SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the Quarterly Period Ended September 30, 2003 | ||
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the Transition Period from to | ||
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Commission File Number: 1-7959
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Commission File Number: 1-6828 | |
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STARWOOD HOTELS & RESORTS WORLDWIDE, INC. (Exact name of Registrant as specified in its charter) |
STARWOOD HOTELS & RESORTS (Exact name of Registrant as specified in its charter) |
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Maryland (State or other jurisdiction of incorporation or organization) |
Maryland (State or other jurisdiction of incorporation or organization) |
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52-1193298 (I.R.S. employer identification no.) |
52-0901263 (I.R.S. employer identification no.) |
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1111 Westchester Avenue White Plains, NY 10604 (Address of principal executive offices, including zip code) |
1111 Westchester Avenue White Plains, NY 10604 (Address of principal executive offices, including zip code) |
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(914) 640-8100 (Registrant’s telephone number, including area code) |
(914) 640-8100 (Registrant’s telephone number, 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 þ No o
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
202,245,750 shares of common stock, par value $0.01 per share, of Starwood Hotels & Resorts Worldwide, Inc. attached to and traded together with 202,245,750 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 3, 2003.
TABLE OF CONTENTS
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| PART I. | ||||||||
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Item 1.
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Financial Statements | |||||||
| Starwood Hotels & Resorts Worldwide, Inc.: | ||||||||
| Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002 | 3 | |||||||
| Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2003 and 2002 | 4 | |||||||
| Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2003 and 2002 | 5 | |||||||
| Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002 | 6 | |||||||
| Starwood Hotels & Resorts: | ||||||||
| Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002 | 7 | |||||||
| Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2003 and 2002 | 8 | |||||||
| Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002 | 9 | |||||||
| Notes to Financial Statements | 10 | |||||||
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 | ||||||
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk | 44 | ||||||
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Item 4.
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Controls and Procedures | 44 | ||||||
| PART II. | ||||||||
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Item 1.
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Legal Proceedings | 44 | ||||||
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Item 2.
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Changes in Securities and Use of Proceeds | 44 | ||||||
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Item 6.
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Exhibits and Reports on Form 8-K | 44 | ||||||
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following unaudited consolidated financial statements of Starwood Hotels & Resorts Worldwide, Inc. (the “Corporation”) and Starwood Hotels & Resorts (the “Trust” and, together with the Corporation, “Starwood” or the “Company”) are provided pursuant to the requirements of this Item. In the opinion of management, all adjustments necessary for fair presentation, consisting of normal recurring adjustments, have been included. The consolidated financial statements presented herein have been prepared in accordance with the accounting policies described in the Company’s Joint Annual Report on Form 10-K for the year ended December 31, 2002 filed on February 28, 2003 as amended by our Joint Annual Report on Form 10K/ A filed on July 7, 2003. See the notes to financial statements for the basis of presentation. The consolidated financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere herein. Results for the three and nine months ended September 30, 2003 are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2003.
2
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
| ASSETS | ||||||||||
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Current assets:
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Cash and cash equivalents
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$ | 787 | $ | 108 | ||||||
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Restricted cash
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84 | 108 | ||||||||
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Accounts receivable, net of allowance for
doubtful accounts of $52 and $45
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398 | 398 | ||||||||
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Inventories
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201 | 214 | ||||||||
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Prepaid expenses and other
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123 | 108 | ||||||||
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Total current assets
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1,593 | 936 | ||||||||
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Investments
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400 | 434 | ||||||||
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Plant, property and equipment, net
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6,946 | 6,911 | ||||||||
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Assets held for sale
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72 | 839 | ||||||||
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Goodwill and intangible assets, net
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2,476 | 2,570 | ||||||||
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Other assets
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433 | 500 | ||||||||
| $ | 11,920 | $ | 12,190 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
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Current liabilities:
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Short-term borrowings and current maturities of
long-term debt
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$ | 442 | $ | 870 | ||||||
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Accounts payable
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140 | 171 | ||||||||
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Accrued expenses
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618 | 723 | ||||||||
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Accrued salaries, wages and benefits
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224 | 178 | ||||||||
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Accrued taxes and other
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139 | 188 | ||||||||
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Total current liabilities
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1,563 | 2,130 | ||||||||
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Long-term debt
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4,443 | 4,449 | ||||||||
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Deferred income taxes
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920 | 986 | ||||||||
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Other liabilities
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568 | 538 | ||||||||
| 7,494 | 8,103 | |||||||||
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Minority interest
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38 | 39 | ||||||||
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Exchangeable units and Class B preferred
shares, at redemption value of $38.50.
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33 | 51 | ||||||||
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Commitments and contingencies
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Stockholders’ equity:
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Class A exchangeable preferred shares of the
Trust; $0.01 par value; authorized 30,000,000 shares;
outstanding 481,088 and 493,968 shares at September 30,
2003 and December 31, 2002, respectively
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— | — | ||||||||
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Corporation common stock; $0.01 par value;
authorized 1,050,000,000 shares; outstanding 202,094,054 and
199,579,542 shares at September 30, 2003 and
December 31, 2002, respectively
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2 | 2 | ||||||||
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Trust Class B shares of beneficial interest;
$0.01 par value; authorized 1,000,000,000 shares; outstanding
202,094,054 and 199,579,542 shares at September 30, 2003
and December 31, 2002, respectively
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2 | 2 | ||||||||
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Additional paid-in capital
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4,962 | 4,905 | ||||||||
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Deferred compensation
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(13 | ) | (14 | ) | ||||||
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Accumulated other comprehensive loss
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(396 | ) | (474 | ) | ||||||
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Accumulated deficit
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(202 | ) | (424 | ) | ||||||
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Total stockholders’ equity
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4,355 | 3,997 | ||||||||
| $ | 11,920 | $ | 12,190 | |||||||
The accompanying notes to financial statements are an integral part of the above statements.
3
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF INCOME
| Three Months | Nine Months | |||||||||||||||
| Ended | Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
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Revenues
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Owned, leased and consolidated joint venture
hotels
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$ | 735 | $ | 796 | $ | 2,288 | $ | 2,386 | ||||||||
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Other hotel and leisure
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201 | 164 | 531 | 478 | ||||||||||||
| 936 | 960 | 2,819 | 2,864 | |||||||||||||
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Other revenues from managed and franchised
properties
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204 | 187 | 634 | 589 | ||||||||||||
| 1,140 | 1,147 | 3,453 | 3,453 | |||||||||||||
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Costs and Expenses
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Owned, leased and consolidated joint venture
hotels
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577 | 583 | 1,781 | 1,739 | ||||||||||||
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Selling, general, administrative and other
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143 | 123 | 411 | 318 | ||||||||||||
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Restructuring and other special credits, net
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(1 | ) | (2 | ) | (1 | ) | (5 | ) | ||||||||
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Depreciation
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100 | 123 | 309 | 349 | ||||||||||||
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Amortization
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5 | 6 | 18 | 16 | ||||||||||||
| 824 | 833 | 2,518 | 2,417 | |||||||||||||
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Other expenses from managed and franchised
properties
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204 | 187 | 634 | 589 | ||||||||||||
| 1,028 | 1,020 | 3,152 | 3,006 | |||||||||||||
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Operating income
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112 | 127 | 301 | 447 | ||||||||||||
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Interest expense, net of interest income of $2,
$0, $3 and $1
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(69 | ) | (77 | ) | (219 | ) | (260 | ) | ||||||||
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Gain (loss) on asset dispositions and
impairments, net
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(3 | ) | 6 | (179 | ) | 2 | ||||||||||
| 40 | 56 | (97 | ) | 189 | ||||||||||||
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Income tax benefit (expense)
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7 | (3 | ) | 113 | (27 | ) | ||||||||||
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Minority equity in net loss
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— | — | 1 | – | ||||||||||||
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Income from continuing operations
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47 | 53 | 17 | 162 | ||||||||||||
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Discontinued operations:
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Loss from operations, net of tax expense
(benefit) of $0, $(1), $1 and $0
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— | (1 | ) | (1 | ) | (2 | ) | |||||||||
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Gain on dispositions, net of tax expense
(benefit) of $0, $0, $40 and $(104)
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1 | — | 206 | 104 | ||||||||||||
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Net income
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$ | 48 | $ | 52 | $ | 222 | $ | 264 | ||||||||
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Earnings Per Share — Basic
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Continuing operations
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$ | 0.23 | $ | 0.27 | $ | 0.09 | $ | 0.81 | ||||||||
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Discontinued operations
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0.01 | (0.01 | ) | 1.01 | 0.50 | |||||||||||
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Net income
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$ | 0.24 | $ | 0.26 | $ | 1.10 | $ | 1.31 | ||||||||
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Earnings per Share —
Diluted
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Continuing operations
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$ | 0.23 | $ | 0.26 | $ | 0.08 | $ | 0.79 | ||||||||
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Discontinued operations
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— | — | 1.00 | 0.50 | ||||||||||||
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Net income
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$ | 0.23 | $ | 0.26 | $ | 1.08 | $ | 1.29 | ||||||||
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Weighted average number of Shares
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203 | 201 | 202 | 201 | ||||||||||||
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Weighted average number of Shares assuming
dilution
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208 | 204 | 205 | 205 | ||||||||||||
The accompanying notes to financial statements are an integral part of the above statements.
4
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
| Three Months | Nine Months | |||||||||||||||
| Ended | Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
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Net income
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$ | 48 | $ | 52 | $ | 222 | $ | 264 | ||||||||
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Other comprehensive income (loss), net of taxes:
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Foreign currency translation
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6 | (17 | ) | 77 | (36 | ) | ||||||||||
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Unrealized holding gains
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(3 | ) | — | 5 | 3 | |||||||||||
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Minimum pension liability adjustments
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— | — | (3 | ) | — | |||||||||||
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Change in fair value of derivative instruments
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— | (1 | ) | (1 | ) | 6 | ||||||||||
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Early termination of derivative instruments
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— | — | — | 15 | ||||||||||||
| 3 | (18 | ) | 78 | (12 | ) | |||||||||||
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Comprehensive income
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$ | 51 | $ | 34 | $ | 300 | $ | 252 | ||||||||
The accompanying notes to financial statements are an integral part of the above statements.
5
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
| Nine Months Ended | |||||||||
| September 30, | |||||||||
| 2003 | 2002 | ||||||||
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Operating Activities
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Net income
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$ | 222 | $ | 264 | |||||
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Exclude:
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Discontinued operations
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(205 | ) | (102 | ) | |||||
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Income from continuing operations
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17 | 162 | |||||||
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Loss (gain) on asset dispositions and
impairments, net
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179 | (2 | ) | ||||||
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Depreciation and amortization
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327 | 365 | |||||||
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Changes in working capital
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83 | (12 | ) | ||||||
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Income taxes and other, net
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(90 | ) | 36 | ||||||
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Cash from continuing operations
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516 | 549 | |||||||
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Cash from discontinued operations
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10 | 12 | |||||||
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Cash from operating activities
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526 | 561 | |||||||
| < | |||||||||