e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended March 31, 2011
OR
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o |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period from to
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)
52-1193298
(I.R.S. employer identification no.)
1111 Westchester Avenue
White Plains, NY 10604
(Address of principal executive
offices, including zip code)
(914) 640-8100
(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):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o |
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:
195,073,649
shares of common stock, par value $0.01 per share, outstanding as of
April 22,
2011.
PART I. FINANCIAL INFORMATION
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Item 1. |
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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, 2010 filed on February 18, 2011 as amended by
the 10-K/A report filed on March 11, 2011. 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 months ended March 31, 2011
are not necessarily indicative of results to be expected for the full fiscal year ending December
31, 2011.
2
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
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March 31, |
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December 31, |
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2011 |
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2010 |
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(Unaudited) |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
675 |
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$ |
753 |
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Restricted cash |
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73 |
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53 |
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Accounts receivable, net of allowance for doubtful accounts of $41 and $45 |
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558 |
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513 |
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Inventories |
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819 |
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802 |
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Securitized vacation ownership notes receivable, net of allowance for doubtful accounts of
$9 and $10 |
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58 |
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59 |
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Prepaid expenses and other |
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176 |
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126 |
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Total current assets |
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2,359 |
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2,306 |
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Investments |
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291 |
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312 |
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Plant, property and equipment, net |
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3,273 |
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3,323 |
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Assets held for sale |
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100 |
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Goodwill and intangible assets, net |
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2,068 |
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2,067 |
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Deferred tax assets |
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988 |
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979 |
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Other assets |
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399 |
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381 |
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Securitized vacation ownership notes receivable |
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381 |
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408 |
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$ |
9,859 |
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$ |
9,776 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities: |
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Short-term borrowings and current maturities of long-term debt |
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$ |
8 |
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$ |
9 |
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Accounts payable |
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140 |
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138 |
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Current maturities of long-term securitized vacation ownership debt |
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126 |
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127 |
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Accrued expenses |
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1,185 |
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1,104 |
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Accrued salaries, wages and benefits |
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314 |
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410 |
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Accrued taxes and other |
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354 |
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373 |
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Total current liabilities |
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2,127 |
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2,161 |
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Long-term debt |
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2,845 |
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2,848 |
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Long-term securitized vacation ownership debt |
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333 |
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367 |
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Deferred income taxes |
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29 |
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28 |
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Other liabilities |
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1,905 |
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1,886 |
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7,239 |
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7,290 |
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Commitments and contingencies |
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Stockholders equity: |
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Common stock; $0.01 par value; authorized 1,000,000,000 shares; outstanding 195,091,721 and
192,970,437 shares at March 31, 2011 and December 31, 2010, respectively |
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2 |
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2 |
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Additional paid-in capital |
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861 |
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805 |
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Accumulated other comprehensive loss |
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(232 |
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(283 |
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Retained earnings |
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1,975 |
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1,947 |
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Total Starwood stockholders equity |
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2,606 |
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2,471 |
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Noncontrolling interest |
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14 |
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15 |
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Total equity |
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2,620 |
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2,486 |
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$ |
9,859 |
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$ |
9,776 |
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The accompanying notes to financial statements are an integral part of the above statements.
3
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per Share data)
(Unaudited)
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Three Months |
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Ended |
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March 31 |
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2011 |
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2010 |
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Revenues |
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Owned, leased and consolidated joint venture hotels |
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$ |
410 |
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$ |
381 |
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Vacation ownership and residential sales and services |
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153 |
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133 |
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Management fees, franchise fees and other income |
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177 |
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153 |
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Other revenues from managed and franchised properties |
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555 |
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520 |
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1,295 |
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1,187 |
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Costs and Expenses |
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Owned, leased and consolidated joint venture hotels |
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361 |
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329 |
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Vacation ownership and residential |
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111 |
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101 |
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Selling, general, administrative and other |
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80 |
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76 |
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Restructuring, goodwill impairment and other special charges, net |
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Depreciation |
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60 |
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66 |
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Amortization |
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8 |
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10 |
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Other expenses from managed and franchised properties |
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555 |
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520 |
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1,175 |
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1,102 |
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Operating income |
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120 |
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85 |
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Equity (losses) earnings and gains and losses from unconsolidated ventures, net |
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4 |
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3 |
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Interest expense, net of interest income of $1 and $1 |
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(54 |
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(62 |
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Gain (loss) on asset dispositions and impairments, net |
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(33 |
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1 |
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Income from continuing operations before taxes and noncontrolling interests |
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37 |
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27 |
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Income tax benefit (expense) |
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(10 |
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1 |
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Income (loss) from continuing operations |
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27 |
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28 |
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Discontinued operations: |
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Gain (loss) on dispositions, net of tax (benefit) expense of $1 and $0 |
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(1 |
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Net income |
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26 |
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28 |
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Net loss (income) attributable to noncontrolling interests |
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2 |
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2 |
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Net income attributable to Starwood |
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$ |
28 |
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$ |
30 |
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Earnings (Losses) Per Share Basic |
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Continuing operations |
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$ |
0.16 |
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$ |
0.16 |
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Discontinued operations |
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(0.01 |
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Net income |
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$ |
0.15 |
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$ |
0.16 |
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Earnings (Losses) Per Share Diluted |
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Continuing operations |
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$ |
0.15 |
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$ |
0.16 |
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Discontinued operations |
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(0.01 |
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Net income |
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$ |
0.14 |
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$ |
0.16 |
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Amounts attributable to Starwoods Common Shareholders |
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Income (loss) from continuing operations |
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$ |
29 |
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$ |
30 |
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Discontinued operations |
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(1 |
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Net income |
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$ |
28 |
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$ |
30 |
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Weighted average number of shares |
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187 |
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181 |
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Weighted average number of shares assuming dilution |
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194 |
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187 |
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The accompanying notes to financial statements are an integral part of the above statements.
4
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
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Three Months Ended |
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March 31, |
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2011 |
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2010 |
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Net income (loss) |
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$ |
26 |
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$ |
28 |
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Other comprehensive income (loss), net of taxes: |
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Foreign currency translation adjustments |
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55 |
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(24 |
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Change in fair value of derivatives |
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(2 |
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1 |
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Change in fair value of investments |
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(1 |
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Total other comprehensive income (loss), net of taxes |
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53 |
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(24 |
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Comprehensive income |
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79 |
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4 |
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Comprehensive loss attributable to noncontrolling
interests |
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2 |
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2 |
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Foreign currency translation adjustments
attributable to noncontrolling interests |
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(2 |
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Comprehensive income attributable to Starwood |
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$ |
79 |
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$ |
6 |
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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)
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Three Months Ended |
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March 31, |
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2011 |
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2010 |
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Operating Activities |
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Net income |
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$ |
26 |
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$ |
28 |
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Adjustments to net income: |
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Discontinued operations: |
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(Gain) loss on dispositions, net |
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1 |
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Depreciation and amortization |
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Depreciation and amortization |
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68 |
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76 |
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Amortization of deferred gains |
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(21 |
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(20 |
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Non-cash portion of restructuring and other special charges (credits), net |
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(Gain) loss on asset dispositions and impairments, net |
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33 |
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(1 |
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Stock-based compensation expense |
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19 |
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17 |
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Excess stock-based compensation tax benefit |
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(12 |
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(1 |
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Distributions in excess (deficit) of equity earnings |
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(2 |
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(1 |
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Non-cash portion of income tax (benefit) expense |
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3 |
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1 |
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Other non-cash adjustments to net income |
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7 |
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Decrease (increase) in restricted cash |
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(15 |
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(1 |
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Other changes in working capital |
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(112 |
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(93 |
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Securitized VOI notes receivable activity, net |
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29 |
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25 |
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Unsecuritized VOI notes receivable activity, net |
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(33 |
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(26 |
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Accrued and deferred income taxes and other |
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(2 |
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9 |
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Cash (used for) from operating activities |
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(11 |
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13 |
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Investing Activities |
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Purchases of plant, property and equipment |
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(61 |
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(24 |
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(Issuance) collection of notes receivable, net |
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(1 |
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(1 |
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Proceeds from investments, net |
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2 |
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2 |
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Other, net |
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(9 |
) |
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(4 |
) |
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Cash (used for) from investing activities |
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(69 |
) |
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(27 |
) |
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Financing Activities |
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Revolving credit facility and short-term borrowings (repayments), net |
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83 |
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Long-term debt repaid |
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(2 |
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(5 |
) |
Long-term securitized debt repaid |
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(35 |
) |
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(32 |
) |
Dividends paid |
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(2 |
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(37 |
) |
Proceeds from employee stock option exercises |
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43 |
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17 |
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Excess stock-based compensation tax benefit |
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12 |
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1 |
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Other, net |
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(27 |
) |
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(8 |
) |
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Cash (used for) from financing activities |
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(11 |
) |
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19 |
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Exchange rate effect on cash and cash equivalents |
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13 |
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(1 |
) |
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(Decrease) increase in cash and cash equivalents |
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(78 |
) |
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4 |
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Cash and cash equivalents beginning of period |
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753 |
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87 |
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Cash and cash equivalents end of period |
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$ |
675 |
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$ |
91 |
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Supplemental Disclosures of Cash Flow Information |
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Cash paid (received) during the period for: |
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Interest |
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$ |
23 |
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$ |
43 |
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Income taxes, net of refunds |
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$ |
31 |
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$ |
17 |
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|
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
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
approximately 1,050 full-service 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).
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.
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 adopted this topic on January 1, 2011 and it had no material
impact on its consolidated financial statements.
Note 3. Earnings per Share
Basic and diluted earnings per share are calculated using income 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 March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
Per |
|
|
|
|
|
|
|
|
|
|
Per |
|
|
|
Earnings |
|
|
Shares |
|
|
Share |
|
|
Earnings |
|
|
Shares |
|
|
Share |
|
Basic earnings from continuing operations |
|
$ |
29 |
|
|
|
187 |
|
|
$ |
0.16 |
|
|
$ |
30 |
|
|
|
181 |
|
|
$ |
0.16 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options and restricted stock awards |
|
|
|
|
|
|
7 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings from continuing operations |
|
$ |
29 |
|
|
|
194 |
|
|
$ |
0.15 |
|
|
$ |
30 |
|
|
|
187 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately 728,000 shares and 5,114,000 shares were excluded from the computation of
diluted shares for the three months ended March 31, 2011 and 2010, respectively, as their impact
would have been anti-dilutive.
7
Note 4. Acquisitions
On May 31, 2010, the Company paid approximately $23 million to acquire a controlling interest
in a joint venture 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. During the
three months ended March 31, 2011, the Company acquired the remaining subordinated equity of this
joint venture for approximately $1 million which was reflected as a decrease in equity attributable
to the Company.
Note 5. Asset Dispositions and Impairments
During the three months ended March 31, 2011, the Company recorded an impairment charge of $32
million to fully impair its noncontrolling interest in a joint venture that owns a hotel in Tokyo,
Japan. Due to the earthquake in Japan and the negative impact on the economics of the hotel, the
joint venture was unable to make its April 2011 debt payment to the bank and is in technical
default. As a result, the Company no longer believes that it will recover the carrying amount of
its investment and has concluded that it is permanently impaired.
During the three months ended March 31, 2010, the Company recorded a net gain of approximately
$1 million related to the sale of its noncontrolling 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.
Note 6. Assets Held for Sale
During the three months ended March 31, 2011, the Company entered into purchase and sale
agreements for the sale of one wholly-owned hotel for total cash consideration of approximately
$110 million. The Company received a $6 million non-refundable deposit from the prospective buyer
during the first quarter, and the hotel and estimated goodwill to be allocated to this asset is
classified as assets held for sale as of March 31, 2011. The sale was completed on April 6, 2011,
and is subject to a long-term management contract.
Note 7. Transfers of Financial Assets
The Company has variable interests in the VIEs 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 $8 million during the three months ended March 31, 2011
and 2010. 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 11). 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 $11 million and $10 million during
the three months ended March 31, 2011 and 2010, respectively, and is classified in Cash and cash
equivalents.
See Note 8 for disclosures and amounts related to the securitized vacation ownership note
receivables.
8
Note 8. Vacation Ownership Notes Receivable
Notes receivable (net of reserves) related to the Companys vacation ownership loans consist
of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Vacation ownership loans securitized |
|
$ |
439 |
|
|
$ |
467 |
|
Vacation ownership loans unsecuritized |
|
|
178 |
|
|
|
152 |
|
|
|
|
|
|
|
|
|
|
|
617 |
|
|
|
619 |
|
Less: current portion |
|
|
|
|
|
|
|
|
Vacation ownership loans securitized |
|
|
(58 |
) |
|
|
(59 |
) |
Vacation ownership loans unsecuritized |
|
|
(24 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
$ |
535 |
|
|
$ |
540 |
|
|
|
|
|
|
|
|
The current and long-term maturities of unsecuritized VOI notes receivable are included
in accounts receivable and other assets, respectively, in the Companys consolidated balance
sheets.
The Company records interest income associated with VOI notes in its vacation ownership and
residential sale and services line item in its consolidated statements of income. Interest income
related to the Companys VOI notes receivable was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Vacation ownership loans securitized |
|
$ |
17 |
|
|
$ |
16 |
|
Vacation ownership loans unsecuritized |
|
|
5 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
$ |
22 |
|
|
$ |
22 |
|
|
|
|
|
|
|
|
The following tables present future maturities of gross VOI notes receivable and interest
rates (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized |
|
|
Unsecuritized |
|
|
Total |
|
2011 |
|
$ |
67 |
|
|
$ |
34 |
|
|
$ |
101 |
|
2012 |
|
|
70 |
|
|
|
22 |
|
|
|
92 |
|
2013 |
|
|
72 |
|
|
|
21 |
|
|
|
93 |
|
2014 |
|
|
71 |
|
|
|
22 |
|
|
|
93 |
|
Thereafter |
|
|
231 |
|
|
|
157 |
|
|
|
388 |
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011 |
|
$ |
511 |
|
|
$ |
256 |
|
|
$ |
767 |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Interest Rates |
|
|
12.70 |
% |
|
|
12.11 |
% |
|
|
12.48 |
% |
|
|
|
|
|
|
|
|
|
|
Range of interest rates |
|
|
5 to 18 |
% |
|
|
5 to 18 |
% |
|
|
5 to 18 |
% |
|
|
|
|
|
|
|
|
|
|
For the vacation ownership and residential segment, the Company records an estimate of
expected uncollectibility on its VOI notes receivable as a reduction of revenue at the time it
recognizes profit on a timeshare sale. The Company holds large amounts of homogeneous VOI notes
receivable and therefore assesses uncollectibility based on pools of receivables. In estimating
loss reserves, the Company uses 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 its loan loss reserve requirements. As
of March 31, 2011, the average estimated default rate for the Companys pools of receivables was
approximately 10%.
9
The activity and balances for the Companys loan loss reserve are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized |
|
|
Unsecuritized |
|
|
Total |
|
Balance at December 31, 2009 |
|
$ |
|
|
|
$ |
94 |
|
|
$ |
94 |
|
Provisions for loan losses |
|
|
(2 |
) |
|
|
16 |
|
|
|
14 |
|
Write-Offs |
|
|
|
|
|
|
(13 |
) |
|
|
(13 |
) |
Adoption of ASU No. 2009-17 |
|
|
77 |
|
|
|
(4 |
) |
|
|
73 |
|
Other |
|
|
(8 |
) |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010 |
|
$ |
67 |
|
|
$ |
101 |
|
|
$ |
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
82 |
|
|
$ |
79 |
|
|
$ |
161 |
|
Provisions for loan losses |
|
|
(2 |
) |
|
|
7 |
|
|
|
5 |
|
Write-Offs |
|
|
|
|
|
|
(16 |
) |
|
|
(16 |
) |
Other |
|
|
(8 |
) |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011 |
|
$ |
72 |
|
|
$ |
78 |
|
|
$ |
150 |
|
|
|
|
|
|
|
|
|
|
|
The primary credit quality indicator used by the Company to calculate the loan loss
reserve for the VOI notes is the origination of the notes by brand (Sheraton, Westin, and Other) as
the Company believes there is a relationship between the default behavior of borrowers and the
brand associated with the vacation ownership property they have acquired. In addition to
quantitatively calculating the loan loss reserve based on its static pool analysis, the Company
supplements the process by evaluating certain qualitative data, including the aging of the
respective receivables, current default trends by brand and origination year, and the Fair Isaac
Corporation (FICO) scores of the buyers.
Given the significance of the Companys respective pools of VOI notes receivable, a change in
the projected default rate can have a significant impact to its loan loss reserve requirements,
with a 0.1% change estimated to have an impact of approximately $3 million.
The Company considers a VOI note receivable delinquent when it is more than 30 days
outstanding. All delinquent loans are placed on nonaccrual status and the Company does not resume
interest accrual until payment is made. Upon reaching 120 days outstanding, the loan is considered
to be in default and the Company commences the repossession process. Uncollectible VOI notes
receivable are charged off when title to the unit is returned to the Company. The Company
generally does not modify vacation ownership notes that become delinquent or upon default.
Note 9. 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 March 31, 2011 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Interest rate swaps |
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
14 |
|
|
$ |
|
|
|
$ |
14 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
$ |
|
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
2 |
|
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.
10
Note 10. Debt
Long-term debt and short-term borrowings consisted of the following, excluding securitized
vacation ownership debt (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Senior Credit Facilities: |
|
|
|
|
|
|
|
|
Revolving Credit Facility, maturing 2013 |
|
$ |
|
|
|
$ |
|
|
Senior Notes, interest at 7.875%, maturing 2012 |
|
|
609 |
|
|
|
609 |
|
Senior Notes, interest at 6.25%, maturing 2013 |
|
|
502 |
|
|
|
504 |
|
Senior Notes, interest at 7.875%, maturing 2014 |
|
|
490 |
|
|
|
490 |
|
Senior Notes, interest at 7.375%, maturing 2015 |
|
|
450 |
|
|
|
450 |
|
Senior Notes, interest at 6.75%, maturing 2018 |
|
|
400 |
|
|
|
400 |
|
Senior Notes, interest at 7.15%, maturing 2019 |
|
|
245 |
|
|
|
245 |
|
Mortgages and other, interest rates ranging from 2.42% to 9.00%, various maturities |
|
|
157 |
|
|
|
159 |
|
|
|
|
|
|
|
|
|
|
|
2,853 |
|
|
|
2,857 |
|
Less current maturities |
|
|
(8 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
Long-term debt |
|
$ |
2,845 |
|
|
$ |
2,848 |
|
|
|
|
|
|
|
|
During the three months ended March 31, 2011, the Company entered into two interest rate swaps
with a total notional amount of $100 million, which the Company pays floating and receives fixed
interest rates. See Note 13.
Note 11. Securitized Vacation Ownership Debt
As discussed in Note 7, the Companys VIEs associated with the securitization of its vacation
ownership notes receivable are consolidated in the Companys financial statements. Long-term and
short-term securitized vacation ownership debt consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
2003 securitization, interest rates ranging from 3.95% to 6.96%, maturing 2018 |
|
$ |
15 |
|
|
$ |
17 |
|
2005 securitization, interest rates ranging from 5.25% to 6.29%, maturing 2018 |
|
|
50 |
|
|
|
55 |
|
2006 securitization, interest rates ranging from 5.28% to 5.85%, maturing 2018 |
|
|
36 |
|
|
|
39 |
|
2009 securitization, interest rates at 5.81%, maturing 2016 |
|
|
120 |
|
|
|
128 |
|
2010 securitization, interest rates ranging from 3.65% to 4.75%, maturing 2021 |
|
|
238 |
|
|
|
255 |
|
|
|
|
|
|
|
|
|
|
|
459 |
|
|
|
494 |
|
Less current maturities |
|
|
(126 |
) |
|
|
(127 |
) |
|
|
|
|
|
|
|
Long-term securitized debt |
|
$ |
333 |
|
|
$ |
367 |
|
|
|
|
|
|
|
|
Note 12. Other Liabilities
Other liabilities consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Deferred gains on asset sales |
|
$ |
922 |
|
|
$ |
930 |
|
SPG point liability and other obligations |
|
|
691 |
|
|
|
702 |
|
Deferred income including VOI and residential sales |
|
|
36 |
|
|
|
20 |
|
Benefit plan liabilities |
|
|
59 |
|
|
|
61 |
|
Insurance reserves |
|
|
49 |
|
|
|
46 |
|
Other |
|
|
148 |
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
$ |
1,905 |
|
|
$ |
1,886 |
|
|
|
|
|
|
|
|
11
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 March 31, 2011 and December 31, 2010, the Company had
total deferred gains of approximately $1 billion 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 $21 million and $20 million in the three months ended March 31, 2011 and
2010, respectively.
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. 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 March 31, 2011 are $26 million and $4 million,
respectively, with average exchange rates of 1.3 and 83.6, respectively, with terms of 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. These forward contracts provide an economic hedge as they
largely offset foreign currency exposure on intercompany loans.
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 March 31, 2011, the Company has eight
interest rate swap agreements with an aggregate notional amount of $600 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 and have met the
requirements to assume zero ineffectiveness.
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.
12
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
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 |
|
|
14 |
|
|
Other assets |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
$ |
14 |
|
|
|
|
|
|
$ |
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
Accrued expenses |
|
$ |
2 |
|
|
Accrued expenses |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
$ |
2 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
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 |
|
$ |
|
|
|
Prepaid and other current assets |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
Accrued expenses |
|
$ |
|
|
|
Accrued expenses |
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
Consolidated Statements of Income and Comprehensive Income
for the Three Months Ended March 31, 2011 and 2010
(in millions)
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
|
|
Mark-to-market (gain) loss on forward exchange contracts |
|
|
2 |
|
Reclassification of gain (loss) from OCI to management fees,
franchise fees, and
other income |
|
|
|
|
|
|
|
|
Balance at March 31, 2011 |
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
|
|
Mark-to-market (gain) loss on forward exchange contracts |
|
|
(1 |
) |
Reclassification of gain (loss) from OCI to management fees,
franchise fees, and
other income |
|
|
|
|
|
|
|
|
Balance at March 31, 2010 |
|
$ |
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
Foreign forward exchange contracts |
|
Interest expense, net |
|
$ |
|
|
|
$ |
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total loss included in income |
|
|
|
|
|
$ |
|
|
|
$ |
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
Note 14. Pension and Postretirement Benefit Plans
The following table presents the components of net periodic benefit cost for the three months
ended March 31, 2011 and 2010 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
Pension |
|
|
Pension |
|
|
Postretirement |
|
|
|
|
|
|
Pension |
|
|
Postretirement |
|
|
|
Benefits |
|
|
Benefits |
|
|
Benefits |
|
|
Pension Benefits |
|
|
Benefits |
|
|
Benefits |
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Interest cost |
|
|
0.2 |
|
|
|
2.4 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
2.5 |
|
|
|
0.2 |
|
Expected return on plan assets |
|
|
|
|
|
|
(2.9 |
) |
|
|
|
|
|
|
|
|
|
|
(2.6 |
) |
|
|
|
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net period benefit cost |
|
$ |
0.2 |
|
|
$ |
(0.2 |
) |
|
$ |
0.2 |
|
|
$ |
0.2 |
|
|
$ |
0.2 |
|
|
$ |
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2011, the Company contributed approximately $2
million to its pension and postretirement benefit plans. For the remainder of 2011, the Company
expects to contribute approximately $8 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 15. Income Taxes
The total amount of unrecognized tax benefits as of March 31, 2011, was $513 million, of which
$37 million would affect the Companys effective tax rate if recognized. 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 March 31, 2011, the Company had $89 million accrued for the payment of
interest and no accrued penalties.
14
The Company is subject to taxation in the U.S. federal jurisdiction, as well as various state
and foreign jurisdictions. As of March 31, 2011, 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.
Note 16. 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 December 31, 2010 |
|
|
193 |
|
|
$ |
2 |
|
|
$ |
805 |
|
|
$ |
(283 |
) |
|
$ |
1,947 |
|
|
$ |
15 |
|
|
$ |
2,486 |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
(2 |
) |
|
|
26 |
|
Equity compensation
activity and other |
|
|
2 |
|
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
Other comprehensive
income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
2 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011 |
|
|
195 |
|
|
$ |
2 |
|
|
$ |
861 |
|
|
$ |
(232 |
) |
|
$ |
1,975 |
|
|
$ |
14 |
|
|
$ |
2,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Issuances and Repurchases. During the three months ended March 31, 2011, the Company
issued approximately 1,300,000 Company common shares as a result of stock option exercises. During
the three months ended March 31, 2011, the Company did not repurchase any shares and no repurchase
capacity remained available under the share repurchase authorization previously approved by the
Companys Board of Directors.
Note 17. Stock-Based Compensation
In accordance with the Companys 2004 Long-Term Incentive Compensation Plan, during the first
quarter of 2011, the Company completed its annual grant of stock options, restricted shares and
units to executive officers, Board of Directors and certain employees. The Company granted
approximately 300,000 stock options that had a weighted average grant date fair value of $21.84 per
option. The weighted average exercise price of these options was $61.28. In addition, the Company
granted approximately 1,200,000 restricted shares and units that had a weighted average grant date
fair value of $57.55 per share or unit.
The Company recorded stock-based employee compensation expense, including the impact of
reimbursements from third parties, of $19 million and $17 million, in the three months ended March
31, 2011 and 2010, respectively.
As of March 31, 2011, 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 1.42 years on a straight-line basis.
As of March 31, 2011, there was approximately $103 million of unrecognized compensation cost,
net of estimated forfeitures, related to restricted shares and units, which is expected to be
recognized over a weighted-average period of 1.32 years on a straight-line basis.
15
Note 18. Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Companys
financial instruments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
$ |
5 |
|
|
$ |
5 |
|
|
$ |
10 |
|
|
$ |
10 |
|
Vacation ownership notes receivable |
|
|
154 |
|
|
|
179 |
|
|
|
132 |
|
|
|
153 |
|
Securitized vacation ownership notes receivable |
|
|
381 |
|
|
|
459 |
|
|
|
408 |
|
|
|
492 |
|
Other notes receivable |
|
|
19 |
|
|
|
19 |
|
|
|
19 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets |
|
$ |
559 |
|
|
$ |
662 |
|
|
$ |
569 |
|
|
$ |
674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
2,845 |
|
|
$ |
3,120 |
|
|
$ |
2,848 |
|
|
$ |
3,120 |
|
Long-term securitized vacation ownership debt |
|
|
333 |
|
|
|
343 |
|
|
|
367 |
|
|
|
373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities |
|
$ |
3,178 |
|
|
$ |
3,463 |
|
|
$ |
3,215 |
|
|
$ |
3,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit |
|
$ |
|
|
|
$ |
158 |
|
|
$ |
|
|
|
$ |
159 |
|
Surety bonds |
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total off-balance sheet |
|
$ |
|
|
|
$ |
181 |
|
|
$ |
|
|
|
$ |
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 9 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. To gain additional comfort on
the value, 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 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.
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 19. 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.
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
16
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 |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Revenues: |
|
|
|
|
|
|
|
|
Hotel |
|
$ |
1,103 |
|
|
$ |
1,016 |
|
Vacation ownership and residential |
|
|
192 |
|
|
|
171 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,295 |
|
|
$ |
1,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
Hotel |
|
$ |
122 |
|
|
$ |
95 |
|
Vacation ownership and residential |
|
|
35 |
|
|
|
24 |
|
|
|
|
|
|
|
|
Total segment operating income |
|
|
157 |
|
|
|
119 |
|
Selling, general, administrative and other |
|
|
(37 |
) |
|
|
(34 |
) |
Restructuring and other special charges, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
120 |
|
|
|
85 |
|
Equity earnings (losses) and gains and (losses) from unconsolidated ventures, net: |
|
|
|
|
|
|
|
|
Hotel |
|
|
4 |
|
|
|
2 |
|
Vacation ownership and residential |
|
|
|
|
|
|
1 |
|
Interest expense, net |
|
|
(54 |
) |
|
|
(62 |
) |
Gain (loss) on asset dispositions and impairments, net |
|
|
(33 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
Income from continuing operations before taxes and noncontrolling interests |
|
$ |
37 |
|
|
$ |
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
Hotel |
|
$ |
42 |
|
|
$ |
22 |
|
Vacation ownership and residential |
|
|
29 |
|
|
|
34 |
|
Corporate |
|
|
18 |
|
|
|
3 |
|
|
|
|
|
|
|
|
Total (c) |
|
$ |
89 |
|
|
$ |
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Assets: |
|
|
|
|
|
|
|
|
Hotel (a) |
|
$ |
6,449 |
|
|
$ |
6,440 |
|
Vacation ownership and residential (b) |
|
|
2,199 |
|
|
|
2,139 |
|
Corporate |
|
|
1,211 |
|
|
|
1,197 |
|
|
|
|
|
|
|
|
Total |
|
$ |
9,859 |
|
|
$ |
9,776 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes $263 million and $285 million of investments in unconsolidated joint ventures at March 31, 2011 and December 31, 2010,
respectively. |
|
(b) |
|
Includes $28 million and $27 million of investments in unconsolidated joint ventures at March 31, 2011 and December 31, 2010, respectively. |
|
(c) |
|
Includes $61 million and $24 million of property, plant, and equipment expenditures for the three months ended March 31, 2011 and 2010,
respectively. Additional expenditures included in the amounts above consist of vacation ownership inventory and investments in management
contracts and hotel joint ventures. |
Note 20. 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 17 VIEs associated with the Companys variable interests represent entities that own
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.
17
At March 31, 2011, the Company has approximately $76 million of investments and a loan balance
of $9 million associated with 14 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. 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, 2010, the Company had approximately $68 million of investments and a loan
balance of $9 million associated with 12 VIEs. Additionally, the Company had approximately $6
million of investments and certain performance guarantees associated with three VIEs.
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 $14 million at March 31, 2011. The
Company evaluates these loans for impairment, and at March 31, 2011, believes the net carrying
value of these loans is collectible. Unfunded loan commitments aggregating $18 million were
outstanding at March 31, 2011, $0 million of which is expected to be funded in the next twelve
months with $1 million expected to be funded in total. These loans typically are secured by
pledges of project ownership interests and/or mortgages on the projects. The Company also has $76
million of equity and other potential contributions associated with managed or joint venture
properties, $33 million of which is expected to be funded in the next twelve months.
Surety bonds issued on behalf of the Company as of March 31, 2011 totaled $23 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. The Company does not anticipate
any significant funding under performance guarantees in 2011.
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.
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.
18
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:
|
|
|
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. |
19
|
|
|
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. Residential fee revenue is recorded in the period that a purchase and sales
agreement exists, delivery of services and obligations has occurred, the fee to the owner
is deemed fixed and determinable and collectability of the fees is reasonably assured. |
|
|
|
|
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. The Companys management and franchise agreements require that we
be reimbursed for the costs of operating the SPG program, including marketing, promotions and
communications and performing member services for the SPG members. As points are earned, the
Company increases the SPG point liability for the amount of cash it receives from its managed and
franchised hotels related to the future redemption obligation. For its 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 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.
20
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 (see Note 12), as of March 31, 2011 and December 31, 2010 is $755 million and
$753 million, respectively, of which $226 million and $225 million, respectively, is included in
accrued expenses.
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 a timeshare sale. We hold large amounts of homogeneous VOI notes receivable and therefore
assess uncollectibility based on pools of receivables. In estimating loan loss reserves, we use a
technique referred to as static pool analysis, which tracks defaults for each years mortgage
originations over the life of the respective notes and projects an estimated default rate. As of
March 31, 2011, the average estimated default rate for our pools of receivables was approximately
10%.
The primary credit quality indicator used by us to calculate the loan loss reserve for the
vacation ownership notes is the origination of the notes by brand (Sheraton, Westin, and Other) as
we believe there is a relationship between the default behavior of borrowers and the brand
associated with the vacation ownership property they have acquired. In addition to quantitatively
calculating the loan loss reserve based on its static pool analysis, we supplement the process by
evaluating certain qualitative data, including the aging of the respective receivables, current
default trends by brand and origination year, and the Fair Isaac Corporation (FICO) scores of the
buyers.
Given the significance of our respective pools of VOI notes receivable, a change in the
projected default rate can have a significant impact to its loan loss reserve requirements, with a
0.1% change estimated to have an impact of approximately $3 million.
We consider a VOI note receivable delinquent when it is more than 30 days outstanding. All
delinquent loans are placed on nonaccrual status and we do not resume interest accrual until
payment is made. Upon reaching 120 days outstanding, the loan is considered to be in default and we
commence the repossession process. Uncollectible VOI notes receivable are charged off when title
to the unit is returned to us. We generally do not modify vacation ownership notes that become
delinquent or upon default.
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.
21
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.
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
months ended March 31, 2011 and 2010.
After an extremely difficult period, business conditions in the global lodging industry
improved significantly in 2010 and that improvement continued in the first quarter of 2011. 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 corporate profits have continued to rise, our business from the business travelers, which
accounts for the majority of our revenues, is leading the recovery. In addition, the supply side
growth has been lower than recent years which has led us to achieve upper single digit to low
double digit REVPAR growth in many of our leading markets. We are the largest operator of upper
upscale and luxury hotels in the world and we are seeing luxury travel leading the increases in
occupancy. Despite the improvement in revenues, 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. In 2010 and the first quarter of 2011, we sold two owned
hotels, further reducing our revenues and operating income from owned, leased and consolidated
joint venture hotels. One of the hotels was sold subject to a long-term management contract.
Total revenues generated from these sold hotels were $0 million and $8 million for the three months
ending March 31, 2011 and 2010, respectively.
To date, where we have sold hotels, we have not provided seller financing or other financial
assistance to buyers.
At March 31, 2011, 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
first quarter of 2011, we signed 29 hotel management and franchise contracts representing
approximately 8,700 rooms of which 19 are new builds and 10 are conversions from another brand and
opened 21 new hotels and resorts representing approximately 5,200 rooms. During the first quarter
of 2011, 11 hotels left the system, representing approximately 3,400 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. 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
22
reposition our owned, leased and consolidated joint venture hotels as we pursue our brand and
quality strategies. In addition, several owned hotels are located in regions which are seasonal
and therefore, these hotels do not operate at full capacity throughout the year.
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 months
ended March 31, 2011 (with comparable data for 2010):
Top Five Metropolitan Areas in the United States as a % of Total Owned
Revenues for the Three Months Ended March 31, 2011
with Comparable Data for the Same Period in 2010(1)
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
Metropolitan Area |
|
Revenues |
|
Revenues |
New York, NY |
|
|
10.1 |
% |
|
|
12.1 |
% |
Phoenix, AZ |
|
|
7.6 |
% |
|
|
7.9 |
% |
Hawaii |
|
|
6.3 |
% |
|
|
7.0 |
% |
Atlanta, GA |
|
|
4.8 |
% |
|
|
4.4 |
% |
San Francisco, CA |
|
|
4.3 |
% |
|
|
3.9 |
% |
The following represents our top five international markets as a percentage of our total
owned, leased and consolidated joint venture revenues for the three months ended March 31, 2011
(with comparable data for 2010):
Top Five International Markets as a % of Total Owned Revenues for
the Three Months Ended March 31, 2011
with Comparable Data for the Same Period in 2010(1)
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
International Market |
|
Revenues |
|
Revenues |
Canada |
|
|
10.6 |
% |
|
|
10.0 |
% |
Australia |
|
|
5.1 |
% |
|
|
4.2 |
% |
Italy |
|
|
5.0 |
% |
|
|
5.6 |
% |
Mexico |
|
|
4.9 |
% |
|
|
4.9 |
% |
Spain |
|
|
4.7 |
% |
|
|
3.9 |
% |
|
|
|
(1) |
|
Includes the revenues of hotels sold for the period prior to their sale. |
23
The following table summarizes REVPAR(1), Average Daily Rate (ADR) and
occupancy for our Same-Store Owned Hotels for the three months ended March 31, 2011 and 2010. The
results for the three months ended March 31, 2011 and 2010 represent results for 54 owned, leased
and consolidated joint venture hotels (excluding 2 hotels sold and 9 hotels undergoing significant
repositionings or without comparable results in 2011 and 2010).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
March 31, |
|
|
|
|
2011 |
|
2010 |
|
Variance |
Worldwide (54 hotels with approximately 18,000 rooms) |
|
|
|
|
|
|
|
|
|
|
|
|
REVPAR |
|
$ |
132.37 |
|
|
$ |
119.37 |
|
|
|
10.9 |
% |
ADR |
|
$ |
197.33 |
|
|
$ |
191.11 |
|
|
|
3.3 |
% |
Occupancy |
|
|
67.1 |
% |
|
|
62.5 |
% |
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America (27 hotels with approximately 11,000 rooms) |
|
|
|
|
|
|
|
|
|
|
|
|
REVPAR |
|
$ |
134.14 |
|
|
$ |
123.81 |
|
|
|
8.3 |
% |
ADR |
|
$ |
192.81 |
|
|
$ |
186.55 |
|
|
|
3.4 |
% |
Occupancy |
|
|
69.6 |
% |
|
|
66.4 |
% |
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International (27 hotels with approximately 7,000 rooms) |
|
|
|
|
|
|
|
|
|
|
|
|
REVPAR |
|
$ |
129.82 |
|
|
$ |
112.98 |
|
|
|
14.9 |
% |
ADR |
|
$ |
204.46 |
|
|
$ |
198.77 |
|
|
|
2.9 |
% |
Occupancy |
|
|
63.5 |
% |
|
|
56.8 |
% |
|
|
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. |
The following table summarizes REVPAR, ADR and occupancy for our Same-Store Systemwide
Hotels for the three months ended March 31, 2011 and 2010. Same-Store Systemwide Hotels represent
results for same store owned, leased, managed and franchised hotels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
March 31, |
|
|
|
|
2011 |
|
2010 |
|
Variance |
Worldwide |
|
|
|
|
|
|
|
|
|
|
|
|
REVPAR |
|
$ |
105.28 |
|
|
$ |
95.35 |
|
|
|
10.4 |
% |
ADR |
|
$ |
165.22 |
|
|
$ |
156.56 |
|
|
|
5.5 |
% |
Occupancy |
|
|
63.7 |
% |
|
|
60.9 |
% |
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
|
|
|
|
|
|
REVPAR |
|
$ |
99.73 |
|
|
$ |
89.75 |
|
|
|
11.1 |
% |
ADR |
|
$ |
153.31 |
|
|
$ |
146.58 |
|
|
|
4.6 |
% |
Occupancy |
|
|
65.1 |
% |
|
|
61.2 |
|
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
REVPAR |
|
$ |
113.08 |
|
|
$ |
103.24 |
|
|
|
9.5 |
% |
ADR |
|
$ |
182.87 |
|
|
$ |
170.77 |
|
|
|
7.1 |
% |
Occupancy |
|
|
61.8 |
% |
|
|
60.5 |
% |
|
|
1.3 |
|
24
Three Months Ended March 31, 2011 Compared with Three Months Ended March 31, 2010
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Three Months |
|
|
Increase / |
|
|
Percentage |
|
|
|
Ended |
|
|
Ended |
|
|
(decrease) |
|
|
change |
|
|
|
March 31, |
|
|
March 31, |
|
|
from prior |
|
|
from prior |
|
|
|
2011 |
|
|
2010 |
|
|
year |
|
|
year |
|
|
|
(in millions) |
|
Owned, Leased and Consolidated Joint Venture Hotels |
|
$ |
410 |
|
|
$ |
381 |
|
|
$ |
29 |
|
|
|
7.6 |
% |
Management Fees, Franchise Fees and Other Income |
|
|
177 |
|
|
|
153 |
|
|
|
24 |
|
|
|
15.7 |
% |
Vacation Ownership and Residential |
|
|
153 |
|
|
|
133 |
|
|
|
20 |
|
|
|
15.0 |
% |
Other Revenues from Managed and Franchised Properties |
|
|
555 |
|
|
|
520 |
|
|
|
35 |
|
|
|
6.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
$ |
1,295 |
|
|
$ |
1,187 |
|
|
$ |
108 |
|
|
|
9.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in revenues from owned, leased and consolidated joint venture hotels was
primarily due to improved REVPAR at our existing owned, leased and consolidated joint venture
hotels, offset in part by lost revenues from two owned hotels that were sold or closed in 2010.
These sold or closed hotels had revenues of $0 million in the three months ended March 31, 2011
compared to $8 million for the same period in 2010. Revenues at our Same-Store Owned Hotels (54
hotels for the three months ended March 31, 2011 and 2010, excluding the two hotels sold and nine
additional hotels undergoing significant repositionings or without comparable results in 2011 and
2010) increased 7.7%, or $25 million, to $351 million for the three months ended March 31, 2011
when compared to $326 million in the same period of 2010 due primarily to an increase in REVPAR.
REVPAR at our worldwide Same-Store Owned Hotels increased 10.9% to $132.37 for the three
months ended March 31, 2011 when compared to the same period in 2010. The increase in REVPAR at
these worldwide Same-Store Owned Hotels resulted from an increase in occupancy rates to 67.1% in
the three months ended March 31, 2011 when compared to 62.5% in the same period in 2010 as well as
a 3.3% increase in ADR to $197.33 for the three months ended March 31, 2011 compared to $191.11 for
the same period in 2010. REVPAR at Same-Store Owned Hotels in North America increased 8.3% for the
three months ended March 31, 2011 when compared to the same period of 2010. REVPAR growth was
particularly strong at our owned hotels in Chicago, Illinois, Scottsdale, Arizona and Toronto,
Canada. REVPAR at our international Same-Store Owned Hotels increased by 14.9% for the three
months ended March 31, 2011 when compared to the same period of 2010. REVPAR for Same-Store Owned
Hotels internationally increased 13.3% excluding the favorable effects of foreign currency
translation.
The increase in management fees, franchise fees and other income was primarily a result of a
$21 million increase in management and franchise revenues to $172 million for the three months
ended March 31, 2011 compared to $151 million for the same period in 2010. Management fees
increased 11.5% to $97 million and franchise fees increased 22.9% to $43 million. These increases
were primarily due to growth in REVPAR at existing hotels under management as well as the net
addition of 51 managed and franchised hotels to our system since the three months ended March 31,
2010. Additionally, the increase was partially due to a termination fee of approximately $3
million, associated with a managed hotel that left the system during three months ended March 31,
2011.
Total vacation ownership and residential services revenue increased 15% to $153 million
compared to the same period in 2010. Vacation ownership revenues for the three months ended March
31, 2011 increased 12.2% to $147 million compared to the same period in 2010. Originated contract
sales of VOI inventory increased 6.5% in the three months ended March 31, 2011 when compared to the
same period in 2010. This is primarily due to improved sales performance on existing owner
channels and increased tour flow from new buyer preview packages. The number of contracts signed
increased 7.8% when compared to 2010 and the average contract amount per vacation ownership unit
sold decreased 1.4% to approximately $16,500 driven by inventory mix. The increase in vacation
ownership and residential sales and services was also favorably impacted by a $4 million increase
in residential revenue when compared to the same period in 2010. Residential revenue in 2011
included $6 million of license fees in connection with sales at primarily two branded residential
properties.
25
Other revenues from managed and franchised properties increased primarily due to an increase
in payroll costs commensurate with increased occupancy at our existing managed hotels and payroll
costs for the new hotels entering the system. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
Increase / |
|
Percentage |
|
|
Ended |
|
Ended |
|
(decrease) |
|
change |
|
|
March 31, |
|
March 31, |
|
from prior |
|
from prior |
|
|
2011 |
|
2010 |
|
year |
|
year |
|
|
(in millions) |
Selling, General, Administrative and Other |
|
$ |
80 |
|
|
$ |
76 |
|
|
$ |
4 |
|
|
|
5.3 |
% |
The increase in selling, general, administrative and other expenses for the three months
ended March 31, 2011, when compared to the same period of 2010 was primarily a result of the early
termination of a corporate office lease and additional expenses commensurate with the continued
growth in the hotel business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
Increase / |
|
Percentage |
|
|
Ended |
|
Ended |
|
(decrease) |
|
change |
|
|
March 31, |
|
March 31, |
|
from prior |
|
from prior |
|
|
2011 |
|
2010 |
|
year |
|
year |
|
|
|
|
|
|
(in millions) |
|
|
|
|
Depreciation and Amortization |
|
$ |
68 |
|
|
$ |
76 |
|
|
$ |
(8 |
) |
|
|
(10.5 |
)% |
The decrease in depreciation expense for the three months ended March 31, 2011, when
compared to the same period of 2010, was primarily due to reduced depreciation expense from sold
hotels offset by additional capital expenditures made in the last twelve months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
Increase / |
|
Percentage |
|
|
Ended |
|
Ended |
|
(decrease) |
|
change |
|
|
March 31, |
|
March 31, |
|
from prior |
|
from prior |
|
|
2011 |
|
2010 |
|
year |
|
year |
|
|
|
|
|
|
(in millions) |
|
|
|
|
Operating Income |
|
$ |
120 |
|
|
$ |
85 |
|
|
$ |
35 |
|
|
|
41.2 |
% |
The increase in operating income for the three months ended March 31, 2011 when compared
to the same period of 2010 was primarily due to the increase in management fees due to the increase
in REVPAR as well as vacation ownership and residential fee revenues as described earlier. This
increase was partially offset by preopening expenses associated with a new leased hotel in London,
England, costs at a new leased hotel in Osaka, Japan which was negatively impacted by the strong
earthquake and tsunami in March 2011 and the events in North Africa.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
Increase / |
|
Percentage |
|
|
Ended |
|
Ended |
|
(decrease) |
|
change |
|
|
March 31, |
|
March 31, |
|
from prior |
|
from prior |
|
|
2011 |
|
2010 |
|
year |
|
year |
|
|
|
|
|
|
(in millions) |
|
|
|
|
Equity
Earnings
(Losses) and
Gains and
(Losses) from
Unconsolidated
Ventures,
Net |
|
$ |
4 |
|
|
$ |
3 |
|
|
$ |
1 |
|
|
|
33.3 |
% |
The increase in equity earnings and gains and losses from unconsolidated joint ventures
for the three months ended March 31, 2011 when compared to the same period of 2010 was primarily
due to improved operating results at several properties owned by joint ventures in which we hold
non-controlling interests.
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
Increase / |
|
Percentage |
|
|
Ended |
|
Ended |
|
(decrease) |
|
change |
|
|
March 31, |
|
March 31, |
|
from prior |
|
from prior |
|
|
2011 |
|
2010 |
|
year |
|
year |
|
|
|
|
|
|
(in millions) |
|
|
|
|
Net Interest Expense |
|
$ |
54 |
|
|
$ |
62 |
|
|
$ |
(8 |
) |
|
|
(12.9 |
)% |
The decrease in net interest expense for the three months ended March 31, 2011 when
compared to the same period of 2010 was primarily due to a lower average debt balance and an
increase in capitalized interest related to construction projects. Our weighted average interest
rate was 6.80% at March 31, 2011 as compared to 6.88% at March 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
Increase / |
|
Percentage |
|
|
Ended |
|
Ended |
|
(decrease) |
|
change |
|
|
March 31, |
|
March 31, |
|
from prior |
|
from prior |
|
|
2011 |
|
2010 |
|
year |
|
year |
|
|
|
|
|
|
(in millions) |
|
|
|
|
Gain (Loss)
on Asset
Dispositions
and
Impairments,
Net |
|
$ |
(33 |
) |
|
$ |
1 |
|
|
$ |
(34 |
) |
|
|
n/m |
|
During the three months ended March 31, 2011, we recorded an impairment charge of $32
million to fully impair our noncontrolling interest in a joint venture that owns a hotel in Tokyo,
Japan. Due to the earthquake in Japan and the negative impact on the economics of the hotel, the
joint venture was unable to make its April 2011 debt payment and is in technical default. As a
result, we no longer believe that we will recover the carrying amount of our investment and have
concluded that it is permanently impaired.
During the three months ended March 31, 2010, we recorded a net gain on dispositions of
approximately $1 million related to the sale of our 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
Increase / |
|
Percentage |
|
|
Ended |
|
Ended |
|
(decrease) |
|
change |
|
|
March 31, |
|
March 31, |
|
from prior |
|
from prior |
|
|
2011 |
|
2010 |
|
year |
|
year |
|
|
|
|
|
|
(in millions) |
|
|
|
|
Income Tax (Benefit) Expense |
|
$ |
10 |
|
|
$ |
(1 |
) |
|
$ |
11 |
|
|
|
n/m |
|
The increase in income tax expense for the three months ended March 31, 2011 when
compared to the same period of 2010 was primarily due to an increase in pretax income and a higher
effective rate resulting in incremental taxes of approximately $12 million. This increase was
partially offset by the reversal of reserves in the three months ended March 31, 2011 associated
with dispositions in prior years.
Discontinued Operations, Net of Tax
During the three months ended March 31, 2011, we recorded a loss of $1 million in discontinued
operations for accrued interest related to an uncertain tax position.
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.
27
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 and
share repurchases. 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, dividend
payments and share repurchases 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 1.11 and
1.07 as of March 31, 2011 and December 31, 2010, 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.
Cash Used for Investing Activities
Gross capital spending during the three months ended March 31, 2011 was as follows (in
millions):
|
|
|
|
|
Maintenance Capital Expenditures (1): |
|
|
|
|
Owned, leased and consolidated joint venture hotels |
|
$ |
22 |
|
Corporate and information technology |
|
|
18 |
|
|
|
|
|
Subtotal |
|
|
40 |
|
|
|
|
|
|
Vacation Ownership and Residential Capital Expenditures (2): |
|
|
|
|
Net capital expenditures for inventory (excluding St. Regis Bal Harbour) |
|
$ |
(16 |
) |
Capital expenditures for inventory St. Regis Bal Harbour |
|
|
32 |
|
|
|
|
|
Subtotal |
|
|
16 |
|
|
|
|
|
|
Development Capital |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
Total Capital Expenditures |
|
$ |
89 |
|
|
|
|
|
|
|
|
(1) |
|
Maintenance capital expenditures include renovations, asset replacements and improvements
that extend the useful life of the asset. |
|
(2) |
|
Represents gross inventory capital expenditures of $37 million less cost of sales of $21
million. |
Gross capital spending during the three months ended March 31, 2011 included
approximately $40 million of maintenance capital and $33 million of development capital.
Investment spending on gross vacation ownership interest (VOI) and residential inventory was $37
million, primarily in Bal Harbour, Florida, Cancun, Mexico and Orlando, 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. Offensive
capital expenditures, which primarily relate 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 2011 (excluding vacation ownership and residential inventory) will be
approximately $300 million for maintenance, renovations, and technology capital. In addition, for
the full year
28
2011, we currently expect to spend approximately $150 million for investment projects, various
joint ventures and other investments (excluding construction of the St. Regis Bal Harbour).
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 20 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) from cash on hand, net proceeds from asset dispositions, and 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.
Since 2006 and through March 31, 2011, we have sold 62 hotels realizing proceeds of
approximately $5.3 billion in numerous transactions.
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 March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
|
|
|
|
|
|
|
Outstanding at |
|
|
Interest Rate at |
|
|
|
|
|
|
March 31, |
|
|
March 31, |
|
|
Average |
|
|
|
2011(a) |
|
|
2011 |
|
|
Maturity |
|
|
|
(in millions) |
|
|
|
|
|
|
(In years) |
|
Floating Rate Debt |
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facilities |
|
$ |
|
|
|
|
|
|
|
|
2.6 |
|
Mortgages and Other |
|
|
41 |
|
|
|
5.58 |
% |
|
|
2.0 |
|
Interest Rate Swaps |
|
|
600 |
|
|
|
5.06 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Average |
|
$ |
641 |
|
|
|
5.10 |
%(b) |
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Debt |
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes |
|
$ |
2,696 |
|
|
|
7.26 |
% |
|
|
3.9 |
|
Mortgages and Other |
|
|
116 |
|
|
|
7.56 |
% |
|
|
7.0 |
|
Interest Rate Swaps |
|
|
(600 |
) |
|
|
7.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Average |
|
$ |
2,212 |
|
|
|
7.29 |
% |
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt |
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt and Average Terms |
|
$ |
2,853 |
|
|
|
6.80 |
% |
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes approximately $430 million of our share of unconsolidated joint venture debt, all of
which is non-recourse. |
|
(b) |
|
Includes commitment fees on undrawn revolver. |
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.
29
Our debt and net debt for our portfolio and non-recourse securitized debt period-over-period
is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(in millions) |
|
Gross Unsecuritized Debt |
|
$ |
2,853 |
|
|
$ |
2,857 |
|
less: cash (including restricted
cash of $57 million in 2011 and
$44 million in 2010) |
|
|
732 |
|
|
|
797 |
|
|
|
|
|
|
|
|
Net Unsecuritized Debt |
|
$ |
2,121 |
|
|
$ |
2,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Securitized Debt (non-recourse) |
|
$ |
459 |
|
|
$ |
494 |
|
less: cash restricted for
securitized debt repayments (not
included above) |
|
|
(21 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
Net Securitized Debt |
|
$ |
438 |
|
|
$ |
475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Debt |
|
$ |
2,559 |
|
|
$ |
2,535 |
|
|
|
|
|
|
|
|
Our Facilities are used to fund general corporate cash needs. As of March 31, 2011, we
have availability of over $1.4 billion under the Facilities. The Facilities allow for
multi-currency borrowing and, if drawn upon, would have an applicable margin, inclusive of the
commitment fee, of 2.50% plus the applicable currency LIBOR rate. 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.
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) 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 and share repurchases 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 March 31, 2011 (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 |
|
$ |
158 |
|
|
$ |
142 |
|
|
$ |
13 |
|
|
$ |
|
|
|
$ |
3 |
|
30
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.
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, 2010,
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 March 31, 2011, 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, 2010.
31
Item 6. Exhibits.
10.1 |
|
Credit Agreement dated as of April 20, 2010 among Starwood Hotels & Resorts Worldwide, Inc., certain additional Dollar
Revolving Loan Borrowers, certain additional Alternate Currency Revolving Loan Borrowers, various Lenders, Deutsche Bank
AG New York Branch, as Administrative Agent, JPMorgan Chase Bank, N.A., as Syndication Agent, and Deutsche Bank Securities
Inc., J.P. Morgan Securities Inc. and Banc of America Securities LLC, as Lead Arrangers and Book Running Managers
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed April 22, 2010. |
|
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) |
32
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:
April 29, 2011