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EX-32.2 - EX-32.2 - STARWOOD HOTEL & RESORTS WORLDWIDE, INC | p18205exv32w2.htm |
EX-31.1 - EX-31.1 - STARWOOD HOTEL & RESORTS WORLDWIDE, INC | p18205exv31w1.htm |
EX-31.2 - EX-31.2 - STARWOOD HOTEL & RESORTS WORLDWIDE, INC | p18205exv31w2.htm |
EX-32.1 - EX-32.1 - STARWOOD HOTEL & RESORTS WORLDWIDE, INC | p18205exv32w1.htm |
EXCEL - IDEA: XBRL DOCUMENT - STARWOOD HOTEL & RESORTS WORLDWIDE, INC | Financial_Report.xls |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended September 30, 2010
OR
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period from to
Commission File Number: 1-7959
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
(Exact name of Registrant as specified in its charter)
Maryland
(State or other jurisdiction
of incorporation or organization)
(State or other jurisdiction
of incorporation or organization)
52-1193298
(I.R.S. employer identification no.)
(I.R.S. employer identification no.)
1111 Westchester Avenue
White Plains, NY 10604
(Address of principal executive
offices, including zip code)
White Plains, NY 10604
(Address of principal executive
offices, including zip code)
(914) 640-8100
(Registrants telephone number,
including area code)
(Registrants telephone number,
including area code)
Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of the issuers classes of common stock, as of the
latest practicable date:
190,650,184 shares of common stock, par value $0.01 per share, outstanding as of October 22,
2010.
TABLE OF CONTENTS
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements |
The following unaudited consolidated financial statements of Starwood Hotels & Resorts
Worldwide, Inc. (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 Companys Annual
Report on Form 10-K for the year ended December 31, 2009 filed on February 25, 2010. See the notes
to consolidated financial statements for the basis of presentation. Certain reclassifications have
been made to the prior years financial statements to conform to the current year presentation.
The consolidated financial statements should be read in conjunction with Managements Discussion
and Analysis of Financial Condition and Results of Operations included in this filing. Results
for the three and nine months ended September 30, 2010 are not necessarily indicative of results to
be expected for the full fiscal year ending December 31, 2010.
2
Table of Contents
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 357 | $ | 87 | ||||
Restricted cash |
61 | 47 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $48 and $54 |
508 | 447 | ||||||
Securitized vacation ownership notes receivable, net of allowance for doubtful accounts of
$10 and $0 |
60 | | ||||||
Inventories |
778 | 783 | ||||||
Prepaid expenses and other |
159 | 127 | ||||||
Total current assets |
1,923 | 1,491 | ||||||
Investments |
314 | 344 | ||||||
Plant, property and equipment, net |
3,262 | 3,350 | ||||||
Assets held for sale |
| 71 | ||||||
Goodwill and intangible assets, net |
2,067 | 2,063 | ||||||
Deferred tax assets |
988 | 982 | ||||||
Other assets |
409 | 460 | ||||||
Securitized vacation ownership notes receivable, net |
439 | | ||||||
$ | 9,402 | $ | 8,761 | |||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Short-term borrowings and current maturities of long-term debt |
$ | 8 | $ | 5 | ||||
Current maturities of long-term securitized vacation ownership debt |
133 | | ||||||
Accounts payable |
148 | 139 | ||||||
Accrued expenses |
1,183 | 1,212 | ||||||
Accrued salaries, wages and benefits |
387 | 303 | ||||||
Accrued taxes and other |
323 | 368 | ||||||
Total current liabilities |
2,182 | 2,027 | ||||||
Long-term debt |
2,852 | 2,955 | ||||||
Long-term securitized vacation ownership debt |
399 | | ||||||
Deferred income taxes |
33 | 31 | ||||||
Other liabilities |
1,861 | 1,903 | ||||||
7,327 | 6,916 | |||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Common stock; $0.01 par value; authorized 1,000,000,000 shares; outstanding 190,567,514
and 186,785,068 shares at September 30, 2010 and December 31, 2009, respectively |
2 | 2 | ||||||
Additional paid-in capital |
682 | 552 | ||||||
Accumulated other comprehensive loss |
(290 | ) | (283 | ) | ||||
Retained earnings |
1,665 | 1,553 | ||||||
Total Starwood stockholders equity |
2,059 | 1,824 | ||||||
Noncontrolling interest |
16 | 21 | ||||||
Total equity |
2,075 | 1,845 | ||||||
$ | 9,402 | $ | 8,761 | |||||
The accompanying notes to financial statements are an integral part of the above statements.
3
Table of Contents
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
||||||||||||||||
Owned, leased and consolidated joint venture hotels |
$ | 427 | $ | 388 | $ | 1,245 | $ | 1,154 | ||||||||
Vacation ownership and residential sales and services |
132 | 126 | 402 | 387 | ||||||||||||
Management fees, franchise fees and other income |
173 | 163 | 503 | 473 | ||||||||||||
Other revenues from managed and franchised properties |
523 | 479 | 1,581 | 1,436 | ||||||||||||
1,255 | 1,156 | 3,731 | 3,450 | |||||||||||||
Costs and Expenses |
||||||||||||||||
Owned, leased and consolidated joint venture hotels |
352 | 323 | 1,028 | 972 | ||||||||||||
Vacation ownership and residential |
98 | 102 | 302 | 306 | ||||||||||||
Selling, general, administrative and other |
90 | 84 | 258 | 235 | ||||||||||||
Restructuring, goodwill impairment and other special charges (credits), net |
(1 | ) | 2 | (2 | ) | 24 | ||||||||||
Depreciation |
64 | 69 | 196 | 206 | ||||||||||||
Amortization |
7 | 11 | 24 | 25 | ||||||||||||
Other expenses from managed and franchised properties |
523 | 479 | 1,581 | 1,436 | ||||||||||||
1,133 | 1,070 | 3,387 | 3,204 | |||||||||||||
Operating income |
122 | 86 | 344 | 246 | ||||||||||||
Equity (losses) earnings and gains and losses from unconsolidated ventures, net |
(1 | ) | (3 | ) | 5 | (5 | ) | |||||||||
Interest expense, net of interest income of $0, $0, $1 and $2 |
(59 | ) | (60 | ) | (180 | ) | (156 | ) | ||||||||
Gain (loss) on asset dispositions and impairments, net |
(56 | ) | (23 | ) | (35 | ) | (49 | ) | ||||||||
Income from continuing operations before taxes and noncontrolling interests |
6 | | 134 | 36 | ||||||||||||
Income tax benefit (expense) |
(11 | ) | 36 | (32 | ) | 147 | ||||||||||
Income (loss) from continuing operations |
(5 | ) | 36 | 102 | 183 | |||||||||||
Discontinued operations: |
||||||||||||||||
Income (loss) from operations, net of tax (benefit) expense of $1, $(1), $1
and $(1) |
(1 | ) | | (2 | ) | (1 | ) | |||||||||
Gain (loss) on dispositions, net of tax (benefit) expense of $0, $(8), $(34)
and $(13) |
| 4 | 36 | (4 | ) | |||||||||||
Net income (loss) |
(6 | ) | 40 | 136 | 178 | |||||||||||
Net (income) loss attributable to noncontrolling interests |
| | 2 | 2 | ||||||||||||
Net income (loss) attributable to Starwood |
$ | (6 | ) | $ | 40 | $ | 138 | $ | 180 | |||||||
Earnings (Loss) Per Share Basic |
||||||||||||||||
Continuing operations |
$ | (0.03 | ) | $ | 0.20 | $ | 0.57 | $ | 1.03 | |||||||
Discontinued operations |
0.00 | 0.02 | 0.19 | (0.03 | ) | |||||||||||
Net income (loss) |
$ | (0.03 | ) | $ | 0.22 | $ | 0.76 | $ | 1.00 | |||||||
Earnings (Loss) per Share Diluted |
||||||||||||||||
Continuing operations |
$ | (0.03 | ) | $ | 0.20 | $ | 0.55 | $ | 1.02 | |||||||
Discontinued operations |
0.00 | 0.02 | 0.18 | (0.03 | ) | |||||||||||
Net income (loss) |
$ | (0.03 | ) | $ | 0.22 | $ | 0.73 | $ | 0.99 | |||||||
Amounts attributable to Starwoods Common Shareholders |
||||||||||||||||
Continuing operations |
$ | (5 | ) | $ | 36 | $ | 104 | $ | 185 | |||||||
Discontinued operations |
(1 | ) | 4 | 34 | (5 | ) | ||||||||||
Net income (loss) |
$ | (6 | ) | $ | 40 | $ | 138 | $ | 180 | |||||||
Weighted average number of shares |
183 | 180 | 182 | 180 | ||||||||||||
Weighted average number of shares assuming dilution |
183 | 185 | 189 | 183 | ||||||||||||
The accompanying notes to financial statements are an integral part of the above statements.
4
Table of Contents
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) |
$ | (6 | ) | $ | 40 | $ | 136 | $ | 178 | |||||||
Other comprehensive income (loss), net of taxes: |
||||||||||||||||
Foreign currency translation adjustments |
95 | 53 | (6 | ) | 88 | |||||||||||
Less: Recognition of accumulated foreign currency
translation adjustments on sold hotels |
| | | (13 | ) | |||||||||||
Change in fair value of derivatives |
(3 | ) | (1 | ) | (2 | ) | | |||||||||
Reclassification adjustments for loss (gains) included
in net income |
2 | (3 | ) | 1 | (6 | ) | ||||||||||
Defined benefit pension plans net gain |
| | | 11 | ||||||||||||
Amortization of actuarial losses included in net income |
1 | 2 | 1 | 4 | ||||||||||||
Change in fair value of investments |
| | (1 | ) | | |||||||||||
Reclassification for gains and amortization included in
net income |
| | | 1 | ||||||||||||
95 | 51 | (7 | ) | 85 | ||||||||||||
Comprehensive income |
89 | 91 | 129 | 263 | ||||||||||||
Comprehensive loss attributable to noncontrolling
interests |
| | 2 | 2 | ||||||||||||
Foreign currency translation adjustments attributable to
noncontrolling interests |
| (1 | ) | | (1 | ) | ||||||||||
Comprehensive income attributable to Starwood |
$ | 89 | $ | 90 | $ | 131 | $ | 264 | ||||||||
The accompanying notes to financial statements are an integral part of the above statements.
5
Table of Contents
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
(Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Operating Activities |
||||||||
Net income |
$ | 136 | $ | 178 | ||||
Adjustments to net income: |
||||||||
Discontinued operations: |
||||||||
(Gain) loss on dispositions, net |
(36 | ) | 4 | |||||
Depreciation and amortization |
| 7 | ||||||
Depreciation and amortization |
220 | 231 | ||||||
Amortization of deferred gains |
(60 | ) | (61 | ) | ||||
Non-cash portion of restructuring and other special charges (credits), net |
| 1 | ||||||
(Gain) loss on asset dispositions and impairments, net |
35 | 49 | ||||||
Stock-based compensation expense |
54 | 39 | ||||||
Excess stock-based compensation tax benefit |
(8 | ) | | |||||
Distributions in excess (deficit) of equity earnings |
4 | 28 | ||||||
(Gain) loss on the sale of VOI notes receivable |
| (1 | ) | |||||
Non-cash portion of income tax (benefit) expense |
5 | (128 | ) | |||||
Other non-cash adjustments to net income |
28 | 57 | ||||||
Decrease (increase) in restricted cash |
3 | 58 | ||||||
Other changes in working capital |
(70 | ) | (97 | ) | ||||
Securitized VOI notes receivable activity, net |
(60 | ) | | |||||
Unsecuritized VOI notes receivable activity, net |
42 | 36 | ||||||
Accrued and deferred income taxes and other |
10 | (54 | ) | |||||
Cash (used for) from operating activities |
303 | 347 | ||||||
Investing Activities |
||||||||
Purchases of plant, property and equipment |
(119 | ) | (144 | ) | ||||
Proceeds from asset sales, net of transaction costs |
144 | 98 | ||||||
(Issuance) collection of notes receivable, net |
| (1 | ) | |||||
Acquisitions, net of acquired cash |
(18 | ) | | |||||
Proceeds from (to) investments, net |
(25 | ) | 25 | |||||
Other, net |
9 | (14 | ) | |||||
Cash (used for) from investing activities |
(9 | ) | (36 | ) | ||||
Financing Activities |
||||||||
Revolving credit facility and short-term borrowings (repayments), net |
(114 | ) | (56 | ) | ||||
Long-term debt issued |
3 | 482 | ||||||
Long-term debt repaid |
(8 | ) | (1,080 | ) | ||||
Long-term securitized debt issued |
280 | | ||||||
Long-term securitized debt repaid |
(185 | ) | | |||||
Dividends paid |
(37 | ) | (165 | ) | ||||
Proceeds from employee stock option exercises |
56 | 1 | ||||||
Excess stock-based compensation tax benefit |
8 | | ||||||
Other, net |
(28 | ) | 227 | |||||
Cash (used for) from financing activities |
(25 | ) | (591 | ) | ||||
Exchange rate effect on cash and cash equivalents |
1 | 4 | ||||||
(Decrease) increase in cash and cash equivalents |
270 | (276 | ) | |||||
Cash and cash equivalents beginning of period |
87 | 389 | ||||||
Cash and cash equivalents end of period |
$ | 357 | $ | 113 | ||||
Supplemental Disclosures of Cash Flow Information |
||||||||
Cash paid (received) during the period for: |
||||||||
Interest |
$ | 158 | $ | 116 | ||||
Income taxes, net of refunds |
$ | 44 | $ | (9 | ) | |||
The accompanying notes to financial statements are an integral part of the above statements.
6
Table of Contents
Note 1. Basis of Presentation
The accompanying consolidated financial statements represent the consolidated financial
position and consolidated results of operations of Starwood Hotels & Resorts Worldwide, Inc. and
its subsidiaries (the Company or Starwood).
The consolidated financial statements include the accounts of the Company and all of its
controlled subsidiaries and partnerships. In consolidating, all material intercompany transactions
are eliminated. We have evaluated all subsequent events through the date the consolidated
financial statements were filed.
Starwood is one of the worlds largest hotel and leisure companies. The Companys principal
business is hotels and leisure, which is comprised of a worldwide hospitality network of over 1,000 hotels, vacation ownership resorts and residential developments primarily serving two
markets: luxury and upscale. The principal operations of Starwood Vacation Ownership, Inc.
(SVO) include the acquisition, development and operation of vacation ownership resorts; marketing
and selling vacation ownership interests (VOIs) in the resorts; and providing financing to
customers who purchase such interests.
Note 2. Recently Issued Accounting Standards
Adopted Accounting Standards
In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of
Financial Assets (formerly Statement of Financial Accounting Standards (SFAS) No. 166), and ASU
No. 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities (formerly SFAS No. 167).
ASU No. 2009-16 amended the accounting for transfers of financial assets. Under ASU No.
2009-16, the qualifying special purpose entities (QSPEs) used in the Companys securitization
transactions are no longer exempt from consolidation. ASU No. 2009-17 prescribes an ongoing
assessment of the Companys involvement in the activities of the QSPEs and the Companys rights or
obligations to receive benefits or absorb losses of the trusts that could be potentially
significant in order to determine whether those variable interest entities (VIEs) will be
required to be consolidated in the Companys financial statements. In accordance with ASU No.
2009-17, the Company concluded it is the primary beneficiary of the QSPEs and accordingly, the
Company began consolidating the QSPEs on January 1, 2010 (see Notes 7 and 10). Using the carrying
amounts of the assets and liabilities of the QSPEs as prescribed by ASU No. 2009-17 and any
corresponding elimination of activity between the QSPEs and the Company resulting from the
consolidation on January 1, 2010, the Company recorded a $417 million increase in total assets, a
$444 million increase in total liabilities, a $26 million (net of tax) decrease in beginning
retained earnings and a $1 million decrease to stockholders equity. The Company has additional
VIEs whereby the Company was determined not to be the primary beneficiary (see Note 21).
Beginning January 1, 2010, the Companys balance sheet and statement of income no longer
reflect activity related to its retained economic interests (Retained Interests), but instead
reflects activity related to its securitized vacation ownership notes receivable and the
corresponding securitized debt, including interest income, loan loss provisions, and interest
expense. Interest income and loan loss provisions associated with the securitized vacation
ownership notes receivable are included in the vacation ownership and residential sales and
services line item resulting in an increase of $26 million in the nine months ended September 30,
2010 as compared to the same period in 2009. Interest expense of $21 million was recorded in the
nine months ended September 30, 2010. The cash flows from borrowings and repayments associated
with the securitized vacation ownership debt are now presented as cash flows from financing
activities. The Company does not expect to recognize gains or losses from future securitizations
as a result of the adoption of this new guidance.
The Companys statement of income for the three and nine months ended September 30, 2009 and
its balance sheet as of December 31, 2009 have not been retrospectively adjusted to reflect the
adoption of ASU Nos. 2009-16 and 2009-17. Therefore, current period results and balances will not
be comparable to prior period amounts, particularly with regards to:
| Restricted cash | ||
| Other assets | ||
| Investments |
7
Table of Contents
| Vacation ownership and residential sales and services | ||
| Interest expense |
In January 2010, the FASB issued ASU No. 2010-06 Fair Value Measurements and Disclosures
(Topic 820): Improving Disclosures about Fair Value Measurements, which amends certain guidance
of FASB Accounting Standards Codification (ASC) 820. The amendment requires enhanced disclosures
about valuation techniques and inputs to fair value measurements. This topic is effective for
interim and annual reporting periods beginning after December 15, 2009. The Company adopted this
topic on January 1, 2010 and it had no material impact on the Companys consolidated financial
statements.
Future Adoption of Accounting Standards
In October 2009, the FASB issued ASU No. 2009-13 Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements, which supersedes certain guidance in ASC 605-25,
Revenue Recognition Multiple Element Arrangements. This topic requires an entity to allocate
arrangement consideration at the inception of an arrangement to all of its deliverables based on
their relative selling prices. This topic is effective for annual reporting periods beginning
after June 15, 2010. The Company is currently evaluating the impact that this topic will have on
its consolidated financial statements.
In July 2010, the FASB issued ASU No. 2010-20 Receivables (Topic 310): Disclosures about the
Credit Quality of Financing Receivables and the Allowance for Credit Losses. This topic requires
disclosures of financing receivables and allowance for credit losses on a disaggregated basis. The
balance sheet related disclosures are required beginning at December 31, 2010 and the statements of
income disclosures are required, beginning for the three months ended March 31, 2011.
Note 3. Earnings (Losses) Per Share
Basic and diluted earnings (losses) per share are calculated using income (loss) from
continuing operations attributable to Starwoods common shareholders (i.e. excluding amounts
attributable to noncontrolling interests).
The following is a reconciliation of basic earnings per share to diluted earnings per share
for income from continuing operations (in millions, except per share data):
Three Months Ended September 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Earnings | Per | Per | ||||||||||||||||||||||
(Losses) | Shares | Share | Earnings | Shares | Share | |||||||||||||||||||
Basic (losses) earnings from continuing operations |
$ | (5 | ) | 183 | $ | (0.03 | ) | $ | 36 | 180 | $ | 0.20 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||||||||||
Stock options and restricted stock and unit awards |
| | | | 5 | | ||||||||||||||||||
Diluted (losses) earnings from continuing operations |
$ | (5 | ) | 183 | $ | (0.03 | ) | $ | 36 | 185 | $ | 0.20 | ||||||||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Per | Per | |||||||||||||||||||||||
Earnings | Shares | Share | Earnings | Shares | Share | |||||||||||||||||||
Basic earnings from continuing operations |
$ | 104 | 182 | $ | 0.57 | $ | 185 | 180 | $ | 1.03 | ||||||||||||||
Effect of dilutive securities: |
||||||||||||||||||||||||
Stock options and restricted stock and unit awards |
| 7 | (0.02 | ) | | 3 | (0.01 | ) | ||||||||||||||||
Diluted earnings from continuing operations |
$ | 104 | 189 | $ | 0.55 | $ | 185 | 183 | $ | 1.02 | ||||||||||||||
Approximately 20 million and 8 million shares for the three months ended September 30,
2010 and 2009, respectively, and 5 million and 10 million shares for the nine months ended
September 30, 2010 and 2009, respectively, were excluded from the computation of diluted shares,
respectively, as their impact would have been anti-dilutive.
8
Table of Contents
Note 4. Acquisitions
During the second quarter of 2010, the Company paid approximately $23 million to acquire a
controlling interest in a joint venture in which it had previously held a non-controlling interest.
The primary business of the joint venture is to develop, license and manage restaurant concepts.
The acquisition took place after one of the Companys former partners exercised its right to put
its interest to the Company in accordance with the terms of the joint venture agreement. In
accordance with ASC 805, Business Combinations, when an acquirer obtains a controlling position as
a result of a step acquisition, the acquirer is required to remeasure its previously held
investment to fair value and record the difference between fair value and its carrying value in the
statement of income. This acquisition resulted in a gain of $5 million which was recorded in the
gain (loss) on asset dispositions and impairments, net line item. The fair values of the assets
and liabilities acquired have been recorded in Starwoods consolidated balance sheet, including the
resulting goodwill of approximately $26 million. The results of operations going forward from the
acquisition date have been included in Starwoods consolidated statements of income.
Note 5. Asset Dispositions and Impairments
During the third quarter of 2010, the Company sold one wholly-owned hotel for cash proceeds of
approximately $70 million and recognized a loss of $53 million. This hotel was sold subject to a
long-term management contract. Additionally, in the third quarter the Company recorded impairment
charges of $3 million related to a vacation ownership property and an investment in a hotel
management contract.
During the second quarter of 2010, the Company recorded a gain of approximately $20 million
primarily related to insurance proceeds for an owned hotel damaged by a tornado and a gain on an
acquisition discussed in Note 4.
During the first quarter of 2010, the Company recorded a net gain of approximately $1 million
related to the sale of its minority interest in a joint venture that owned one hotel and the sale
of a non-core asset, partially offset by losses on the termination of two management contracts.
During the third quarter of 2009, the Company sold a wholly-owned hotel for cash proceeds of
approximately $90 million. This hotel was sold subject to a long-term management contract, and the
Company recorded a deferred gain of $8 million in connection with the sale. Additionally, the
Company recorded a $13 million impairment of an investment in a hotel management contract that was
cancelled shortly thereafter, a $6 million impairment of the Companys retained economic interests
in securitized receivables, and a $3 million impairment of a property that is no longer in operation.
During the second quarter of 2009, the Company recorded impairment charges of $21 million
related to economic interests in securitized receivables, a hotel management contract and certain fixed
assets.
During the first quarter of 2009, the Company sold one wholly-owned hotel in exchange for a
long-term agreement to manage the hotel. The Company recorded a loss on the sale of $5 million
which was recorded in the gain/loss on asset dispositions and impairments, net line item of the
Companys consolidated statements of income.
Note 6. Other Assets
Other assets include the following (in millions):
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
VOI notes receivable, net |
$ | 107 | $ | 222 | ||||
Other notes receivable, net |
43 | 34 | ||||||
Prepaid taxes |
113 | 103 | ||||||
Deposits and other |
146 | 101 | ||||||
$ | 409 | $ | 460 | |||||
The weighted average interest rate of the VOI notes receivables at September 30, 2010 and
December 31, 2009 was 11.95% and 11.77%, respectively.
9
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Note 7. Securitized Vacation Ownership Notes Receivable
The Company has variable interests in the entities associated with its five outstanding
securitization transactions. The Company applied the variable interest model and determined it is
the primary beneficiary of these VIEs. In making this determination, the Company evaluated the
activities that significantly impact the economics of the VIEs, including the management of the
securitized notes receivable and any related non-performing loans. The Company also evaluated its
retention of the residual economic interests in the related VIEs. The Company is the servicer of
the securitized mortgage receivables. The Company also has the option, subject to certain
limitations, to repurchase or replace VOI notes receivable, that are in default, at their
outstanding principal amounts. Such activity totaled $10 million and $30 million during the three
and nine months ended September 30, 2010, respectively compared to $8 million and $21 million
during the three and nine months ended September 30, 2009. The Company has been able to resell the
VOIs underlying the VOI notes repurchased or replaced under these provisions without incurring
significant losses. The Company holds the risk of potential loss (or gain) as the last to be paid
out by proceeds of the VIEs under the terms of the agreements. As such, the Company holds both the
power to direct the activities of the VIEs and obligation to absorb the losses (or benefits) from
the VIEs.
The securitization agreements are without recourse to the Company, except for breaches of
representations and warranties. Based on the right of the Company to fund defaults at its option,
subject to certain limitations, it intends to do so until the debt is extinguished to maintain the
credit rating of the underlying notes.
Upon transfer of vacation ownership notes receivable to the VIEs, the receivables and certain
cash flows derived from them become restricted for use in meeting obligations to the VIE creditors.
The VIEs utilize trusts which have ownership of cash balances that also have restrictions, the
amounts of which are reported in restricted cash. The Companys interests in trust assets are
subordinate to the interests of third-party investors and, as such, may not be realized by the
Company if needed to absorb deficiencies in cash flows that are allocated to the investors in the
trusts debt (see Note 10). The Company is contractually obligated to receive the excess cash flows
(spread between the collections on the notes and third party obligations defined in the
securitization agreements) from the VIEs. Such activity totaled $12 million and $32 million during
the three and nine months ended September 30, 2010, respectively, and is classified in cash and
cash equivalents when received.
During the third quarter of 2010, the Company completed the securitization of approximately
$300 million of vacation ownership notes receivable. As a result of ASU 2009-16 and 2009-17
adopted on January 1, 2010, securitization transactions no longer qualify as sales for accounting
purposes and, accordingly, no gain or loss was recognized. Approximately $93 million of proceeds
from this transaction were used to terminate the securitization completed in June 2009 by repaying
the outstanding principal and interest on the securitized debt. In connection with the
termination, a charge of $5 million was recorded to interest expense, relating to the settlement of
a balance guarantee interest rate swap and the write-off of deferred financing costs. The net cash
proceeds from the securitization after termination of the 2009 securitization and associated deal
costs were approximately $180 million.
The carrying values of the securitized vacation ownership notes receivable consolidated on the
Companys balance sheets as of September 30, 2010 relating to securitization activities are as
follows (in millions):
Securitized vacation ownership notes receivables |
$ | 587 | ||
Allowance for loan losses |
(88 | ) | ||
Net notes receivable |
499 | |||
Less: current notes receivable, net |
(60 | ) | ||
Carrying value of long-term securitized vacation ownership notes receivable, net |
$ | 439 | ||
The weighted average interest rate of the securitized vacation ownership notes receivable at
September 30, 2010 and December 31, 2009 was 12.71% and 12.80%, respectively.
Additionally, restricted cash of $21 million and deferred financing fees net of $8 million
related to its VIEs are recorded as restricted cash and other assets, respectively, on the
Companys balance sheet.
With respect to balances outstanding at December 31, 2009 and activity for the three and nine
months ended September 30, 2009, prior to the adoption of ASU Nos. 2009-16 and 2009-17, the
Companys Retained Interests had the following impacts on the financial statements:
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Gross credit losses for all VOI notes receivable that have been securitized totaled $12
million and $30 million during the three and nine months ended September 30, 2009, respectively.
The Company received aggregate cash proceeds of $5 million and $16 million from the Retained
Interests during the three and nine months ended September 30, 2009, respectively, and aggregate
servicing fees of $1 million and $3 million related to these VOI notes receivable in the three and
nine months ended September 30, 2009, respectively.
As of December 31, 2009, the aggregate net present value and carrying value of the Retained
Interests for the Companys five outstanding note securitizations was approximately $25 million,
with the following key assumptions used in measuring the fair value: an average discount rate of
7.8%, an average expected annual prepayment rate including defaults of 15.8%, and an expected
weighted average remaining life of prepayable notes receivable of 86 months.
Note 8. Fair Value
The following table represents the Companys fair value hierarchy for its financial assets and
liabilities measured at fair value on a recurring basis as of September 30, 2010 (in millions):
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: |
||||||||||||||||
Forward contracts |
$ | | $ | 15 | $ | | $ | 15 | ||||||||
Interest rate swaps |
| 20 | | 20 | ||||||||||||
$ | | $ | 35 | $ | | $ | 35 | |||||||||
Liabilities: |
||||||||||||||||
Forward contracts |
$ | | $ | 11 | $ | | $ | 11 |
The following table represents the Companys fair value hierarchy for its financial
assets and liabilities measured at fair value on a recurring basis as of December 31, 2009 (in
millions):
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: |
||||||||||||||||
Interest rate swaps |
$ | | $ | 7 | $ | | $ | 7 | ||||||||
Retained interests |
| | 25 | 25 | ||||||||||||
$ | | $ | 7 | $ | 25 | $ | 32 | |||||||||
Liabilities: |
||||||||||||||||
Forward contracts |
$ | | $ | 7 | $ | | $ | 7 |
The forward contracts are over-the-counter contracts that do not trade on a public
exchange. The fair values of the contracts are based on inputs such as foreign currency spot rates
and forward points that are readily available on public markets, and as such, are classified as
Level 2. The Company considered both its credit risk, as well as its counterparties credit risk in
determining fair value and no adjustment was made as it was deemed insignificant based on the short
duration of the contracts and the Companys rate of short-term debt.
The interest rate swaps are valued using an income approach. Expected future cash flows are
converted to a present value amount based on market expectations of the yield curve on floating
interest rates, which is readily available on public markets.
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The following table presents a reconciliation of the Companys Retained Interests measured at
fair value on a recurring basis using significant unobservable inputs (Level 3) from December 31,
2009 to September 30, 2010 (in millions):
Balance at December 31, 2009 |
$ | 25 | ||
Adoption of ASU No. 2009-17 |
(25 | ) | ||
Balance at September 30, 2010 |
$ | | ||
Note 9. Debt
Long-term debt and short-term borrowings consisted of the following, excluding securitized
vacation ownership debt (in millions):
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Revolving Credit Facility, interest rates ranging from 3.06% to 4.40% at
September 30, 2010, maturing 2013 |
$ | | $ | | ||||
Revolving Credit Facility |
| 114 | ||||||
Senior Notes, interest at 7.875%, maturing 2012 |
610 | 608 | ||||||
Senior Notes, interest at 6.25%, maturing 2013 |
506 | 498 | ||||||
Senior Notes, interest at 7.875%, maturing 2014 |
491 | 485 | ||||||
Senior Notes, interest at 7.375%, maturing 2015 |
450 | 449 | ||||||
Senior Notes, interest at 6.75%, maturing 2018 |
400 | 400 | ||||||
Senior Notes, interest at 7.15%, maturing 2019 |
244 | 244 | ||||||
Mortgages and other, interest rates ranging from 1.64% to 9.00%, various maturities |
159 | 162 | ||||||
2,860 | 2,960 | |||||||
Less current maturities |
(8 | ) | (5 | ) | ||||
Long-term debt |
$ | 2,852 | $ | 2,955 | ||||
On April 20, 2010, the Company entered into a new $1.5 billion senior credit facility (New
Facility). The New Facility matures on November 15, 2013 and replaced the former $1.875 billion
revolving credit agreement, which would have matured on February 11, 2011.
Note 10. Securitized Vacation Ownership Debt
As discussed in Note 7, the Companys VIEs associated with the securitization of its vacation
ownership notes receivable were consolidated following the adoption of ASU Nos. 2009-16 and
2009-17. As of September 30, 2010, long-term and short-term securitized vacation ownership debt
consisted of the following (in millions):
2003 securitization, interest rates ranging from 3.95% to 6.96%, maturing 2017
|
$ | 20 | ||
2005 securitization, interest rates ranging from 5.25% to 6.29%, maturing 2018 |
60 | |||
2006 securitization, interest rates ranging from 5.28% to 5.85%, maturing 2018 |
42 | |||
2009 securitization, interest rate at 5.81%, maturing 2016 |
136 | |||
2010 securitization, interest rates ranging from 3.65% to 4.75%, maturing 2022 |
274 | |||
532 | ||||
Less current maturities |
(133 | ) | ||
Long-term debt |
$ | 399 | ||
Note 11. Deferred Gains
The Company defers gains realized in connection with the sale of a property that the Company
continues to manage through a long-term management agreement and recognizes the gains over the
initial term of the related agreement. As of September 30, 2010 and December 31, 2009, the Company
had total deferred gains of approximately $1.0 billion and $1.1 billion, respectively, included in
accrued expenses and other liabilities in the Companys consolidated balance sheets. Amortization
of deferred gains is included in management fees, franchise fees and other income in the Companys
consolidated statements of income and totaled approximately $20 million, $21 million, $60 million
and $61 million in the three and nine months ended September 30, 2010 and 2009, respectively.
12
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Note 12. Restructuring and Other Special Charges (Credits), Net
During the three and nine months ended September 30, 2010, the Company recorded restructuring
credits of $1 million and $2 million, respectively associated with the reversal of previous
restructuring reserves no longer deemed necessary. During the three and nine months ended
September 30, 2009, the Company recorded restructuring charges of $2 million and $24 million,
respectively in connection with its previous initiative of rationalizing its cost structure in
light of the decline in growth in its business units.
Restructuring costs and other special charges (credits), net, by segment are as follows: (in
millions):
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Hotel |
$ | | $ | 1 | $ | (1 | ) | $ | 14 | |||||||
Vacation Ownership & Residential |
(1 | ) | 1 | (1 | ) | 10 | ||||||||||
Total |
$ | (1 | ) | $ | 2 | $ | (2 | ) | $ | 24 | ||||||
The Company had remaining accruals of $22 million and $26 million as of September 30,
2010 and December 31, 2009, respectively, which are primarily related to long-term liabilities for
certain obligations in the vacation ownership business that are expected to be paid out in future
years.
Note 13. Derivative Financial Instruments
The Company, based on market conditions, enters into forward contracts to manage foreign
exchange risk. The Company enters into forward contracts to hedge forecasted transactions based in
certain foreign currencies, including the Euro, Canadian Dollar and Yen. These forward contracts
have been designated and qualify as cash flow hedges, and their change in fair value is recorded as
a component of other comprehensive income and reclassified into earnings in the same period or
periods in which the forecasted transaction occurs. To qualify as a hedge, the Company needs to
formally document, designate and assess the effectiveness of the transactions that receive hedge
accounting. The notional dollar amounts of the outstanding Euro and Yen forward contracts at
September 30, 2010 are $34 million and $8 million, respectively, with average exchange rates of 1.3
and 85.2, respectively, with terms of primarily less than one year. The Company reviews the
effectiveness of its hedging instruments on a quarterly basis and records any ineffectiveness into
earnings. The Company discontinues hedge accounting for any hedge that is no longer evaluated to
be highly effective. From time to time, the Company may choose to de-designate portions of hedges
when changes in estimates of forecasted transactions occur. Each of these hedges was highly
effective in offsetting fluctuations in foreign currencies.
The Company also enters into forward contracts to manage foreign exchange risk on intercompany
loans that are not deemed permanently invested. These forward contracts are not designated as
hedges, and their change in fair value is recorded in the Companys consolidated statements of
income during each reporting period.
The Company enters into interest rate swap agreements to manage interest expense. The
Companys objective is to manage the impact of interest rates on the results of operations, cash
flows and the market value of the Companys debt. At September 30, 2010, the Company has six
interest rate swap agreements with an aggregate notional amount of $500 million under which the
Company pays floating rates and receives fixed rates of interest (Fair Value Swaps). The Fair
Value Swaps hedge the change in fair value of certain fixed rate debt related to fluctuations in
interest rates and mature in 2012, 2013 and 2014. The Fair Value Swaps modify the Companys
interest rate exposure by effectively converting debt with a fixed rate to a floating rate. These
interest rate swaps have been designated and qualify as fair value hedges.
As a result of the adoption of ASU No. 2009-17 (see Note 2) the Company was required to
consolidate a balance guarantee interest rate swap derivative that was executed by the VIE in
connection with the Companys June 2009 securitization transaction. The purpose of the swap was to
mitigate the variability in cash flows associated with the underlying variable interest rate debt.
As a result of the termination of the June 2009 securitization in the third quarter of 2010 (see
Note 7), the associated derivative was settled resulting in a loss of approximately $3 million
recorded in interest expense.
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Table of Contents
The counterparties to the Companys derivative financial instruments are major financial
institutions. The Company evaluates the bond ratings of the financial institutions and believes
that credit risk is at an acceptable level.
The following tables summarize the fair value of our derivative instruments, the effect of
derivative instruments on our consolidated statements of comprehensive income, the amounts
reclassified from other comprehensive income and the effect on the consolidated statements of
income during the quarter.
Fair Value of Derivative Instruments
(in millions)
(in millions)
September 30, | December 31, | |||||||||||
2010 | 2009 | |||||||||||
Balance Sheet | Fair | Balance Sheet | Fair | |||||||||
Location | Value | Location | Value | |||||||||
Derivatives designated as hedging instruments |
||||||||||||
Asset Derivatives |
||||||||||||
Forward contracts |
Prepaid and other current assets | $ | | Prepaid and other current assets | $ | | ||||||
Interest rate swaps |
Other assets | 20 | Other assets | 7 | ||||||||
Total assets |
$ | 20 | $ | 7 | ||||||||
Liability Derivatives |
||||||||||||
Forward contracts |
Accrued expenses | $ | 1 | Accrued expenses | $ | | ||||||
Total liabilities |
$ | 1 | $ | | ||||||||
September 30, | December 31, | |||||||||||
2010 | 2009 | |||||||||||
Balance Sheet | Fair | Balance Sheet | Fair | |||||||||
Location | Value | Location | Value | |||||||||
Derivatives not
designated as hedging
instruments |
||||||||||||
Asset Derivatives |
||||||||||||
Forward contracts |
Prepaid and other current assets | $ | 15 | Prepaid and other current assets | $ | | ||||||
Total assets |
$ | 15 | $ | | ||||||||
Liability Derivatives |
||||||||||||
Forward contracts |
Accrued expenses | $ | 10 | Accrued expenses | $ | 7 | ||||||
Total liabilities |
$ | 10 | $ | 7 | ||||||||
14
Table of Contents
Consolidated Statements of Income and Comprehensive Income
for the Three and Nine Months Ended September 30, 2010 and 2009
(in millions)
for the Three and Nine Months Ended September 30, 2010 and 2009
(in millions)
Balance at June 30, 2010 |
$ | | ||
Mark-to-market loss (gain) on forward exchange contracts |
3 | |||
Reclassification of gain (loss) from OCI to management fees,
franchise fees, and
other income and to interest expense |
(2 | ) | ||
Balance at September 30, 2010 |
$ | 1 | ||
Balance at December 31, 2009 |
$ | | ||
Mark-to-market loss (gain) on forward exchange contracts |
2 | |||
Reclassification of gain (loss) from OCI to management fees,
franchise fees, and
other income and to interest expense |
(1 | ) | ||
Balance at September 30, 2010 |
$ | 1 | ||
Balance at June 30, 2009 |
$ | (4 | ) | |
Mark-to-market loss (gain) on forward exchange contracts |
1 | |||
Reclassification of gain (loss) from OCI to management fees,
franchise fees, and
other income |
3 | |||
Balance at September 30, 2009 |
$ | | ||
Balance at December 31, 2008 |
$ | (6 | ) | |
Mark-to-market loss (gain) on forward exchange contracts |
| |||
Reclassification of gain (loss) from OCI to management fees,
franchise fees, and
other income |
6 | |||
Balance at September 30, 2009 |
$ | | ||
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Table of Contents
Derivatives Not | Location of Gain | Amount of Gain | ||||||||||
Designated as Hedging | or (Loss) Recognized | or (Loss) Recognized | ||||||||||
Instruments | in Income on Derivative | in Income on Derivative | ||||||||||
Three Months Ended | ||||||||||||
September 30, | ||||||||||||
2010 | 2009 | |||||||||||
Foreign forward
exchange contracts |
Interest expense, net | $ | 9 | $ | (1 | ) | ||||||
Total (loss) gain
included in income |
$ | 9 | $ | (1 | ) | |||||||
Nine Months Ended | ||||||||||||
September 30, | ||||||||||||
2010 | 2009 | |||||||||||
Foreign forward
exchange contracts |
Interest expense, net | $ | (27 | ) | $ | (8 | ) | |||||
Total (loss) gain
included in income |
$ | (27 | ) | $ | (8 | ) | ||||||
Note 14. Discontinued Operations
During the third quarter of 2010, the Company recorded a $1 million tax charge in discontinued
operations related to an uncertain tax position.
During the nine months ended September 30, 2010, the Company recorded a gain of approximately
$36 million, primarily related to a tax benefit in connection with the sale of one wholly-owned
hotel for $78 million. The tax benefit was related to the realization of a high tax basis in these
hotels that was generated through a previous transaction. In addition, discontinued operations includes a $2 million
charge primarily related to an uncertain tax position.
During the third quarter of 2009, the Company recorded a gain of $4 million, primarily related
to a tax benefit in connection with the sale of one wholly-owned hotel for $6 million.
During the nine months ended September 30, 2009, the loss on asset dispositions of $4 million
primarily relates to the loss on the disposition of three wholly-owned hotels, partially offset by
a tax benefit. In addition, discontinued operations includes a $2 million charge related to operations of assets that
were disposed, offset by a $1 million tax benefit.
16
Table of Contents
Note 15. Pension and Postretirement Benefit Plans
The following table presents the components of net period benefit cost for the three and nine
months ended September 30, 2010 and 2009 (in millions):
Three Months Ended September 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Foreign | Foreign | |||||||||||||||||||||||
Pension | Pension | Postretirement | Pension | Pension | Postretirement | |||||||||||||||||||
Benefits | Benefits | Benefits | Benefits | Benefits | Benefits | |||||||||||||||||||
Service cost |
$ | | $ | | $ | | $ | | $ | 1.1 | $ | | ||||||||||||
Interest cost |
0.2 | 2.6 | 0.2 | 0.2 | 3.2 | 0.3 | ||||||||||||||||||
Expected return on
plan assets |
| (2.7 | ) | (0.1 | ) | | (2.5 | ) | | |||||||||||||||
Amortization of: |
||||||||||||||||||||||||
Actuarial loss |
0.1 | 0.3 | | | 1.3 | | ||||||||||||||||||
Prior service credit |
| | | | (0.1 | ) | | |||||||||||||||||
Net period benefit cost |
$ | 0.3 | $ | 0.2 | $ | 0.1 | $ | 0.2 | $ | 3.0 | $ | 0.3 | ||||||||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Foreign | Foreign | |||||||||||||||||||||||
Pension | Pension | Postretirement | Pension | Pension | Postretirement | |||||||||||||||||||
Benefits | Benefits | Benefits | Benefits | Benefits | Benefits | |||||||||||||||||||
Service cost |
$ | | $ | 0.1 | $ | | $ | | $ | 3.5 | $ | | ||||||||||||
Interest cost |
0.7 | 7.6 | 0.7 | 0.7 | 9.5 | 0.8 | ||||||||||||||||||
Expected return on
plan assets |
| (7.9 | ) | (0.1 | ) | | (7.5 | ) | (0.1 | ) | ||||||||||||||
Amortization of: |
||||||||||||||||||||||||
Actuarial loss |
0.1 | 0.9 | | | 3.7 | | ||||||||||||||||||
Prior service credit |
| | | | (0.2 | ) | | |||||||||||||||||
Net period benefit cost |
$ | 0.8 | $ | 0.7 | $ | 0.6 | $ | 0.7 | $ | 9.0 | $ | 0.7 | ||||||||||||
During the nine months ended September 30, 2010, the Company contributed approximately
$13 million to its pension and postretirement benefit plans. For the remainder of 2010, the
Company expects to contribute approximately $2 million to its pension and postretirement benefit
plans. A portion of this funding will be reimbursed for costs related to employees of managed
hotels.
Note 16. Income Taxes
The total amount of unrecognized tax benefits as of September 30, 2010, was $998 million, of
which $45 million would affect the Companys effective tax rate if recognized. The amount of
unrecognized tax benefits includes approximately $499 million related to the February 1998
disposition of ITT World Directories which the Company strongly believes was completed on a tax
deferred basis. In 2002, the IRS proposed an adjustment to tax the gain on disposition in 1998,
and the issue has progressed to litigation in United States Tax Court. In January 2009, the
Company and the IRS reached an agreement in principle to settle the litigation pertaining to the
tax treatment of this transaction. In October 2010, the previously proposed settlement was
formally agreed to by both the Company and the IRS through the execution of definitive documents
stipulating the terms of the settlement. The executed settlement and decision documents were filed
with the US Tax Court and signed by the Court, resulting in a transfer of the case to the IRS for
processing. The Company expects to receive the refund of over $200 million resulting from tax
payments previously made during the fourth quarter of 2010. As a result, the Company expects to
decrease its unrecognized tax benefits by approximately $499 million within the next 12 months. It
is reasonably possible that zero to substantially all of the Companys other remaining unrecognized
tax benefits will reverse within the next twelve months.
The Company recognizes interest and penalties related to unrecognized tax benefits through
income tax expense. As of September 30, 2010, the Company had $243 million accrued for the payment
of interest and no accrued penalties.
The Company is subject to taxation in the U.S. federal jurisdiction, as well as various state
and foreign jurisdictions. As of September 30, 2010, the Company is no longer subject to
examination by U.S. federal taxing authorities for years prior to 2004 and to examination by any
U.S. state taxing authority prior to 1998. All subsequent periods remain eligible for examination.
In the significant foreign jurisdictions in which the Company
operates, the Company is no longer subject to examination by the relevant taxing authorities
for any years prior to 2001.
17
Table of Contents
Note 17. Stockholders Equity
The following table represents changes in stockholders equity that are attributable to
Starwoods stockholders and non-controlling interests.
Equity Attributable to Starwood Stockholders | ||||||||||||||||||||||||||||
Accumulated | Equity | |||||||||||||||||||||||||||
Common | Additional | Other | Attributable to | |||||||||||||||||||||||||
Shares | Paid-in | Comprehensive | Retained | Noncontrolling | ||||||||||||||||||||||||
Shares | Amount | Capital | Loss | Earnings | Interests | Total | ||||||||||||||||||||||
Balance at June 30, 2010 |
190 | $ | 2 | $ | 647 | $ | (385 | ) | $ | 1,671 | $ | 16 | $ | 1,951 | ||||||||||||||
Net income (loss) |
| | | | (6 | ) | | (6 | ) | |||||||||||||||||||
Stock option and restricted
stock award transactions, net |
1 | | 34 | | | | 34 | |||||||||||||||||||||
ESPP stock issuances |
| | 1 | | | | 1 | |||||||||||||||||||||
Other comprehensive income
(loss) |
| | | 95 | | | 95 | |||||||||||||||||||||
Balance at September 30, 2010 |
191 | $ | 2 | $ | 682 | $ | (290 | ) | $ | 1,665 | $ | 16 | $ | 2,075 | ||||||||||||||
Equity Attributable to Starwood Stockholders | ||||||||||||||||||||||||||||
Accumulated | Equity | |||||||||||||||||||||||||||
Common | Additional | Other | Attributable to | |||||||||||||||||||||||||
Shares | Paid-in | Comprehensive | Retained | Noncontrolling | ||||||||||||||||||||||||
Shares | Amount | Capital | Loss | Earnings | Interests | Total | ||||||||||||||||||||||
Balance at December 31, 2009 |
187 | $ | 2 | $ | 552 | $ | (283 | ) | $ | 1,553 | $ | 21 | $ | 1,845 | ||||||||||||||
Adoption of ASU No. 2009-17 |
| | | | (26 | ) | | (26 | ) | |||||||||||||||||||
Net income (loss) |
| | | | 138 | (2 | ) | 136 | ||||||||||||||||||||
Stock option and restricted
stock award transactions, net |
4 | | 126 | | | | 126 | |||||||||||||||||||||
ESPP stock issuances |
| | 4 | | | | 4 | |||||||||||||||||||||
Dividends |
| | | | | (3 | ) | (3 | ) | |||||||||||||||||||
Other comprehensive loss |
| | | (7 | ) | | | (7 | ) | |||||||||||||||||||
Balance at September 30, 2010 |
191 | $ | 2 | $ | 682 | $ | (290 | ) | $ | 1,665 | $ | 16 | $ | 2,075 | ||||||||||||||
Share Issuances. During the nine months ended September 30, 2010, the Company issued
approximately three million Company common shares as a result of stock option exercises.
Additionally, restricted stock grants and restricted unit vestings, net of cancellations, resulted
in the issuance of approximately one million Company common shares.
Dividends. On January 14, 2010, the Company paid a dividend of $0.20 per share to
shareholders of record on December 31, 2009.
Note 18. Stock-Based Compensation
In accordance with the Companys 2004 Long-Term Incentive Compensation Plan, during the nine
month period ended September 30, 2010, the Company granted stock options, restricted stock and
units to executive officers, members of the Board of Directors and certain employees. The Company
granted approximately 562,000 stock options that had a weighted average grant date fair value of
$14.73 per option. The weighted average exercise price of these options was $38.24. In addition,
the Company granted approximately 2,000,000 restricted stock and units that had a weighted average
grant date fair value of $37.23.
The Company recorded stock-based employee compensation expense, including the estimated impact
of reimbursements from third parties, of $19 million and $54 million, in the three and nine months
ended September 30, 2010, respectively, and $13 million and $39 million in the three and nine
months ended September 30, 2009, respectively.
As of September 30, 2010, there was approximately $24 million of unrecognized compensation
cost, net of estimated forfeitures, related to non-vested options, which is expected to be
recognized over a weighted-average period of 1.41 years on a straight-line basis.
As of September 30, 2010, there was approximately $83 million of unrecognized compensation
cost, net of estimated forfeitures, related to restricted stock and units, which is expected to be
recognized over a weighted-average period of 1.32 years on a straight-line basis.
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Note 19. Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Companys
financial instruments (in millions):
September 30, 2010 | December 31, 2009 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Assets: |
||||||||||||||||
Restricted cash |
$ | 8 | $ | 8 | $ | 7 | $ | 7 | ||||||||
VOI notes receivable |
107 | 122 | 222 | 253 | ||||||||||||
Other notes receivable |
45 | 45 | 36 | 36 | ||||||||||||
Securitized vacation ownership notes receivable |
439 | 529 | | | ||||||||||||
Total financial assets |
$ | 599 | $ | 704 | $ | 265 | $ | 296 | ||||||||
Liabilities: |
||||||||||||||||
Long-term debt |
$ | 2,852 | $ | 3,124 | $ | 2,955 | $ | 3,071 | ||||||||
Long-term securitized vacation ownership debt |
399 | 412 | | | ||||||||||||
Other long-term liabilities |
| | 8 | 8 | ||||||||||||
Total financial liabilities |
$ | 3,251 | $ | 3,536 | $ | 2,963 | $ | 3,079 | ||||||||
Off-Balance sheet: |
||||||||||||||||
Letters of credit |
$ | | $ | 143 | $ | | $ | 168 | ||||||||
Surety bonds |
| 33 | | 21 | ||||||||||||
Total off-balance sheet |
$ | | $ | 176 | $ | | $ | 189 | ||||||||
The Company believes the carrying values of its financial instruments related to current
assets and liabilities approximate fair value. The Company records its derivative assets and
liabilities at fair value. See Note 8 for recorded amounts and the method and assumption used to
estimate fair value.
The carrying value of the Companys restricted cash approximates its fair value. The Company
estimates the fair value of its VOI notes receivable and securitized VOI notes receivable using
assumptions related to current securitization market transactions. The amount is then compared to
a discounted expected future cash flow model using a discount rate commensurate with the risk of
the underlying notes, primarily determined by the credit worthiness of the borrowers based on their
Fair Isaac Corporation (FICO) scores. The results of these two methods are then evaluated to
conclude on the estimated fair value. The fair value of other notes receivable is estimated based
on terms of the instrument and current market conditions. These financial instrument assets are
recorded in the other assets line item in the Companys consolidated balance sheet.
The Company estimates the fair value of its publicly traded debt based on the bid prices in
the public debt markets. The carrying amount of its floating rate debt is a reasonable basis of
fair value due to the variable nature of the interest rates. The Companys non-public, securitized
debt, and fixed rate debt fair value is determined based upon discounted cash flows for the debt
rates deemed reasonable for the type of debt, prevailing market conditions and the length to
maturity for the debt. Other long-term liabilities represent a financial guarantee. The carrying
value of this liability approximates its fair value based on expected funding under the guarantee.
The fair values of the Companys letters of credit and surety bonds are estimated to be the
same as the contract values based on the nature of the fee arrangements with the issuing financial
institutions.
Note 20. Business Segment Information
The Company has two operating segments: hotels and vacation ownership and residential. The
hotel segment generally represents a worldwide network of owned, leased and consolidated joint
venture hotels and resorts operated primarily under the Companys proprietary brand names including
St. Regis®, The Luxury Collection®, Sheraton®, Westin®,
W®, Le Méridien®, Aloft®, Element®, and Four
Points® by Sheraton as well as hotels and resorts which are managed or franchised under
these brand names in exchange for fees. The vacation ownership and residential segment includes
the development, ownership and operation of vacation ownership resorts, marketing and selling VOIs,
providing financing to customers who purchase such interests and the sale of residential units.
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The performance of the hotels and vacation ownership and residential segments is evaluated
primarily on operating profit before corporate selling, general and administrative expense,
interest, gains and losses on the sale of real estate, restructuring and other special (charges)
credits, and income taxes. The Company does not allocate these items to its segments.
The following table presents revenues, operating income, capital expenditures and assets for
the Companys reportable segments (in millions):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues: |
||||||||||||||||
Hotel |
$ | 1,081 | $ | 991 | $ | 3,211 | $ | 2,949 | ||||||||
Vacation ownership and residential |
174 | 165 | 520 | 501 | ||||||||||||
Total |
$ | 1,255 | $ | 1,156 | $ | 3,731 | $ | 3,450 | ||||||||
Operating income: |
||||||||||||||||
Hotel |
$ | 139 | $ | 106 | $ | 384 | $ | 305 | ||||||||
Vacation ownership and residential |
27 | 17 | 79 | 60 | ||||||||||||
Total segment operating income |
166 | 123 | 463 | 365 | ||||||||||||
Selling, general, administrative and other |
(45 | ) | (35 | ) | (121 | ) | (95 | ) | ||||||||
Restructuring and other special credits (charges), net |
1 | (2 | ) | 2 | (24 | ) | ||||||||||
Operating income |
122 | 86 | 344 | 246 | ||||||||||||
Equity earnings (losses) and gains and (losses) from
unconsolidated ventures, net: |
||||||||||||||||
Hotel |
(1 | ) | (4 | ) | 3 | (7 | ) | |||||||||
Vacation ownership and residential |
| 1 | 2 | 2 | ||||||||||||
Interest expense, net |
(59 | ) | (60 | ) | (180 | ) | (156 | ) | ||||||||
Loss on asset dispositions and impairments, net |
(56 | ) | (23 | ) | (35 | ) | (49 | ) | ||||||||
Income from continuing operations before taxes and
noncontrolling interests |
$ | 6 | $ | | $ | 134 | $ | 36 | ||||||||
Capital expenditures: |
||||||||||||||||
Hotel |
$ | 31 | $ | 21 | $ | 82 | $ | 93 | ||||||||
Vacation ownership and residential |
9 | 7 | 21 | 34 | ||||||||||||
Corporate |
9 | 3 | 16 | 17 | ||||||||||||
Total |
$ | 49 | $ | 31 | $ | 119 | $ | 144 | ||||||||
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
Assets: |
||||||||
Hotel(a) |
$ | 6,102 | $ | 5,924 | ||||
Vacation ownership and residential(b) |
2,107 | 1,639 | ||||||
Corporate |
1,193 | 1,198 | ||||||
Total |
$ | 9,402 | $ | 8,761 | ||||
(a) | Includes $287 million and $294 million of investments in unconsolidated joint ventures at September 30, 2010 and December 31, 2009, respectively. | |
(b) | Includes $27 million and $25 million of investments in unconsolidated joint ventures at September 30, 2010 and December 31, 2009, respectively. |
Note 21. Commitments and Contingencies
Variable Interest Entities. The Company has evaluated hotels in which it has a variable
interest, generally in the form of investments, loans, guarantees, or equity. The Company
determines if it is the primary beneficiary of the hotel by primarily considering the qualitative
factors. Qualitative factors include evaluating if the Company has the power to control the VIE
and has the obligation to absorb the losses and rights to receive the benefits of the VIE, that
could potentially be significant to the VIE. The Company has determined it is not the primary
beneficiary of these VIEs and therefore these entities are not consolidated in the Companys
financial statements. See Note 7 for the VIEs in which the Company is deemed the primary
beneficiary and has consolidated the entities.
The 15 VIEs associated with the Companys variable interests are hotels for which the Company
has entered into management or franchise agreements with the hotel owners. The Company is paid a
fee primarily based on financial metrics of the hotel. The hotels are financed by the owners,
generally in the form of working capital, equity, and debt.
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At September 30, 2010, the Company has approximately $70 million of investments and a loan
balance of $9 million associated with 12 VIEs. As the Company is not obligated to fund future cash
contributions under these agreements, the maximum loss equals the carrying value. In addition, the
Company has not contributed amounts to the VIEs in excess of their contractual obligations.
Additionally, the Company has approximately $6 million of investments and certain performance
guarantees associated with three VIEs. With respect to one of these VIEs, during the third quarter of 2010, the Company recorded a $1 million charge to selling, general and administrative expenses for
a performance guarantee at a managed hotel. The maximum remaining exposure of this guarantee is $3
million. The performance guarantees have possible cash outlays of up to $68 million, $62 million
of which, if required, would be funded over several years and would be largely offset by management
fees received under these contracts.
At December 31, 2009, the Company had approximately $81 million of investments associated with
18 VIEs, equity investments of $11 million associated with one VIE, and a loan balance of $5
million associated with one VIE.
Guaranteed Loans and Commitments. In limited cases, the Company has made loans to owners of
or partners in hotel or resort ventures for which the Company has a management or franchise
agreement. Loans outstanding under this program totaled $39 million at September 30, 2010. The
Company evaluates these loans for impairment, and at September 30, 2010, believes the net carrying
value of these loans is collectible. Unfunded loan commitments aggregating $19 million were
outstanding at September 30, 2010, $1 million of which is expected to be funded in the next twelve
months and in total. These loans typically are secured by pledges of project ownership interests
and/or mortgages on the projects. The Company also has $49 million of equity and other potential
contributions associated with managed or joint venture properties, $14 million of which is expected
to be funded in the next twelve months.
Surety bonds issued on behalf of the Company as of September 30, 2010 totaled $33 million, the
majority of which were required by state or local governments relating to our vacation ownership
operations and by our insurers to secure large deductible insurance programs.
To secure management contracts, the Company may provide performance guarantees to third-party
owners. Most of these performance guarantees allow the Company to terminate the contract rather
than fund shortfalls if certain performance levels are not met. In limited cases, the Company is
obligated to fund shortfalls in performance levels through the issuance of loans. Many of the
performance tests are multi-year tests, are tied to the results of a competitive set of hotels, and
have exclusions for force majeure and acts of war and terrorism. In the second quarter of 2010,
the Company, at its option, agreed to cure a failed performance test for one of its managed hotels.
As a result, the Company recorded a charge for this performance guarantee of approximately $3
million, which was included in selling, general, administrative and other expenses. The Company
does not anticipate any significant funding under performance guarantees or losing a significant
number of management or franchise contracts in 2010.
In connection with the acquisition of the Le Méridien brand in November 2005, the Company
assumed the obligation to guarantee certain performance levels at one Le Méridien managed hotel for
the periods 2007 through 2014. During the third quarter of 2010, the Company reached an agreement
with the owner of this property to fully release the Company of its performance guarantee
obligation in return for a payment of approximately $1 million to the owner. Additionally, in
connection with this settlement, the term of the management contract was extended by five years.
As a result of this settlement, the Company recorded a credit to selling, general, administrative
and other expenses of approximately $8 million for the difference between the carrying amount of
the guarantee liability and the cash payment that was made.
In connection with the purchase of the Le Méridien brand in November 2005, the Company was
indemnified for certain of Le Méridiens historical liabilities by the entity that bought Le
Méridiens owned and leased hotel portfolio. The indemnity is limited to the financial resources
of that entity. However, at this time, the Company believes that it is unlikely that it will have
to fund any of these liabilities.
In connection with the sale of 33 hotels to a third party in 2006, the Company agreed to
indemnify the third party for certain pre-disposition liabilities, including operations and tax
liabilities. At this time, the Company believes that it will not have to make any significant
payments under such indemnities.
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Litigation. The Company is involved in various legal matters that have arisen in the normal
course of business, some of which include claims for substantial sums. Accruals have been recorded
when the outcome is probable and can be reasonably estimated. While the ultimate results of claims
and litigation cannot be determined, the Company does not expect that the resolution of all legal
matters will have a material adverse effect on its consolidated results of operations, financial
position or cash flow. However depending on the amount and the timing, an unfavorable resolution
of some or all of these matters could materially affect the Companys future results of operations
or cash flows in a particular period.
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Forward-Looking Statements
This report includes forward-looking statements, as that term is defined in the Private
Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules,
regulations and releases. Forward-looking statements are any statements other than statements of
historical fact, including statements regarding our expectations, beliefs, hopes, intentions or
strategies regarding the future. In some cases, forward-looking statements can be identified by
the use of words such as may, will, expects, should, believes, plans, anticipates,
estimates, predicts, potential, continue, or other words of similar meaning.
Forward-looking statements are subject to risks and uncertainties that could cause actual results
to differ materially from those discussed in, or implied by, the forward-looking statements.
Factors that might cause such a difference include, but are not limited to, general economic
conditions, our financial and business prospects, our capital requirements, our financing
prospects, our relationships with associates and labor unions, and those disclosed as risks in
other reports filed by us with the Securities and Exchange Commission, including those described in
Part I of our most recently filed Annual Report on Form 10-K. We caution readers that any such
statements are based on currently available operational, financial and competitive information, and
they should not place undue reliance on these forward-looking statements, which reflect
managements opinion only as of the date on which they were made. Except as required by law, we
disclaim any obligation to review or update these forward-looking statements to reflect events or
circumstances as they occur.
RESULTS OF OPERATIONS
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
discusses our consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these
consolidated financial statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of revenues and costs
and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and
judgments, including those relating to revenue recognition, bad debts, inventories, investments,
plant, property and equipment, goodwill and intangible assets, income taxes, financing operations,
frequent guest program liability, self-insurance claims payable, restructuring costs, retirement
benefits and contingencies and litigation.
We base our estimates and judgments on historical experience and on various other factors that
are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not readily available
from other sources. Actual results may differ from these estimates under different assumptions and
conditions.
CRITICAL ACCOUNTING POLICIES
We believe the following to be our critical accounting policies:
Revenue Recognition. Our revenues are primarily derived from the following sources: (1)
hotel and resort revenues at our owned, leased and consolidated joint venture properties; (2)
management and franchise revenues; (3) vacation ownership and residential revenues; (4) revenues
from managed and franchised properties; and (5) other revenues which are ancillary to our
operations. Generally, revenues are recognized when the services have been rendered. The
following is a description of the composition of our revenues:
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| Owned, Leased and Consolidated Joint Ventures Represents revenue primarily derived from hotel operations, including the rental of rooms and food and beverage sales from owned, leased or consolidated joint venture hotels and resorts. Revenue is recognized when rooms are occupied and services have been rendered. These revenues are impacted by global economic conditions affecting the travel and hospitality industry as well as relative market share of the local competitive set of hotels. Revenue per available room (REVPAR) is a leading indicator of revenue trends at owned, leased and consolidated joint venture hotels as it measures the period-over-period growth in rooms revenue for comparable properties. | ||
| Management and Franchise Revenues Represents fees earned on hotels managed worldwide, usually under long-term contracts, franchise fees received in connection with the franchise of our Sheraton, Westin, Four Points by Sheraton, Le Méridien, St. Regis, W, Luxury Collection, Aloft and Element brand names, termination fees and the amortization of deferred gains related to sold properties for which we have significant continuing involvement. Management fees are comprised of a base fee, which is generally based on a percentage of gross revenues, and an incentive fee, which is generally based on the propertys profitability. For any time during the year, when the provisions of our management contracts allow receipt of incentive fees upon termination, incentive fees are recognized for the fees due and earned as if the contract was terminated at that date, exclusive of any termination fees due or payable. Therefore, during periods prior to year-end, the incentive fees recorded may not be indicative of the eventual incentive fees that will be recognized at year-end as conditions and incentive hurdle calculations may not be final. Franchise fees are generally based on a percentage of hotel room revenues. As with hotel revenues discussed above, these revenue sources are affected by conditions impacting the travel and hospitality industry as well as competition from other hotel management and franchise companies. | ||
| Vacation Ownership and Residential We recognize revenue from Vacation Ownership Interests (VOIs) sales and financings and the sales of residential units which are typically a component of mixed use projects that include a hotel. Such revenues are impacted by the state of the global economies and, in particular, the U.S. economy, as well as interest rate and other economic conditions affecting the lending market. Revenue is generally recognized upon the buyers demonstration of a sufficient level of initial and continuing involvement. We determine the portion of revenues to recognize for sales accounted for under the percentage of completion method based on judgments and estimates including total project costs to complete. Additionally, we record reserves against these revenues based on expected default levels. Changes in costs could lead to adjustments to the percentage of completion status of a project, which may result in differences in the timing and amount of revenues recognized from the projects. We have also entered into licensing agreements with third-party developers to offer consumers branded condominiums or residences. Our fees from these agreements are generally based on the gross sales revenue of units sold. | ||
| Revenues From Managed and Franchised Properties These revenues represent reimbursements of costs incurred on behalf of managed hotel properties and franchisees. These costs relate primarily to payroll costs at managed properties where we are the employer. Since the reimbursements are made based upon the costs incurred with no added margin, these revenues and corresponding expenses have no effect on our operating income or our net income. |
Frequent Guest Program. Starwood Preferred Guest® (SPG) is our frequent guest incentive
marketing program. SPG members earn points based on spending at our owned, managed and franchised
hotels, as incentives to first-time buyers of VOIs and residences, and through participation in
affiliated partners programs such as co-branded credit cards. Points can be redeemed at
substantially all of our owned, managed and franchised hotels as well as through other redemption
opportunities with third parties, such as conversion to airline miles.
We charge our owned, managed and franchised hotels the cost of operating the SPG program,
including the estimated cost of our future redemption obligation, based on a percentage of our SPG
members qualified expenditures. Our management and franchise agreements require that we be
reimbursed for the costs of operating the SPG program, including marketing, promotion,
communications with, and performing member services for the SPG members. As points are earned, we
increase the SPG point liability for the amount of cash we receive from our managed and franchised
hotels related to the future redemption obligation. For our owned hotels we record an expense for
the amount of our future redemption obligation with the offset to the SPG point liability. When
points are redeemed by the SPG members, the hotels recognize revenue and the SPG point liability is
reduced.
We, through the services of third-party actuarial analysts, determine the value of the future
redemption obligation based on statistical formulas which project the timing of future point
redemptions based on historical
experience, including an estimate of the breakage for points that will never be redeemed,
and an estimate of the
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points that will eventually be redeemed as well as the cost of reimbursing
hotels and other third parties in respect of other redemption opportunities for point redemptions.
We consolidate the assets and liabilities of the SPG program including the liability
associated with the future redemption obligation which is included in other long-term liabilities
and accrued expenses in the accompanying consolidated balance sheets. The total actuarially
determined liability as of September 30, 2010 and December 31, 2009 is $721 million and $689
million, respectively, of which $216 million and $244 million, respectively, is included in accrued
expenses. A 10% reduction in the breakage of points would result in an estimated increase of $90
million to the liability at September 30, 2010.
Long-Lived Assets. We evaluate the carrying value of our long-lived assets for impairment by
comparing the expected undiscounted future cash flows of the assets to the net book value of the
assets if certain trigger events occur. If the expected undiscounted future cash flows are less
than the net book value of the assets, the excess of the net book value over the estimated fair
value is charged to current earnings. Fair value is based upon discounted cash flows of the assets
at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals and,
if appropriate, current estimated net sales proceeds from pending offers. We evaluate the carrying
value of our long-lived assets based on our plans, at the time, for such assets and such
qualitative factors as future development in the surrounding area, status of expected local
competition and projected incremental income from renovations. Changes to our plans, including a
decision to dispose of or change the intended use of an asset, can have a material impact on the
carrying value of the asset.
Assets Held for Sale. We consider properties to be assets held for sale when management
approves and commits to a formal plan to actively market a property or group of properties for sale
and a signed sales contract and significant non-refundable deposit or contract break-up fee exist.
Upon designation as an asset held for sale, we record the carrying value of each property or group
of properties at the lower of its carrying value which includes allocable segment goodwill or its
estimated fair value, less estimated costs to sell, and we stop recording depreciation expense.
Any gain realized in connection with the sale of properties for which we have significant
continuing involvement (such as through a long-term management agreement) is deferred and
recognized over the initial term of the related agreement. The operations of the properties held
for sale prior to the sale date are recorded in discontinued operations unless we will have
continuing involvement (such as through a management or franchise agreement) after the sale.
Loan Loss Reserves. For the vacation ownership and residential segment, we record an estimate
of expected uncollectibility on our VOI notes receivable as a reduction of revenue at the time we
recognize profit on a sale of a vacation ownership interest. We hold large amounts of homogeneous
VOI notes receivable and therefore assess uncollectibility based on pools of receivables. In
estimating our loss reserves, we use a technique referred to as static pool analysis, which tracks
uncollectible notes for each years sales over the life of the respective notes and projects an
estimated default rate that is used in the determination of our loan loss reserve requirements. As
of September 30, 2010, the average estimated default rate for our pools of receivables was 9.9%.
Given the significance of our respective pools of VOI notes receivable, a change in the projected
default rate can have a significant impact to our loan loss reserve requirements, with a 0.1%
change estimated to have an impact of approximately $3 million.
For the hotel segment, we measure the impairment of a loan based on the present value of
expected future cash flows discounted at the loans original effective interest rate or the
estimated fair value of the collateral. For impaired loans, we establish a specific impairment
reserve for the difference between the recorded investment in the loan and the present value of the
expected future cash flows or the estimated fair value of the collateral. We apply the loan
impairment policy individually to all loans in the portfolio and do not aggregate loans for the
purpose of applying such policy. For loans that we have determined to be impaired, we recognize
interest income on a cash basis.
Legal Contingencies. We are subject to various legal proceedings and claims, the outcomes of
which are subject to significant uncertainty. An estimated loss from a loss contingency should be
accrued by a charge to income if it is probable that an asset has been impaired or a liability has
been incurred and the amount of the loss can be reasonably estimated. We evaluate, among other
factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable
estimate of the amount of loss. Changes in these factors could materially impact our financial
position or our results of operations.
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Income Taxes. We provide for income taxes in accordance with principles contained in FASB ASC
740, Income Taxes. Under these principles, we recognize the amount of income tax payable or
refundable for the current year and deferred tax assets and liabilities for the future tax
consequences of events that have been recognized in our financial statements or tax returns. We
also measure and recognize the amount of tax benefit that should be recorded for financial
statement purposes for uncertain tax positions taken or expected to be taken in a tax return. With
respect to uncertain tax positions, we evaluate the recognized tax benefits for derecognition,
classification, interest and penalties, interim period accounting and disclosure requirements.
Judgment is required in assessing the future tax consequences of events that have been recognized
in our financial statements or tax returns.
RESULTS OF OPERATIONS
The following discussion presents an analysis of results of our operations for the three and
nine months ended September 30, 2010 and 2009.
As discussed in Note 2 of the financial statements, following the adoption of ASU Nos. 2009-16
and 2009-17 on January 1, 2010, our statement of income beginning with the three months ended March
31, 2010 no longer reflects securitization income, but instead reports interest income, net
charge-offs and certain other income associated with all securitized loan receivables, and interest
expense associated with debt issued from the trusts to third-party investors in the same line items
in our statement of income as debt. Additionally, we will no longer record initial gains or losses
on new securitization activity since securitized vacation ownership notes receivable no longer
receive sale accounting treatment. Finally, we no longer recognize gains or losses on the
revaluation of the interest-only strip receivable as that asset is not recognized in a transaction
accounted for as a secured borrowing.
Our statement of income for the three and nine months ended September 30, 2009 and our balance
sheet as of December 31, 2009 have not been retrospectively adjusted to reflect the adoption of ASU
Nos. 2009-16 and 2009-17. Therefore, current period results will not be comparable to prior period
amounts, particularly with regards to:
| Vacation ownership and residential sales and services | ||
| Interest expense |
Business conditions in the global lodging industry were extremely difficult beginning in the
middle of 2008 through late 2009, but have improved in the first three quarters of 2010. These
improvements have resulted from better than expected occupancy primarily related to our three main
classes of customers: business, leisure and group travelers, and the stabilization of room rates.
As the largest operator of upper upscale and luxury hotels in the world, we believe luxury travel
is leading the increases in occupancy. In the third quarter of 2010 we also experienced increases
in average daily rates when compared to the same period of 2009, a strong indication of the
recovery in the industry. We continue to enforce previously instituted rigorous policies to
control costs.
Historically, we have derived the majority of our revenues and operating income from our
owned, leased and consolidated joint venture hotels and a significant portion of these results are
driven by these hotels in North America. However, since early 2006, we have sold a significant
number of hotels in connection with our strategy of reducing our investment in owned real estate
and increasing our focus on the management and franchise business. As a result, our primary
business objective is to maximize earnings and cash flow by increasing the number of hotel
management and franchise agreements. Since the beginning of 2009, we sold or closed nine owned
hotels, further reducing our revenues and operating income from owned, leased and consolidated
joint venture hotels. Four of these hotels were sold subject to long-term management or franchise
contracts. Total revenues generated from these sold hotels (excluding one hotel recorded in
discontinued operations) were $7 million and $20 million for the three months ended September 30,
2010 and 2009, respectively, and $18 million and $81 million for the nine months ended September
30, 2010 and 2009, respectively.
Beginning in the latter part of 2008, we have had less success in selling assets at acceptable
prices, primarily due to depressed market conditions and the inability of potential buyers to
obtain financing. To date, where we have sold hotels, we have not provided seller financing or
other financial assistance to buyers.
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At September 30, 2010, we had approximately 350 hotels in the active pipeline representing
approximately 85,000 rooms, driven by strong interest in all Starwood brands. Of these rooms, 76%
are in the upper upscale and luxury segments and 84% are outside of North America. During the
third quarter of 2010, we signed 20 hotel management and franchise contracts representing
approximately 4,500 rooms of which 15 are new builds and five are conversions from another brand
and opened 17 new hotels and resorts representing approximately 3,300 rooms. During the third
quarter of 2010, three hotels left the system, representing approximately 300 rooms.
An indicator of the performance of our owned, leased and consolidated joint venture hotels is
REVPAR, as it measures the period-over-period change in rooms revenue for comparable properties.
This is particularly the case in the United States where there is no impact on this measure from
foreign exchange rates.
We continually update and renovate our owned, leased and consolidated joint venture hotels and
include these hotels in our Same-Store Owned Hotel results. In addition, several owned hotels are
located in regions which are seasonal and are included in Same-Store Owned Hotel results because
the period to period results are comparable. However, we also undertake major repositionings of
hotels. While undergoing major repositionings, hotels are generally not operating at full capacity
and, as such, these repositionings can negatively impact our hotel revenues and are not included in
Same-Store Hotel results. We may continue to reposition our owned, leased and consolidated joint
venture hotels as we pursue our brand and quality strategies.
The following represents our top five markets in the United States by metropolitan area as a
percentage of our total owned, leased and consolidated joint venture revenues for the three and
nine months ended September 30, 2010 (with comparable data for 2009):
Top Five Metropolitan Areas in the United States as a % of Total Owned | ||||||||
Revenues for the Three Months Ended September 30, 2010 | ||||||||
with Comparable Data for the Same Period in 2009(1) | ||||||||
2010 | 2009 | |||||||
Metropolitan Area | Revenues | Revenues | ||||||
New York, NY |
12.2 | % | 13.8 | % | ||||
Hawaii |
6.9 | % | 7.2 | % | ||||
Chicago, IL |
5.2 | % | 5.1 | % | ||||
Boston, MA |
4.9 | % | 4.8 | % | ||||
San Francisco, CA |
4.3 | % | 4.7 | % |
Top Five Metropolitan Areas in the United States as a % of Total Owned | ||||||||
Revenues for the Nine Months Ended September 30, 2010 | ||||||||
with Comparable Data for the Same Period in 2009(1) | ||||||||
2010 | 2009 | |||||||
Metropolitan Area | Revenues | Revenues | ||||||
New York, NY |
12.2 | % | 13.4 | % | ||||
Hawaii |
6.4 | % | 6.7 | % | ||||
Phoenix, AZ |
5.0 | % | 5.2 | % | ||||
Boston, MA |
4.4 | % | 4.6 | % | ||||
Chicago, IL |
4.3 | % | 3.9 | % |
(1) | Includes the revenues of hotels sold or closed for the period prior to their sale. |
26
Table of Contents
The following represents our top five international markets as a percentage of our total
owned, leased and consolidated joint venture revenues for the three and nine months ended September
30, 2010 (with comparable data for 2009):
Top Five International Markets as a % of Total Owned Revenues for | ||||||||
the Three Months Ended September 30, 2010 | ||||||||
with Comparable Data for the Same Period in 2009(1) | ||||||||
2010 | 2009 | |||||||
International Market | Revenues | Revenues | ||||||
Canada |
10.0 | % | 9.4 | % | ||||
Italy |
7.5 | % | 8.7 | % | ||||
Spain |
6.9 | % | 2.6 | % | ||||
Australia |
3.9 | % | 5.6 | % | ||||
Mexico |
3.3 | % | 4.1 | % |
Top Five International Markets as a % of Total Owned Revenues for | ||||||||
the Nine Months Ended September 30, 2010 | ||||||||
with Comparable Data for the Same Period in 2009(1) | ||||||||
2010 | 2009 | |||||||
International Market | Revenues | Revenues | ||||||
Canada |
10.8 | % | 9.1 | % | ||||
Italy |
7.3 | % | 7.9 | % | ||||
Spain |
5.7 | % | 2.3 | % | ||||
Mexico |
4.0 | % | 4.9 | % | ||||
Australia |
3.9 | % | 5.0 | % |
(1) | Includes the revenues of hotels sold or closed for the period prior to their sale. |
27
Table of Contents
The following table summarizes REVPAR(1), average daily rate (ADR) and
occupancy for our Same-Store Owned Hotels for the three and nine months ended September 30, 2010
and 2009. The results for the three and nine months ended September 30, 2010 and 2009 represent
results for 56 and 55 owned, leased and consolidated joint venture hotels, respectively, (excluding
four and eight hotels sold or closed, respectively, and five and six hotels undergoing significant
repositionings or without comparable results in 2010 and 2009, respectively,).
Three Months Ended | ||||||||||||
September 30, | ||||||||||||
2010 | 2009 | Variance | ||||||||||
Worldwide (56 hotels with approximately 18,000 rooms) |
||||||||||||
REVPAR |
$ | 140.77 | $ | 127.12 | 10.7 | % | ||||||
ADR |
$ | 191.07 | $ | 182.90 | 4.5 | % | ||||||
Occupancy |
73.7 | % | 69.5 | % | 4.2 | |||||||
North America (30 hotels with approximately 11,000 rooms) |
||||||||||||
REVPAR |
$ | 146.61 | $ | 130.70 | 12.2 | % | ||||||
ADR |
$ | 187.05 | $ | 171.53 | 9.0 | % | ||||||
Occupancy |
78.4 | % | 76.2 | % | 2.2 | |||||||
International (26 hotels with approximately 7,000 rooms) |
||||||||||||
REVPAR |
$ | 131.43 | $ | 121.39 | 8.3 | % | ||||||
ADR |
$ | 198.68 | $ | 206.46 | (3.8 | )% | ||||||
Occupancy |
66.2 | % | 58.8 | % | 7.4 |
Nine Months Ended | ||||||||||||
September 30, | ||||||||||||
2010 | 2009 | Variance | ||||||||||
Worldwide (55 hotels with approximately 18,000 rooms) |
||||||||||||
REVPAR |
$ | 134.67 | $ | 120.62 | 11.6 | % | ||||||
ADR |
$ | 193.95 | $ | 189.21 | 2.5 | % | ||||||
Occupancy |
69.4 | % | 63.7 | % | 5.7 | |||||||
North America (29 hotels with approximately 11,000 rooms) |
||||||||||||
REVPAR |
$ | 140.94 | $ | 125.26 | 12.5 | % | ||||||
ADR |
$ | 190.83 | $ | 182.04 | 4.8 | % | ||||||
Occupancy |
73.9 | % | 68.8 | % | 5.1 | |||||||
International (26 hotels with approximately 7,000 rooms) |
||||||||||||
REVPAR |
$ | 125.00 | $ | 113.48 | 10.2 | % | ||||||
ADR |
$ | 199.64 | $ | 202.84 | (1.6 | )% | ||||||
Occupancy |
62.6 | % | 55.9 | % | 6.7 |
(1) | REVPAR is calculated by dividing room revenue, which is derived from rooms and suites rented or leased, by total room nights available for a given period. REVPAR may not be comparable to similarly titled measures such as revenues. |
28
Table of Contents
The following table summarizes REVPAR, ADR and occupancy for our Same-Store Systemwide
Hotels for the three and nine months ended September 30, 2010 and 2009. Same-Store Systemwide
Hotels represent results for same store owned, leased, managed and franchised hotels.
Three Months Ended | ||||||||||||
September 30, | ||||||||||||
2010 | 2009 | Variance | ||||||||||
Worldwide |
||||||||||||
REVPAR |
$ | 108.92 | $ | 99.06 | 10.0 | % | ||||||
ADR |
$ | 156.17 | $ | 152.30 | 2.5 | % | ||||||
Occupancy |
69.7 | % | 65.0 | % | 4.7 | |||||||
North America |
||||||||||||
REVPAR |
$ | 103.81 | $ | 93.83 | 10.6 | % | ||||||
ADR |
$ | 144.34 | $ | 138.90 | 3.9 | % | ||||||
Occupancy |
71.9 | % | 67.6 | % | 4.3 | |||||||
International |
||||||||||||
REVPAR |
$ | 116.22 | $ | 106.54 | 9.1 | % | ||||||
ADR |
$ | 174.41 | $ | 173.35 | 0.6 | % | ||||||
Occupancy |
66.6 | % | 61.5 | % | 5.1 |
Nine Months Ended | ||||||||||||
September 30, | ||||||||||||
2010 | 2009 | Variance | ||||||||||
Worldwide |
||||||||||||
REVPAR |
$ | 105.39 | $ | 96.31 | 9.4 | % | ||||||
ADR |
$ | 157.67 | $ | 156.90 | 0.5 | % | ||||||
Occupancy |
66.8 | % | 61.4 | % | 5.4 | |||||||
North America |
||||||||||||
REVPAR |
$ | 100.25 | $ | 92.76 | 8.1 | % | ||||||
ADR |
$ | 146.47 | $ | 146.26 | 0.1 | % | ||||||
Occupancy |
68.4 | % | 63.4 | % | 5.0 | |||||||
International |
||||||||||||
REVPAR |
$ | 112.42 | $ | 101.17 | 11.1 | % | ||||||
ADR |
$ | 173.91 | $ | 172.69 | 0.7 | % | ||||||
Occupancy |
64.6 | % | 58.6 | % | 6.0 |
29
Table of Contents
Three Months Ended September 30, 2010 Compared with Three Months Ended September 30, 2009
Continuing Operations
Continuing Operations
Three Months | Three Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Owned, Leased and Consolidated Joint Venture Hotels |
$ | 427 | $ | 388 | $ | 39 | 10.1 | % | ||||||||
Management Fees, Franchise Fees and Other Income |
173 | 163 | 10 | 6.1 | % | |||||||||||
Vacation Ownership and Residential |
132 | 126 | 6 | 4.8 | % | |||||||||||
Other Revenues from Managed and Franchised Properties |
523 | 479 | 44 | 9.2 | % | |||||||||||
Total Revenues |
$ | 1,255 | $ | 1,156 | $ | 99 | 8.6 | % | ||||||||
The increase in revenues from owned, leased and consolidated joint venture hotels for the
three months ended September 30, 2010 was primarily due to improved REVPAR (as discussed below) at
our existing owned, leased and consolidated joint venture hotels, offset in part by lost revenues
from four owned hotels that were sold or closed since the third quarter of 2009. These sold or
closed hotels had revenues of $7 million in the three months ended September 30, 2010 compared to
$20 million in the three months ended September 30, 2009. Revenues at our Same-Store Owned Hotels
(56 hotels for the three months ended September 30, 2010 and 2009, excluding the four hotels sold
or closed and five additional hotels undergoing significant repositionings or without comparable
results in 2010 and 2009) increased 7.4%, or $25 million, to $363 million for the three months
ended September 30, 2010 when compared to $338 million in the same period of 2009 due primarily to
an increase in REVPAR.
REVPAR at our worldwide Same-Store Owned Hotels increased 10.7% to $140.77 for the three
months ended September 30, 2010 when compared to the corresponding 2009 period. The increase in
REVPAR at these worldwide Same-Store Owned Hotels resulted from an increase in occupancy rates to
73.7% in the three months ended September 30, 2010 when compared to 69.5% in the same period in
2009 and a 4.5% increase in ADR to $191.07 for the three months ended September 30, 2010 compared
to $182.90 for the corresponding 2009 period. REVPAR at Same-Store Owned Hotels in North America
increased 12.2% for the three months ended September 30, 2010 when compared to the same period of
2009. REVPAR growth was particularly strong at our owned hotels in New York, New York, Toronto,
Canada and Montreal, Canada. REVPAR at our international Same-Store Owned Hotels increased by 8.3%
for the three months ended September 30, 2010 when compared to the same period of 2009. REVPAR for
Same-Store Owned Hotels internationally increased 14.5% excluding the effects of foreign currency
translation.
The increase in management fees, franchise fees and other income for the three months ended
September 30, 2010 was primarily a result of a $12 million increase in management and franchise
revenues to $168 million for the three months ended September 30, 2010 compared to $156 million in
2009. Management fees increased $7 million, or 8.0% and franchise fees increased $6 million, or
16.2% as compared to the third quarter of 2009. These increases were due to growth in REVPAR of
existing hotels under management as well as the net addition of 18 managed hotels and 26 franchised
hotels to our system since the third quarter of 2009.
Total vacation ownership revenues increased 3.2% to $129 million compared to $125 million in
2009 driven by the impact of ASU No. 2009-17. Originated contract sales of vacation ownership
intervals decreased 4.8% primarily due to lower tour flow and a lower average price. The number of
contracts signed decreased 3.6% when compared to 2009 and the average price per vacation ownership
unit sold decreased 2.5% to approximately $14,000, driven by price reductions and inventory mix.
Residential revenue in the third quarter of 2010 was $3 million compared to $1 million in 2009.
Other revenues from managed and franchised properties increased to $523 million for the three
months ended September 30, 2010 compared to $479 million in 2009, primarily due to an increase in
payroll costs as a result of increased occupancy at managed and franchised hotels. These revenues
represent reimbursements of costs incurred on behalf of managed hotel and vacation ownership
properties and franchisees and relate primarily to payroll costs at managed properties where we are
the employer. Since the reimbursements are made based upon the costs incurred with no added
margin, these revenues and corresponding expenses have no effect on our operating income and our
net income.
30
Table of Contents
Three Months | Three Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Selling, General, Administrative and Other |
$ | 90 | $ | 84 | $ | 6 | 7.1 | % |
The increase in selling, general, administrative and other for the three months ended
September 30, 2010 was primarily a result of the timing and amounts of accruals for incentive based
compensation in the current year when compared to the prior year, offset by an $8 million reversal
of a guarantee liability which was favorably settled in the quarter (see Note 21).
Three Months | Three Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Restructuring and Other Special (Credits) Charges, Net |
$ | (1 | ) | $ | 2 | $ | (3 | ) | n/m |
During the three months ended September 30, 2010, we recorded restructuring credits of $1
million associated with the reversal of previous restructuring reserves no longer deemed necessary.
During the three months ended September 30, 2009, we recorded a $2 million restructuring
charge primarily related to severance costs in connection with our initiative of rationalizing our
cost structure in light of the decline in growth in our business units. This initiative was
substantially completed in 2009.
Three Months | Three Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Depreciation and Amortization |
$ | 71 | $ | 80 | $ | (9 | ) | (11.3 | )% |
Depreciation and amortization expense declined to $71 million for the three months ended
September 30, 2010 when compared to the $80 million in the same period in 2009 primarily due to
reduced depreciation expense from sold hotels, partially offset by additional depreciation from
capital expenditures made in the last twelve months.
Three Months | Three Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Operating Income |
$ | 122 | $ | 86 | $ | 36 | 41.9 | % |
The increase in operating income was primarily due to the favorable operating results from
owned, leased and consolidated joint venture hotels, management and franchise fee revenues,
vacation ownership and residential fee revenues and cost controls as discussed earlier.
Three Months | Three Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Equity Earnings
(Losses) and Gains
and (Losses) from
Unconsolidated
Ventures, Net |
$ | (1 | ) | $ | (3 | ) | $ | 2 | 66.7 | % |
The increase in equity earnings and gains and losses from unconsolidated joint ventures for
the three months ended September 30, 2010 was primarily due to improved operating results at
several properties owned by joint ventures in which we hold non-controlling interests.
31
Table of Contents
Three Months | Three Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Net Interest Expense |
$ | 59 | $ | 60 | $ | (1 | ) | (1.7 | )% |
The decrease in net interest expense for the three months ended September 30, 2010 was
primarily the result of lower overall debt balance, offset in part by a $10 million increase
related to the adoption of ASU No. 2009-17 including a $5 million charge for the settlement of a
hedge and the write-off of deferred financing costs associated with the early payoff of a vacation
ownership notes receivable securitization (see Note 7). Our weighted average interest rate was
6.87% at September 30, 2010 as compared to 6.39% at September 30, 2009.
Three Months | Three Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Gain (Loss) on Asset Dispositions and Impairments, Net |
$ | (56 | ) | $ | (23 | ) | $ | (33 | ) | n/m |
During the three months ended September 30, 2010, we recorded a net loss on dispositions and
impairments of approximately $56 million, primarily related to a loss of $53 million on the sale of
one wholly-owned hotel and impairment charges of $3 million related to a vacation ownership
property and an investment in a hotel management contract.
During the three months ended September 30, 2009, we recorded a loss on dispositions of
approximately $23 million, primarily related to the $13 million impairment of an investment in a
hotel contract which was subsequently cancelled, a $6 million impairment of our retained interest
in vacation ownership mortgage receivables, and a $3 million impairment of a property that is no
longer in operations.
Three Months | Three Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Income Tax (Benefit) Expense |
$ | 11 | $ | (36 | ) | $ | 47 | n/m |
The increase in income tax expense for the three months ended September 30, 2010 primarily
relates to a tax benefit of $31 million recorded in 2009, related to a domestic asset disposition
in 2009 and a benefit, in 2009, related to the reversal of a deferred interest accrual associated
with the deferral of taxable income. The remaining increase is primarily due to higher pretax
income in the third quarter of 2010 when compared to 2009.
Discontinued Operations
During the three months ended September 30, 2010, we recorded a $1 million tax charge related
to an uncertain tax position.
During the three months ended September 30, 2009, the gain of $4 million primarily relates to
a tax benefit in connection with the sale of one wholly-owned hotel for $6 million.
32
Table of Contents
Nine Months Ended September 30, 2010 Compared with Nine Months Ended September 30, 2009
Continuing Operations
Nine Months | Nine Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Owned, Leased and Consolidated Joint Venture Hotels |
$ | 1,245 | $ | 1,154 | $ | 91 | 7.9 | % | ||||||||
Management Fees, Franchise Fees and Other Income |
503 | 473 | 30 | 6.3 | % | |||||||||||
Vacation Ownership and Residential |
402 | 387 | 15 | 3.9 | % | |||||||||||
Other Revenues from Managed and Franchised Properties |
1,581 | 1,436 | 145 | 10.1 | % | |||||||||||
Total Revenues |
$ | 3,731 | $ | 3,450 | $ | 281 | 8.1 | % | ||||||||
The increase in revenues from owned, leased and consolidated joint venture hotels for the nine
months ended September 30, 2010 was primarily due to improved REVPAR (as discussed below) at our
existing owned, leased and consolidated joint venture hotels, offset in part by lost revenues from
eight owned hotels that were sold or closed since 2009. These sold or closed hotels had revenues
of $18 million in the nine months ended September 30, 2010 compared to $81 million in the nine
months ended September 30, 2009. Revenues at our Same-Store Owned Hotels (55 hotels for the nine
months ended September 30, 2010 and 2009, excluding the eight hotels sold or closed and six
additional hotels undergoing significant repositionings or without comparable results in 2010 and
2009) increased 9.2%, or $90 million, to $1.058 billion for the nine months ended September 30,
2010 when compared to $968 million in the same period of 2009 due primarily to an increase in
REVPAR.
REVPAR at our worldwide Same-Store Owned Hotels increased 11.6% to $134.67 for the nine months
ended September 30, 2010 when compared to the corresponding 2009 period. The increase in REVPAR at
these worldwide Same-Store Owned Hotels resulted from an increase in occupancy rates to 69.4% in
the nine months ended September 30, 2010 when compared to 63.7% in the same period in 2009 as well
as a 2.5% increase in ADR to $193.95 for the nine months ended September 30, 2010 compared to
$189.21 for the corresponding 2009 period. REVPAR at Same-Store Owned Hotels in North America
increased 12.5% for the nine months ended September 30, 2010 when compared to the same period of
2009. REVPAR growth was particularly strong at our owned hotels in New York, New York, Chicago,
Illinois, Montreal, Canada and Toronto, Canada. REVPAR at our international Same-Store Owned
Hotels increased by 10.2% for the nine months ended September 30, 2010 when compared to the same
period of 2009. REVPAR for Same-Store Owned Hotels internationally increased 10.3% excluding the
unfavorable effects of foreign currency translation.
The increase in management fees, franchise fees and other income for the nine months ended
September 30, 2010 was primarily a result of a $41 million increase in management and franchise
revenues to $490 million for the nine months ended September 30, 2010 compared to $449 million in
2009. Management fees increased $29 million or 11.5% and franchise fees increased $16 million or
15.5% compared to the nine months ended September 30, 2009. These increases were due to growth in
REVPAR of existing hotels as well as the net addition of 20 managed hotels and 57 franchised hotels
to our system since the beginning of 2009.
Total vacation ownership revenues increased 2.1% to $391 million compared to $383 million in
2009 driven by the impact of ASU 2009-17. Originated contract sales of vacation ownership
intervals decreased 3.8% primarily due to lower tour flow and a lower average price. The number of
contracts signed increased 1.6% when compared to 2009 and the average price per vacation ownership
unit sold decreased 5.6% to approximately $15,000 driven by price reductions and inventory mix.
Residential revenue in the nine months ended September 30, 2010 was $11 million compared to $4
million in 2009. The 2010 revenue included $4 million of marketing and license fees associated
with a new hotel and residential project in Guangzhou, China.
Other revenues from managed and franchised properties increased to $1.581 billion for the nine
months ended September 30, 2010 compared to $1.436 billion in 2009, primarily due to an increase in
payroll costs as a result of increased occupancy at managed and franchised hotels. These revenues
represent reimbursements of costs incurred on behalf of managed hotel and vacation ownership
properties and franchisees and relate primarily to payroll costs at managed properties where we are
the employer. Since the reimbursements are made based upon the costs incurred with no added
margin, these revenues and corresponding expenses have no effect on our operating income and our
net income.
33
Table of Contents
Nine Months | Nine Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Selling, General, Administrative and Other |
$ | 258 | $ | 235 | $ | 23 | 9.8 | % |
The increase in selling, general, administrative and other expenses for the nine months ended
September 30, 2010 was primarily a result of the timing and amounts of accruals for incentive based
compensation in the current year when compared to the prior year, offset by an $8 million reversal
of a guarantee liability which was favorably settled during the period (see Note 21).
Nine Months | Nine Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Restructuring and Other Special (Credits) Charges, Net |
$ | (2 | ) | $ | 24 | $ | (26 | ) | n/m |
During the nine months ended September 30, 2010, we recorded restructuring credits of $2
million associated with the reversal of previous restructuring reserves no longer deemed necessary.
During the nine months ended September 30, 2009, we recorded a $24 million restructuring
charge in connection with our initiative of rationalizing our cost structure in light of the
decline in growth in our business units. This initiative was substantially completed in 2009.
Nine Months | Nine Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Depreciation and Amortization |
$ | 220 | $ | 231 | $ | (11 | ) | (4.8 | )% |
Depreciation and amortization expense was $220 million for the nine months ended September 30,
2010 when compared to the $231 million in the same period in 2009 primarily due to reduced
depreciation expense from sold hotels, partially offset by additional depreciation from capital
expenditures.
Nine Months | Nine Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Operating Income |
$ | 344 | $ | 246 | $ | 98 | 39.8 | % |
The increase in operating income was primarily due to the favorable operating results from
owned, leased and consolidated joint venture hotels, management and franchise fee revenues,
vacation ownership and residential fee revenues, and our cost controls as discussed earlier.
Nine Months | Nine Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Equity Earnings
(Losses) and Gains
and (Losses) from
Unconsolidated
Ventures, Net |
$ | 5 | $ | (5 | ) | $ | 10 | n/m |
The increase in equity earnings and gains and losses from unconsolidated joint ventures for
the nine months ended September 30, 2010 was primarily due to improved operating results at several
properties owned by joint ventures in which we hold non-controlling interests. In addition, there
was a $4 million charge in 2009 related to an unfavorable mark-to-market adjustment on a US dollar
denominated loan in an unconsolidated joint venture in Mexico.
34
Table of Contents
Nine Months | Nine Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Net Interest Expense |
$ | 180 | $ | 156 | $ | 24 | 15.4 | % |
The increase in net interest expense for the nine months ended September 30, 2010 was
partially the result of a $21 million increase related to the adoption of ASU No. 2009-17 including
a $5 million charge for the settlement of a hedge and the write-off of deferred financing costs
associated with the early payoff of a vacation ownership notes receivable securitization (see Note
7). The increase is also due to interest expense from the senior notes issued in 2009, partially
offset by a lower overall debt balance. Our weighted average interest rate was 6.87% at September
30, 2010 as compared to 6.39% at September 30, 2009.
Nine Months | Nine Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Gain (Loss) on Asset Dispositions and Impairments, Net |
$ | (35 | ) | $ | (49 | ) | $ | 14 | 28.6 | % |
During the nine months ended September 30, 2010, we recorded a net loss on dispositions of
approximately $35 million primarily related to the sale of one wholly-owned hotel (see Note 5).
The loss was partially offset by a gain of $14 million from insurance proceeds received for a claim
at a wholly-owned hotel that suffered damage in 2008 and a $5 million gain as a result of an
acquisition of a controlling interest in a joint venture in which we previously held a
non-controlling interest (see Note 4).
During the nine months ended September 30, 2009, we recorded a loss on dispositions of
approximately $49 million, primarily related to the $22 million impairment of our retained interest
in vacation ownership mortgage receivables, the $5 million impairment of certain technology-related
fixed assets and a $13 million impairment of an investment in a hotel contract which was
subsequently cancelled.
Nine Months | Nine Months | Increase / | Percentage | |||||||||||||
Ended | Ended | (decrease) | change | |||||||||||||
September 30, | September 30, | from prior | from prior | |||||||||||||
2010 | 2009 | year | year | |||||||||||||
(in millions) | ||||||||||||||||
Income Tax (Benefit) Expense |
$ | 32 | $ | (147 | ) | $ | 179 | n/m |
The increase in income tax expense primarily relates to a deferred tax benefit of $120 million
(net) in 2009 for an Italian tax incentive program in which the tax basis of land and buildings for
the hotels we own in Italy was stepped-up to fair value in exchange for paying a current tax of $9
million. In addition, there was a tax benefit of $31 million in 2009, related to a domestic asset
disposition in 2009 and a benefit, in 2009, related to the reversal of a deferred interest accrual
associated with the deferral of taxable income. The remaining increase is primarily due to higher
pretax income in the nine months ended September 30, 2010 when compared to 2009.
Discontinued Operations
During the nine months ended September 30, 2010, we recorded a gain of approximately $36
million, primarily related to a tax benefit in connection with the sale of one wholly-owned hotel
for $78 million. The tax benefit was related to the realization of a high tax basis in these hotels
that was generated through a previous transaction. In addition,
discontinued operations includes a $2 million charge
primarily related to an uncertain tax position.
During the nine months ended September 30, 2009, the loss on asset dispositions of $4 million
primarily relates to the loss on disposition of three wholly-owned hotels, partially offset by a
tax benefit. In addition, discontinued operations includes a $2 million charge related to operations of assets that were
disposed, offset by a $1 million tax benefit
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Seasonality and Diversification
The hotel and leisure industry is seasonal in nature; however, the periods during which our
properties experience higher hotel revenue activities vary from property to property and depend
principally upon location. Our revenues historically have generally been lower in the first
quarter than in the second, third or fourth quarters.
LIQUIDITY AND CAPITAL RESOURCES
Cash From Operating Activities
Cash flow from operating activities is generated primarily from management and franchise
revenues, operating income from our owned hotels and sales of VOIs and residential units. Other
sources of cash are distributions from joint-ventures, servicing financial assets and interest
income. These are the principal sources of cash used to fund our operating expenses, principal and
interest payments on debt, capital expenditures, dividend payments, property and income taxes. We
believe that our existing borrowing availability together with capacity for additional borrowings
and cash from operations will be adequate to meet all funding requirements for our operating
expenses, principal and interest payments on debt, capital expenditures, and dividend payments in
the foreseeable future.
The majority of our cash flow is derived from corporate and leisure travelers and is dependent
on the supply and demand in the lodging industry. In a recessionary economy, we experience
significant declines in business and leisure travel. The impact of declining demand in the
industry and higher hotel supply in key markets could have a material impact on our sources of
cash. Our day-to-day operations are financed through a net working capital deficit, a practice that
is common in our industry. The ratio of our current assets to current liabilities was 0.88 and
0.74 as of September 30, 2010 and December 31, 2009, respectively. Consistent with industry
practice, we sweep the majority of the cash at our owned hotels on a daily basis and fund payables
as needed by drawing down on our existing revolving credit facility.
State and local regulations governing sales of VOIs and residential properties allow the
purchaser of a VOI or property to rescind the sale subsequent to its completion for a pre-specified
number of days. In addition, cash payments received from buyers of products under construction are
held in escrow during the period prior to obtaining a certificate of occupancy. These payments and
the deposits collected from sales during the rescission period are the primary components of our
restricted cash balances in our consolidated balance sheets.
Due to the adoption of ASU Nos. 2009-16 and 2009-17, as discussed previously in Note 2, 2010
cash flow from operating activities includes collections on securitized vacation ownership notes
receivable and no longer includes cash flow activity related to Retained Interests.
As previously discussed in Note 7, in August 2010, we completed a securitization of vacation
ownership notes receivable generating net cash proceeds of approximately $180 million.
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Cash Used for Investing Activities
Gross capital spending during the nine months ended September 30, 2010 was as follows (in
millions):
Maintenance Capital Expenditures: |
||||
Owned, leased and consolidated joint venture hotels |
$ | 53 | ||
Corporate and information technology |
16 | |||
Subtotal |
69 | |||
Vacation Ownership Capital Expenditures (1): |
||||
Net capital expenditures for inventory (excluding St. Regis Bal Harbour) |
$ | (27 | ) | |
Capital expenditures for inventory St. Regis Bal Harbour |
115 | |||
Subtotal |
88 | |||
Development Capital (2) |
86 | |||
Total Capital Expenditures |
$ | 243 | ||
(1) | Represents gross inventory capital expenditures of $131 million less cost of sales of $43 million. | |
(2) | Includes $50 million of expenditures that are classified as Plant, property and equipment, net and $28 million of expenditures that are classified as Investments on the consolidated balance sheet. |
Gross capital spending during the nine months ended September 30, 2010 included
approximately $69 million of maintenance capital, and $86 million of development capital.
Investment spending on gross vacation ownership interest and residential inventory was $131
million, primarily in Bal Harbour, Florida. Our capital expenditure program includes both
offensive and defensive capital. Defensive spending is related to maintenance and renovations that
we believe is necessary to stay competitive in the markets we are in. Other than capital to
address fire and life safety issues, we consider defensive capital to be discretionary, although
reductions to this capital program could result in decreases to our cash flow from operations, as
hotels in certain markets could become less desirable. The offensive capital expenditures, which
are primarily related to new projects that we expect will generate a return, are also considered
discretionary. We currently anticipate that our defensive capital expenditures for the full year
2010 (excluding vacation ownership and residential inventory) will be approximately $140 million
for maintenance, renovations, and technology capital. In addition, for the full year 2010, we
currently expect to spend approximately $290 million for investment projects, including
construction of the St. Regis Bal Harbour and various joint ventures and other investments.
During the second quarter of 2010, we made a $23 million investment into an unconsolidated
joint venture. Our partner in the joint venture contributed an equal amount and the funds were
used to pay off a third-party mortgage.
During the second quarter of 2010, we paid approximately $23 million to acquire a controlling
interest in a joint venture in which we had previously held a non-controlling interest (see Note
4).
In order to secure management or franchise agreements, we have made loans to third-party
owners, made non-controlling investments in joint ventures and provided certain guarantees and
indemnifications. See Note 21 of the consolidated financial statements for discussion regarding
the amount of loans we have outstanding with owners, unfunded loan commitments, equity and other
potential contributions, surety bonds outstanding, performance guarantees and indemnifications we
are obligated under, and investments in hotels and joint ventures.
We intend to finance the acquisition of additional hotel properties (including equity
investments), construction of the St. Regis Bal Harbour, hotel renovations, VOI and residential
construction, capital improvements, technology spend and other core and ancillary business
acquisitions and investments and provide for general corporate purposes (including dividend
payments and share repurchases) through our credit facilities described below, through the net
proceeds from dispositions, through the assumption of debt, and from cash generated from
operations.
We periodically review our business to identify properties or other assets that we believe
either are non-core (including hotels where the return on invested capital is not adequate), no
longer complement our business, are in markets which may not benefit us as much as other markets
during an economic recovery or could be sold at significant premiums. We are focused on enhancing
real estate returns and monetizing investments.
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Since 2006 and through September 30, 2010, we have sold 62 hotels realizing proceeds of
approximately $5.3 billion in numerous transactions. During the nine months ended September 30,
2010, we sold two wholly-owned hotels for gross proceeds of $148 million.
There can be no assurance, however, that we will be able to complete future dispositions on
commercially reasonable terms or at all.
Cash Used for Financing Activities
The following is a summary of our debt portfolio excluding securitized vacation ownership debt
(including capital leases) as of September 30, 2010:
Amount | ||||||||||||
Outstanding at | Interest Rate at | |||||||||||
September 30, | September 30, | Average | ||||||||||
2010(a) | 2010 | Maturity | ||||||||||
(in millions) | (In years) | |||||||||||
Floating Rate Debt |
||||||||||||
Revolving Credit Facilities |
$ | | | | ||||||||
Mortgages and Other |
40 | 6.35 | % | 2.6 | ||||||||
Interest Rate Swaps |
500 | 4.83 | % | |||||||||
Total/Average |
$ | 540 | 4.94 | %(b) | 2.6 | |||||||
Fixed Rate Debt |
||||||||||||
Senior Notes |
$ | 2,701 | 7.26 | % | 4.3 | |||||||
Mortgages and Other |
119 | 7.56 | % | 7.5 | ||||||||
Interest Rate Swaps |
(500 | ) | 7.06 | % | ||||||||
Total/Average |
$ | 2,320 | 7.31 | % | 4.5 | |||||||
Total Debt |
||||||||||||
Total Debt and Average Terms |
$ | 2,860 | 6.87 | % | 4.5 | |||||||
(a) | Excludes approximately $457 million of our share of unconsolidated joint venture debt, all of which is non-recourse. | |
(b) | Excludes commitment fees on undrawn revolver. |
Due to the adoption of ASU Nos. 2009-16 and 2009-17, as discussed previously in Note 2,
our 2010 cash flows from financing activities include the borrowings and repayments of securitized
vacation ownership debt.
We have evaluated the commitments of each of the lenders in our Revolving Credit Facilities
(the Facilities). In addition, we have reviewed our debt covenants and do not anticipate any
issues regarding the availability of funds under the Facilities.
At September 30, 2010, we had gross debt of $2.860 billion, excluding debt associated with
securitized vacation ownership notes receivable. Additionally, we had cash and cash equivalents of
$405 million (including $48 million of restricted cash), or net debt of $2.455 billion, compared to
net debt of $2.819 billion as of December 31, 2009. As we discussed earlier, we adopted ASU Nos.
2009-16 and 2009-17 on January 1, 2010 and, as a result, at September 30, 2010 we had $532 million
of non-recourse debt and $21 million of restricted cash associated with securitized vacation
ownership receivables. Including this debt and restricted cash associated with securitized
vacation ownership receivables, our net debt was $2.966 billion at September 30, 2010.
On April 20, 2010, we executed a new $1.5 billion Senior Credit Facility (New Facility).
The New Facility matures on November 15, 2013 and replaces the former $1.875 billion Revolving
Credit Agreement, which would have matured on February 11, 2011.
Our Facilities are used to fund general corporate cash needs. As of September 30, 2010, we
have availability of over $1.4 billion under the Facilities. Our ability to borrow under the
Facilities is subject to compliance with the terms and conditions under the Facilities, including
certain leverage and coverage covenants.
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Based upon the current level of operations, management believes that our cash flow from
operations, together with our significant cash balances, available borrowings under the Facilities
(approximately $1.4 billion), our expected income tax refund of over $200 million during the fourth
quarter of 2010 (see Note 16) and our capacity for additional borrowings will be adequate to meet
anticipated requirements for scheduled maturities, dividends, working capital, capital
expenditures, marketing and advertising program expenditures, other discretionary investments,
interest and scheduled principal payments for the foreseeable future. However, there can be no
assurance that we will be able to refinance our indebtedness as it becomes due and, if refinanced,
on favorable terms. In addition, there can be no assurance that in our continuing business we will
generate cash flow at or above historical levels, that currently anticipated results will be
achieved or that we will be able to complete dispositions on commercially reasonable terms or at
all.
If we are unable to generate sufficient cash flow from operations in the future to service our
debt, we may be required to sell additional assets at lower than preferred amounts, reduce capital
expenditures, refinance all or a portion of our existing debt or obtain additional financing at
unfavorable rates. Our ability to make scheduled principal payments, to pay interest on or to
refinance our indebtedness depends on our future performance and financial results, which, to a
certain extent, are subject to general conditions in or affecting the hotel and vacation ownership
industries and to general economic, political, financial, competitive, legislative and regulatory
factors beyond our control.
We had the following commercial commitments outstanding as of September 30, 2010 (in
millions):
Amount of Commitment Expiration Per Period | ||||||||||||||||||||
Less than | After | |||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
Standby letters of credit |
$ | 143 | $ | 141 | $ | | $ | | $ | 2 |
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We enter into forward contracts to manage foreign exchange risk in forecasted transactions
based in foreign currencies and to manage foreign exchange risk on intercompany loans that are not
deemed permanently invested. We also enter into interest rate swap agreements to hedge interest
rate risk (see Note 13).
Item 4. Controls and Procedures.
As of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our principal executive and
principal financial officers, of the effectiveness of the design and operation of our disclosure
controls and procedures (as such term is defined in Rules 13(a)-15(e) and 15(d)-15(e) of the
Securities Exchange Act of 1934 (the Exchange Act)). Based upon the foregoing evaluation, our
principal executive and principal financial officers concluded that our disclosure controls and
procedures were effective and operating to provide reasonable assurance that information required
to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and to provide reasonable assurance that such information is
accumulated and communicated to our management, including our principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required disclosure.
There has been no change in our internal control over financial reporting (as defined in Rules
13(a)-15(e) and 15(d)-15(e) under the Exchange Act) that occurred during the period covered by this
report that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are 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 our
consolidated financial position or results of operations.
Item 1A. Risk Factors.
The discussion of our business and operations should be read together with the risk factors
contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009,
filed with the Securities and Exchange Commission, which describe various risks and uncertainties
to which we are or may become subject. These risks and uncertainties have the potential to affect
our business, financial condition, results of operations, cash flows, strategies or prospects in a
material and adverse manner. At September 30, 2010, there have been no material changes to the
risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2009.
Item 6. Exhibits.
31.1
|
Certification Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 Chief Executive Officer (1) | |
31.2
|
Certification Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 Chief Financial Officer (1) | |
32.1
|
Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code Chief Executive Officer (1) | |
32.2
|
Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code Chief Financial Officer (1) |
(1) | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the 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/ Frits van Paasschen | |||
Frits van Paasschen | ||||
Chief Executive Officer and Director | ||||
By: | /s/ Alan M. Schnaid | |||
Alan M. Schnaid | ||||
Senior Vice President, Corporate Controller and Principal Accounting Officer |
||||
Date: October 28, 2010