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EX-32 - EX-32.2 - STARWOOD HOTEL & RESORTS WORLDWIDE, INChot-ex322_7.htm
EX-32 - EX-32.1 - STARWOOD HOTEL & RESORTS WORLDWIDE, INChot-ex321_8.htm
EX-31 - EX-31.2 - STARWOOD HOTEL & RESORTS WORLDWIDE, INChot-ex312_6.htm
EX-31 - EX-31.1 - STARWOOD HOTEL & RESORTS WORLDWIDE, INChot-ex311_9.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2016

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

 

52-1193298

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. employer

identification no.)

One StarPoint

Stamford, CT 06902

(Address of principal executive offices, including zip code)

(203) 964-6000

(Registrant’s 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  x    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  x    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.

 

Large accelerated filer

 

x

 

 

 

Accelerated filer

 

o

 

 

 

 

 

 

 

 

 

Non-accelerated filer

 

¨

 

(Do not check if a smaller reporting company)

 

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  x

Indicate the number of shares outstanding of the issuer’s classes of common stock, as of the latest practicable date:

169,549,884 shares of common stock, par value $0.01 per share, outstanding as of July 22, 2016.

 

 

 

 

 

 

 


TABLE OF CONTENTS

 

 

 

PART I.  Financial Information

 

Page

 

 

 

 

 

Item 1.

 

Financial Statements

 

2

 

 

Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015

 

3

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015

 

4

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2016 and 2015

 

5

 

 

Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015

 

6

 

 

Notes to Consolidated Financial Statements

 

7

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

41

Item 4.

 

Controls and Procedures

 

41

 

 

 

 

 

 

 

PART II.  Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

42

Item 1A.

 

Risk Factors

 

42

Item 6.

 

Exhibits

 

43

 

 

 

 


 

PART I.  FINANCIAL INFORMATION

Item 1.

Financial Statements.

The following unaudited consolidated financial statements of Starwood Hotels & Resorts Worldwide, Inc. (“we,” “us” or the “Company”) are provided pursuant to the requirements of this Item. In the opinion of management, all adjustments necessary for fair presentation, consisting of normal recurring adjustments, have been included. The consolidated financial statements presented herein have been prepared in accordance with the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2015, filed on February 25, 2016. See the notes to consolidated financial statements for the basis of presentation. Certain reclassifications have been made to the prior year’s financial statements to conform to the current year presentation. The consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this filing. Results for the six months ended June 30, 2016 are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2016.

 

 

 

2


 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,575

 

 

$

1,023

 

Restricted cash

 

 

19

 

 

 

18

 

Accounts receivable, net of allowance for doubtful accounts of $76 and $69

 

 

630

 

 

 

575

 

Inventories

 

 

15

 

 

 

15

 

Prepaid expenses and other

 

 

114

 

 

 

130

 

Current assets held for sale

 

 

 

 

 

534

 

Total current assets

 

 

2,353

 

 

 

2,295

 

Investments

 

 

178

 

 

 

170

 

Plant, property and equipment, net

 

 

1,478

 

 

 

1,673

 

Goodwill and intangible assets, net

 

 

1,769

 

 

 

1,744

 

Deferred income taxes

 

 

694

 

 

 

714

 

Other assets

 

 

447

 

 

 

428

 

Long-term assets held for sale

 

 

3

 

 

 

1,233

 

Total assets

 

$

6,922

 

 

$

8,257

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Short-term borrowings and current maturities of long-term debt

 

$

34

 

 

$

32

 

Accounts payable

 

 

74

 

 

 

86

 

Accrued expenses

 

 

1,238

 

 

 

1,217

 

Accrued salaries, wages and benefits

 

 

340

 

 

 

361

 

Accrued taxes and other

 

 

292

 

 

 

285

 

Current liabilities held for sale

 

 

 

 

 

255

 

Total current liabilities

 

 

1,978

 

 

 

2,236

 

Long-term debt

 

 

2,380

 

 

 

2,144

 

Deferred income taxes

 

 

21

 

 

 

32

 

Other liabilities

 

 

2,366

 

 

 

2,389

 

Long-term liabilities held for sale

 

 

 

 

 

157

 

Total liabilities

 

 

6,745

 

 

 

6,958

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock; $0.01 par value; authorized 1,000,000,000 shares; outstanding 169,535,729

   and 168,754,605 shares at June 30, 2016 and December 31, 2015, respectively

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

135

 

 

 

115

 

Accumulated other comprehensive loss

 

 

(468

)

 

 

(668

)

Retained earnings

 

 

505

 

 

 

1,847

 

Total Starwood stockholders’ equity

 

 

174

 

 

 

1,296

 

Noncontrolling interest

 

 

3

 

 

 

3

 

Total equity

 

 

177

 

 

 

1,299

 

Total liabilities and equity

 

$

6,922

 

 

$

8,257

 

The accompanying notes to financial statements are an integral part of the above statements.

 

 

3


 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owned, leased and consolidated joint venture hotels

$

291

 

 

$

332

 

 

$

526

 

 

$

623

 

Residential sales and services

 

2

 

 

 

1

 

 

 

3

 

 

 

2

 

Management fees, franchise fees and other income

 

273

 

 

 

255

 

 

 

528

 

 

 

494

 

Other revenues from managed and franchised properties

 

680

 

 

 

653

 

 

 

1,333

 

 

 

1,281

 

 

 

1,246

 

 

 

1,241

 

 

 

2,390

 

 

 

2,400

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owned, leased and consolidated joint venture hotels

 

216

 

 

 

248

 

 

 

416

 

 

 

490

 

Residential and other

 

 

 

 

1

 

 

 

1

 

 

 

3

 

Selling, general, administrative and other

 

93

 

 

 

99

 

 

 

179

 

 

 

190

 

Restructuring and other special charges (credits), net

 

16

 

 

 

12

 

 

 

48

 

 

 

37

 

Depreciation

 

52

 

 

 

56

 

 

 

104

 

 

 

109

 

Amortization

 

8

 

 

 

7

 

 

 

16

 

 

 

14

 

Other expenses from managed and franchised properties

 

680

 

 

 

653

 

 

 

1,333

 

 

 

1,281

 

 

 

1,065

 

 

 

1,076

 

 

 

2,097

 

 

 

2,124

 

Operating income

 

181

 

 

 

165

 

 

 

293

 

 

 

276

 

Equity earnings and gains from unconsolidated ventures, net

 

9

 

 

 

12

 

 

 

20

 

 

 

26

 

Interest expense, net of interest income of $2, $1, $3 and $2

 

(24

)

 

 

(26

)

 

 

(45

)

 

 

(54

)

Gain (loss) on asset dispositions and impairments, net

 

(114

)

 

 

 

 

 

(112

)

 

 

14

 

Income from continuing operations before taxes and

   noncontrolling interests

 

52

 

 

 

151

 

 

 

156

 

 

 

262

 

Income tax expense

 

(87

)

 

 

(33

)

 

 

(118

)

 

 

(69

)

Income (loss) from continuing operations

 

(35

)

 

 

118

 

 

 

38

 

 

 

193

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations, net of tax (benefit) expense of

   $3, $15, $27 and $33

 

13

 

 

 

25

 

 

 

35

 

 

 

53

 

Loss on dispositions, net of tax expense (benefit) of

   $(3), $(4), $(5) and $(6)

 

(241

)

 

 

(7

)

 

 

(246

)

 

 

(11

)

Net income (loss) attributable to Starwood

$

(263

)

 

$

136

 

 

$

(173

)

 

$

235

 

Earnings (Losses) Per Share — Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

(0.20

)

 

$

0.69

 

 

$

0.23

 

 

$

1.13

 

Discontinued operations

 

(1.36

)

 

 

0.11

 

 

 

(1.26

)

 

 

0.25

 

Net income (loss)

$

(1.56

)

 

$

0.80

 

 

$

(1.03

)

 

$

1.38

 

Earnings (Losses) Per Share — Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

(0.20

)

 

$

0.69

 

 

$

0.23

 

 

$

1.13

 

Discontinued operations

 

(1.36

)

 

 

0.10

 

 

 

(1.25

)

 

 

0.24

 

Net income (loss)

$

(1.56

)

 

$

0.79

 

 

$

(1.02

)

 

$

1.37

 

Weighted average number of shares

 

168

 

 

 

169

 

 

 

168

 

 

 

170

 

Weighted average number of shares assuming dilution

 

168

 

 

 

170

 

 

 

169

 

 

 

171

 

Dividends declared per share

$

0.375

 

 

$

0.375

 

 

$

0.75

 

 

$

0.75

 

The accompanying notes to financial statements are an integral part of the above statements.

 

 

 

4


 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

(Unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income (loss)

$

(263

)

 

$

136

 

 

$

(173

)

 

$

235

 

Other comprehensive income, net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

175

 

 

 

23

 

 

 

200

 

 

 

(89

)

Defined benefit pension and postretirement plans activity

 

 

 

 

 

 

 

1

 

 

 

1

 

Hedging activities

 

2

 

 

 

(3

)

 

 

(1

)

 

 

(2

)

Total other comprehensive income (loss), net of taxes

 

177

 

 

 

20

 

 

 

200

 

 

 

(90

)

Total comprehensive income (loss)

 

(86

)

 

 

156

 

 

 

27

 

 

 

145

 

Comprehensive income attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments attributable to noncontrolling

   interests

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to Starwood

$

(86

)

 

$

156

 

 

$

27

 

 

$

145

 

 

The accompanying notes to financial statements are an integral part of the above statements.

 

 

 

5


 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

Operating Activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(173

)

 

$

235

 

Adjustments to net income:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

135

 

 

 

142

 

Amortization of deferred gains

 

 

(42

)

 

 

(44

)

Non-cash portion of restructuring and other special charges (credits), net

 

 

 

 

 

7

 

(Gain) loss on asset dispositions and impairments, net

 

 

326

 

 

 

(14

)

Stock-based compensation expense

 

 

26

 

 

 

26

 

Excess stock-based compensation tax benefit

 

 

 

 

 

(7

)

Distributions in excess (deficit) of equity earnings

 

 

(4

)

 

 

(12

)

Deferred income tax expense (benefit)

 

 

16

 

 

 

33

 

Other non-cash adjustments to net income

 

 

21

 

 

 

(1

)

Decrease (increase) in restricted cash

 

 

(24

)

 

 

55

 

Other changes in working capital

 

 

(99

)

 

 

(92

)

Securitized VOI notes receivable activity, net

 

 

23

 

 

 

38

 

Unsecuritized VOI notes receivable activity, net

 

 

(38

)

 

 

(36

)

Accrued income taxes and other

 

 

43

 

 

 

30

 

Cash from operating activities

 

 

210

 

 

 

360

 

Investing Activities

 

 

 

 

 

 

 

 

Purchases of plant, property and equipment

 

 

(64

)

 

 

(103

)

Proceeds from asset sales, net

 

 

390

 

 

 

527

 

Acquisitions, net of acquired cash

 

 

(65

)

 

 

(26

)

Issuance of notes receivable, net

 

 

(31

)

 

 

(12

)

Distributions from investments, net

 

 

2

 

 

 

31

 

Other, net

 

 

33

 

 

 

2

 

Cash from investing activities

 

 

265

 

 

 

419

 

Financing Activities

 

 

 

 

 

 

 

 

Commercial paper, net

 

 

244

 

 

 

(569

)

Revolving credit facility and short-term borrowings, net

 

 

 

 

 

(4

)

Long-term debt issued

 

 

 

 

 

10

 

Long-term debt repaid

 

 

(22

)

 

 

(2

)

Long-term securitized debt repaid

 

 

(19

)

 

 

(41

)

Dividends paid

 

 

(131

)

 

 

(133

)

Proceeds from employee stock option exercises

 

 

3

 

 

 

13

 

Excess stock-based compensation tax benefit

 

 

 

 

 

7

 

Share repurchases

 

 

 

 

 

(228

)

Other, net

 

 

(23

)

 

 

(24

)

Cash from (used for) financing activities

 

 

52

 

 

 

(971

)

Exchange rate effect on cash and cash equivalents

 

 

 

 

 

(8

)

Increase in cash and cash equivalents

 

 

527

 

 

 

(200

)

Cash and cash equivalents — beginning of period

 

 

1,048

 

 

 

935

 

Cash and cash equivalents — end of period

 

$

1,575

 

 

$

735

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

45

 

 

$

57

 

Income taxes, net of refunds

 

$

91

 

 

$

60

 

 

 

The accompanying notes to financial statements are an integral part of the above statements.

 

 

 

6


 

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 our subsidiaries. We are one of the world’s largest hotel and leisure companies. Our principal business is hotels and leisure, which is comprised of a worldwide hospitality network of 1,324 full-service hotels, vacation ownership resorts and residential developments primarily serving two markets:  luxury and upper-upscale. On May 11, 2016, we completed the spin-off of our vacation ownership business and five hotels that will be converted to vacation ownership properties through a Reverse Morris Trust transaction with Interval Leisure Group, Inc. (ILG). As a result, the operations of our former vacation ownership business and the five hotels sold or otherwise conveyed to ILG through the date of the transaction were reclassified to discontinued operations for all periods presented. Prior to this transaction, the principal operations of Starwood Vacation Ownership, Inc. (SVO) included the development and operation of vacation ownership resorts and marketing, selling and financing of vacation ownership interests (VOIs) in the resorts.

The consolidated financial statements include our assets, liabilities, revenues and expenses and those of our 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 with the Securities and Exchange Commission.

Following the guidance for noncontrolling interests in Accounting Standards Codification (ASC) Topic 810, Consolidation, references in this report to our earnings (loss) per share, net income (loss) and stockholders’ equity attributable to Starwood’s common stockholders do not include amounts attributable to noncontrolling interests.

 

 

Note 2.

Recently Issued Accounting Standards

Future Accounting Standards

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, “Compensation - Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting.” The amendments in this topic are intended to simplify several aspects of the accounting for share-based payment award transactions and are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. We are still assessing the timing of adoption and the potential impact that ASU No. 2016-09 will have on our financial statements and disclosures.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which supersedes existing guidance on accounting for leases and generally requires all leases to be recognized on the balance sheet and is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The amendments in this ASU are to be applied using a modified retrospective approach. We are still assessing the timing of adoption and the potential impact that ASU No. 2016-02 will have on our financial statements and disclosures.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements- Going Concern (Subtopic 205-40) Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This update provides guidance on management’s responsibility to evaluate whether there is substantial doubt about the ability to continue as a going concern and to provide related interim and annual footnote disclosures. The amendments in this ASU are effective for reporting periods ending after December 15, 2016, and we plan to adopt this ASU for the annual period ending on December 31, 2016. We do not believe the adoption of this update will have a material impact on our financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This topic provides for five principles which should be followed to determine the appropriate amount and timing of revenue recognition for the transfer of goods and services to customers. The principles in this ASU should be applied to all contracts with customers regardless of industry, with two transition methods of adoption allowed. In July 2015, the FASB approved a one-year deferral of this standard, with a revised effective date for reporting periods beginning after December 15, 2017. Early adoption is permitted for annual periods beginning after December 16, 2016. We plan to adopt this ASU on January 1, 2018. We are still evaluating the financial statement impacts of the guidance in this ASU and determining which transition method we will utilize.

Adopted Accounting Standards

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles- Goodwill and Other- Internal – Use Software (Subtopic 350-40) Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The amendments in this topic are intended to provide guidance about whether a cloud computing arrangement includes a software license. This update is effective for annual and interim

7


 

periods beginning after December 15, 2015 with early adoption permitted. We adopted this ASU prospectively on January 1, 2016. The adoption of this update did not have a material impact on our financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Interest- Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs.” The amendments in this topic are intended to simplify the presentation of debt issuance costs and are effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted. We adopted this ASU on January 1, 2016 and retrospectively applied the standard to the December 31, 2015 balance sheet by reclassifying approximately $11 million from other assets to long-term debt and long-term liabilities held for sale.

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810) Amendments to the Consolidation Analysis.” The amendments in this update are intended to improve and simplify targeted areas of the consolidation guidance and are effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted. We adopted this ASU on January 1, 2016. The adoption of this update did not have a material impact on our financial statements.

 

 

Note 3.

Earnings per Share

The following is a reconciliation of basic earnings per share to diluted earnings per share for income (loss) from continuing operations attributable to our common stockholders and net income (loss) attributable to our common stockholders (in millions, except per share data):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Income (loss) from continuing operations

 

$

(35

)

 

$

118

 

 

$

38

 

 

$

193

 

Income (loss) from discontinued operations

 

 

(228

)

 

 

18

 

 

 

(211

)

 

 

42

 

Net income (loss) attributable to Starwood

 

$

(263

)

 

$

136

 

 

$

(173

)

 

$

235

 

Weighted average common shares for basic earnings per share

 

 

168

 

 

 

169

 

 

 

168

 

 

 

170

 

Effect of dilutive stock options and restricted stock awards

 

 

 

 

 

1

 

 

 

1

 

 

 

1

 

Weighted average common shares for diluted earnings per share

 

 

168

 

 

 

170

 

 

 

169

 

 

 

171

 

Basic earnings (losses) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.20

)

 

$

0.69

 

 

$

0.23

 

 

$

1.13

 

Discontinued operations

 

 

(1.36

)

 

 

0.11

 

 

 

(1.26

)

 

 

0.25

 

Net income (loss) per share - basic

 

$

(1.56

)

 

$

0.80

 

 

$

(1.03

)

 

$

1.38

 

Diluted earnings (losses) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.20

)

 

$

0.69

 

 

$

0.23

 

 

$

1.13

 

Discontinued operations

 

 

(1.36

)

 

 

0.10

 

 

 

(1.25

)

 

 

0.24

 

Net income (loss) per share - diluted

 

$

(1.56

)

 

$

0.79

 

 

$

(1.02

)

 

$

1.37

 

 

Approximately 0.4 million shares and 0.3 million shares for the six months ended June 30, 2016 and 2015, respectively, were excluded from the computation of diluted shares, as their impact would have been anti-dilutive. An insignificant amount of shares were excluded from the computation of diluted shares for the three months ended June 30, 2016 and June 30, 2015.

 

 

 

Note 4.Discontinued Operations

On May 11, 2016, we completed a series of transactions with ILG and certain of its subsidiaries involving our vacation ownership business (the Vistana Vacation Ownership Business). Specifically, (a) we and certain of our subsidiaries engaged in a series of transactions in which certain assets and liabilities, including five hotels to be converted to vacation ownership properties, were (i) sold directly to subsidiaries of ILG or (ii) otherwise conveyed pursuant to an internal restructuring to Vistana Signature Experiences, Inc. (Vistana) or its subsidiaries, which resulted in the separation of the Vistana Vacation Ownership Business from our other businesses, (b) immediately after such separation, via spin-off we distributed the shares of Vistana common stock to our stockholders of record as of March 28, 2016, on a pro rata basis (the Distribution), and (c) immediately after the Distribution, Vistana merged with a subsidiary of ILG (the Merger). The holders of SLC Operating Limited Partnership units also received shares of Vistana common stock. We refer to this series of transactions as the “Transactions.”

Upon the completion of the Transactions, Vistana became a wholly-owned subsidiary of ILG. In addition, upon completion of the Transactions, Starwood stockholders owned approximately 55% of the outstanding shares of ILG on a fully-diluted basis, and the

8


 

existing shareholders of ILG owned approximately 45% of ILG on a fully-diluted basis. As a result of the Transactions, ILG’s board of directors now consists of 13 directors, comprising nine previous ILG directors and four of our director appointees.

As a result of the Transactions, Starwood stockholders and holders of SLC Operating Limited Partnership units entitled to receive shares of Vistana common stock in the Distribution received approximately 0.4309 shares of ILG common stock, which were valued at $14.385 per share based on the average of the high and low of the ILG share price on May 11, 2016, for each share of Vistana common stock they received in the Distribution. In addition, certain subsidiaries of ILG paid certain of our subsidiaries approximately $123 million in consideration for the sale of certain assets and liabilities related to the Vistana Vacation Ownership Business. The total fair value of the stock and cash consideration received by us and our stockholders was approximately $1.2 billion.

As this transaction represented a material strategic shift in our business, in accordance with ASC Topic 205, Presentation of Financial Statements, we have reclassified the financial results of the Vistana Vacation Ownership Business, the impairment charge, and costs associated with the Transactions to discontinued operations in our consolidated statements of operations for all periods presented. Additionally, the related assets and liabilities associated with the discontinued operations in the consolidated balance sheet as of December 31, 2015 have been reclassified as held for sale.

In connection with the Transactions, in the three months ended June 30, 2016 we recorded a non-cash pre-tax impairment charge of $214 million to discontinued operations loss on dispositions resulting from the difference between the carrying value of our investment in the vacation ownership business and the fair value of the consideration received at the transaction date.

Additionally, in connection with the Transactions, we have entered into an exclusive, 80-year global license agreement with Vistana for the use of the Westin and Sheraton brands in vacation ownership. In addition, ILG has the non-exclusive license for the existing St. Regis and The Luxury Collection vacation ownership properties. The agreement provides for a fixed annual license fee of $30 million (adjusted every five years by an inflation factor) and certain variable fees based on sales volumes which are recorded to the management fees, franchise fees and other income line item, within continuing operations. As of June 30, 2016, we had a receivable balance of approximately $13 million due from ILG.

The following table presents financial results of the Vistana Vacation Ownership Business and the five hotels transferred to ILG (in millions):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2016 (1)

 

 

2015

 

 

2016 (2)

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owned, leased and consolidated joint venture hotels

$

9

 

 

$

24

 

 

$

39

 

 

$

49

 

Vacation ownership and residential sales and services

 

85

 

 

 

169

 

 

 

269

 

 

 

355

 

Management fees, franchise fees and other income

 

 

 

 

1

 

 

 

1

 

 

 

2

 

Other revenues from managed and franchised properties

 

21

 

 

 

46

 

 

 

66

 

 

 

90

 

 

 

115

 

 

 

240

 

 

 

375

 

 

 

496

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owned, leased and consolidated joint venture hotels

 

7

 

 

 

17

 

 

 

24

 

 

 

37

 

Vacation ownership and residential sales and services

 

66

 

 

 

125

 

 

 

206

 

 

 

260

 

Restructuring and other special charges, net (3)

 

30

 

 

 

11

 

 

 

37

 

 

 

17

 

Depreciation

 

5

 

 

 

9

 

 

 

15

 

 

 

18

 

Amortization

 

 

 

 

1

 

 

 

 

 

 

1

 

Other expenses from managed and franchised properties

 

21

 

 

 

46

 

 

 

66

 

 

 

90

 

Total operating expenses

 

129

 

 

 

209

 

 

 

348

 

 

 

423

 

Income (loss) from operations of discontinued operations

 

(14

)

 

 

31

 

 

 

27

 

 

 

73

 

Equity earnings and gains (losses) from unconsolidated ventures, net

 

 

 

 

(1

)

 

 

 

 

 

 

Interest expense, net of interest income

 

 

 

 

(1

)

 

 

(2

)

 

 

(4

)

Gain (loss) on asset dispositions and impairments, net

 

(214

)

 

 

 

 

 

(214

)

 

 

 

Income (loss) from discontinued operations before taxes

 

(228

)

 

 

29

 

 

 

(189

)

 

 

69

 

Income tax expense

 

 

 

 

(11

)

 

 

(22

)

 

 

(27

)

Income (loss) from discontinued operations, net of taxes

$

(228

)

 

$

18

 

 

$

(211

)

 

$

42

 

 

(1)

Includes the financial results from April 1, 2016 to May 11, 2016.

(2)

Includes the financial results from January 1, 2016 to May 11, 2016.

(3)

Transaction costs related to the spin-off of the Vistana Vacation Ownership Business have been reclassified to discontinued operations loss on dispositions.

9


 

Prior to the Transactions, the Vistana Vacation Ownership Business, excluding the five hotels to be converted to vacation ownership properties, was reported in our vacation ownership and residential segment. The five hotels were reported in the Americas segment.

The following table presents the aggregate carrying amounts of the classes of assets and liabilities of the Vacation Ownership Business and the five hotels transferred to ILG (in millions). For additional information and disclosures of balances as of December 31, 2015, please see our Annual Report on Form 10-K for the year ended December 31, 2015.

 

 

 

December 31,

 

 

 

2015

 

 

 

 

 

 

Carrying amounts of assets associated with the discontinued operations:

 

 

 

 

Cash and cash equivalents

 

$

25

 

Restricted cash

 

 

36

 

Accounts receivable, net of allowance for doubtful accounts of $9

 

 

115

 

Inventories

 

 

304

 

Securitized vacation ownership notes receivable, net of allowance for doubtful accounts of $2

 

 

32

 

Prepaid expenses and other

 

 

22

 

Investments

 

 

13

 

Property and equipment, net

 

 

445

 

Goodwill and intangible assets, net

 

 

162

 

Deferred income taxes

 

 

33

 

Other assets

 

 

411

 

Securitized vacation ownership notes receivable, net

 

 

141

 

Total assets of the discontinued operations classified as held for sale

 

$

1,739

 

 

 

 

 

 

Carrying amounts of liabilities associated with the discontinued operations:

 

 

 

 

Short-term borrowings and current maturities of long-term debt