SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
OR
| o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 1-7959
STARWOOD HOTELS &
RESORTS WORLDWIDE, INC.
Maryland
(State or other jurisdiction
of incorporation or organization)
52-1193298
(I.R.S. employer identification no.)
1111 Westchester Avenue
White Plains, NY 10604
(Address of principal executive
offices, including zip code)
(914) 640-8100
(Registrant’s telephone number,
including area code)
Commission File Number: 1-6828
STARWOOD HOTELS &
RESORTS
Maryland
(State or other jurisdiction
of incorporation or organization)
52-0901263
(I.R.S. employer identification no.)
1111 Westchester Avenue
White Plains, NY 10604
(Address of principal executive
offices, including zip code)
(914) 640-8100
(Registrant’s telephone number,
including area code)
Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes þ No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No [ ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
207,277,986 shares of common stock, par value $0.01 per share, of Starwood Hotels & Resorts Worldwide, Inc. attached to and traded together with 207,277,986 Class B shares of beneficial interest, par value $0.01 per share, of Starwood Hotels & Resorts, and 100 Class A shares of beneficial interest, par value $0.01 per share, of Starwood Hotels & Resorts, all outstanding as of November 4, 2004.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following unaudited consolidated financial statements of Starwood Hotels & Resorts Worldwide, Inc. (the “Corporation”) and Starwood Hotels & Resorts (the “Trust” and, together with the Corporation, “Starwood” or the “Company”) are provided pursuant to the requirements of this Item. In the opinion of management, all adjustments necessary for fair presentation, consisting of normal recurring adjustments, have been included. The consolidated financial statements have been prepared in accordance with the accounting policies described in the Company’s Joint Annual Report on Form 10-K for the year ended December 31, 2003 filed on March 2, 2004. See Note 1 to the financial statements for the basis of presentation. The consolidated financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this filing. Results for the three and nine months ended September 30, 2004 are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2004.
2
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
| September 30, | December 31, | |||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 231 | $ | 427 | ||||
Restricted cash |
189 | 81 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $56 and $53 |
438 | 418 | ||||||
Inventories |
320 | 232 | ||||||
Prepaid expenses and other |
177 | 104 | ||||||
Total current assets |
1,355 | 1,262 | ||||||
Investments |
463 | 415 | ||||||
Plant, property and equipment, net |
6,944 | 7,106 | ||||||
Goodwill and intangible assets, net |
2,509 | 2,488 | ||||||
Other assets |
737 | 623 | ||||||
| $ | 12,008 | $ | 11,894 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Short-term borrowings and current maturities of long-term debt |
$ | 243 | $ | 233 | ||||
Accounts payable |
154 | 171 | ||||||
Accrued expenses |
688 | 836 | ||||||
Accrued salaries, wages and benefits |
270 | 228 | ||||||
Accrued taxes and other |
182 | 176 | ||||||
Total current liabilities |
1,537 | 1,644 | ||||||
Long-term debt |
4,258 | 4,393 | ||||||
Deferred income taxes |
840 | 898 | ||||||
Other liabilities |
655 | 574 | ||||||
| 7,290 | 7,509 | |||||||
Minority interest |
27 | 28 | ||||||
Exchangeable units and Class B preferred shares, at redemption value of $38.50 |
— | 31 | ||||||
Commitments and contingencies |
||||||||
Stockholders’ equity: |
||||||||
Class A exchangeable preferred shares of the Trust; $0.01 par value; authorized |
||||||||
30,000,000 shares; outstanding 597,983 and 480,880 shares at September 30, 2004 |
||||||||
and December 31, 2003, respectively |
— | — | ||||||
Corporation common stock; $0.01 par value; authorized 1,050,000,000 shares; |
||||||||
outstanding 205,944,530 and 201,812,126 shares at September 30, 2004 and |
||||||||
December 31, 2003, respectively |
2 | 2 | ||||||
Trust Class B shares of beneficial interest; $0.01 par value; authorized |
||||||||
1,000,000,000 shares; outstanding 205,944,530 and 201,812,126 shares at |
||||||||
September 30, 2004 and December 31, 2003, respectively |
2 | 2 | ||||||
Additional paid-in capital |
5,043 | 4,952 | ||||||
Deferred compensation |
(18 | ) | (9 | ) | ||||
Accumulated other comprehensive loss |
(346 | ) | (334 | ) | ||||
Retained earnings (accumulated deficit) |
8 | (287 | ) | |||||
Total stockholders’ equity |
4,691 | 4,326 | ||||||
| $ | 12,008 | $ | 11,894 | |||||
The accompanying notes to financial statements are an integral part of the above statements.
3
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per Share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
Revenues |
||||||||||||||||
Owned, leased and consolidated joint venture hotels |
$ | 811 | $ | 735 | $ | 2,448 | $ | 2,288 | ||||||||
Vacation ownership sales and services |
175 | 129 | 443 | 327 | ||||||||||||
Management fees, franchise fees and other income |
105 | 68 | 299 | 184 | ||||||||||||
Other revenues from managed and franchised properties |
245 | 204 | 736 | 634 | ||||||||||||
| 1,336 | 1,136 | 3,926 | 3,433 | |||||||||||||
Costs and Expenses |
||||||||||||||||
Owned, leased and consolidated joint venture hotels |
617 | 577 | 1,864 | 1,781 | ||||||||||||
Vacation ownership |
132 | 98 | 334 | 252 | ||||||||||||
Selling, general, administrative and other |
74 | 45 | 244 | 159 | ||||||||||||
Restructuring and other special credits, net |
(37 | ) | (1 | ) | (37 | ) | (1 | ) | ||||||||
Depreciation |
103 | 100 | 306 | 309 | ||||||||||||
Amortization |
4 | 4 | 13 | 14 | ||||||||||||
Other expenses from managed and franchised properties |
245 | 204 | 736 | 634 | ||||||||||||
| 1,138 | 1,027 | 3,460 | 3,148 | |||||||||||||
Operating income |
198 | 109 | 466 | 285 | ||||||||||||
Gain on sale of VOI notes receivable |
3 | 1 | 11 | 6 | ||||||||||||
Equity earnings from unconsolidated ventures, net |
6 | 2 | 22 | 10 | ||||||||||||
Interest expense, net of interest income of $1, $2, $2 and $3 |
(64 | ) | (69 | ) | (193 | ) | (219 | ) | ||||||||
Loss on asset dispositions and impairments, net |
(4 | ) | (3 | ) | (8 | ) | (179 | ) | ||||||||
Income (loss) from continuing operations before taxes and
minority equity |
139 | 40 | 298 | (97 | ) | |||||||||||
Income tax benefit (expense) |
(34 | ) | 7 | (41 | ) | 113 | ||||||||||
Minority equity in net loss |
— | — | 1 | 1 | ||||||||||||
Income from continuing operations |
105 | 47 | 258 | 17 | ||||||||||||
Discontinued operations: |
||||||||||||||||
Loss from operations, net of tax expense of $0, $0, $0 and $1 |
— | — | — | (1 | ) | |||||||||||
Gain on dispositions, net of tax (benefit) expense of $1, $0,
$(33) and $40 |
2 | 1 | 37 | 206 | ||||||||||||
Net income |
$ | 107 | $ | 48 | $ | 295 | $ | 222 | ||||||||
Earnings Per Share – Basic |
||||||||||||||||
Continuing operations |
$ | 0.51 | $ | 0.23 | $ | 1.25 | $ | 0.09 | ||||||||
Discontinued operations |
0.01 | 0.01 | 0.18 | 1.01 | ||||||||||||
Net income |
$ | 0.52 | $ | 0.24 | $ | 1.43 | $ | 1.10 | ||||||||
Earnings Per Share – Diluted |
||||||||||||||||
Continuing operations |
$ | 0.49 | $ | 0.23 | $ | 1.21 | $ | 0.08 | ||||||||
Discontinued operations |
0.01 | — | 0.17 | 1.00 | ||||||||||||
Net income |
$ | 0.50 | $ | 0.23 | $ | 1.38 | $ | 1.08 | ||||||||
Weighted average number of Shares |
208 | 203 | 207 | 202 | ||||||||||||
Weighted average number of Shares assuming dilution |
215 | 208 | 214 | 205 | ||||||||||||
The accompanying notes to financial statements are an integral part of the above statements.
4
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
Net income |
$ | 107 | $ | 48 | $ | 295 | $ | 222 | ||||||||
Other comprehensive income, net of taxes: |
||||||||||||||||
Foreign currency translation |
13 | 6 | (14 | ) | 77 | |||||||||||
Unrealized holding gains (losses) |
— | (3 | ) | 2 | 5 | |||||||||||
Minimum pension liability adjustments |
— | — | — | (3 | ) | |||||||||||
Change in fair value of derivative instruments |
— | — | — | (1 | ) | |||||||||||
| 13 | 3 | (12 | ) | 78 | ||||||||||||
Comprehensive income |
$ | 120 | $ | 51 | $ | 283 | $ | 300 | ||||||||
The accompanying notes to financial statements are an integral part of the above statements.
5
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, |
||||||||
| 2004 |
2003 |
|||||||
Operating Activities |
||||||||
Net income |
$ | 295 | $ | 222 | ||||
Exclude: |
||||||||
Discontinued operations |
(37 | ) | (205 | ) | ||||
Income from continuing operations |
258 | 17 | ||||||
Depreciation and amortization |
319 | 323 | ||||||
Loss on asset dispositions and impairments, net |
8 | 179 | ||||||
Other adjustments to income from continuing operations |
(19 | ) | 90 | |||||
Decrease (increase) in restricted cash |
(197 | ) | 13 | |||||
Other changes in working capital |
(33 | ) | 56 | |||||
Accrued and deferred income taxes and other |
40 | (177 | ) | |||||
Cash from continuing operations |
376 | 501 | ||||||
Cash from discontinued operations |
1 | 10 | ||||||
Cash from operating activities |
377 | 511 | ||||||
Investing Activities |
||||||||
Purchases of plant, property and equipment |
(208 | ) | (192 | ) | ||||
Proceeds from asset sales |
18 | 1,034 | ||||||
Acquisitions, net of acquired cash |
(65 | ) | — | |||||
Investments |
(56 | ) | (7 | ) | ||||
Other, net |
(13 | ) | 2 | |||||
Cash from (used for) investing activities |
(324 | ) | 837 | |||||
Financing Activities |
||||||||
Revolving credit facility and short-term repayments, net |
(11 | ) | (321 | ) | ||||
Long-term debt issued |
300 | 446 | ||||||
Long-term debt repaid |
(388 | ) | (654 | ) | ||||
Distributions paid |
(172 | ) | (170 | ) | ||||
Proceeds from employee stock option exercises |
251 | 43 | ||||||
Share repurchases |
(232 | ) | — | |||||
Other, net |
1 | (22 | ) | |||||
Cash used for financing activities |
(251 | ) | (678 | ) | ||||
Exchange rate effect on cash and cash equivalents |
2 | 9 | ||||||
Increase (decrease) in cash and cash equivalents |
(196 | ) | 679 | |||||
Cash and cash equivalents — beginning of period |
427 | 108 | ||||||
Cash and cash equivalents — end of period |
$ | 231 | $ | 787 | ||||
Supplemental Disclosures of Cash Flow Information |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 176 | $ | 170 | ||||
Income taxes, net of refunds |
$ | 23 | $ | 41 | ||||
The accompanying notes to financial statements are an integral part of the above statements.
6
STARWOOD HOTELS & RESORTS
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
| September 30, | December 31, | |||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 1 | $ | 2 | ||||
Receivable, Corporation |
526 | 465 | ||||||
Prepaid expenses and other |
— | 1 | ||||||
Total current assets |
527 | 468 | ||||||
Investments, Corporation |
848 | 848 | ||||||
Investments |
28 | 25 | ||||||
Plant, property and equipment, net |
3,252 | 3,324 | ||||||
Long-term receivables, Corporation, net |
1,989 | 2,098 | ||||||
Goodwill and intangible assets, net |
207 | 207 | ||||||
Other assets |
10 | 8 | ||||||
| $ | 6,861 | $ | 6,978 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Short-term borrowings and current maturities of long-term debt |
$ | 10 | $ | 9 | ||||
Accounts payable |
1 | 4 | ||||||
Accrued expenses |
19 | 20 | ||||||
Distributions payable, Corporation |
— | 183 | ||||||
Distributions payable |
— | 172 | ||||||
Total current liabilities |
30 | 388 | ||||||
Long-term debt |
438 | 445 | ||||||
| 468 | 833 | |||||||
Minority interest |
28 | 29 | ||||||
Exchangeable units and Class B preferred shares, at redemption value of $38.50 |
— | 30 | ||||||
Commitments and contingencies |
||||||||
Stockholders’ equity: |
||||||||
Class A exchangeable preferred shares; $0.01 par value; authorized 30,000,000
shares; outstanding 597,983 and 480,880 shares at September 30, 2004 and
December 31, 2003, respectively |
— | — | ||||||
Class A shares of beneficial interest; $0.01 par value; authorized 5,000 shares;
outstanding 100 shares at September 30, 2004 and December 31, 2003 |
— | — | ||||||
Trust Class B shares of beneficial interest; $0.01 par value; authorized
1,000,000,000 shares; outstanding 205,944,530 and 201,812,126 shares at
September 30, 2004 and December 31, 2003, respectively |
2 | 2 | ||||||
Additional paid-in capital |
7,737 | 7,714 | ||||||
Accumulated deficit |
(1,374 | ) | (1,630 | ) | ||||
Total stockholders’ equity |
6,365 | 6,086 | ||||||
| $ | 6,861 | $ | 6,978 | |||||
The accompanying notes to financial statements are an integral part of the above statements.
7
STARWOOD HOTELS & RESORTS
CONSOLIDATED STATEMENTS OF INCOME
(In millions)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
Revenues |
||||||||||||||||
Rent and interest, Corporation |
$ | 136 | $ | 131 | $398 | $394 | ||||||||||
| 136 | 131 | 398 | 394 | |||||||||||||
Costs and Expenses |
||||||||||||||||
Selling, general and administrative |
— | — | 2 | 2 | ||||||||||||
Depreciation |
39 | 39 | 117 | 125 | ||||||||||||
| 39 | 39 | 119 | 127 | |||||||||||||
| 97 | 92 | 279 | 267 | |||||||||||||
Equity losses from unconsolidated joint ventures and other |
— | (1 | ) | (1 | ) | (2 | ) | |||||||||
Interest expense, net |
(10 | ) | (10 | ) | (27 | ) | (27 | ) | ||||||||
Loss on asset dispositions and impairments, net |
(1 | ) | (2 | ) | (2 | ) | (185 | ) | ||||||||
Income tax benefit (expense) |
4 | (1 | ) | 7 | (3 | ) | ||||||||||
Minority equity in net income |
(1 | ) | (1 | ) | — | (1 | ) | |||||||||
Net income |
$ | 89 | $ | 77 | $ | 256 | $ | 49 | ||||||||
The accompanying notes to financial statements are an integral part of the above statements.
8