's interest in WBIS+ Channel 31 in New York City, MSG, Educational Services, and the sale of an aircraft.
(d) Represents the reduction of interest expense assuming the paydown of the Senior Secured Notes Facility with the estimated $3.2 billion of proceeds from the pending sale of the Company's gaming operations (including the Desert Inn), net of the interest allocated to discontinued operations in the historical results (see Note 4 in the notes to the consolidated financial statements).
(e) Represents reduced deferred loan fee amortization on debt assumed to have been paid down as of January 1, 1998 with proceeds from the actual and planned asset dispositions described in (c) and (d) above.
(f) Represents the adjustment needed to reflect an effective tax rate of 40% on historical net income and the pro forma adjustments, assuming the Reorganization had occurred effective January 1, 1998.
SIX MONTHS ENDED JUNE 30, 1998
----------------------------------------------------------------
OTHER
PRO FORMA HISTORICAL PRO FORMA
HISTORICAL STARWOOD(a) AS ADJUSTED ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
REVENUES
Owned, leased and consolidated joint venture
hotels....................................... $1,354 $241 $1,595 $ -- $1,595
Management and franchise fees.................. 108 6 114 -- 114
Unconsolidated joint ventures and other........ 48 14 62 -- 62
------ ---- ------ -------- ------
1,510 261 1,771 -- 1,771
------ ---- ------ -------- ------
COSTS AND EXPENSES
Owned, leased and consolidated joint venture
hotels....................................... 925 176 1,101 -- 1,101
Selling, general and administrative............ 101 11 112 (9)(b) 103
Depreciation and amortization.................. 204 43 247 13(c) 260
------ ---- ------ -------- ------
1,230 230 1,460 4 1,464
------ ---- ------ -------- ------
280 31 311 (4) 307
Interest expense, net.......................... (164) (25) (189) (39)(d) (150)
29(e)
40(f)
3(g)
6(h)
Gain on sale of real estate and investments.... 51 -- 51 -- 51
------ ---- ------ -------- ------
167 6 173 35 208
Income tax expense............................. (36) (2) (38) (45)(i) (83)
Minority equity................................ (7) 1 (6) -- (6)
------ ---- ------ -------- ------
Income (loss) from continuing operations....... $ 124 $ 5 $ 129 $ (10) $ 119
====== ==== ====== ======== ======
Earnings per Share -- basic.................... $ 0.59 $ 0.54
====== ======
Earnings per Share -- diluted.................. $ 0.58 $ 0.53
====== ======
Weighted average number of Shares.............. 193 200
====== ======
Weighted average number of Shares assuming
dilution..................................... 196 203
====== ======
|
(b) Represents the effects of termination of certain executives under contractual severance agreements, net of additional costs for new executives under employment contracts, removal of duplicate third-party consulting fees and termination of certain advertising contracts and rental agreements, less related termination fees.
(c) Represents the amortization expense related to the goodwill and intangible assets recorded as a result of the purchase consideration exceeding the fair market value of the combined net assets of Starwood and Westin, as if the transactions had taken place on January 1, 1998.
(d) Represents the interest expense on the additional debt incurred to finance the ITT Merger for the period January 1, 1998 through February 23, 1998 at the Company's average borrowing rate.
(e) Represents the reduction of interest expense assuming the paydown of a portion of the Senior Credit Facility with the net proceeds of approximately $932 million from the following asset dispositions, as if the dispositions had occurred on January 1, 1998. The dispositions include ITT's interest in WBIS+ Channel 31 in New York City, MSG, Educational Services, and the sale of an aircraft.
(f) Represents the reduction of interest expense assuming the paydown of the Senior Secured Notes Facility with the estimated $3.2 billion of proceeds from the pending sale of the Company's gaming operations (including the Desert Inn), net of the interest allocated to discontinued operations in the historical results (see Note 4 in the notes to the consolidated financial statements).
(g) Represents the reduction of interest expense for the paydown of term loans with the net proceeds of $239 million from the sale of 4.6 million Shares on February 24, 1998 as if such offering had taken place on January 1, 1998.
(h) Represents reduced deferred loan fee amortization on debt assumed to have been paid down as of January 1, 1998 with proceeds from the actual and planned asset dispositions described in (e) and (f) above.
(i) Represents the adjustment needed to reflect an effective tax rate of 40% on historical net income and the pro forma adjustments, assuming the Reorganization had occurred effective January 1, 1998.
HISTORICAL THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH HISTORICAL/HISTORICAL AS ADJUSTED THREE AND SIX MONTHS ENDED JUNE 30, 1998
CONTINUING OPERATIONS
Revenues. Revenues increased 2.4% and 2.7% to $968 million and $1.819 billion for the three and six months ended June 30, 1999, respectively, when compared to the corresponding periods in 1998. The increase in revenues was primarily due to the 2.7% and 2.9% increase in revenues for the Company's owned, leased and consolidated joint venture hotels to $871 million and $1.641 billion for the three and six months ended
June 30, 1999, respectively, when compared to $848 million and $1.595 billion in the corresponding periods of 1998. The increase resulted from the increase in revenues at the Company's 171 owned, leased and consolidated joint venture hotels (excluding minority interest in consolidated joint ventures) held in both periods ("Same-Store Hotels"). The 4.0% and 4.9% increase in revenues at the Same-Store Hotels to $831 million and $1.574 billion for the three and six months ended June 30, 1999, respectively, when compared to $799 million and $1.500 billion in the same periods of 1998 was offset, in part, by a $7 million and $27 million respective decrease in revenues as a result of the sale of nine hotels in May 1998. The increase in revenues at the Same-Store Hotels resulted from an increase in revenue per available room ("REVPAR") at these hotels of 1.5% and 2.9% to $106.77 and $102.03 for the three and six months ended June 30, 1999, respectively, when compared to the same periods of 1998 which is attributed to an increase in average daily rate ("ADR") of 3.0% and 3.5% to $149.68 and $148.23 for the three and six months ended June 30, 1999, respectively, when compared to the corresponding 1998 periods. REVPAR at the Company's international owned, leased and consolidated joint venture hotels increased 1.4% and 2.7% for the three and six months ended June 30, 1999, respectively, when compared to the same periods of 1998. REVPAR at owned, leased and consolidated joint venture properties in North America increased 1.7% and 3.0% for the three and six months ended June 30, 1999, respectively, when compared to the same periods of 1998.
Management and franchise fees earned by Starwood increased 6.5% and 9.6% to $66 million and $125 million for the three and six months ended June 30, 1999, respectively, when compared to $62 million and $114 million in the corresponding periods of 1998. The increase resulted primarily from the addition of hotels to the Company's management and franchise system and the stronger performance at the Company's existing managed and franchised hotels. The Company added 31 and 53 hotels to the management and franchise system during the three and six months ended June 30, 1999, respectively, offset by 5 and 7 hotels deleted from the system during the same periods.
Revenues from unconsolidated joint ventures and other decreased to $31 million and $53 million for the three and six months ended June 30, 1999, respectively, from $35 million and $62 million, respectively, in the same periods of 1998. The decrease resulted primarily from a decrease in earnings from unconsolidated joint ventures.
Costs and Expenses. Costs and expenses for the Company's owned, leased and consolidated joint venture hotels increased 2.5% and 1.9% to $581 million and $1.122 billion for the three and six months ended June 30, 1999, respectively, when compared to $567 million and $1.101 billion in the corresponding periods of 1998. The increase in costs and expenses is due primarily to the reopening of hotels in late 1998 that were not operating at full capacity in early 1998 because they were under renovation.
Selling, general and administrative expenses were $38 million and $59 million for the three months ended June 30, 1999 and 1998, respectively. The decrease is primarily due to savings associated with the ITT Merger and Westin Merger that resulted in the ITT World Headquarters closure in New York and a significant downsizing at the Westin office in Seattle, Washington and the Sheraton office in Boston, Massachusetts, offset by the increase in corporate employees at the Company's new headquarters in White Plains, New York. Selling, general and administrative expenses were $86 million and $112 million for the six months ended June 30, 1999 and 1998, respectively. This decrease results primarily from the savings associated with the ITT Merger and Westin Merger noted above, offset by the increase in corporate employees and by the inclusion in selling, general and administrative expenses, in the first quarter of 1998, of a foreign exchange gain of $7 million.
EBITDA.(1) The Company's EBITDA from continuing operations increased 5.9% and 6.8% to $343 million and $609 million in the three and six months ended June 30, 1999, respectively, when compared
(1) EBITDA is defined as income before interest expense, income tax expense, depreciation and amortization and minority interest. Non-recurring items and gains and losses from sales of real estate and investments are also excluded from EBITDA as these items do not impact operating results on a recurring basis. Management considers EBITDA to be one measure of the cash flows from operations of the Company before debt service that provides a relevant basis for comparison, and EBITDA is presented to assist investors in analyzing the performance of the Company. This information should not be considered as an alternative to any measure of performance as promulgated under generally accepted accounting principles, nor should it be considered as an indicator of the overall financial performance of the Company. The Company's calculation of EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited.
to $324 million and $570 million in the corresponding periods of 1998. The increase was primarily due to the improved results at the Company's Same-Store Hotels with an EBITDA increase of 2% and 6% for the three and six months ended June 30, 1999, respectively, over the same periods in the prior year and the significant decrease in selling, general and administrative expenses discussed above. The increase in EBITDA at the Same-Store Hotels to $277 million and $503 million in the three and six months ended June 30, 1999, respectively, when compared to $271 million and $474 million in the corresponding periods of 1998 was offset, in part, by EBITDA of $2 million and $11 million, respectively, for nine hotels that were sold in May 1998. The EBITDA improvement at the Same-Store Hotels was due primarily to the increase in ADR discussed above.
Depreciation and Amortization. Depreciation and amortization expense decreased to $117 million and $236 million in the three and six months ended June 30, 1999, respectively, compared to $131 million and $247 million in the corresponding periods of 1998. The decrease was primarily attributed to the adoption by the Company in July 1998 of the estimated useful lives used by ITT for depreciation prior to the ITT Merger and a reduction in depreciation expense as a result of the sale of nine hotels in May 1998.
Net Interest Expense. Interest expense for the three months ended June 30, 1999 and 1998, which is net of interest income of $5 million and $9 million, respectively, and discontinued gaming operations allocations of $40 million in both periods, was $119 million and $111 million, respectively. The increase relates primarily to the net increase in the average debt balance due to the repurchase of over $665 million of Shares and $326 million of capital expenditures since the second quarter of 1998, which is offset by the reduction in debt of approximately $825 million from the proceeds of non-core asset dispositions since the second quarter of 1998. Interest expense for the six months ended June 30, 1999 and 1998, which is net of interest income of $10 million and $16 million, respectively, and discontinued gaming operations allocations of $80 million in both periods, was $239 million and $189 million, respectively. The increase relates primarily to the debt incurred to finance the ITT Merger and Westin Merger, the repurchase of Shares and capital expenditures, offset by the reduction in debt from the proceeds from dispositions noted previously.
DISCONTINUED OPERATIONS
Results for the Company's former gaming segment, WD and Educational Services are included in discontinued operations in the three and six months ended June 30, 1998. Net loss from discontinued operations was $9 million and $32 million for the three and six months ended June 30, 1998, respectively. These results include the allocation of pretax Corporate interest expense of $40 million and $80 million in the three and six months ended June 30, 1998, respectively. The anticipated operating results of the gaming operations were provided for in the first quarter of 1999 in the estimated net loss on the disposal of the discontinued gaming operations.
The after-tax loss on the disposition of discontinued operations for the six months ended June 30, 1999 was $7 million and includes, on an after-tax basis, a $173 million gain on the sale of the Company's remaining interest in Educational Services, offset by an estimated $180 million loss on the pending disposition of the Company's gaming operations. After-tax gains of $163 million and $1.1 billion were recognized in the three and six months ended June 30, 1998, respectively, in connection with the Educational Services and WD dispositions.
Revenues from discontinued gaming operations increased 15% and 17% to $384 million and $762 million for the three and six months ended June 30, 1999, respectively, when compared to the corresponding periods of 1998. Costs and expenses from discontinued gaming operations for the three and six months ended June 30, 1999 increased 15% and 13% to $350 million and $684 million, respectively, when compared to the same periods of 1998. The increase in revenue and costs and expenses resulted primarily from the opening of
Caesars Indiana in November 1998. The results of the discontinued gaming
operations from April 1, 1999 (date of announcement of the formal plan to
dispose of gaming operations) through June 30, 1999 are included in the net gain
(loss) on the disposition of discontinued operations for the three and six
months ended June 30, 1999 as noted previously.
EBITDA from discontinued gaming operations for the three and six months ended June 30, 1999 was $85 million and $173 million, respectively, compared to $80 million and $143 million in the corresponding periods of 1998. The increase in gaming EBITDA resulted from positive results at Caesars Palace in Las Vegas and the opening of Caesars Indiana.
PRO FORMA THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH PRO FORMA THREE AND SIX MONTHS ENDED JUNE 30, 1998
The above discussion and analysis regarding historical and Historical As Adjusted results is applicable to the operating results of the Company on a pro forma basis except for selling, general and administrative expenses and interest expense. Therefore, the following discussion and analysis of pro forma results is provided to facilitate a meaningful comparison of these expenses between periods.
CONTINUING OPERATIONS
Costs and Expenses. Selling, general and administrative expenses decreased to $38 million from $54 million for the three months ended June 30, 1999 and 1998, respectively. The decrease is primarily due to savings associated with the ITT Merger and Westin Merger that resulted in the ITT World Headquarters closure in New York and a significant downsizing at the Westin office in Seattle, Washington and the Sheraton office in Boston, Massachusetts. Selling, general and administrative expenses decreased to $79 million from $103 million for the six months ended June 30, 1999 and 1998, respectively. The decrease is primarily due to the savings associated with the ITT Merger and Westin Merger noted above, offset by the inclusion in selling, general and administrative expenses, in the first quarter of 1998, of a foreign exchange gain of $7 million.
Net Interest Expense. Interest expense for the three months ended June 30, 1999 and 1998, which is net of interest income of $5 million and $9 million, respectively, and discontinued gaming operations allocations of $67 million and $61 million in 1999 and 1998, respectively, increased to $91 million in 1999 from $71 million in 1998. Interest expense for the six months ended June 30, 1999 and 1998, which is net of interest income of $10 million and $16 million, respectively, and discontinued gaming operations allocations of $133 million and $120 million in 1999 and 1998, respectively, increased to $176 million in 1999 from $150 million in 1998. The increases relate primarily to the debt incurred to finance the repurchase of approximately $665 million of Shares and $326 million of capital expenditures since the second quarter of 1998.
SEASONALITY AND DIVERSIFICATION
The hotel industry is seasonal in nature; however, the periods during which the Company's properties experience higher hotel revenue activities vary from property to property and depend principally upon location. The Company's revenues historically have been lower in the first quarter than in the second, third or fourth quarters.
COMPARABLE OWNED HOTEL 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 in 1999 and 2000 to pursue its brand and quality strategies.
The following table summarizes average occupancy, ADR and REVPAR for the Company's comparable owned, leased and consolidated joint venture hotel properties for the three and six months ended June 30, 1999 and 1998. The results for the three and six months represent results for the 152 comparable owned,
leased and consolidated joint venture hotels (excluding 19 hotels under significant renovation, held for sale or for which comparable results are not available).
OWNED, LEASED AND CONSOLIDATED JOINT VENTURE HOTELS
THREE MONTHS ENDED
JUNE 30,
------------------
1999 1998 VARIANCE
------- ------- --------
WORLDWIDE
Number of hotels....................................... 152 152
Number of rooms........................................ 47,477 47,477
REVPAR................................................. $108.90 $106.04 2.7%
ADR.................................................... $148.35 $144.72 2.5%
Occupancy.............................................. 73.4% 73.3% 0.1%
NORTH AMERICA
Number of hotels....................................... 105 105
Number of rooms........................................ 34,389 34,389
REVPAR................................................. $104.79 $101.90 2.8%
ADR.................................................... $140.65 $138.02 1.9%
Occupancy.............................................. 74.5% 73.8% 0.7%
INTERNATIONAL
Number of hotels....................................... 47 47
Number of rooms........................................ 13,088 13,088
REVPAR................................................. $119.72 $116.80 2.5%
ADR.................................................... $169.71 $162.61 4.4%
Occupancy.............................................. 70.5% 71.8% (1.3)%
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SIX MONTHS ENDED
JUNE 30,
------------------
1999 1998 VARIANCE
------- ------- --------
WORLDWIDE
Number of hotels....................................... 152 152
Number of rooms........................................ 47,477 47,477
REVPAR................................................. $105.11 $101.43 3.6%
ADR.................................................... $148.01 $143.77 2.9%
Occupancy.............................................. 71.0% 70.5% 0.5%
NORTH AMERICA
Number of hotels....................................... 105 105
Number of rooms........................................ 34,389 34,389
REVPAR................................................. $102.58 $ 98.87 3.8%
ADR.................................................... $142.91 $139.63 2.4%
Occupancy.............................................. 71.8% 70.8% 1.0%
INTERNATIONAL
Number of hotels....................................... 47 47
Number of rooms........................................ 13,088 13,088
REVPAR................................................. $111.85 $108.18 3.4%
ADR.................................................... $162.17 $154.83 4.7%
Occupancy.............................................. 69.0% 69.9% (0.9)%
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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 expense, recurring capital expenditures and distribution payments by the Trust. The Company anticipates that cash flow provided by operating activities will be sufficient to service short- and long-term indebtedness, fund maintenance requirements and capital expenditures and meet operating cash requirements, including all distributions to shareholders.
CASH FLOW FROM INVESTING AND FINANCING ACTIVITIES
In addition to cash flow from operating activities, the Company intends to finance the acquisition of additional hotel properties, hotel renovations, capital improvements and other core business acquisitions and provide for general corporate purposes through its credit facilities described below, through the net proceeds from dispositions of certain non-core assets and, when market conditions warrant, through the issuance of additional equity or debt securities.
During 1998, the Company completed over $2.9 billion in non-core asset divestitures. As of January 1, 1999 through the date of this filing, Starwood has completed over $525 million of non-core asset divestitures. Management expects to complete the sale of its gaming operations, including the Desert Inn, for net proceeds of approximately $3.2 billion by year-end 1999 and second quarter of 2000, respectively. The proceeds from the actual divestitures have been used primarily to retire debt, and the Company plans to use the proceeds generated from future divestitures to pay down debt and for general corporate purposes.
As a result of the Reorganization, Starwood will pay significantly more in federal income taxes, and will have the ability to retain significantly more earnings than was previously the case. Starwood anticipates that its enhanced ability to retain earnings will allow it to utilize cash flow from operating activities to fund maintenance, capital expenditures and acquisitions.
DISTRIBUTIONS. In connection with the Reorganization, the Company reduced its annual distribution to be paid by the Trust to $0.60 per Share. During the first and second quarters of 1999, the Trust paid a distribution of $0.15 per Share for the fourth quarter of 1998 and the first quarter of 1999, respectively. During the first and second quarters of 1998, the Trust paid a distribution of $0.48 and $0.52 per Share for the fourth quarter of 1997 and the first quarter of 1998, respectively. The Trust has declared a distribution of $0.15 per class B share payable on October 22, 1999 to Starwood's shareholders of record on September 30, 1999.
Following is a summary of the Company's debt portfolio as of June 30, 1999:
AMOUNT
AMOUNT OF OUTSTANDING AT INTEREST RATE AT AVERAGE
FACILITY JUNE 30, 1999 INTEREST TERMS JUNE 30, 1999 MATURITY
--------- -------------- -------------- ---------------- ----------
(DOLLARS IN MILLIONS)
FLOATING RATE DEBT
Senior Credit Facility:
Five-Year Term Loan............ $1,000 $ 1,000 LIBOR+1.00% 6.24% 3.7 years
Revolving Credit Facility...... 1,100 446 LIBOR+1.00% 6.24% 3.7 years
Senior Secured Notes Facility:
Tranche One Loans.............. 2,500 2,500 LIBOR+3.75% 8.99% 3.7 years
Tranche Two Loans.............. 1,000 1,000 LIBOR+2.75% 7.99% 3.7 years
Mortgages and other.............. 501 Various 5.73% 5.2 years
Starwood interest rate swaps..... (1,032) 6.24%
------- ---- ----------
Total/average.................... $ 4,415 8.13% 3.8 years
======= ==== ==========
FIXED RATE DEBT
ITT public debt.................. $ 1,995 6.79% 8.1 years
Caesars public debt.............. 150 8.88% (1)
Mortgages and other.............. 878 7.39% 11.8 years
Starwood interest rate swaps..... 1,032 7.23%
------- ---- ----------
Total/average.................... $ 4,055 7.11% 8.7 years
======= ==== ==========
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AMOUNT
AMOUNT OF OUTSTANDING AT INTEREST RATE AT AVERAGE
FACILITY JUNE 30, 1999 INTEREST TERMS JUNE 30, 1999 MATURITY
--------- -------------- -------------- ---------------- ----------
(DOLLARS IN MILLIONS)
TOTAL DEBT
Total debt and average terms..... $ 8,470 7.64% 5.6 years
======= ==== ==========
Less: debt allocated or
attributable to discontinued
gaming operations.............. $(2,336)
=======
Total debt directly attributable
to continuing operations....... $ 6,134
=======
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A portion of the Senior Credit Facility that was scheduled to mature on February 23, 1999, in the aggregate amount of $542 million, was refinanced primarily with the proceeds from the Mortgage Loan transaction that was completed in February 1999. The Mortgage Loan matures in February 2009, is secured by 11 domestic owned hotels, bears interest at a blended rate of 6.98% and includes various restrictive covenants including, but not limited to, various cash restrictions, capital expenditure requirements and restrictions on the sale of assets.
On March 8, 1999, the Company entered into an $83 million long-term debt obligation secured by mortgages on two international hotels. This obligation bears interest at LIBOR plus 1.35%, matures in March 2006 and is subject to various restrictive covenants including maintaining a minimum debt service coverage ratio. The proceeds from this financing were used to pay down certain intercompany loans due from the international hotels.
Based upon the current level of operations, the proceeds from recent dispositions and the expected disposition of the gaming operations, together with available borrowings under the Revolving Credit Facility, management believes that the Company's cash flow from operations will be adequate to meet the Company's anticipated requirements for working capital, capital expenditures, marketing and advertising expenditures, program and other discretionary investments, interest payments and scheduled principal payments for the foreseeable future, including at least the next three years. There can be no assurance, however, that the Company's business will continue to generate cash flow at or above current levels or that currently anticipated improvements will be achieved. If Starwood is unable to generate sufficient cash flow from operations in the future to service the Company's debt, the Company may be required to sell assets, reduce capital expenditures, refinance all or a portion of its existing debt or obtain additional financing. The Company's ability to make scheduled principal payments, to pay interest on or to refinance the Company's indebtedness depends on its future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the hotel industry and to general economic, political, financial, competitive, legislative and regulatory factors beyond the Company's control. There can be no assurance that sufficient funds will be available to enable Starwood to service its indebtedness or to make necessary capital expenditures, marketing and advertising expenditures and program and other discretionary investments.
STOCK SALES AND REPURCHASES
As of August 10, 1999, the Company had authority to repurchase up to approximately $350 million of Shares pursuant to its existing Share repurchase program and may repurchase Shares from time to time in the open market.
As a part of its Share repurchase program, the Company sold equity put options during 1998 for $1.8 million in premiums, which options entitled the holder, at the expiration date, to sell one million Shares to the Company at contractually specified prices. During the first quarter of 1999, the Company repurchased 500,000 Shares for $16 million under certain of the equity put option contracts. During the first quarter of 1999, all of the remaining equity put option contracts had expired.
OTHER MATTERS
YEAR 2000
Many computer systems were originally designed to recognize calendar years by the last two digits in the date code field. Beginning with dates in the year 2000, these date code fields need to accept four-digit entries to distinguish twenty-first century dates from twentieth century dates ("Year 2000 Compliant"). As a result, the computerized systems, which include information technology and non-information technology systems, and applications used by the Company need to be reviewed, evaluated and modified or replaced, if necessary, to ensure all such financial, information and operational systems are Year 2000 Compliant.
STATE OF READINESS. Starwood is addressing the Year 2000 Compliance issue by separately focusing on the Company's central facilities, which include all of its non-operating facilities, and on the Company's hotel properties.
Starwood has identified the critical central facility business applications that may be affected by the Year 2000, such as the reservation system application, including the frequent stay programs, and communication system applications. The Company has conducted the discovery and assessment stages on the reservations and communication system applications and assembled a team to implement modifications or upgrades, as necessary, and to test results. The majority of the Company's core business applications passed the final testing, which was performed by internal personnel and independent third parties in the second quarter of 1998. This testing process consisted of testing of the internal code and conducting over 9,000 test cases on the applicable systems. The specific testing included a three-step process comprised of baseline tests, Year 2000 date tests and code enhancement tests. Additional independent and internal testing is taking place throughout 1999 to validate previous findings and ensure Year 2000 readiness.
Starwood is in the process of communicating with others with whom it does significant business to determine their Year 2000 Compliance. During 1998, Starwood and an independent third-party reservation information service provider, with whom the Company has a material relationship, began testing to ensure the compatibility of the Company's reservation system with the service provider's reservation services. Starwood and this service provider expect to complete their compatibility validation testing during the third quarter of 1999.
Starwood is also assessing its hardware components at its central facilities, all of which are expected to be modified or upgraded, as necessary, to ensure Year 2000 Compliance during the third quarter of 1999.
Starwood has completed the initial assessment of the applications and hardware at the Company's owned and managed hotel properties. In the third quarter of 1998, validation tools and resources were deployed to the hotel properties that did not have an existing program in place. These tools consisted of asset management tools for analysis of all applications and data checking tools for patch application purposes and testing Year 2000 readiness of the equipment. Any equipment failing the testing was automatically remediated. The domestic Year 2000 team, which is scheduled to visit each domestic hotel property, is comprised of independent consultants and five individuals from the Company that are dedicated to the Year 2000 project. Each of the international properties has appointed internal personnel to address Year 2000 Compliance and has access to such independent consultants, if necessary. Once the test statistics for the hotel property applications and hardware are collected, the information will be sent to an independent third party for Year 2000 Compliance verification. Based on the results of the compliance verification, Starwood expects to address remediation efforts during the third quarter of 1999.
YEAR 2000 PROJECT COSTS. Starwood estimates that total costs for the Year 2000 Compliance review, evaluation, assessment and remediation efforts for the central facilities and owned hotel properties should not exceed $30 million, although there can be no assurance that actual costs will not exceed this amount. Of this amount, approximately $6 million had been expended as of June 30, 1999.
STARWOOD YEAR 2000 RISKS. Since all major computerized central facilities reservation systems and applications have been tested and reservations for the year 2000 have been accepted, Starwood believes that it has addressed all significant risks related to the Company's reservation function. The remaining risks relate primarily to the non-critical business applications, support hardware for the central facilities and embedded systems at the properties owned or managed by the Company. A failure of certain of these systems to become Year 2000 Compliant could disrupt the timeliness or the accuracy of management information provided by the central facilities.
Starwood has asked substantially all of its significant vendors and service providers to provide reasonable assurances as to those parties' Year 2000 state of readiness. Risk assessments and contingency planning scenarios, where required, will be finalized during the third quarter of 1999. To the extent that vendors and service providers do not provide satisfactory evidence that their products and services are Year 2000 Compliant, the Company will seek to obtain the necessary products and services from alternative sources. There can be no assurance, however, that Year 2000 remediation by vendors and service providers will be completed timely or that qualified replacement vendors and service providers will be available, and any failure of such third parties' systems could have a material adverse impact on the Company's computer systems and operations.
CONTINGENCY PLAN. Starwood appointed an internal committee to direct the contingency planning efforts. This team is comprised of individuals who represent various disciplines that affect the operations of the organization. The team created contingency planning guidelines that will be distributed to all hotels. The contingency planning is expected to be completed during the third quarter of 1999.
EUROPEAN UNION CURRENCY CONVERSIONS
On January 1, 1999, 11 of the 15 member countries of the European Union (the "Participating Countries") established fixed conversion rates between their existing sovereign currencies and the Euro. Following the introduction of the Euro, the legacy currencies of the Participating Countries will remain legal tender during a transition period ending on January 1, 2002. During the transition period, both the legacy currency and the Euro will be legal tender in the respective Participating Countries. During the transition period, currency conversions will be computed by a triangulation with reference to conversion rates between the respective currencies and the Euro. The Company currently operates in 10 of the 11 Participating Countries. The effect on the Company of the adoption of the Euro by the Participating Countries in which it operates is currently uncertain. However, it is possible that the Euro adoption will result in increased competition within the European market. In addition, a number of the Company's information systems are not currently Euro compliant. The Company is currently evaluating and updating its information systems to make them Euro compliant; however, there is no assurance that the Company or third-party vendors of applications used by the Company will successfully bring all of their systems into compliance. Failure of the Company or such third parties to do so could result in disruptions in the processing of transactions in Euros or computed by reference to the Euro.
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, as amended, regarding the Company's market risk.
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.
As a part of its Share repurchase program, the Company sold equity put options during 1998 for $1.8 million in premiums, which options entitled the holder, at the expiration date, to sell one million Shares to the Company at contractually specified prices. During the first quarter of 1999, the Company repurchased 500,000 Shares for $16 million under certain of the equity put option contracts. As of March 31, 1999, all of the remaining equity put option contracts had expired. The offer and sale of these options was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 26, 1999, Starwood held its 1999 annual meeting of stockholders. At the annual meeting, the stockholders (i) elected to the Board of Directors Brenda C. Barnes, Bruce W. Duncan, Michael A. Leven, Stephen R. Quazzo, Daniel H. Stern and Raymond S. Troubh to serve for a three-year term; (ii) approved Starwood's 1999 Long-Term Incentive Plan; and (iii) approved Starwood's 1999 Annual Incentive Plan. Messrs. Juergen Bartels, Jean-Marc Chapus, Jonathan D. Eilian, L. Dennis Kozlowski, Barry S. Sternlicht, Madison F. Grose, Eric Hippeau, Earle F. Jones, George J. Mitchell and Daniel W. Yih continued to serve as Directors following the annual meeting.
The following table sets forth, with respect to each matter voted upon at the annual meeting, the number of votes cast for, the number of votes cast against, and the number of votes abstaining (or, with respect to the election of Directors, the number of votes withheld) with respect to such matter:
VOTES FOR VOTES WITHHELD
----------- ---------------
Election of Directors:
Brenda C. Barnes.......................................... 128,754,150 19,140,376
Bruce W. Duncan........................................... 128,760,195 19,134,331
Michael A. Leven.......................................... 112,211,598 35,682,928
Stephen R. Quazzo......................................... 126,015,569 21,878,957
Daniel H. Stern........................................... 126,009,989 21,884,537
Raymond S. Troubh......................................... 128,083,345 19,811,181
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VOTES FOR VOTES AGAINST ABSTENTIONS VOTES WITHHELD
----------- ------------- ----------- --------------
Approval of 1999 Long-Term Incentive
Plan.................................... 81,514,432 39,913,139 3,637,615 22,829,340
Approval of 1999 Annual Incentive Plan.... 136,346,974 7,868,777 3,678,775 --
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Amended and Restated Declaration of Trust of the Trust,
amended and restated as of January 6, 1999, as amended
through April 16, 1999 (incorporated by reference to Exhibit
3.1 to Starwood's Joint Quarterly Report on Form 10-Q for
the three months ended March 31, 1999 (the "1999 First
Quarter 10-Q")).
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.2 Bylaws of the Trust, as amended through April 16, 1999
(incorporated by reference to Exhibit 3.3 to the 1999 First
Quarter 10-Q).
3.3 Bylaws of the Corporation, as amended through April 15, 1999
(incorporated by reference to Exhibit 3.4 to the 1999 First
Quarter 10-Q).
10.1 Eighth Amendment to the Credit Agreement and Modification to
Pledge and Security Agreement, dated as of July 2, 1999,
among the Trust, Realty Partnership, the Corporation, ITT,
the lenders party to the Credit Agreement, Bankers Trust
Company and The Chase Manhattan Bank, as Administrative
Agents, Lehman Commercial Paper Inc. and Bank of Montreal,
as Syndication Agents, and Bankers Trust Company, as
Collateral Agent.(1)
10.2 Stock Purchase Agreement, dated as of April 27, 1999, among
the Corporation, ITT Sheraton Corporation, Starwood Canada
Corp., Caesars World, Inc., Sheraton Desert Inn Corporation,
Sheraton Tunica Corporation and Park Place Entertainment
Corporation (incorporated by reference to Exhibit 10.5 to
the 1999 First Quarter 10-Q).
10.3 Separation Agreement, dated as of April 30, 1999, between
the Corporation and Richard D. Nanula (incorporated by
reference to Exhibit 10.6 to the 1999 First Quarter 10-Q).
10.4 Starwood Hotels & Resorts Worldwide, Inc. 1999 Long-Term
Incentive Compensation Plan.(1)
10.5 Starwood Hotels & Resorts Worldwide, Inc. 1999 Annual
Incentive Plan for Certain Executives.(1)
27.1 Financial Data Schedule for the Corporation.(1)
27.2 Financial Data Schedule for the Trust.(1)
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(b) REPORTS ON FORM 8-K
Since the first quarter of 1999, Starwood filed the following Current Reports on Form 8-K:
(i) Joint Current Report on Form 8-K dated May 7, 1999, reporting under Item 5 the execution by Starwood and certain of its affiliates of a Stock Purchase Agreement with Park Place Entertainment Corporation relating to the sale of the capital stock of Caesars World, Inc. and Sheraton Tunica Corporation and certain other assets.
(ii) Joint Current Report on Form 8-K dated May 28, 1999, reporting under Item 5 the execution by Starwood and certain of its affiliates of an Asset and Land Purchase Agreement with Sun International Hotels Limited and Sun International Nevada, Inc. relating to the sale of the Desert Inn (together with certain adjacent property).
(iii) Joint Current Report on Form 8-K dated July 21, 1999, reporting under Item 5 the execution by Starwood of an Agreement and Plan of Merger with Vistana relating to the merger of Vistana into a subsidiary of Starwood.
(iv) Joint Current Report on Form 8-K dated July 23, 1999, reporting under Items 5 and 7 the restatement of Starwood's financial statements to reflect Starwood's gaming operations as a discontinued operation.
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/ RONALD C. BROWN ------------------------------------ Ronald C. Brown Executive Vice President and Chief Financial Officer |
STARWOOD HOTELS & RESORTS
By: /s/ RONALD C. BROWN
------------------------------------
Ronald C. Brown
Vice President and Chief Financial
and Accounting Officer
Date: August 13, 1999
|
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Amended and Restated Declaration of Trust of the Trust,
amended and restated as of January 6, 1999, as amended
through April 16, 1999 (incorporated by reference to Exhibit
3.1 to Starwood's Joint Quarterly Report on Form 10-Q for
the three months ended March 31, 1999 (the "1999 First
Quarter 10-Q")).
3.2 Bylaws of the Trust, as amended through April 16, 1999
(incorporated by reference to Exhibit 3.3 to the 1999 First
Quarter 10-Q).
3.3 Bylaws of the Corporation, as amended through April 15, 1999
(incorporated by reference to Exhibit 3.4 to the 1999 First
Quarter 10-Q).
10.1 Eighth Amendment to the Credit Agreement and Modification to
Pledge and Security Agreement, dated as of July 2, 1999,
among the Trust, Realty Partnership, the Corporation, ITT,
the lenders party to the Credit Agreement, Bankers Trust
Company and The Chase Manhattan Bank, as Administrative
Agents, Lehman Commercial Paper Inc. and Bank of Montreal,
as Syndication Agents, and Bankers Trust Company, as
Collateral Agent.(1)
10.2 Stock Purchase Agreement, dated as of April 27, 1999, among
the Corporation, ITT Sheraton Corporation, Starwood Canada
Corp., Caesars World, Inc., Sheraton Desert Inn Corporation,
Sheraton Tunica Corporation and Park Place Entertainment
Corporation (incorporated by reference to Exhibit 10.5 to
the 1999 First Quarter 10-Q).
10.3 Separation Agreement, dated as of April 30, 1999, between
the Corporation and Richard D. Nanula (incorporated by
reference to Exhibit 10.6 to the 1999 First Quarter 10-Q).
10.4 Starwood Hotels & Resorts Worldwide, Inc. 1999 Long-Term
Incentive Compensation Plan.(1)
10.5 Starwood Hotels & Resorts Worldwide, Inc. 1999 Annual
Incentive Plan for Certain Executives.(1)
27.1 Financial Data Schedule for the Corporation.(1)
27.2 Financial Data Schedule for the Trust.(1)
|
(1) Filed herewith.
EXHIBIT 10.4
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
1999 LONG-TERM INCENTIVE COMPENSATION PLAN
ARTICLE 1
ESTABLISHMENT, OBJECTIVES, AND DURATION
1.1. Establishment of the Plan. Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (hereinafter referred to as the "Company"), hereby establishes an incentive compensation plan to be known as the "Starwood Hotels & Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation Plan" (hereinafter referred to as the "Plan"), as set forth in this document. The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares and Performance Units.
1.2. Objectives of the Plan. The objectives of the Plan are to (i) attract and retain employees by providing compensation opportunities that are competitive with other companies; (ii) provide incentives to those employees who contribute significantly to the long-term performance and growth of the Company and its Subsidiaries; and (iii) align employees' long-term financial interests with those of the Company's stockholders. The Plan is intended to supersede and replace the Company's 1995 Long-Term Incentive Plan, as amended and restated (the "1995 Plan"). Notwithstanding the foregoing, nothing in this Plan is intended to abridge, modify or otherwise alter the rights of any person in respect of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, performance shares or performance units granted under the 1995 Plan or the Starwood Hotels & Resorts 1995 Long-Term Incentive Compensation Plan.
1.3. Effective Date; Duration of the Plan. Subject to approval by the Company's stockholders, the Plan shall become effective as of May 26, 1999 (the "Effective Date") and shall remain in effect, subject to the right of the Board of Directors to amend or terminate the Plan at any time pursuant to Article 16 hereof, until all Units subject to it shall have been purchased or acquired according to the Plan's provisions. However, in no event may an Award be granted under the Plan on or after the tenth (10th) anniversary of the Effective Date.
ARTICLE 2
DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized:
2.1. "Award" means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares or Performance Units.
2.2. "Award Agreement" shall mean the document evidencing an Award granted under this Plan.
2.3. "Beneficial Owner" or "Beneficial Ownership" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
2.4. "Board" or "Board of Directors" means the Board of Directors of the Company.
2.5. "Cause" shall mean embezzlement or misappropriation of the Company's funds or other assets, other act deemed by the Committee in the good faith exercise of its sole discretion to be an act of dishonesty with respect to the Company, significant activities materially harmful to the reputation of the Company, willful and repeated refusal to perform or substantial disregard of the duties properly assigned to the holder by the Company (other than as a result of Disability), material violation of any statutory or common law duty of loyalty to the Company or a material breach by the holder of the holder's employment agreement with the Company, if any (subject to any cure period therein provided).
2.6. "Change in Control" means:
(a) Any Person is or becomes the beneficial owner within the meaning of Rule 13d-3 promulgated under the Exchange Act (but without regard to any time period specified in Rule 13d-3(d)(1)(i), of 33 1/3 percent or more of either (i) then outstanding Units, including for this purpose Partnership Units of SLT Realty Limited Partnership and SLC Operating Limited Partnership (the "Outstanding Units") or (ii) the combined voting power of then outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); excluding, however, (1) any acquisition by the Company or (2) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company.
(b) Individuals who, as of the Effective Date, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of the Company subsequent to the Effective Date whose election, or nomination for election by the Company's stockholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other then the Board shall not be deemed a member of the Incumbent Board:
(c) Consummation by the Company of a reorganization, merger, or
consolidation or sale of all or substantially all of the assets of the
Company (a "Corporate Transaction"); excluding, however, a Corporate
Transaction pursuant to which (i) all or substantially all of the
individuals or entities who are the beneficial owners, respectively, of the
Outstanding Units and the Outstanding Company Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 66 2/3 percent of, respectively, the outstanding
shares of common stock, and the combined voting power of the outstanding
securities of such corporation entitled to vote generally in the election
of directors, as the case may be, of the corporation resulting from such
Corporate Transaction (including, without limitation, a corporation which
as a result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or indirectly) in substantially
the same proportions relative to each other as their ownership, immediately
prior to such Corporate Transaction, of the Outstanding Units and the
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(other than: the Company, any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company, the corporation resulting from such Corporate Transaction, and any
Person which beneficially owned, immediately prior to such Corporate
Transaction, directly or indirectly 33 1/3 percent or more of the
Outstanding Units or the Outstanding Company Voting Securities, as the case
may be) will beneficially own, directly or indirectly, 33 1/3 percent or
more of, respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding securities of such corporation entitled to
vote generally in the election of directors and (iii) individuals who were
members of the Incumbent Board will constitute at least a majority of the
members of the board of directors of the corporation resulting from such
Corporate Transaction; or
(d) Approval by the stockholders of the Company of a plan of complete liquidation or dissolution of the Company.
2.7. "Code" means the Internal Revenue Code of 1986, as amended from time to time.
2.8. "Committee" means the committee appointed by the Board to administer the Plan, consisting of two or more Directors, each of whom shall be (i) a "Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act, and (ii) an "outside director" within the meaning of Code Section 162(m).
2.9. "Company" means Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation and any successor thereto as provided in Article 23 herein.
2.10. "Covered Employee" means a Participant who, as of the date of vesting and/or payout of an Award, as applicable, is a "covered employee," as defined in Section 162(m) of the Code or the regulations promulgated thereunder, or any successor statute.
2.11. "Director" means any individual who is a member of the Board of Directors of the Company; provided, however, that any Director who is employed by the Company or any Subsidiary shall be considered an Employee under the Plan.
2.12. "Disability" shall have the meaning ascribed to such term in the Participant's governing long-term disability plan, or if no such plan exists, as determined in the discretion of the Committee.
2.13. "Effective Date" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.14. "Employee" means any employee of the Company or any of its Subsidiaries or any person serving at the request of the Company as an employee or officer of any affiliate of the Company. Directors who are employed by the Company shall be considered Employees under this Plan.
2.15. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.
2.16. "Fair Market Value" shall mean the fair market value of the Units, as determined by the Committee, which, unless otherwise specified shall be the closing sale price of a Unit as reported in the New York Stock Exchange Composite Transactions on the business day immediately preceding the date as of which such value is being determined, or, if there is no such sale on the relevant date, then on the next preceding business day on which a sale was reported.
2.17. "Freestanding SAR" means an SAR that is granted independently of any Options, as described in Article 7 herein.
2.18. "Incentive Stock Option" or "ISO" means an option to purchase Units granted under Article 6 herein and which is designated as an Incentive Stock Option and which is intended to meet the requirements of Code Section 422.
2.19. "Insider" shall mean an individual who is, on the relevant date, subject to the reporting requirements of Section 16(a) of the Exchange Act.
2.20. "Nonqualified Stock Option" or "NQSO" means an option to purchase Units granted under Article 6 herein and which is not intended to meet the requirements of Code Section 422.
2.21. "Option" means an Incentive Stock Option or a Nonqualified Stock Option, as described in Article 6 herein.
2.22. "Option Price" means the price at which a Unit may be purchased by a Participant pursuant to an Option.
2.23. "Participant" means an individual who has been granted an Award under the Plan.
2.24. "Performance Share" means an Award granted to a Participant, as described in Article 9 herein.
2.25. "Performance Unit" means an Award granted to a Participant, as described in Article 9 herein.
2.26. "Period of Restriction" means the period during which the transfer of Restricted Stock is limited in some way (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Committee, in its discretion), and the Restricted Stock is subject to a substantial risk of forfeiture, as provided in Article 8 herein.
2.27. "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) thereof.
2.28. "Restricted Stock" means Units granted to a Participant pursuant to Article 8 herein.
2.29. "Stock Appreciation Right" or "SAR" means an Award, granted alone or in connection with a related Option, designated as an SAR, pursuant to the terms of Article 7 herein.
2.30. "Subsidiary" shall mean any entity that is directly or indirectly controlled by the Company or any entity, including an acquired entity, in which the Company has a significant equity interest, as determined by the Committee, in its discretion.
2.31. "Tandem SAR" means an SAR that is granted in connection with a related Option pursuant to Article 7 herein, the exercise of which shall require forfeiture of the right to purchase a Unit under the related Option (and when a Unit is purchased under the Option, the Tandem SAR shall similarly be canceled).
2.23. "Units" means the units each consisting of one share of common stock, par value $.01 per share, of the Company and one class B share of beneficial interest, par value $.01 per share, of Starwood Hotels & Resorts.
ARTICLE 3
ADMINISTRATION
3.1. General. The Plan shall be administered by the Committee. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board of Directors. The Committee shall have the authority to delegate administrative duties to officers of the Company.
3.2. Committee Authority. The Committee shall have full and exclusive
power to administer and interpret the Plan, to grant Awards and to adopt such
administrative rules, regulations, procedures and guidelines governing the Plan
and the Awards as it may deem necessary in its discretion, from time to time.
The Committee's authority shall include, but not be limited to the authority to
(i) determine the type of Awards to be granted under the Plan; (ii) select Award
recipients and determine the extent of their participation; (iii) determine the
method or formula for establishing the Fair Market Value of the Units for
various purposes under the Plan; and (iv) establish all other terms, conditions,
restrictions and limitations applicable to Awards and the Units issued pursuant
to Awards, including, but not limited to those relating to a Participant's
retirement, death, disability, leave of absence or termination of employment.
The Committee may take such further action and make any and all other
determinations which it deems necessary with respect to the administration of
the Plan, subject to the provisions of Section 162(m) of the Code in the case of
Awards granted to Covered Employees that are intended to qualify for the
performance-based compensation exception from the tax deductibility limitations
of Section 162(m) of the Code.
3.3 Administration of the Plan. The Committee shall have the power to prescribe and modify, as necessary, the form of Award Agreement, to correct any defect, supply any omission or clarify any inconsistency in the Plan and/or in any Award Agreement. The administration of the Plan with respect to Insiders and Covered Employees, to the extent required or appropriate under the Exchange Act and/or Section 162(m) of the Code, shall be managed by the Committee.
3.4 Delegation of Authority. The Committee may at any time delegate to one or more officers or directors of the Company some or all of its authority over the administration of the Plan with respect to persons who are not Insiders or Covered Employees.
3.5. Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Committee shall be final, conclusive and binding on all persons, including the Company, its stockholders, Directors, Employees, Participants, and their estates and beneficiaries.
ARTICLE 4
SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1. Number of Shares Available for Grants. Subject to adjustment as provided in Section 4.2 herein, the number of Units hereby reserved for Awards under the Plan shall be twenty million (20,000,000). Not more than three million (3,000,000) of the Units reserved under the Plan may be granted in the form of Awards other than options or SARs. Upon approval of this Plan by the stockholders of the Company, no further grants may be made under the 1995 Plan. To the extent that Units subject to an Award granted under the Plan, the 1995 Plan or the Starwood Hotels & Resorts 1995 Long-Term Incentive Plan are not issued or delivered or are canceled or forfeited by reason of the expiration, termination, cancellation, forfeiture or repurchase of any Award or by reason of the delivery or withholding of Units to pay all or a portion of the exercise price of an Award, if any, or to satisfy all or a portion of the tax withholding obligations relating to an Award, then the number of Units that are not issued or delivered or are canceled or forfeited as described above shall be added to the number of Units available for grant under the Plan.
Unless and until the Board determines that an Award to a Covered Employee shall not be designed to comply with the performance-based compensation exception from the tax deductibility limitations of Code Section 162(m), the following rules shall apply to grants of such Awards under the Plan:
(a) Stock Options and SARs: The maximum aggregate number of Units that may be granted in the form of Stock Options pursuant to Awards granted in any one fiscal year to any one single Participant and the maximum aggregate number of Units that may be granted in the form of Stock Appreciation Rights pursuant to Awards granted in any one fiscal year to any one single Participant shall be five million (5,000,000).
(b) Restricted Stock and Performance Shares/Units: The maximum aggregate grant with respect to Awards of Restricted Stock granted in any one fiscal year to any one single Participant shall be two million (2,000,000) and the maximum aggregate payout (determined as of the end of the applicable performance period) with respect to Awards of Performance Shares or Performance Units granted in any one fiscal year to any one single Participant shall be equal to the value of two million (2,000,000) Units.
4.2. Adjustments in Authorized Shares. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of securities which may be delivered under
Section 4.1, in the number and class of and/or price of securities subject to
outstanding Awards granted under the Plan, and in the Award limits set forth in
subsections 4.1 (a) and 4.1 (b), as may be determined to be appropriate and
equitable by the Committee, in its sole discretion, to prevent dilution or
enlargement of rights; provided, however, that the number of Units subject to
any Award shall always be a whole number.
ARTICLE 5
ELIGIBILITY AND PARTICIPATION
5.1. Eligibility. The Committee shall determine which Employees, Directors, consultants and advisers shall be eligible to receive Awards under the Plan.
5.2. Participation by Subsidiaries. Employees, directors, consultants and advisers of Subsidiaries may participate in the Plan upon approval of the Awards by the Committee. A Subsidiary's participation in the Plan may be terminated at any time by the Committee. If a Subsidiary's participation in the Plan shall terminate, such termination shall not relieve it of any obligations theretofore incurred by it under the Plan, except with the approval of the Committee.
5.3 Participation Outside of the United States. The Committee or its designee shall have the authority to amend the Plan and/or the terms and conditions relating to an Award to the extent necessary to permit
participation in the Plan by eligible individuals who are located outside of the
United States on terms and conditions comparable to those afforded to eligible
individuals located within the United States, provided that any such action
taken with respect to a Covered Employee shall be taken in compliance with
Section 162(m) of the Code.
ARTICLE 6
STOCK OPTIONS
6.1. Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee.
6.2. Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Units to which the Option pertains, and such other provisions as the Committee shall determine. The Award Agreement also shall specify whether the Option is intended to be an ISO within the meaning of Code Section 422, or an NQSO whose grant is intended not to fall under the provisions of Code Section 422.
6.3. Option Price. The Committee shall determine the Option Price, which shall be at least equal to one hundred percent (100%) of the Fair Market Value of a Unit on the date the Option is granted.
6.4. Duration of Options. Each Option granted to a Participant shall
expire at such time as the Committee shall determine at the time of grant,
provided, however, that no Option shall be exercisable later than the tenth
(10th) anniversary date of its grant.
6.5. Exercise of Options. Options granted under this Article 6 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant.
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, accompanied by full payment for the Units.
The Option Price upon exercise of any Option shall be payable to the
Company in full 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.
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).
6.7. Restrictions on Share Transferability. The Committee may impose such restrictions on any Units acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable.
6.8 Termination of Employment or Service.
(a) Disability or Death. Unless otherwise specified in the Award Agreement relating to an Option, if the optionee's employment with the Company or service as a consultant, adviser or Director terminates by reason of Disability or death, each Option held by such optionee shall be fully exercisable and may thereafter be exercised by such optionee (or such optionee's executor, administrator, legal representative, beneficiary or similar person, as the case may be) until and including the earliest to occur of (i) the date which is one year (or such other period as set forth in the Award Agreement relating to such Option)
after the effective date of such optionee's termination of employment or service or date of death, as the case may be, and (ii) the expiration date of the term of such Option.
(b) Termination for Cause. Unless otherwise specified in the Award Agreement relating to an Option, if the optionee's employment with the Company or service as a consultant, adviser or Director terminates for Cause, each Option held by such optionee, whether or not then exercisable, shall terminate automatically on the effective date of such optionee's termination of employment or service.
(c) Voluntary Termination by Optionee. Unless otherwise specified in the Award Agreement relating to an Option, if optionee's employment with the Company or service as a consultant, adviser or Director terminates because of the voluntary resignation by the optionee, each Option held by such optionee shall be exercisable only to the extent that such Option is exercisable on the effective date of such optionee's termination of employment or service and may thereafter be exercised by such optionee (or such optionee's legal representative or similar person) until and including the earliest to occur of (i) the date which is 30 days (or such other period as set forth in the Award Agreement relating to such Option) after the effective date of such optionee's termination of employment or service and (ii) the expiration date of the term of such Option.
(d) Other Termination. Unless otherwise specified in the Award Agreement relating to an Option, if the optionee's employment with the Company or service as a consultant, adviser or Director terminates for any reason other than Disability, death, voluntary termination by the optionee or termination by the Company for Cause, each Option held by such optionee shall be exercisable only to the extent that such Option is exercisable on the effective date of such optionee's termination of employment or service and may thereafter be exercised by such optionee (or such optionee's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months (or such other period as set forth in the Award Agreement relating to such Option) after the effective date of such optionee's termination of employment or service and (ii) the expiration date of the term of such Option.
(e) Death Following Termination of Employment or Service. Unless otherwise specified in the Award Agreement relating to an Option, if an optionee dies during the one-year period following termination of employment or service by reason of Disability, if an optionee dies during the thirty-day period following voluntary termination of employment or service by the optionee, or if an optionee dies during the three-month period following termination of employment or service for any reason other than voluntary termination by the optionee, Disability or Cause (or, in each case, such other period as the Committee may specify in the Award Agreement relating to an Option), each Option held by such optionee may thereafter be exercised by such optionee's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until and including the earliest to occur of (i) the date which is three months (thirty days in the case of voluntary termination of employment or service by the optionee) (or such other period as set forth in the Award Agreement relating to such Option) after the date of death (but in the case of death following termination of employment or service by reason of Disability, no less than one year (or such other period as set forth in the Award Agreement relating to such Option) after the date of termination of employment or service), and (ii) the expiration date of the term of such Option.
6.9. Nontransferability of Options.
(a) Incentive Stock Options. No ISO granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant.
(b) Nonqualified Stock Options. Except as otherwise provided in a Participant's Award Agreement, no NQSO granted under this Article 6 may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, all NQSOs granted to a Participant under this Article 6 shall be exercisable during his or her lifetime only by such Participant.
6.10. Reload Options. Without in any way limiting the authority of the Committee to grant Awards hereunder, the Committee shall have the authority to grant additional Options ("Reload Option") for a number of Units equal to the number of Units surrendered by the Participant upon exercise of the original Option as provided in this Section 6.10. Any such Reload Option shall be subject to such other terms and conditions as the Committee may determine. Notwithstanding the above, (i) the Committee shall have the right, in its sole discretion, to withdraw a Reload Option to the extent that the grant thereof will result in any adverse accounting consequences to the Company and (ii) no additional Reload Options shall be granted upon the exercise of a Reload Option.
ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1. Grant of SARS. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any time and from time to time as determined by the Committee. The Committee may grant Freestanding SARS, Tandem SARS, or any combination of these forms of SAR.
The Committee shall have complete discretion in determining the number of SARs granted to each Participant (subject to Article 4 herein) and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARS.
The grant price of a Freestanding SAR shall equal the Fair Market Value of a Unit on the date of grant of the SAR. The grant price of Tandem SARs shall equal the Option Price of the related Option.
7.2. Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Units subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Units for which its related Option is then exercisable.
Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR will expire no later than the expiration of the underlying ISO; (ii) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the difference between the Option Price of the underlying ISO and the Fair Market Value of the Units subject to the underlying ISO at the time the Tandem SAR is exercised, and (iii) the Tandem SAR may be exercised only when the Fair Market Value of the Units subject to the ISO exceeds the Option Price of the ISO.
7.3. Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon them.
7.4. SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement that shall specify the grant price, the term of the SAR, and such other provisions as the Committee shall determine.
7.5. Term of SARs. The term of an SAR granted under the Plan shall be determined by the Committee, in its sole discretion; provided, however, that such term shall not exceed ten (10) years.
7.6. Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:
(a) The difference between the Fair Market Value of a Unit on the date of exercise over the grant price; by
(b) The number of Units with respect to which the SAR is exercised.
At the discretion of the Committee, the payment upon SAR exercise may be in cash, in Units of equivalent value, or in some combination thereof. The Committee's determination regarding the form of SAR payout shall be set forth in the Award Agreement pertaining to the grant of the SAR.
7.7 Termination of Employment or Service.
(a) Disability or Death. Unless otherwise specified in the Award Agreement relating to an SAR, if the grantee's employment with the Company or service as a consultant, adviser or Director terminates by reason of Disability or death, each SAR held by such grantee shall be fully exercisable and may thereafter be exercised by such grantee (or such grantee's executor, administrator, legal representative, beneficiary or similar person, as the case may be) until and including the earliest to occur of (i) the date which is one year (or such other period as set forth in the Award Agreement relating to such SAR) after the effective date of such grantee's termination of employment or service or date of death, as the case may be, and (ii) the expiration date of the term of such SAR.
(b) Termination for Cause. Unless otherwise specified in the Award Agreement relating to an SAR, if the grantee's employment with the Company or service as a consultant, adviser or Director terminates for Cause, each SAR held by such grantee, whether or not then exercisable, shall terminate automatically on the effective date of such grantee's termination of employment or service.
(c) Voluntary Termination by Grantee. Unless otherwise specified in the Award Agreement relating to an SAR, if grantee's employment with the Company or service as a consultant, adviser or Director terminates because of the voluntary resignation by the grantee, each SAR held by such grantee shall be exercisable only to the extent that such SAR is exercisable on the effective date of such grantee's termination of employment or service and may thereafter be exercised by such grantee (or such grantee's legal representative or similar person) until and including the earliest to occur of (i) the date which is 30 days (or such other period as set forth in the Award Agreement relating to such SAR) after the effective date of such grantee's termination of employment or service and (ii) the expiration date of the term of such SAR.
(d) Other Termination. Unless otherwise specified in the Award Agreement relating to an SAR, if the grantee's employment with the Company or service as a consultant, adviser or Director terminates for any reason other than Disability, death, voluntary termination by the grantee or termination by the Company for Cause, each SAR held by such grantee shall be exercisable only to the extent that such SAR is exercisable on the effective date of such grantee's termination of employment or service and may thereafter be exercised by such grantee (or such grantee's legal representative or similar person) until and including the earliest to occur of (i) the date which is three months (or such other period as set forth in the Award Agreement relating to such SAR) after the effective date of such grantee's termination of employment or service and (ii) the expiration date of the term of such SAR.
(e) Death Following Termination of Employment or Service. Unless otherwise specified in the Award Agreement relating to an SAR, if an grantee dies during the one-year period following termination of employment or service by reason of Disability, if an grantee dies during the thirty-day period following voluntary termination of employment or service by the grantee, or if an grantee dies during the three-month period following termination of employment or service for any reason other than voluntary termination by the grantee, Disability or Cause (or, in each case, such other period as the Committee may specify in the Award Agreement relating to an SAR), each SAR held by such grantee may thereafter be exercised by such grantee's executor, administrator, legal representative, beneficiary or similar person, as the case may be, until and including the earliest to occur of (i) the date which is three months (thirty days in the case of voluntary termination of employment or service by the grantee) (or such other period as set forth in the Award Agreement relating to such SAR) after the date of death (but in the case of death following termination of employment or service by reason of Disability, no less than one year (or such other period as set forth in the Award Agreement relating to such SAR) after the date of termination of employment or service), and (ii) the expiration date of the term of such SAR.
7.8. Nontransferability of SARs. Except as otherwise provided in a Participant's Award Agreement, no SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, all SARs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant.
ARTICLE 8
RESTRICTED STOCK
8.1. Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Awards of Restricted Stock to Participants in such amounts as the Committee shall determine. Such Awards may at the discretion of the Committee be either current grants of Restricted Stock or deferred grants of Restricted Stock units.
8.2. Restricted Stock Agreement. Each Restricted Stock grant shall be evidenced by a Restricted Stock Award Agreement that shall specify the Period(s) of Restriction, the number of Units of Restricted Stock granted, and such other provisions as the Committee shall determine.
8.3. Transferability. Except as provided in this Article 8, the Units of Restricted Stock granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Restricted Stock Award Agreement, or upon earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Restricted Stock Award Agreement. All rights with respect to the Restricted Stock granted to a Participant under the Plan shall be available during his or her lifetime only to such Participant.
8.4. Other Restrictions. Subject to Article 10 herein, the Committee shall impose such other conditions and/or restrictions on any Units of Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase price for each Unit of Restricted Stock, restrictions based upon the achievement of specific performance goals (Company-wide, divisional, and/or individual), time-based restrictions on vesting following the attainment of the performance goals, and/or restrictions under applicable federal or state securities laws.
The Company may retain the certificates representing Units of Restricted Stock in the Company's possession until such time as all conditions and/or restrictions applicable to such Units have been satisfied.
Except as otherwise provided in this Article 8, Units of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the applicable Period of Restriction.
8.5. Voting Rights. Except as otherwise provided in the Participant's Restricted Stock Award Agreement, a Participant holding Units of Restricted Stock granted hereunder shall have the right to exercise full voting rights with respect to those Units during the Period of Restriction.
8.6. Dividends and Other Distributions. Except as otherwise provided in the Participant's Restricted Stock Award Agreement, during the Period of Restriction, a Participant holding Units of Restricted Stock granted hereunder shall be credited with regular cash dividends paid with respect to the underlying Units while they are so held. The Committee may apply any restrictions to the dividends that the Committee deems appropriate. Without limiting the generality of the preceding sentence, if the grant or vesting of Restricted Stock granted to a Covered Employee is designed to comply with the requirements of the performance-based compensation exception from the tax deductibility limitations of Code Section 162(m), the Committee may apply any restrictions it deems appropriate to the payment of dividends declared with respect to such Restricted Stock, such that the dividends and/or the Restricted Stock maintain eligibility for such performance-based compensation exception.
8.7 Termination of Employment or Service.
(a) Disability, Death and Involuntary Termination Without Cause. Except to the extent otherwise set forth in the Award Agreement relating to a Restricted Stock Award, if the employment of the holder of a Restricted Stock Award or his or her service as a consultant, adviser or Director terminates by reason of Disability, death or involuntary termination by the Company without Cause, the Period of Restriction shall terminate as of the effective date of such holder's termination of employment or service, and any applicable Performance Measures shall be computed through such date.
(b) Other Termination. Except to the extent otherwise set forth in the Award Agreement relating to a Restricted Stock Award, if the holder's employment with the Company or service as a consultant, adviser or Director terminates for any reason other than Disability, death or involuntary termination without Cause, the portion of such Award which is subject to a Period of Restriction on the effective date of such holder's termination of employment or service shall be forfeited to and canceled by the Company.
ARTICLE 9
PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1. Grant of Performance Units/Shares. Subject to the terms of the Plan, Performance Units and/or Performance Shares may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee.
9.2. Value of Performance Units/Shares. Each Performance Unit shall have an initial value that is established by the Committee at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Unit on the date of grant. The Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the number and/or value of Performance Units/Shares that will be paid out to the Participant. For purposes of this Article 9, the time period during which the performance goals must be met shall be called a "Performance Period."
9.3. Earning of Performance Units/Shares. Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Units/Shares shall be entitled to receive a payout of the number and value of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance goals have been achieved.
9.4. Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units/Shares shall be made in a single lump sum following the close of the applicable Performance Period. Subject to the terms of this Plan, the Committee, in its sole discretion, may pay earned Performance Units/ Shares in the form of cash or in Units (or in a combination thereof) which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period. Such Units may be granted subject to any restrictions deemed appropriate by the Committee. The determination of the Committee with respect to the form of payout of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award.
Except as otherwise provided in the Participant's Award Agreement, a Participant shall be entitled to receive any dividends declared with respect to Units which have been earned in connection with grants of Performance Units and/or Performance Shares which have been earned, but not yet distributed to the Participant (such dividends shall be subject to the same accrual, forfeiture, and payout restrictions as apply to dividends earned with respect to Units of Restricted Stock, as set forth in Section 8.6 herein). In addition, unless otherwise provided in the Participant's Award Agreement, a Participant shall be entitled to exercise full voting rights with respect to such Units.
9.5. Termination of Employment Due to Death, Disability, or Retirement. Unless determined otherwise by the Committee and set forth in the Participant's Award Agreement, in the event the employment of a Participant is terminated by reason of death, Disability, or retirement after attaining the normal retirement age then in effect under the Company's tax-qualified retirement plan during a Performance Period, the Participant shall receive a payout of the Performance Units/Shares which is prorated, as specified by the Committee in its discretion.
Payment of earned Performance Units/Shares shall be made at a time specified by the Committee in its sole discretion and set forth in the Participant's Award Agreement. Notwithstanding the foregoing, with respect to Covered Employees who retire during a Performance Period, payments shall be made at the same time as payments are made to Participants who did not terminate employment during the applicable Performance Period.
9.6. Termination of Employment for Other Reasons. In the event that a Participant's employment terminates for any reason other than those reasons set forth in Section 9.5 herein, all Performance Units/ Shares shall be forfeited by the Participant to the Company unless determined otherwise by the Committee, as set forth in the Participant's Award Agreement.
9.7. Nontransferability. Except as otherwise provided in a Participant's Award Agreement, Performance Units/Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, a Participant's rights under the Plan shall be exercisable during the Participant's lifetime only by the Participant or the Participant's legal representative.
ARTICLE 10
PERFORMANCE MEASURES
Unless and until the Committee proposes for stockholder vote and stockholders approve a change in the general performance measures set forth in this Article 10, the attainment of which may determine the degree of payout and/or vesting with respect to Awards to Covered Employees which are designed to qualify for the performance-based compensation exception from the deductibility limitations of Code Section 162(m), the performance measure(s) to be used for purposes of such grants shall be chosen from among:
(a) earnings before interest, taxes, depreciation and amortization ("EBITDA");
(b) consolidated pre-tax earnings;
(c) revenues;
(d) net earnings;
(e) operating income;
(f) earnings before interest and taxes;
(g) cash flow measures;
(h) return on equity;
(i) return on net assets employed; and
(j) earnings per share.
The Committee shall have the discretion to adjust the determinations of the degree of attainment of the preestablished performance goals; provided, however, that Awards which are designed to qualify for the performance-based compensation exception from the deductibility limitations of Code Section 162(m), and which are held by Covered Employee, may not be adjusted upward (the Committee shall retain the discretion to adjust such Awards downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Awards which shall not qualify for the performance-based compensation
exception from the deductibility limitations of Code Section 162(m), the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).
ARTICLE 11
AWARDS TO DIRECTORS
11.1. Stock Options. On June 30 of each calendar year (or, if later than June 30, on the date on which a person is first elected as a Director) each Director shall be granted an NQSO to purchase 4,500 Units,
which amount shall be prorated for the first such grant if such person is first elected to serve as a Director on a date other than June 30 of a calendar year, at an Option Price equal to one hundred percent (100%) of the Fair Market Value of a Unit on the date the Option is granted. Each Option granted under this Article 11 shall be fully exercisable on and after its date of grant, shall expire ten (10) years after its date of grant (notwithstanding termination of service as a Director for any reason prior to such ten-year anniversary date) and may be exercised in whole or in part in accordance with Section 6.6. If a Director dies while an Option is outstanding, such Option may be exercised by the Director's beneficiary until and including the expiration date of the term of such Option.
11.2. Grants of Units. On the last day of March, June, September and
December of each calendar year each Director shall be awarded, on a current
basis or at the prior election of the Director on a deferred basis, a number of
Units (rounded to the nearest whole share) equal to one-quarter of $50,000
divided by the Fair Market Value of a Unit on the immediately preceding December
31; provided that such $50,000 shall be reduced, but not below $25,000, to the
extent a Director elects (prior to such immediately preceding December 31, or
with respect to any person who became a Director subsequent to such date, within
30 days of becoming a Director) to receive cash in lieu of Units under this
Section 11.2 (a "Cash Election"). The Units awarded pursuant to this Section
11.2 shall not be Restricted Stock. On or before each December 31 (or in the
case of a person who first becomes a Director subsequent to December 31, within
30 days of becoming a Director), a Director may, by written notice to the
Company, elect to defer receipt (a "Deferral Election") of any or all of the
Units to be granted to the Director under this Section 11.2 (or cash to the
extent of his or her Cash Election) which would otherwise be thereafter payable
to him or her in the manner prescribed by the Company for such deferrals.
ARTICLE 12
BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate.
ARTICLE 13
DEFERRALS
The Committee may permit or require a Participant to defer such Participant's receipt of the payment of cash or the delivery of Units that would otherwise be due to such Participant by virtue of the exercise of an Option or SAR, the lapse or waiver of restrictions with respect to Restricted Stock, or the satisfaction of any requirements or goals with respect to Performance Units/Shares. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals.
ARTICLE 14
RIGHTS OF EMPLOYEES
14.1. Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company.
14.2. Participation. No Employee, consultant, adviser or, except as set forth in Article 11, Director shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.
ARTICLE 15
CHANGE IN CONTROL
15.1. Treatment of Outstanding Awards. Upon the occurrence of a Change in Control, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges:
(a) Any and all Options and SARs granted hereunder shall become immediately exercisable, and shall remain exercisable throughout their entire term;
(b) Any restriction periods and restrictions imposed on Restricted Stock which are not performance-based shall lapse;
(c) The target payout opportunities attainable under all outstanding Awards of performance-based Restricted Stock, Performance Units and Performance Shares shall be deemed to have been fully earned for the entire Performance Period(s) as of the effective date of the Change in Control. The vesting of all Awards denominated in Units shall be accelerated as of the effective date of the Change in Control, and there shall be paid out to Participants within thirty (30) days following the effective date of the Change in Control the number of shares based upon an assumed achievement of all relevant targeted performance goals. Awards denominated in cash shall be paid to participants in cash within thirty (30) days following the effective date of the Change in Control based on an assumed achievement of all relevant targeted performance goals.
Any good faith determination by the Committee as to whether a Change in Control with the meaning of the Plan has occurred shall be conclusive and binding upon the Company and all Participants.
15.2. Termination, Amendment, and Modifications of Change-in-Control Provisions. Notwithstanding any other provision of this Plan (but subject to the limitations of Section 15.3 hereof) or any Award Agreement provision, the provisions of this Article 15 may not be terminated, amended, or modified on or after the date of a Change in Control to affect adversely any Award theretofore granted under the Plan without the prior written consent of the Participant with respect to said Participant's outstanding Awards; provided, however, the Committee may terminate, amend, or modify this Article 15 at any time and from time to time prior to the date of a Change in Control.
15.3. Pooling of Interests Accounting. Notwithstanding any other provision of the Plan to the contrary, in the event that the consummation of a Change in Control is contingent on using pooling of interests accounting methodology, the Committee may, prior to the date of the Change in Control, take any action necessary to preserve the use of pooling of interests accounting.
ARTICLE 16
AMENDMENT, MODIFICATION, AND TERMINATION
16.1. Amendment, Modification, and Termination. Subject to the terms of the Plan, the Board may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part.
16.2. Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.3 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan; provided that, unless otherwise determined by the Committee, no such adjustment shall be authorized to the extent that such authority would be inconsistent with the Plan's meeting the requirements of Section 162(m) of the Code, as from time to time amended.
16.3. Awards Previously Granted. Notwithstanding any other provision of the Plan to the contrary (but subject to Section 15.3 hereof), no termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award.
16.4. Compliance with Code Section 162(m). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Committee determines that such compliance is not desired with respect to any
Award or Awards available for grant under the Plan, then compliance with Code
Section 162 (m) will not be required. In addition, in the event that changes are
made to Code Section 162(m) to permit greater flexibility with respect to any
Award or Awards available under the Plan, the Committee may, subject to this
Article 16, make any adjustments it deems appropriate.
ARTICLE 17
WITHHOLDING
17.1. Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan.
17.2. Share Withholding. With respect to withholding required upon the exercise of Options or SARS, upon the lapse of restrictions on Restricted Stock, or upon any other taxable event arising as a result of Awards granted hereunder, Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Units having a Fair Market Value on the date the tax is to be determined equal to not more than the minimum amount of tax required to be withheld with respect to the transaction. All such elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
ARTICLE 18
INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgement in any such action, suit, or proceeding against him or her, provided he or she shall have given the Company a reasonable opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Articles of Incorporation of Bylaws, as a matter of law, or otherwise or any power that the Company may have to indemnify them or hold them harmless.
ARTICLE 19
OTHER BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise determined by the Committee, Awards received by Participants under the Plan shall not be deemed a part of a Participant's regular, recurring compensation for purposes of calculating payments or benefits from any Company benefit plan or severance program. No Employee, consultant, adviser or, except as set forth in Article 11, Director shall have any claim or right to be granted an Award under the Plan. There shall be no obligation of uniformity of treatment of Participants under the Plan. Further, the Company and its Subsidiaries may adopt other compensation programs, plans or arrangements as it deems appropriate or necessary. The adoption of the Plan shall not confer upon any Employee any right to continued employment in any particular position or at any particular rate of compensation, nor shall it interfere in any way with the right of the Company or a Subsidiary to terminate the employment of its Employees at any time, free from any claim or liability under the Plan.
ARTICLE 20
UNFUNDED PLAN
Unless otherwise determined by the Committee, the Plan shall be unfunded and shall not create (or be construed to create) a trust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between the Company and any Participant or other person. To the extent any Participant holds any rights by virtue of an Award granted under the Plan, such rights shall constitute general unsecured liabilities of the Company and shall not confer upon any participant any right, title or interest in any assets of the Company.
ARTICLE 21
EXPENSES OF THE PLAN
The expenses of the administration of the Plan shall be borne by the Company and its Subsidiaries. The Company may require Subsidiaries to pay for the Units issued under the Plan.
ARTICLE 22
RIGHTS AS A STOCKHOLDER
Unless the Committee determines otherwise, a Participant shall not have any right as a stockholder with respect to Units covered by an Award until the date the Participant becomes the holder of record with respect to such shares. No adjustment will be made for dividends or other rights for which the record date is prior to such date, except as provided in Articles 8 and 9.
ARTICLE 23
SUCCESSORS
All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
ARTICLE 24
LEGAL CONSTRUCTION
Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.
24.2. Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
24.3. Requirements of Law. The granting of Awards and the issuance of Units under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
24.4. Securities Law Compliance. With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions or Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the plan or action by the Board or Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board.
24.5. Governing Law. To the extent not preempted by federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Maryland.
EXHIBIT 10.5
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
1999 ANNUAL INCENTIVE PLAN
FOR CERTAIN EXECUTIVES
1. Definitions. When the following terms are used herein with initial capital letters, they shall have the following meanings:
Code -- the Internal Revenue Code of 1986, as it may be amended from time to time, and any proposed, temporary or final Treasury Regulations promulgated thereunder.
Committee -- a committee comprised solely of two or more members of the Board of Directors of the Company, each of whom is an "outside director" within the meaning of Section 162(m) of the Code and a "Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act.
Company -- Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation.
Deferred Unit Account -- shall mean a book reserve maintained by the Company for the purpose of measuring the amount payable to a Participant with respect to the deferred portion of the Participant's bonus payment for a Performance Period.
Designated Beneficiary -- shall mean the person or persons entitled to receive the remaining Distributable Balance in a Participant's Deferred Stock Account at the Participant's death.
Distributable Balance -- shall mean the balance in a Participant's Deferred Stock Account that is distributable to the Participant upon termination of the Participant's employment.
Exchange Act -- shall mean the Securities Exchange Act of 1934, as amended.
Fair Market Value -- shall mean the fair market value of a Unit, as determined by the Committee, which, unless otherwise specified, shall be the closing sale price of a Unit as reported in the New York Stock Exchange Composite Transactions on the business day immediately preceding the date as of which such value is being determined, or, if there is no such sale on the relevant date, then on the next preceding business day on which a sale was reported.
Legal Representative -- shall mean a guardian, legal representative or other person acting in a similar capacity with respect to a Participant.
Participant -- Shall mean the Chairman and Chief Executive Officer, the President and Chief Operating Officer, and any other executive officer of the Company who is designated by the Committee at any time ending on or before the 90th day of each Performance Period as a Participant in this Plan.
Performance Measure -- The Performance Measure shall be directly and specifically tied to one or more of the following business criteria, determined with respect to the Company: earnings before interest, taxes, depreciation and amortization ("EBITDA"), consolidated pre-tax earnings, net revenues, net earnings, operating income, earnings before interest and taxes, cash flow measures, return on equity, return on net assets employed or earnings per share for the applicable Performance Period, subject to such other special rules and conditions as the Committee may establish at any time ending on or before the 90th day of the applicable Performance Measures.
Performance Period -- shall mean the twelve consecutive month period which coincides with the Company's fiscal year.
Plan -- shall mean the Starwood Hotels & Resorts Worldwide, Inc. 1999 Annual Incentive Plan for Certain Executives as set forth herein and as from time to time amended.
Unit -- shall mean a Unit consisting of one share of common stock, par value $.01 per share, of the Company and one Class B share of beneficial interest, par value $.01 per share, of Starwood Hotels & Resorts.
2. Administration.
2.1 Committee. The Plan shall be administered by the Committee.
2.2 Determinations Made Prior to Each Performance Period. At any time ending on or before the 90th day of each Performance Period, the Committee shall:
(a) Designate Participants for that Performance Period.
(b) Establish the Performance Measures for the Performance Period.
(c) Determine the formula for determining each Participant's bonus payment for the Performance Period.
2.3 Certification. Following the close of each Performance Period and prior to payment of any bonus under the Plan, the Committee must certify in writing that the applicable Performance Measure targets and all other factors upon which a bonus is based have been attained.
2.4 Stockholder Approval. The material terms of this Plan shall be
disclosed to and approved by stockholders of the Company in accordance with
Section 162(m) of the Code. No bonus shall be paid under this Plan unless
such stockholder approval has been obtained.
3. Bonus Payment.
3.1 Formula. Each Participant shall be eligible to receive a bonus payment for a Performance Period in an amount established by, or determined under a bonus formula established by, the Committee for the Performance Period based on the attainment of the Performance Measure targets for the Performance Period.
3.2 Limitations.
(a) No payment if Performance Measure threshold not achieved. In no event shall any Participant receive a bonus payment hereunder if the minimum threshold Performance Measure requirement applicable to the bonus payment is not achieved during the Performance Period.
(b) No payment in excess of preestablished amount. No Participant shall receive a bonus payment under this Plan for any Performance Period in excess of $9 million.
(c) Committee may reduce bonus payment. The Committee retains sole discretion to reduce the amount of or eliminate any bonus otherwise payable to a Participant under this Plan. The Committee may exercise such discretion by establishing conditions for the payment of bonuses in addition to the Performance Measure targets, including the achievement of financial, strategic or individual goals, which may be objective or subjective, as it deems appropriate.
4. Bonus Payments.
4.1 Time and Form of Payments. Not less than 75% of the bonus payment in addition to the Performance Measure targets payable to a Participant under the Plan for a Performance Period shall be paid to the Participant in one or more cash payments as soon as determined by the Committee after it has certified that the Performance Measure targets and all other factors upon which the bonus payment for the Participant is based have been attained.
4.2 Nontransferability. Participants and beneficiaries shall not have the right to assign, encumber or otherwise anticipate the payments to be made under this Plan, and the benefits provided hereunder shall not be subject to seizure for payment of any debts or judgments against any Participant or any beneficiary.
4.3 Tax Withholding. In order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal or state payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant.
5. Deferred Unit Accounts.
5.1 Deferred Unit Accounts.
(a) An amount equal to 25%, unless the Committee determines to defer a smaller portion of a Participant's bonus payment, determined in the sole discretion of the Compensation Committee, of the gross bonus payment payable to a Participant under the Plan for a Performance Period may be credited to the Participant's Deferred Unit Account as of the date on which the first cash bonus payment for the Performance Period is paid to the Participant pursuant to Section 4.1. The amount so credited to a Participant's Deferred Unit Account (as adjusted for deemed investment returns hereunder) shall become vested ratably over the three-year period beginning at the end of the Performance Period.
(b) An amount equal to no more than the amount of the bonus payment payable to a Participant for a Performance Period in excess of $3 million may be credited to the Participant's Deferred Unit Account as of the date on which the first cash bonus payment for the Performance Period is paid to the Participant pursuant to Section 4.1. The amount so credited to a Participant's Deferred Unit Account shall become vested ratably over the remaining term of any applicable employment agreement and shall vest in full upon the Participant's termination of employment for any reason.
5.2 Deemed Investment of Deferred Unit Accounts. Amounts credited to a Participant's Deferred Unit Account pursuant to subsection 5.1(a) shall be deemed to be invested in whole and fractional Units at a price equal to 75% of the Fair Market Value thereof on the date as of which the amount is credited to the Deferred Unit Account. Amounts credited to a Participant's Deferred Unit Account pursuant to subsection 5.1(b) shall be deemed to be invested in whole and factional Units at a price equal to 100% of the Fair Market Value thereof on the date as of which the amount is credited to the Deferred Unit Account.
5.3 Distribution of Deferred Unit Accounts. On the earlier of (a)
the third anniversary of the end of the applicable Performance Period or
(b) the date the Participant terminates his/her employment for whatever
reason, the Company shall compute the "Distributable Balance" in a
Participant's Deferred Unit Account on such date. This Distributable
Balance shall include (i) if the Participant's employment has terminated
for a reason other than retirement, disability, or death, all vested
amounts credited to the Deferred Unit Account (as adjusted for deemed
investment returns hereunder), or, (ii) if the Participant's employment has
not terminated, all amounts credited to the Deferred Unit Account that are
distributable to the Participant on such date (as adjusted for deemed
investment returns hereunder), or (iii) if the Participant's employment has
terminated by reason of retirement, disability or death, all amounts
credited to the Deferred Unit Account (as adjusted for deemed investment
returns hereunder). In the event that the Participant becomes disabled,
his/her employment shall for these purposes be deemed to terminate on the
first day of the month in which he/she begins to receive long-term
disability payments under the Company's long-term disability plan. For
purposes of this Section 5.3, "disability" shall mean a total physical
disability which, in the Company's judgment, prevents the Participant from
performing substantially his/her employment duties and responsibilities for
a continuous period of at least six months, and "retirement" shall mean
retirement as then defined in the Company's tax-qualified retirement plan.
All distributions under this Section 5.3 will be made in whole Units and
cash equal to the Fair Market Value of any fractional Unit. If a
Participant dies before his/her entire Distributable Balance has been paid,
the Company shall pay the then undistributed remainder of the Distributable
Balance to the Participant's Designated Beneficiary.
5.4 Designation of Beneficiaries. A Participant may designate a
Designated Beneficiary by executing and filing with the Company during
his/her lifetime, a beneficiary designation. The Participant may change or
revoke any such designation by executing and filing with the Company during
his/her lifetime a new beneficiary designation. If any Designated
Beneficiary predeceases the Participant, or if any corporation,
partnership, trust or other entity which is a Designated Beneficiary is
terminated, dissolved, becomes insolvent, is adjudicated bankrupt prior to
the date of the Participant's death, or if the Participant fails to
designate a beneficiary, then the following persons in the following order
shall receive the entire amount which the previous Designated Beneficiary
would have been entitled to receive: (i) Participant's spouse, if living;
(ii) Participant's then living descendants, per stirpes; and (iii)
Participant's estate.
5.5 Tax Withholding. The Company shall have the right to require, prior to the issuance or delivery of any Units, payment by the Participant of any federal, state, local or other taxes which may be required to be withheld or paid in connection with the distribution of Units. In the alternative, the Company may withhold whole Units which would otherwise be delivered to a Participant, having an aggregate Fair Market Value determined as of the date the obligation to withhold or pay taxes arises in connection with a distribution (the "Tax Date") in the amount necessary to satisfy any such obligation. Any fraction of a Unit which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the Participant.
5.6 Restrictions on Units. If at any time the Company determines that the listing, registration or qualification of the Units allocated to the Deferred Unit Accounts of Participants upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of Units hereunder, such Units shall not be delivered unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company may require that certificates evidencing Units delivered to any Participant hereunder bear a legend indicating that the sale, transfer or other disposition thereof by the holder is prohibited except in compliance with the Securities Act of 1933, as amended, and the rules and regulations thereunder.
5.7 Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Units other than a regular cash dividend, the number and class of securities deemed to be held in each Deferred Unit Account shall be appropriately adjusted by the Committee. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive.
5.8 Change in Control.
(a) (1) Notwithstanding any provision in the Plan, in the event of a Change in Control, the Committee may, but shall not be required to, make such adjustments to outstanding awards hereunder as it deems appropriate, including, without limitation, causing the unvested amount in a Participant's Deferred Unit Account to vest, or electing that each outstanding Deferred Unit Account shall be canceled by the Company, and that each Participant shall receive, within a specified period of time from the occurrence of the Change in Control, a cash payment from the Company in an amount equal to the number of Units then deemed to be in the Participant's Deferred Unit Account, multiplied by the greater of (x) the highest per Unit price offered to stockholders of the Company in any transaction whereby the Change in Control takes place or (y) the Fair Market Value of a Unit on the date of occurrence of the Change in Control.
(2) In the event of a Change in Control pursuant to subsection (b)(3) or (4) below in connection with which the holders of Units receive shares of common stock that are registered under Section 12 of the Exchange Act, the Committee may, but shall not be required to, substitute for each Unit available under this Plan, whether or not then subject to an outstanding award, the number and class of shares into which each outstanding Unit shall be converted pursuant to such Change in Control.
(b) For purposes of the Plan, "Change in Control" shall mean:
(1) Any person (as defined in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) thereof, "Person") is or becomes the beneficial owner within the meaning of Rule 13d-3 promulgated under the Exchange Act (but without regard to any time period specified in Rule 13d-3(d)(1)(i), of 33 1/3 percent or more of either (i) then outstanding Units, including for this purpose Partnership Units of SLT Realty Limited Partnership and SLC Operating Limited Partnership (the "Outstanding Units") or (ii) the combined voting power of then outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); excluding, however, (1) any acquisition by the Company or (2) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company.
(2) Individuals who, as of the Effective Date, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of the Company subsequent to the Effective Date whose election, or nomination for election by the Company's stockholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other then the Board shall not be deemed a member of the Incumbent Board:
(3) Consummation by the Company of a reorganization, merger, or consolidation or sale of all or substantially all of the assets of the Company (a "Corporate Transaction"); excluding, however, a Corporate Transaction pursuant to which (i) all or substantially all of the individuals or entities who are the beneficial owners, respectively, of the Outstanding Units and the Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 66 2/3 percent of, respectively, the outstanding shares of common stock, and the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or indirectly) in substantially the same proportions relative to each other as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Units and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than: the Company, any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, the corporation resulting from such Corporate Transaction, and any Person which beneficially owned, immediately prior to such Corporate Transaction, directly or indirectly 33 1/3 percent or more of the Outstanding Units or the Outstanding Company Voting Securities, as the case may be) will beneficially own, directly or indirectly, 33 1/3 percent or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors and (iii) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or
(4) Approval by the stockholders of the Company of a plan of complete liquidation or dissolution of the Company.
6. Amendment and Termination. Subject to the provisions of Section 162(m) of the Code, the Committee may amend this Plan prospectively at any time and for any reason deemed sufficient by it without notice to any person affected by this Plan and may likewise terminate or curtail the benefits of this Plan both
with regard to persons expecting to receive benefits hereunder in the future and persons already receiving benefits at the time of such action.
7. Miscellaneous.
7.1 Effective Date. Subject to approval by the Company's stockholders, the effective date of the Plan shall be January 1, 1999.
7.2 Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any ways material or relevant to the construction or interpretation of the Plan or any provision thereof.
7.3 Applicability to Successors. This Plan shall be binding upon and inure to the benefit of the Company and each Participant, the successors and assigns of the Company, and the beneficiaries, personal representatives and heirs of each Participant. If the Company becomes a party to any merger, consolidation or reorganization, this Plan shall remain in full force and effect as an obligation of the Company or its successors in interest.
7.4 Employment Rights and Other Benefits Programs. The provisions of this Plan shall not give any Participant any right to be retained in the employment of the Company. In the absence of any specific agreement to the contrary, this Plan shall not affect any right of the Company, or of any affiliate of the Company, to terminate, with or without cause, the participant's employment at any time. This Plan shall not replace any contract of employment, whether oral, or written, between the Company and any Participant, but shall be considered a supplement thereto. This Plan is in addition to, and not in lieu of, any other employee benefit plan or program in which any Participant may be or become eligible to participate by reason of employment with the Company. Receipt of benefits hereunder shall have such effect on contributions to and benefits under such other plans or programs as the provisions of each such other plan or program may specify.
7.5 No Trust Fund Created. This Plan shall not create or be construed to create a trust or separate fund of any kind or fiduciary relationship between the Company or any affiliate and a Participant or any other person. To the extent that any person acquires a right to receive payments from the Company or any affiliate pursuant to this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company or of any affiliate.
7.6 Governing Law. The place of administration of the Plan shall be in the State of New York. The corporate law of the State of Maryland shall govern issues relating to the validity and issuance of Units. Otherwise, the Plan shall be construed and administered in accordance with the laws of the State of New York, without giving effect to principles relating to conflict of laws.
7.7 Severability. If any provision of the Plan is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan, such provision shall be stricken as to such jurisdiction, and the remainder of the Plan shall remain in full force and effect.
7.8 Qualified Performance-Based Compensation. All of the terms and conditions of the Plan shall be interpreted in such a fashion as to qualify all compensation paid hereunder to the maximum extent possible as qualified performance-based compensation within the meaning of Section 162(m) of the Code.
| ARTICLE 5 |
| EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY. |
| CIK: 0000316206 |
| NAME: STARWOOD HOTELS & RESORTS WORLDWIDE, INC. |
| MULTIPLIER: 1,000,000 |
| CURRENCY: U.S. DOLLARS |
| PERIOD TYPE | 6 MOS |
| FISCAL YEAR END | DEC 31 1999 |
| PERIOD START | JAN 01 1999 |
| PERIOD END | JUN 30 1999 |
| EXCHANGE RATE | 1 |
| CASH | 169 |
| SECURITIES | 0 |
| RECEIVABLES | 559 |
| ALLOWANCES | 49 |
| INVENTORY | 60 |
| CURRENT ASSETS | 817 |
| PP&E | 8,584 |
| DEPRECIATION | 872 |
| TOTAL ASSETS | 13,088 |
| CURRENT LIABILITIES | 1,382 |
| BONDS | 6,134 |
| PREFERRED MANDATORY | 148 |
| PREFERRED | 0 |
| COMMON | 4 |
| OTHER SE | 3,535 |
| TOTAL LIABILITY AND EQUITY | 13,088 |
| SALES | 0 |
| TOTAL REVENUES | 1,819 |
| CGS | 0 |
| TOTAL COSTS | 1,403 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 239 |
| INCOME PRETAX | 188 |
| INCOME TAX | 971 |
| INCOME CONTINUING | (783) |
| DISCONTINUED | (7) |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (790) |
| EPS BASIC | (4.25) |
| EPS DILUTED | (4.25) |
| ARTICLE 5 |
| EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY. |
| CIK: 0000048595 |
| NAME: STARWOOD HOTELS & RESORTS |
| MULTIPLIER: 1,000,000 |
| CURRENCY: U.S. DOLLARS |
| PERIOD TYPE | 6 MOS |
| FISCAL YEAR END | DEC 31 1999 |
| PERIOD START | JAN 01 1999 |
| PERIOD END | JUN 30 1999 |
| EXCHANGE RATE | 1 |
| CASH | 3 |
| SECURITIES | 0 |
| RECEIVABLES | 2,631 |
| ALLOWANCES | 0 |
| INVENTORY | 0 |
| CURRENT ASSETS | 55 |
| PP&E | 4,666 |
| DEPRECIATION | 228 |
| TOTAL ASSETS | 8,603 |
| CURRENT LIABILITIES | 197 |
| BONDS | 496 |
| PREFERRED MANDATORY | 148 |
| PREFERRED | 0 |
| COMMON | 2 |
| OTHER SE | 7,830 |
| TOTAL LIABILITY AND EQUITY | 8,603 |
| SALES | 0 |
| TOTAL REVENUES | 373 |
| CGS | 0 |
| TOTAL COSTS | 89 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 25 |
| INCOME PRETAX | 258 |
| INCOME TAX | 1 |
| INCOME CONTINUING | 257 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 257 |
| EPS BASIC | 1.34 |
| EPS DILUTED | 1.29 |