<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 9, 1999
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.)
777 WESTCHESTER AVENUE
WHITE PLAINS, NY 10604
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES, INCLUDING ZIP CODE)
(914) 640-8100
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
COMMISSION FILE NUMBER: 1-6828
STARWOOD HOTELS & RESORTS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
52-0901263
(I.R.S. EMPLOYER IDENTIFICATION NO.)
777 WESTCHESTER AVENUE
WHITE PLAINS, NY 10604
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES, INCLUDING ZIP CODE)
(914) 640-8100
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 5. OTHER EVENTS.
On April 27, 1999, Starwood Hotels & Resorts Worldwide, Inc. (the
"Corporation" and, together with its subsidiaries, "Starwood" or the "Company")
and certain of its subsidiaries, inclusive of Starwood Hotels & Resorts (the
"Trust"), entered into a definitive agreement to sell its gaming operations,
other than the Desert Inn Resort & Casino in Las Vegas, Nevada (the "Desert
Inn") to Park Place Entertainment Corporation. On May 18, 1999, the Company
entered into a separate agreement with Sun International Hotels Limited to sell
the Desert Inn. Accordingly, Starwood's financial statements have been restated
to reflect Starwood's gaming operations as a discontinued operation and are
filed as part of this Form 8-K. In addition, Starwood's historical financial
results filed as part of this Form 8-K reflect the Restructuring, as defined in
the notes to the financial statements.
ITEM 7. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27.1.................. Financial Data Schedule
27.2.................. Financial Data Schedule
27.3.................. Financial Data Schedule
27.4.................. Financial Data Schedule
27.5.................. Financial Data Schedule
27.6.................. Financial Data Schedule
27.7.................. Financial Data Schedule
27.8.................. Financial Data Schedule
27.9.................. Financial Data Schedule
27.10................. Financial Data Schedule
</TABLE>
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
STARWOOD HOTELS & RESORTS STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
By: /s/ RONALD C. BROWN By: /s/ RONALD C. BROWN
-----------------------------------------------------
- ----------------------------------------------------- Ronald C. Brown
Ronald C. Brown Vice President and Chief
Executive Vice President and Financial and Accounting Officer
Chief Financial Officer
Date:-----------------------------------------------
</TABLE>
<PAGE> 4
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Starwood Hotels & Resorts Worldwide, Inc.:
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996....................... F-4
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1998, 1997 and 1996........... F-5
Consolidated Statements of Equity for the Years Ended
December 31, 1998, 1997 and 1996....................... F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996....................... F-7
Starwood Hotels & Resorts:
Consolidated Balance Sheet as of December 31, 1998........ F-8
Consolidated Statement of Operations for the Period from
February 23, 1998 to December 31, 1998................. F-9
Consolidated Statement of Cash Flows for the Period from
February 23, 1998 to December 31, 1998................. F-10
Notes to Financial Statements............................... F-11
Schedules:
Schedule II -- Valuation and Qualifying Accounts......... S-1
Schedule III -- Real Estate and Accumulated
Depreciation........................................... S-2
Schedule IV -- Mortgage Loans on Real Estate.............. S-7
</TABLE>
F-1
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Starwood Hotels & Resorts Worldwide, Inc. and Starwood Hotels & Resorts:
We have audited the accompanying consolidated balance sheets of Starwood
Hotels & Resorts Worldwide, Inc. (a Maryland corporation) and its subsidiaries
(the "Company") as of December 31, 1998 and 1997 and the consolidated balance
sheet of Starwood Hotels & Resorts (a Maryland real estate investment trust) and
its subsidiaries (the "Trust") as of December 31, 1998, and the related
consolidated statements of operations, comprehensive income, equity, and cash
flows for each of the three years ended December 31, 1998 of the Company and the
consolidated statements of operations, comprehensive income, and cash flows for
the period from February 23, 1998 to December 31, 1998 of the Trust as set forth
in the accompanying Index to Financial Statements and Schedules. These financial
statements and schedules are the responsibility of the Company's and Trust's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at December 31,
1998 and 1997 and the Trust at December 31, 1998, and the results of the
Company's operations and cash flows for each of the three years in the period
ended December 31, 1998 and the Trust's operations and cash flows for the period
from February 23, 1998 to December 31, 1998 in conformity with generally
accepted accounting principles.
As explained in the Notes to the financial statements, effective January 1,
1997, the Company changed its method of accounting for start-up costs.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the Index to
Financial Statements and Schedules are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not a part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
New York, New York
July 9, 1999
F-2
<PAGE> 6
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
--------- --------
(IN MILLIONS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 175 $ 126
Accounts receivable, net of allowance for doubtful
accounts of $55 and $45................................ 484 287
Inventories............................................... 58 47
Prepaid expenses and other................................ 75 65
------- ------
Total current assets.............................. 792 525
Investments................................................. 336 350
Plant, property and equipment, net.......................... 7,857 3,064
Goodwill and intangible assets, net......................... 2,714 247
Other assets................................................ 552 640
Net assets held for sale.................................... 63 85
Net assets of discontinued operations....................... 1,103 1,879
------- ------
$13,417 $6,790
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 169 $ 129
Accrued expenses.......................................... 782 988
Short-term borrowings and current maturities of long-term
debt................................................... 687 607
Other current liabilities................................. 183 126
------- ------
Total current liabilities......................... 1,821 1,850
Long-term debt.............................................. 5,802 --
Deferred income taxes....................................... 529 34
Other liabilities........................................... 384 385
Net liabilities of discontinued operations.................. -- 1,600
Minority interest........................................... 244 177
------- ------
8,780 4,046
------- ------
Equity put options.......................................... 32 --
------- ------
Class B exchangeable preferred shares of the Trust, at
redemption value of $38.50................................ 149 --
------- ------
Commitments and contingencies
Stockholders' equity:
Class A exchangeable preferred shares of the Trust; $0.01
par value; authorized 30,000,000 shares; outstanding
4,373,457 shares....................................... -- --
Corporation common stock; $0.01 par value; authorized
1,050,000,000 and 308,600,000 shares; outstanding
175,574,135 and 126,653,880 shares at December 31, 1998
and 1997, respectively................................. 2 1
Trust common shares of beneficial interest; $0.01 par
value; authorized 1,200,000,000 and 308,600,000 shares;
outstanding 175,574,135 and 126,653,880 shares at
December 31, 1998 and 1997, respectively............... 2 1
Additional paid-in capital................................ 4,570 2,934
Cumulative translation and marketable securities
adjustments............................................ (120) (135)
Retained earnings (accumulated deficit)................... 2 (57)
------- ------
Total stockholders' equity........................ 4,456 2,744
------- ------
$13,417 $6,790
======= ======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statements.
F-3
<PAGE> 7
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
REVENUES
Owned, leased and consolidated joint venture hotels......... $2,983 $1,550 $1,440
Management and franchise fees............................... 234 174 165
Unconsolidated joint ventures and other..................... 116 38 41
------ ------ ------
3,333 1,762 1,646
------ ------ ------
COSTS AND EXPENSES
Owned, leased and consolidated joint venture hotels......... 2,030 1,116 1,059
Selling, general and administrative......................... 218 137 150
Restructuring and other special charges..................... 149 640 --
Depreciation and amortization............................... 399 199 183
------ ------ ------
2,796 2,092 1,392
------ ------ ------
537 (330) 254
Interest expense, net of interest income of $26, $17 and
$67....................................................... (447) (16) (15)
Gain on sale of real estate and investments................. 55 432 42
Miscellaneous expense....................................... -- (156) (2)
------ ------ ------
145 (70) 279
Income tax benefit (expense)................................ 89 (154) (117)
Minority equity in net income............................... (14) (9) (6)
------ ------ ------
Income (loss) from continuing operations.................... 220 (233) 156
Discontinued operations:
Net income (loss) from operations, net of tax benefit
(expense) and minority interest of $31, $(67) and
$(127)................................................. (80) (12) 93
Net gain on dispositions, net of taxes of $621............ 1,162 -- --
Extraordinary item, net of taxes............................ -- (42) --
Cumulative effect of accounting change, net of taxes........ -- (11) --
------ ------ ------
Net income (loss)........................................... $1,302 $ (298) $ 249
====== ====== ======
EARNINGS PER SHARE -- BASIC
Continuing operations....................................... $ 1.06 $(1.85) $ 1.25
Discontinued operations..................................... 5.64 (0.09) 0.74
Extraordinary item.......................................... -- (0.33) --
Cumulative effect of accounting change...................... -- (0.09) --
------ ------ ------
Net income (loss)........................................... $ 6.70 $(2.36) $ 1.99
====== ====== ======
EARNINGS PER SHARE -- DILUTED
Continuing operations....................................... $ 1.05 $(1.85) $ 1.23
Discontinued operations..................................... 5.58 (0.09) 0.73
Extraordinary item.......................................... -- (0.33) --
Cumulative effect of accounting change...................... -- (0.09) --
------ ------ ------
Net income (loss)........................................... $ 6.63 $(2.36) $ 1.96
====== ====== ======
Weighted average number of Shares........................... 192 126 125
====== ====== ======
Weighted average number of Shares assuming dilution......... 194 126 127
====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statements.
F-4
<PAGE> 8
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
------ ----- ----
(IN MILLIONS)
<S> <C> <C> <C>
Net income (loss)........................................... $1,302 $(298) $249
Other comprehensive income:
Foreign currency translation adjustments --
Foreign currency translation arising during the period.... (18) (133) (2)
Reclassification adjustment for losses included in net
income (loss).......................................... 32 -- --
Unrealized gains (losses) on securities --
Unrealized holding gains (losses) arising during the
period................................................. 1 176 (62)
Reclassification adjustment for gains included in net
income (loss).......................................... -- (114) --
------ ----- ----
15 (71) (64)
------ ----- ----
Comprehensive income (loss)................................. $1,317 $(369) $185
====== ===== ====
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statements.
F-5
<PAGE> 9
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
FORWARD
EQUITY
CONTRACTS CLASS B EPS CLASS A EPS SHARES(1) ADDITIONAL
AND EQUITY --------------- --------------- --------------- PAID-IN
PUT OPTIONS SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
----------- ------ ------ ------ ------ ------ ------ ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995...................... $ -- -- $ -- -- $-- 127 $2 $ 2,942
Net income................ -- -- -- -- -- -- -- --
Stock option
transactions............ -- -- -- -- -- -- -- 10
Common stock
repurchases............. -- -- -- -- -- (1) -- (57)
Foreign currency
translation............. -- -- -- -- -- -- -- --
Unrealized loss on
securities, net......... -- -- -- -- -- -- -- --
----- -- ---- -- -- --- -- -------
Balance at December 31,
1996...................... -- -- -- -- -- 126 2 2,895
Net loss.................. -- -- -- -- -- -- -- --
Stock option
transactions............ -- -- -- -- -- 1 -- 39
Foreign currency
translation............. -- -- -- -- -- -- -- --
Unrealized gain on
securities, net......... -- -- -- -- -- -- -- --
----- -- ---- -- -- --- -- -------
Balance at December 31,
1997...................... -- -- -- -- -- 127 2 2,934
Net income................ -- -- -- -- -- -- -- --
ITT reverse purchase...... 125 5 212 6 -- 57 2 4,022
Cash dividend to ITT
stockholders............ -- -- -- -- -- -- -- (2,144)
Stock option and
restricted stock award
transactions............ -- -- -- -- -- 1 -- 31
Share repurchases......... -- -- -- -- -- (10) -- (371)
Issuance of forward equity
contracts............... 245 -- -- -- -- 8 -- --
Settlement of forward
equity contracts........ (370) -- -- -- -- (10) -- --
Issuance of equity put
options................. 32 -- -- -- -- -- -- (30)
Conversion and
cancellation of Class A
EPS and Class B EPS..... -- (1) (63) (2) -- 3 -- 50
Change in minority
interest................ -- -- -- -- -- -- -- 78
Foreign currency
translation............. -- -- -- -- -- -- -- --
Unrealized gain on
securities, net......... -- -- -- -- -- -- -- --
Dividends declared........ -- -- -- -- -- -- -- --
----- -- ---- -- -- --- -- -------
Balance at December 31,
1998...................... $ 32 4 $149 4 $-- 176 $4 $ 4,570
===== == ==== == == === == =======
<CAPTION>
CUMULATIVE
TRANSLATION
AND RETAINED
MARKETABLE EARNINGS
SECURITIES (ACCUMULATED
ADJUSTMENTS DEFICIT)
----------- ------------
(IN MILLIONS)
<S> <C> <C>
Balance at December 31,
1995...................... $ -- $ (8)
Net income................ -- 249
Stock option
transactions............ -- --
Common stock
repurchases............. -- --
Foreign currency
translation............. (2) --
Unrealized loss on
securities, net......... (62) --
----- ------
Balance at December 31,
1996...................... (64) 241
Net loss.................. -- (298)
Stock option
transactions............ -- --
Foreign currency
translation............. (133) --
Unrealized gain on
securities, net......... 62 --
----- ------
Balance at December 31,
1997...................... (135) (57)
Net income................ -- 1,302
ITT reverse purchase...... -- --
Cash dividend to ITT
stockholders............ -- (890)
Stock option and
restricted stock award
transactions............ -- --
Share repurchases......... -- --
Issuance of forward equity
contracts............... -- --
Settlement of forward
equity contracts........ -- --
Issuance of equity put
options................. -- --
Conversion and
cancellation of Class A
EPS and Class B EPS..... -- --
Change in minority
interest................ -- --
Foreign currency
translation............. 14 --
Unrealized gain on
securities, net......... 1 --
Dividends declared........ -- (353)
----- ------
Balance at December 31,
1998...................... $(120) $ 2
===== ======
</TABLE>
- ---------------
(1) Represents common stock of ITT prior to the ITT Merger and the Corporation's
common stock and the Trust's shares of beneficial interest subsequent to the
ITT Merger.
The accompanying notes to financial statements are an integral part of the above
statements.
F-6
<PAGE> 10
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ------ -----
(IN MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 1,302 $ (298) $ 249
Exclude:
Discontinued operations --
Net (income) loss from operations......................... 80 12 (93)
Net gain on dispositions.................................. (1,162) -- --
Extraordinary items......................................... -- 42 --
Cumulative effect of accounting change...................... -- 11 --
------- ------ -----
Income (loss) from continuing operations.................... 220 (233) 156
Adjustments to income (loss) from continuing operations:
Depreciation and amortization............................. 399 199 183
Amortization of deferred loan costs....................... 22 -- --
Non-cash portion of Restructuring charge.................. 85 -- --
Provision for doubtful accounts........................... 13 6 5
Minority equity in net income............................. 14 9 6
Equity income, net of dividends received.................. (8) (3) (1)
Gain on sale of real estate and investments............... (55) (432) (42)
Changes in working capital:
Accounts receivable....................................... (36) (43) (51)
Inventories............................................... (4) (6) (10)
Accounts payable.......................................... (2) 10 (40)
Accrued expenses.......................................... (567) 632 7
Accrued and deferred income taxes........................... (50) (130) 50
Other, net.................................................. 30 (1) 69
------- ------ -----
Cash from continuing operations........................... 61 8 332
Cash used for discontinued operations..................... (296) (704) (197)
------- ------ -----
Cash from (used for) operating activities................. (235) (696) 135
------- ------ -----
INVESTING ACTIVITIES
Additions to plant, property and equipment.................. (427) (233) (299)
Proceeds from asset sales................................... 2,854 1,641 282
Collection of notes receivable.............................. 156 217 81
Acquisitions, net of acquired cash.......................... (60) (287) (343)
Employee benefit trust...................................... 143 (166) --
Other, net.................................................. (326) (40) (77)
------- ------ -----
Cash from (used for) investing activities................. 2,340 1,132 (356)
------- ------ -----
FINANCING ACTIVITIES
Short-term borrowings, net.................................. 487 (155) 86
Long-term debt issued....................................... 4,143 119 454
Long-term debt issued by discontinued operations............ -- 546 --
Long-term debt repaid....................................... (2,785) (965) (303)
Settlement of forward equity contracts...................... (125) -- --
Cancellation of Class B EPS................................. (13) -- --
Stock option exercises...................................... 15 37 10
Dividends paid.............................................. (3,357) -- --
Share repurchases........................................... (371) -- (57)
Other, net.................................................. (50) (7) 69
------- ------ -----
Cash from (used for) financing activities................. (2,056) (425) 259
------- ------ -----
Exchange rate effect on cash and cash equivalents........... -- (3) 1
------- ------ -----
Increase in cash and cash equivalents....................... 49 8 39
Cash and cash equivalents -- beginning of period............ 126 118 79
------- ------ -----
Cash and cash equivalents -- end of period.................. $ 175 $ 126 $ 118
======= ====== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ 445 $ 11 $ 17
======= ====== =====
Income taxes, net of refunds.............................. $ 63 $ 227 $ 60
======= ====== =====
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statements.
F-7
<PAGE> 11
STARWOOD HOTELS & RESORTS
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
(IN MILLIONS,
EXCEPT SHARE DATA)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 12
Accounts receivable....................................... 24
Receivable, Corporation................................... 42
Prepaid expenses and other................................ 3
------
Total current assets.............................. 81
Investments, Corporation.................................... 1,057
Investments................................................. 86
Plant, property and equipment, net.......................... 4,411
Long-term receivables, net, Corporation..................... 2,583
Goodwill and intangible assets, net......................... 258
Other assets................................................ 152
Net assets held for sale.................................... 18
------
$8,646
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 6
Accrued expenses.......................................... 68
Short-term borrowings and current maturities of long-term
debt................................................... 1
------
Total current liabilities......................... 75
Long-term debt.............................................. 737
Minority interest........................................... 39
------
851
------
Equity put options and forward equity contracts............. 23
------
Class B exchangeable preferred shares, at redemption value
of $38.50................................................. 149
------
Commitments and contingencies
Stockholders' equity:
Class A exchangeable preferred shares; $0.01 par value;
authorized 30,000,000 shares; outstanding 4,373,457
shares................................................. --
Trust common shares of beneficial interest; $0.01 par
value; authorized 1,200,000,000 shares; outstanding
175,574,135 shares..................................... 2
Additional paid-in capital................................ 7,557
Retained earnings......................................... 64
------
Total stockholders' equity........................ 7,623
------
$8,646
======
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statements.
F-8
<PAGE> 12
STARWOOD HOTELS & RESORTS
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 23, 1998 TO
DECEMBER 31, 1998
--------------------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C>
REVENUES
Unconsolidated joint ventures and other..................... $ 10
Rent and interest, Corporation.............................. 590
-----
600
-----
COSTS AND EXPENSES
Selling, general and administrative......................... 22
Depreciation and amortization............................... 131
-----
153
-----
447
Interest expense, net of interest income of $6.............. (24)
Income tax expense.......................................... (1)
Minority equity in net income............................... (10)
-----
Net income.................................................. $ 412
=====
Net income per share -- basic............................... $2.05
=====
Net income per share -- diluted............................. $2.04
=====
Weighted average number of shares........................... 192
=====
Weighted average number of shares assuming dilution......... 202
=====
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statements.
F-9
<PAGE> 13
STARWOOD HOTELS & RESORTS
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 23, 1998 TO
DECEMBER 31, 1998
--------------------
(IN MILLIONS)
<S> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 412
Adjustments to net income:
Depreciation and amortization............................. 131
Minority equity in net income............................. 10
Equity income, net of dividends received.................. 2
Changes in working capital:
Accounts receivable....................................... (8)
Accounts payable.......................................... 1
Accrued expenses.......................................... (17)
Other, net.................................................. 72
-----
Cash from operating activities............................ 603
-----
INVESTING ACTIVITIES
Additions to plant, property and equipment.................. (177)
Proceeds from sale of real estate and investments........... 282
Acquisitions, net of acquired cash.......................... (13)
Notes receivable, Corporation............................... 488
Other, net.................................................. (325)
-----
Cash from investing activities............................ 255
-----
FINANCING ACTIVITIES
Short-term debt, net........................................ 1
Long-term debt issued....................................... 319
Long-term debt repaid....................................... (546)
Settlement of forward equity contracts...................... (88)
Cancellation of Class B EPS................................. (13)
Stock option exercises...................................... 11
Dividends paid.............................................. (278)
Share repurchases........................................... (260)
Other, net.................................................. 8
-----
Cash used for financing activities........................ (846)
-----
Increase in cash and cash equivalents....................... 12
Cash and cash equivalents -- beginning of period............ --
-----
Cash and cash equivalents -- end of period.................. $ 12
=====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ 21
=====
Income taxes.............................................. $ 1
=====
</TABLE>
The accompanying notes to financial statements are an integral part of the above
statements.
F-10
<PAGE> 14
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated balance sheets as of December 31, 1998
include the accounts of (i) Starwood Hotels & Resorts Worldwide, Inc. (the
"Corporation") and its subsidiaries (the "Company" or "Starwood"), including
Starwood Hotels & Resorts and its subsidiaries (the "Trust") and ITT Corporation
and its subsidiaries ("ITT") (see Note 3), and (ii) the Trust. Because the
Company's acquisition of ITT (the "ITT Merger") was treated as a reverse
purchase for financial accounting purposes, the statements of operations,
comprehensive income, equity and cash flows for the year ended December 31, 1998
include the accounts of the Company and the Trust for the period from the
closing of the ITT Merger on February 23, 1998 through December 31, 1998 and the
accounts of ITT for the year ended December 31, 1998. Additionally, the balance
sheet as of December 31, 1997 and the statements of operations, comprehensive
income, equity and cash flows for the years ended December 31, 1997 and 1996
represent the results of ITT.
The Trust was formed in 1969 and elected to be taxed as a real estate
investment trust ("REIT") under the Internal Revenue Code (the "Code"). In 1980,
the Trust formed the Corporation and made a distribution to the Trust's
shareholders of one share of common stock, par value $0.01 per share, of the
Corporation (a "Corporation Share") for each common share of beneficial
interest, par value $0.01 per share, of the Trust (a "Trust Share"). Until
January 6, 1999, the Corporation Shares and Trust Shares were paired on a
one-for-one basis and, pursuant to an agreement between the Corporation and the
Trust, could be held or transferred only in units ("Paired Shares") consisting
of one Corporation Share and one Trust Share.
At December 31, 1998, the combined Corporation and Trust entity was a
"paired share REIT" under the grandfathering provisions of the Code. During
1998, Congress enacted tax legislation that has the effect of eliminating this
grandfathering for certain interests in real property acquired after March 26,
1998. In response to this legislation, a restructuring of the Corporation and
the Trust (the "Restructuring") was proposed by the Company and was approved by
the Corporation and Trust shareholders on January 6, 1999. As a result of the
Restructuring, the Trust became a subsidiary of the Corporation, which holds all
outstanding shares of the new Class A shares of beneficial interest in the
Trust. Each outstanding Trust Share was converted into one share of the new
non-voting Class B shares of beneficial interest in the Trust (a "Class B
Share"). The Corporation Shares and the Class B Shares trade together on a
one-for-one basis, and pursuant to an agreement between the Corporation and the
Trust, may be transferred only in units ("Shares") consisting of one Corporation
Share and one Class B Share. The Restructuring was accounted for as a
reorganization of two companies under common control. As such, there was no
revaluation of the assets and liabilities of the combining companies. Any
further references in this filing to Starwood or the Company include the Trust
and its subsidiaries. Unless otherwise stated herein, all information with
respect to Shares refers to Shares since January 6, 1999 and to Paired Shares
for periods before January 6, 1999.
The Company is one of the largest hotel companies in the world and the
Trust is one of the largest REITs in the United States. The Company's principal
business segment is hotels, which is comprised of a worldwide hospitality
network of approximately 690 full-service hotels primarily serving three
markets: luxury, upscale and mid-price. The Company's hotel operations are
represented on every continent and in nearly every major world market.
During the first quarter of 1999, the Company recorded pretax charges of
$15 million for costs directly attributable to the Restructuring, such as legal,
accounting and investment banking fees. As a result of the Restructuring, the
Company also recorded a one-time charge of $936 million to establish a deferred
tax liability relating to the difference between the book and tax basis in the
assets of the Trust.
The Corporation, through its subsidiaries, is the general partner of, and
held an aggregate 81.2% partnership interest in, SLC Operating Limited
Partnership (the "Operating Partnership") as of December 31, 1998. The Trust,
through its subsidiaries, is the general partner of, and held an aggregate 92.3%
F-11
<PAGE> 15
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
partnership interest in, SLT Realty Limited Partnership (the "Realty
Partnership" and, together with the Operating Partnership, the "Partnerships")
as of December 31, 1998. The Realty Partnership principally owns, directly or
indirectly, fee, ground lease and mortgage loan interests in hotel properties.
The Operating Partnership, directly or indirectly, principally leases hotel
properties from the Realty Partnership and also owns fee interests in other
hotel properties and manages hotels for third parties. The units of these
Partnerships ("LP Units") held by the limited partners of the respective
Partnerships ("Limited Partners") are exchangeable on a one-for-one basis for
Shares. At December 31, 1998, there were approximately 10.5 million LP Units
outstanding. For all periods presented, the LP Units are assumed to have been
converted to Shares for purposes of calculating basic and diluted weighted
average Shares outstanding.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
INVENTORIES. Inventories, comprised principally of hotel operating
supplies, are generally valued at the lower of cost (first-in, first-out) or
market and potential losses from obsolete and slow-moving inventories are
provided for in the current period.
INVESTMENTS. Investments in partnerships and joint ventures are accounted
for using the equity method of accounting when the Company has a 20% to 50%
ownership interest or exercises control over the venture. If the Company's
interest exceeds 50% and the Company exercises control over the venture, the
results of the partnership or joint venture are consolidated herein. All other
investments are generally accounted for under the cost method.
Under the equity method of accounting, profits and losses are allocated in
accordance with the partnership or joint venture agreements. The Company's share
of income or losses before interest expense, depreciation expense and
extraordinary items is included in unconsolidated joint ventures and other
revenues in the accompanying consolidated statements of operations. The
Company's proportionate share of interest expense and depreciation and
amortization expense of such ventures is included in interest expense and
depreciation and amortization expense, respectively, in the accompanying
consolidated statements of operations.
PLANT, PROPERTY AND EQUIPMENT. Plant, property and equipment, including
capitalized interest of $14 million, $7 million and $7 million in 1998, 1997 and
1996, respectively, applicable to major project expenditures, are recorded at
cost. Depreciation is provided on a straight-line basis over the estimated
useful economic lives of 15 to 40 years for buildings and improvements, 5 to 10
years for furniture, fixtures and equipment, and the lesser of the leasehold
term or 40 years for leasehold improvements. Gains or losses on the sale or
retirement of assets are included in income when the assets are sold provided
there is reasonable assurance of the collectibility of the sales price and any
future activities to be performed by the Company relating to the hotel assets
sold are insignificant.
The Company evaluates the carrying value of each of the Company's assets
for impairment. For assets not held for sale, the expected undiscounted future
cash flows of the assets are compared to the net book value of the assets. 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. When assets are identified by management as held
for sale, the Company discontinues depreciating the assets and estimates the
fair value of such assets. If, in management's opinion, the fair value of the
assets which have been identified for sale is less than the net book value of
the assets, a loss reserve is established. Fair value is determined based upon
discounted cash flows of the assets at rates deemed reasonable for the type of
property and prevailing market conditions, appraisals and, if appropriate,
current estimated net sales proceeds from pending offers.
F-12
<PAGE> 16
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM RECEIVABLES. Long-term receivables consist primarily of secured
loans to owners of managed hotels and unconsolidated joint ventures and are
included in other assets in the accompanying consolidated balance sheets. For
adjustable rate loans, fair value approximates carrying value due to the
variable nature of the interest rates. For fixed rate loans, fair value is
determined based upon discounted cash flows from the note at rates deemed
reasonable for the type of note and prevailing market conditions, appraisals,
and if appropriate, current estimated net sales proceeds from pending offers to
buy the underlying properties. The carrying value approximates fair value due to
the interest rates being in line with market rates.
Management considers a loan to be impaired when it is probable that the
Company will be unable to collect all amounts due according to the contractual
terms of the loan. When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future cash flows
discounted at the note's effective interest rate. Impairment losses are charged
to expense. Generally, cash receipts are first applied to reduce accrued and
unpaid interest and then to reduce principal.
GOODWILL AND INTANGIBLE ASSETS. Goodwill and intangible assets arose in
connection with acquisitions and management contracts, respectively, and are
amortized using the straight-line method over 8 to 40 years. Accumulated
amortization was $85 million and $19 million at December 31, 1998 and 1997,
respectively. The Company continually reviews the carrying value of goodwill and
intangible assets to assess recoverability from future operations using
undiscounted cash flows. Impairments would be recognized in operating results if
a permanent diminution in value is deemed to have occurred.
DERIVATIVE FINANCIAL INSTRUMENTS. The Company enters into interest rate
swap agreements to manage interest rate exposure. The differential to be paid or
received under these agreements is accrued consistent with the terms of the
agreements and is recognized in interest expense over the term of the related
debt using a method that approximates the effective interest method (the accrual
accounting method). The related amounts payable to or receivable from
counterparties are included in other liabilities or assets. The fair value of
the swap agreements and changes in the fair value as a result of changes in
market interest rates are not recognized in the financial statements.
The Company enters into foreign currency forward contracts and foreign
currency swaps as a means of hedging exposure to foreign currency fluctuations.
Foreign currency forward contracts and foreign currency swaps are accounted for
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52,
Foreign Currency Translation. Changes in the value of the derivative instruments
designated as hedges of foreign currency denominated assets and liabilities are
classified in the same manner as the classification of the changes in the
underlying assets and liabilities.
The Company does not enter into these derivative financial instruments for
speculative purposes and closely monitors the financial stability and credit
standing of its counterparties. When a derivative financial instrument is deemed
to no longer effectively correlate with its underlying assets or liabilities, it
is the Company's policy to mark to market these derivatives.
FOREIGN CURRENCY TRANSLATION. Balance sheet accounts are translated at the
exchange rates in effect at each year end and income and expense accounts are
translated at the average rates of exchange prevailing during the year. The
national currencies of foreign operations are generally the functional
currencies. Gains and losses from foreign currency translation and the effect of
exchange rate changes on intercompany transactions of a long-term investment
nature are generally included as a separate component of stockholders' equity in
accordance with SFAS No. 52. Gains and losses from foreign currency transactions
are reported currently in costs and expenses and were insignificant for all
periods presented.
INCOME TAX. Under the asset and liability method of accounting for income
taxes, deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets, including net operating loss
carryforwards, and
F-13
<PAGE> 17
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period when the new rate is enacted.
The Trust has elected to be treated as a REIT under the provisions of the
Code beginning with the 1995 calendar year. As a result, the Trust will not be
subject to federal income tax on its taxable income at corporate rates provided
it distributes annually 100% of its taxable income to its shareholders and
complies with certain other requirements.
EARNINGS PER SHARE. The following reconciliation of basic earnings per
Share to diluted earnings per Share for income (loss) from continuing operations
assumes the conversion of LP Units to Shares (in millions, except per Share
data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ ----------------------------- -----------------------------
EARNINGS SHARES PER SHARES EARNINGS SHARES PER SHARE EARNINGS SHARES PER SHARE
-------- ------ ---------- -------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from
continuing
operations............. $220 $(223) $156
Dividends on Class A and
Class B EPS............ (17) -- --
---- ----- ----
Basic earnings (loss).... $203 192 $1.06 $(233) 126 $(1.85) $156 125 $1.25
==== ===== ===== ====== ==== =====
Effect of dilutive
securities:
Employee stock
options.............. 2 -- 2
--- --- ---
Diluted earnings
(loss)................. $203 194 $1.05 $(233) 126 $(1.85) $156 127 $1.23
==== === ===== ===== === ====== ==== === =====
</TABLE>
Earnings per Share for the years ended December 31, 1997 and 1996, as
previously reported by ITT, has been restated to give effect to the reverse
purchase accounting for the ITT Merger and to conform to the presentation
required by SFAS No. 128, Earnings Per Share.
Class A and Class B Exchangeable Preferred Shares ("EPS") of the Trust,
equity put options and forward equity contract security settlements were not
included in the computation of diluted earnings per Share for the year ended
December 31, 1998 as the effects were anti-dilutive. There were no Class A EPS,
Class B EPS, equity put options or forward equity contracts outstanding in 1997
or 1996.
REVENUE RECOGNITION. Generally, revenues are recognized when the services
have been rendered. The following is a description of the composition of
revenues for each of the Company's business segments:
Owned, Leased and Consolidated Joint Ventures -- Represents a
worldwide network of owned, leased or consolidated joint venture hotels and
resorts operated primarily under the Company's proprietary brand names
including Sheraton, Westin, St. Regis/Luxury Collection, Four Points and W.
Management and Franchise Fees -- Represents fees earned on hotels
managed worldwide, usually under long-term contracts with the hotel owner,
and franchise fees received in connection with the franchise of the
Company's Sheraton, Westin and Four Points brand names.
Unconsolidated Joint Ventures and Other -- Represents primarily the
Company's interest in unconsolidated joint ventures.
Emerging Issues Task Force ("EITF") 97-2, Application of SFAS No. 94 and
Accounting Principles Board ("APB") Opinion No. 16 to Physician Practice
Management Entities and Certain Other Entities with Contractual Management
Arrangements, addresses the circumstances in which a management entity may
F-14
<PAGE> 18
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
include the revenues and expenses of a managed entity in its financial
statements. As a result of EITF 97-2, the Company changed its accounting policy
for its managed hotels beginning in the fourth quarter of 1998. As such,
revenues and expenses of non-owned managed hotels are no longer included in the
Company's financial statements, and the results for all periods presented herein
reflect this change in accounting policy. Management fees earned by the Company
for the hotels are included in management and franchise fees in the accompanying
consolidated financial statements. Management and franchise fees are generally
based on a percentage of hotel room revenues. Application of EITF 97-2 for the
years ended December 31, 1998, 1997 and 1996 reduced each of revenues and
operating expenses by approximately $4.2 billion, $2.8 billion and $2.8 billion,
respectively. There was no impact on operating income, net income, working
capital, earnings per Share or stockholders' equity as a result of this change
in accounting policy.
COMPREHENSIVE INCOME. SFAS No. 130, Reporting Comprehensive Income,
requires a separate statement to report the components of comprehensive income
for each period reported. Items to be included in comprehensive income include
foreign currency translation adjustments, unrealized gains and losses on certain
investments in debt and equity securities and minimum pension liability
adjustments. The Company adopted SFAS No. 130 on January 1, 1998 and, as such,
has included the required statements of comprehensive income in the accompanying
financial statements for the Company.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS. Certain reclassifications have been made to the prior
year financial statements to conform to the current year presentation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1998, SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, was issued.
This statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes in the
fair value of the derivative be recognized currently in earnings unless specific
hedge accounting criteria are met. If specific hedge accounting criteria are
met, changes in the fair value of derivatives will either be offset against the
change in the fair value of the hedged assets, liabilities, or firm commitments
through earnings, or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Management has not yet quantified the impact of adopting SFAS No. 133 on the
Company's financial statements.
NOTE 3. ACQUISITIONS
ACQUISITION OF VISTANA. On July 18, 1999, Starwood entered into a
definitive merger agreement with Vistana, Inc. ("Vistana"), pursuant to which
Vistana will merge with and into a subsidiary of Starwood and thereby become a
wholly-owned subsidiary of Starwood. Vistana's principal operations include the
acquisition, development and operation of vacation ownership resorts, marketing
and selling vacation ownership interests in the resorts, and providing financing
to customers who purchase such interests.
Each outstanding share of Vistana common stock, par value $.01 per share
will be converted into $5.00 in cash and a fraction of a Share with such
fraction being valued at $14.00 per Share, assuming that Starwood's average
Share price is between $30-$36 per Share for a defined period of time.
F-15
<PAGE> 19
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ACQUISITION OF ITT. On February 23, 1998, pursuant to an Amended and
Restated Agreement and Plan of Merger, dated as of November 12, 1997 (the "ITT
Merger Agreement"), among the Corporation, Chess Acquisition Corp. ("Merger
Sub"), the Trust and ITT, the Company acquired ITT.
Pursuant to the terms of the ITT Merger Agreement, Merger Sub, a newly
formed Nevada corporation, was merged with and into ITT, whereupon the separate
corporate existence of Merger Sub ceased and ITT continued as the surviving
corporation. As a result of the ITT Merger, ITT was owned jointly by the Trust
and the Corporation. Immediately after the effective time of the ITT Merger, the
Corporation purchased all of the common stock, no par value, of ITT ("ITT Common
Stock") owned by the Trust for a combination of cash and notes. After such
purchase, ITT became a wholly owned subsidiary of the Corporation.
Under the terms of the ITT Merger Agreement, each outstanding share of ITT
Common Stock, together with the associated right to purchase shares of Series A
Participating Cumulative Preferred Stock of ITT (the rights and, together with
the ITT Common Stock, "ITT Shares"), other than those that were converted into
cash pursuant to a cash election by the holder (and other than ITT Shares owned
directly or indirectly by ITT or Starwood, which shares were canceled), was
converted into 1.543 Shares. Pursuant to cash election procedures, approximately
35 million ITT Shares, representing approximately 30% of the outstanding ITT
Shares, were converted into $85 in cash per share. In addition, each ITT Share
was converted into additional cash consideration in the amount of $0.37493151,
which amount represents the interest that would have accrued (without
compounding) on $85 at an annual rate of 7% during the period from and including
January 31, 1998 to but excluding the date of the closing of the ITT Merger
(February 23, 1998). The aggregate value of the ITT acquisition in cash, Shares
and assumed debt was approximately $14.6 billion.
The Company accounted for the ITT Merger as a reverse purchase in
accordance with APB Opinion No. 16. Purchase accounting for a combination is
similar to the accounting treatment used in the acquisition of any asset group.
Although the Company issued Shares to ITT stockholders and survived the ITT
Merger, the Trust and the Corporation are considered the acquired companies for
accounting purposes since the prior ITT stockholders held a majority of the
outstanding Shares immediately after the ITT Merger was consummated. The fair
market value of the Shares outstanding and available upon conversion of the LP
Units held by Starwood's stockholders prior to the ITT Merger and the Limited
Partners, respectively (using the stock price of $54.31 per Share, based on the
average of the high and low prices per Share of Starwood as reported on the New
York Stock Exchange (the "NYSE") on November 12, 1997), is used as the valuation
basis for the combination. The fair market value of the Shares outstanding on
February 23, 1998 (the ITT Merger closing date) immediately prior to giving
effect to the ITT Merger in excess of the net book value of the assets and
liabilities of Starwood has been allocated to plant, property and equipment and
goodwill. The goodwill is being amortized over a 40-year period. The Company has
completed a valuation of the assets acquired and liabilities assumed and has
allocated the excess of fair market value of the assets and liabilities
F-16
<PAGE> 20
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
based on that valuation. The calculation of the excess of the fair market value
of the Shares over the book value of the Company's assets and liabilities at
February 23, 1998 is as follows (in millions):
<TABLE>
<S> <C>
Total Shares and LP Units outstanding prior to the ITT
Merger.................................................... 80
Fair market value of the Company's Shares using the stock
price of $54.31 (based on the average of the high and low
prices per Share of Starwood as reported on the NYSE on
November 12, 1997)........................................ $ 4,361
Book value of the Company's consolidated equity............. (1,775)
Transaction-related fees and expenses....................... 37
Minority interest related to the Partnerships............... (152)
-------
Excess of fair market value of Shares over the book value of
net assets................................................ $ 2,471
=======
</TABLE>
Because the acquisition of ITT is treated as a reverse purchase for
financial accounting purposes, the statements of operations, comprehensive
income and cash flows for the year ended December 31, 1998 include the accounts
of the Trust and the Corporation for the period from the closing of the ITT
Merger on February 23, 1998 through December 31, 1998 and the accounts of ITT
for the entire year ending December 31, 1998. Historical stockholders' equity of
the Company prior to the ITT Merger has been retroactively restated for the
equivalent number of shares received in the ITT Merger after giving effect to
the difference in par value between Starwood's and ITT's stock. Unless otherwise
indicated, all references herein to the number of Shares and per share amounts
have been restated to reflect the impact of the reverse acquisition at the
conversion factor of 1.543 Shares for each ITT Share acquired.
ACQUISITION OF WESTIN. On January 2, 1998, pursuant to a Transaction
Agreement dated as of September 8, 1997 (the "Transaction Agreement"), among
WHWE L.L.C., Woodstar Investor Partnership, Nomura Asset Capital Corporation,
Juergen Bartels, Westin Hotels & Resorts Worldwide, Inc. ("Westin Worldwide"),
W&S Lauderdale Corp. ("Lauderdale"), W&S Seattle Corp. ("Seattle"), Westin St.
John Hotel Company, Inc. ("St. John"), W&S Denver Corp. ("Denver"), W&S Atlanta
Corp. ("Atlanta" and, together with Westin Worldwide, Lauderdale, Seattle, St.
John and Denver, "Westin"), W&S Hotel L.L.C., the Trust, the Corporation and the
Partnerships, Starwood acquired Westin.
Pursuant to the terms of the Transaction Agreement,
(i) Westin Worldwide merged into the Trust (the "Westin Merger"). In
connection with the Westin Merger, all the issued and outstanding shares of
capital stock of Westin Worldwide (other than shares held by Westin
Worldwide and its subsidiaries or by the Company) were converted into an
aggregate of 6,285,783 Class A EPS and 5,294,783 Class B EPS and cash in
the amount of $177.9 million;
(ii) The stockholders of Lauderdale, Seattle and Denver contributed
all the outstanding shares of such companies to the Realty Partnership. In
exchange for such contribution and after giving effect to the deemed
exchange of certain LP Units, the Realty Partnership issued to such
stockholders an aggregate of 470,309 LP Units of the Realty Partnership and
the Trust issued to such stockholders an aggregate of 127,534 shares of
Class B EPS. In addition, in connection with the foregoing share
contribution, the Realty Partnership assumed, repaid or refinanced the
indebtedness of Lauderdale, Seattle and Denver and assumed $84.2 million of
indebtedness incurred by the members of W&S Hotel L.L.C. prior to such
contributions; and
(iii) The stockholders of Atlanta and St. John contributed all the
outstanding shares of such companies to the Operating Partnership. In
exchange for such contribution and after giving effect to the deemed
exchange of certain LP Units, the Operating Partnership issued to such
stockholders an aggregate of 312,741 LP Units of the Operating Partnership
and the Trust issued to such stockholders an
F-17
<PAGE> 21
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
aggregate of 80,415 shares of Class B EPS. In addition, in connection with
the foregoing share contributions, the Operating Partnership assumed,
repaid or refinanced indebtedness of Atlanta and St. John and assumed $3.4
million of indebtedness incurred by the members of W&S Hotel L.L.C. prior
to such contributions.
The aggregate principal amount of debt assumed or incurred by the Company
pursuant to the Westin Transaction Agreement was approximately $1.0 billion. The
Company accounted for the acquisition of Westin as a purchase in accordance with
APB No. 16. As such, the carrying values of the assets acquired and liabilities
assumed were recorded at fair market value resulting in goodwill and identified
intangibles of $1.1 billion.
The shares of Class A and Class B EPS and the limited partnership interests
issued in connection with the Westin Merger and the contribution of Seattle,
Lauderdale, Denver, St. John and Atlanta to the Partnerships are directly or
indirectly exchangeable on a one-for-one basis (subject to certain adjustments)
for Shares (subject to the right of the Company to elect to pay cash in lieu of
issuing such shares). The limited partnership interests also are exchangeable on
a one-for-one basis for shares of Class B EPS. The shares of Class B EPS have a
liquidation preference of $38.50 per share and provide the holders with the
right, from and after the fifth anniversary of the closing date of the Westin
Merger, to require the Trust to redeem such shares at a price of $38.50.
OTHER HOTEL ACQUISITIONS. In May 1998, the Company acquired the 242-room
Danbury Hilton Hotel in Danbury, Connecticut for approximately $20 million in
cash.
In January 1998, the Company completed the acquisition of four
full-service, luxury properties located in Aspen, Colorado; New York, New York;
Washington, D.C.; and Houston, Texas for a total consideration of approximately
$348 million, consisting of $164 million in cash and 3.7 million Shares, valued
for purposes of this transaction, at approximately $184 million.
UNAUDITED PRO FORMA RESULTS. The following unaudited pro forma information
reflects the ITT Merger, the acquisition of Westin and certain asset sales as if
they occurred on January 1, 1997 and does not purport to present what actual
results would have been had such transactions, in fact, occurred at January 1,
1997, or to project results for any future period (in millions, except per Share
data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1998 1997
------ ------
<S> <C> <C>
Revenues.................................................... $3,594 $3,090
Income (loss) from continuing operations.................... $ 164 $ (246)
Net income (loss)........................................... $1,246 $ (311)
Basic income (loss) from continuing operations per Share.... $ 0.76 $(1.95)
Diluted income (loss) from continuing operations per
Share..................................................... $ 0.75 $(1.95)
</TABLE>
NOTE 4. DISPOSITIONS
In January 1999, the Company sold the International Golf Club in Bolton,
Massachusetts for $25 million in net proceeds and recognized a gain of $6
million in the first quarter of 1999.
The Company disposed of the following eight properties in May 1998 for a
total of approximately $245 million in cash: the 229-room Embassy Suites Phoenix
Airport in Phoenix, Arizona; the 224-room Tempe Embassy Suites in Tempe,
Arizona; the 198-room Palm Desert Embassy Suites in Palm Desert, California; the
233-room Embassy Suites Hotel in Atlanta, Georgia; the 297-room St. Louis
Embassy Suites in St. Louis, Missouri; the 308-room Doubletree Guest Suites in
Dallas-Ft. Worth International Airport, Texas; the
F-18
<PAGE> 22
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
254-room Doubletree Guest Suites Cypress Creek in Ft. Lauderdale, Florida; and
the 155-room Doubletree Guest Suites in Lexington, Kentucky.
There was no gain or loss recognized in connection with these dispositions
as the fair market value of the assets approximated the net book value at the
time of the disposition.
In May 1998, the Company sold a Gulfstream V corporate aircraft for
approximately $39 million in cash. A gain of $2 million was recognized in
connection with this disposition.
During 1998, the Company sold three additional properties. No gain or loss
was recognized in connection with these dispositions.
In June 1997, ITT sold a 38.5% ownership interest in Madison Square Garden,
L.P. ("MSG") to Cablevision Systems Corporation ("Cablevision") for
approximately $500 million and recorded a pretax gain of approximately $200
million. ITT also had two "put" options each allowing ITT to require Cablevision
or MSG to purchase one-half of ITT's then continuing interest in MSG for $75
million. In addition, ITT contributed to MSG an ITT-owned aircraft which MSG had
used for the New York Knickerbockers basketball team and the New York Rangers
hockey team. In consideration of the aircraft contribution, Cablevision agreed
to increase the exercise price of each of ITT's "put" options by $19 million.
The Company exercised one "put" option in April 1998 for total consideration of
approximately $94 million and the remaining "put" option in April 1999 for total
consideration of approximately $87 million.
During 1997, ITT sold its interest in the capital stock of Alcatel Alsthom.
Total proceeds from these sales were approximately $830 million, resulting in a
pretax gain of $183 million.
NOTE 5. DISCONTINUED OPERATIONS
GAMING. On April 27, 1999, the Company and certain of its subsidiaries
entered into a definitive agreement to sell all of its gaming operations,
excluding the Desert Inn Resort & Casino in Las Vegas, Nevada (the "Desert
Inn"), for cash proceeds of approximately $3.0 billion to Park Place
Entertainment Corporation. On May 18, 1999, the Company entered into a
definitive agreement to sell the Desert Inn for cash proceeds of approximately
$275 million to Sun International Hotels Limited. These sales constitute the
disposition of Starwood's gaming operations and are expected to close prior to
the end of 1999 and in mid-2000, respectively.
The accompanying consolidated financial statements have been restated to
reflect the results of operations and net assets of Starwood's gaming operations
as a discontinued operation. This restatement includes the allocation of
long-term debt of $2.1 billion, $1.2 billion and $1.0 billion and the related
interest expense of $161 million, $89 million and $73 million, as of the years
ended December 31, 1998, 1997 and 1996, respectively, to the discontinued
operations. These allocations were based upon the ratio of net gaming segment
assets to the Company's total capitalization. During the first quarter of 1999,
the Company provided for estimated after-tax losses on the disposal of the
discontinued operations of $180 million ($158 million pretax), which includes
anticipated operating results of approximately $50 million prior to the
disposal. Summary financial information of the discontinued gaming operations is
as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
BALANCE SHEET DATA
Total assets................................................ $ 3,751 $ 3,541
Total liabilities........................................... (368) (374)
Debt related to discontinued operations..................... (2,316) (1,361)
------- -------
Net assets of discontinued operations....................... $ 1,067 $ 1,806
======= =======
</TABLE>
F-19
<PAGE> 23
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
INCOME STATEMENT DATA
Revenues................................................. $1,377 $1,212 $1,285
Restructuring and other special charges.................. $ (55) $ (51) $ --
Operating income......................................... $ 64 $ 62 $ 215
Interest expense, including allocated interest........... $ (166) $ (78) $ (81)
Miscellaneous expense, net............................... $ -- $ (16) $ (7)
Income tax benefit (expense)............................. $ 19 $ (5) $ (56)
Minority equity in net (income) loss..................... $ 11 $ -- $ (1)
Income (loss) from discontinued operations............... $ (72) $ (37) $ 70
</TABLE>
ITT EDUCATIONAL SERVICES, INC. In June 1998, the Company sold
approximately 13.0 million shares of ITT Educational Services, Inc.
("Educational Services") in a public offering for net proceeds of approximately
$304 million. The Company recorded a gain of $253 million before income taxes of
$93 million. Subsequent to this sale, the Company was a minority holder in
Educational Services and, as such, accounted for its remaining interest under
the equity method by recording its proportionate share of net losses totaling $1
million for the period from June 1, 1998 to December 31, 1998. At December 31,
1998, the assets and liabilities of Educational Services are included in net
assets of discontinued operations in the accompanying financial statements.
Summary financial information of Educational Services is as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
---- ----
<S> <C> <C>
BALANCE SHEET DATA
Total assets................................................ $36 $144
Total liabilities........................................... -- (71)
--- ----
Net assets of discontinued operations....................... $36 $ 73
=== ====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
FIVE MONTHS DECEMBER 31,
ENDED ------------
MAY 31, 1998 1997 1996
------------ ---- ----
<S> <C> <C> <C>
INCOME STATEMENT DATA
Revenues................................................ $114 $262 $232
Operating income........................................ $ 12 $ 27 $ 21
Interest income......................................... $ 2 $ 5 $ 4
Miscellaneous expense, net.............................. $ -- $ -- $ (1)
Income tax expense...................................... $ (6) $(13) $(10)
Minority equity in net income........................... $ (1) $ (3) $ (2)
Income from discontinued operations..................... $ 7 $ 16 $ 12
</TABLE>
In February 1999, the Company completed the sale of its remaining interest
in Educational Services, selling 8.0 million shares of common stock of
Educational Services in an underwritten public offering at a price per share of
$34.00. Concurrently, Educational Services repurchased the Company's remaining
1.5 million shares of Educational Services common stock at $32.73 per share.
Starwood received aggregate net proceeds of approximately $310 million from
these transactions, which were used to repay a portion of the Company's
outstanding debt. The Company recognized a gain of $268 million, before taxes,
on the sale in the first quarter of 1999.
F-20
<PAGE> 24
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ITT WORLD DIRECTORIES. In February 1998, the Company disposed of ITT World
Directories ("WD"), the subsidiary through which ITT conducted its telephone
directories publishing business, to VNU International B.V., a leading
international publishing and information company based in the Netherlands, for
gross consideration of $2.1 billion. The Company recorded a gain of $1,530
million before income taxes of $528 million on the disposition. Interest expense
and debt related to the disposition of WD was allocated to discontinued
operations. The assets and liabilities of WD are included in net liabilities of
discontinued operations in the accompanying financial statements as of December
31, 1997. Summary financial information of WD is as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
BALANCE SHEET DATA
Total assets................................................ $ 562
Total liabilities........................................... (212)
Debt related to discontinued operations..................... (1,950)
-------
Net liabilities of discontinued operations.................. $(1,600)
=======
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
JANUARY 1, 1998 DECEMBER 31,
TO FEBRUARY 19, --------------
1998 1997 1996
--------------- ----- -----
<S> <C> <C> <C>
INCOME STATEMENT DATA
Revenues............................................. $ 8 $ 586 $ 647
Operating income (loss).............................. $ (8) $ 192 $ 208
Interest expense, including allocated interest....... $(14) $(130) $(138)
Miscellaneous expense, net........................... $ -- $ (7) $ (1)
Income tax (expense) benefit......................... $ 7 $ (25) $ (27)
Minority equity in net (income) loss................. $ 1 $ (21) $ (31)
Income (loss) from discontinued operations........... $(14) $ 9 $ 11
</TABLE>
NOTE 6. CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1997, ITT changed its method of accounting for
start-up costs on major hospitality and gaming projects to expense these costs
as incurred. Prior to 1997, the Company capitalized these costs and amortized
them over a three-year period. ITT's 1997 results include a charge of $17
million before income taxes of $6 million as the cumulative effect of this
accounting change. In connection with the ITT Merger, the Company elected to
follow ITT's accounting treatment for start-up costs and, as such, is expensing
start-up costs as incurred.
NOTE 7. EXTRAORDINARY ITEM
During 1997, ITT announced the tender offer for $546 million of debt
securities of a subsidiary company. The tender offer was financed through
short-term bank facilities. The tender offer resulted in ITT paying a tender
premium of $42 million after tax ($78 million pretax) which was recorded in 1997
as an extraordinary loss on the early retirement of debt.
F-21
<PAGE> 25
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. RESTRUCTURING AND OTHER SPECIAL CHARGES
During 1998, the Company recorded pretax restructuring and other special
charges totaling approximately $149 million. The charges represent a portion of
the restructuring and other special charges announced by the Company in August
1998.
The 1998 restructuring and other special charges consist of the following
(in millions):
<TABLE>
<CAPTION>
NON-CASH CASH EXPENDITURES
CHARGES EXPENDITURES ACCRUED TOTAL
-------- ------------ ------------ -----
<S> <C> <C> <C> <C>
Write-down of assets..................... $60 $-- $ -- $ 60
ITT Merger-related costs................. 10 59 43 112
Adjustment to ITT 1997 other special
charges................................ -- -- (23) (23)
--- --- ---- ----
Total.................................... $70 $59 $ 20 $149
=== === ==== ====
</TABLE>
WRITE-DOWN OF ASSETS. The restructuring and other special charges for the
write-down of assets include an investment in a hotel in Kuala Lampur, Malaysia
and a mortgage note receivable secured by a hotel in Paris, France.
Substantially all of these assets were ITT assets and were written down
primarily as a result of certain worldwide economic conditions indicating a
reduced value for these assets.
ITT MERGER-RELATED COSTS. The restructuring and other special charges
include costs related to the ITT Merger consisting primarily of severance
payments and relocation costs for ITT employees and certain costs to integrate
the companies, including costs to integrate the Company's frequent guest
programs and to close down duplicate facilities. The Company expects to pay out
the remaining balance of $43 million during 1999.
ADJUSTMENT TO ITT 1997 OTHER SPECIAL CHARGES. During the fourth quarter of
1998, the Company reversed approximately $23 million in special charges related
to a liability set up during 1997 by ITT for tax reimbursements that will not be
paid due to modifications of contractual agreements with certain former
employees. The remaining balance of $62 million will be paid out in 1999 subject
to resolution of certain contract terms.
1998 OTHER SPECIAL CHARGES. In addition, during the third quarter of 1998,
the Company recorded a non-recurring charge to selling, general and
administrative expense of approximately $30 million primarily associated with
the vesting, during the quarter, of certain restricted stock granted earlier in
the year to the new President and Chief Executive Officer of the Corporation.
Also during 1998, the Company recorded a $40 million non-recurring charge to
interest expense associated with the settlement of certain forward interest swap
agreements (see Note 21).
ITT 1997 RESTRUCTURING AND OTHER SPECIAL CHARGES. As a result of the ITT
Merger, ITT recorded the following special charges in 1997: (1) conversion of
the accounting for ITT's stock option plan to variable accounting due to limited
stock appreciation rights subject to exercise and related charges for tax
reimbursements to employees of $404 million, and (2) other costs including legal
fees, investment banking fees and asset write-offs totaling $152 million which
are included in miscellaneous expense, net. The employee-related costs and the
restructuring charges are included as a component of operating income in the
accompanying financial statements, while the other costs are included in
miscellaneous expense, net.
Additionally, during 1997, ITT recorded pretax charges totaling $236
million to restructure and rationalize operations at its World Headquarters and
the headquarters of its field operations. Of the total pretax charge,
approximately $196 million represented severance and other related employee
termination costs associated with the elimination of nearly 370 positions
worldwide. The balance of the restructuring charge ($40 million pretax) related
primarily to asset write-offs, lease commitments and termination penalties.
F-22
<PAGE> 26
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, the Company has remaining accruals related to these
restructuring and other special charges of approximately $159 million primarily
related to remaining lease commitments which expire through 2006, the settlement
of certain employee benefits scheduled to be completed in the first quarter of
2000 and the tax reimbursements to certain former employees discussed
previously.
NOTE 9. INVESTMENTS
Investments consisted of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
---- ----
<S> <C> <C>
Equity in WBIS+............................................. $ -- $119
Equity in and advances to hotel partnerships and joint
ventures.................................................. 318 212
Other investments at cost................................... 18 19
---- ----
$336 $350
==== ====
</TABLE>
Equity in earnings of unconsolidated subsidiaries accounted for on the
equity basis were $20 million, $7 million and $3 million in 1998, 1997 and 1996,
respectively.
In July 1998, the Company acquired a 95% non-controlling interest in the
760-room Westin Maui in Maui, Hawaii for approximately $132 million.
In March 1998, the Company and Dow Jones & Company, Inc. sold WBIS+,
Channel 31 in New York City, to Paxson Communications Corporation for a total
cash purchase price of approximately $258 million; approximately $128 million
was received by the Company, resulting in a pretax gain of $6 million.
The fair market value of investments is based on the market prices for the
last day of the period if the investment trades on quoted exchanges. For
non-traded investments, fair value is estimated based on the underlying value of
the investment. The carrying value of other investments approximates fair value
based on market prices and the value of the underlying collateral.
NOTE 10. PLANT, PROPERTY AND EQUIPMENT
Plant, property and equipment consisted of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
------ ------
<S> <C> <C>
Land and improvements....................................... $1,264 $ 809
Buildings and improvements.................................. 6,055 2,052
Furniture, fixtures and equipment........................... 1,247 787
Construction work in process................................ 190 50
------ ------
8,756 3,698
Less accumulated depreciation and amortization.............. (899) (634)
------ ------
$7,857 $3,064
====== ======
</TABLE>
NOTE 11. NET ASSETS HELD FOR SALE
At December 31, 1998, the Company's hotel portfolio included two hotel
properties held for sale: the 155-room Tyee Hotel in Olympia, Washington and the
259-room Four Points Hotel in Wichita, Kansas. These properties were included in
net assets held for sale in the accompanying balance sheets. There can be no
F-23
<PAGE> 27
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
assurance that these sales will occur or, if they occur, as to the timing of
such sales. Management will evaluate its alternatives in the event a decision is
made to change its current intention to sell these properties.
In 1997, ITT announced its intention to sell its investment in MSG. For
financial reporting purposes, the assets and liabilities attributable to this
property and investment have been included in net assets held for sale as of
December 31, 1998 and 1997. In April 1999, the Company disposed of its remaining
interest in MSG for net proceeds of $87 million and an estimated pretax gain of
$42 million.
NOTE 12. OTHER ASSETS
Other assets include long-term receivables of $277 million and $271 million
at December 31, 1998 and 1997, respectively, which are net of allowance for
doubtful accounts of $31 million and $55 million, respectively. These long-term
receivables exclude current maturities of $42 million and $28 million,
respectively, which are included in accounts receivable. Total unsecured and
secured long-term receivables totaled $149 million and $201 million,
respectively, as of December 31, 1998 and $267 million and $87 million,
respectively, as of December 31, 1997.
NOTE 13. ACCRUED EXPENSES
Accrued expenses include accrued restructuring and other special charges of
$168 million and $668 million, salaries, wages and benefits of $123 million and
$53 million and accrued interest of $48 million and $31 million as of December
31, 1998 and 1997, respectively. The remaining balance of $443 million and $236
million as of December 31, 1998 and 1997, respectively, represents other accrued
expenses including, but not limited to, legal costs and insurance.
NOTE 14. INCOME TAXES
Income tax data from continuing operations of the Company is as follows (in
millions):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
Pretax income (loss)
U.S....................................................... $ 35 $(206) $192
Foreign................................................... 110 136 87
----- ----- ----
$ 145 $ (70) $279
===== ===== ====
Provision (benefit) for income tax
Current:
U.S. federal.............................................. $ 34 $ 235 $ 38
State and local........................................... 6 14 6
Foreign................................................... 43 44 28
----- ----- ----
83 293 72
----- ----- ----
Deferred:
U.S. federal.............................................. (189) (167) 31
Foreign and other......................................... 17 28 14
----- ----- ----
(172) (139) 45
----- ----- ----
$ (89) $ 154 $117
===== ===== ====
</TABLE>
No provision was made for U.S. taxes payable on undistributed foreign
earnings amounting to approximately $194 million since these amounts are
permanently reinvested.
F-24
<PAGE> 28
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes represent the tax effect of the differences between
the book and tax bases of assets and liabilities. Deferred tax assets
(liabilities) include the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1998 1997
------------------ ------------------
FOREIGN FOREIGN
U.S. & U.S. &
FEDERAL OTHER FEDERAL OTHER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Plant, property and equipment.................... $ (95) $(110) $(61) $(91)
Allowances for doubtful accounts and other
reserves....................................... 40 -- 24 --
Employee benefits................................ 43 -- 17 --
Deferred gain.................................... (517) -- -- --
Net operating loss carryforwards................. 211 -- -- --
Transaction costs................................ 18 -- 159 --
Other............................................ (8) (2) (13) (5)
----- ----- ---- ----
(308) (112) 126 (96)
Less valuation allowance......................... (109) -- (64) --
----- ----- ---- ----
Deferred income taxes............................ $(417) $(112) $ 62 $(96)
===== ===== ==== ====
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards of
approximately $534 million for federal income tax purposes. Such carryforwards,
which may provide future tax benefits, expire in 2018.
A reconciliation of the tax provision of the Company at the U.S. statutory
rate to the provision for income tax as reported is as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Tax provision (benefit) at U.S. statutory rate.............. $ 51 $(25) $ 98
Tax on repatriation of foreign earnings..................... (5) 21 1
Non-deductible goodwill..................................... 19 -- --
Foreign tax rate differential............................... 8 (7) 10
U.S. state and local income taxes........................... 6 23 4
Transaction costs........................................... (21) 89 --
Exempt Trust income......................................... (147) -- --
Deferred asset valuation allowance.......................... -- 64 --
Other....................................................... -- (11) 4
----- ---- ----
Provision (benefit) for income tax.......................... $ (89) $154 $117
===== ==== ====
</TABLE>
NOTE 15. DEBT
Debt, short-term borrowings and capital leases consisted of the following
(in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------ -------
<S> <C> <C>
$3.1 Billion Facility:
$1 billion five-year term loan............................ $1,000 $ --
$1.1 billion five-year revolver........................... 814 --
IRN Facility I.............................................. 2,500 --
IRN Facility II............................................. 1,000 --
</TABLE>
F-25
<PAGE> 29
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------ -------
<S> <C> <C>
Revolving credit agreement (6.16% weighted average)......... -- 600
Short-term borrowings, including $1 billion asset sale
bridge in 1998............................................ 657 875
6.25% notes due 2000........................................ 699 699
6.75% notes due 2003........................................ 250 250
6.75% notes due 2005........................................ 449 449
7.375% debentures due 2015.................................. 448 448
7.75% debentures due 2025................................... 148 148
8.875% senior subordinated notes due 2002................... 150 150
6.3%-10.0% domestic loans due 1999-2013..................... 481 44
4.75%-18.45% foreign loans due 1999-2009.................... 209 255
------ -------
8,805 3,918
Less indebtedness classified in discontinued operations..... (2,316) (3,311)
Less current maturities..................................... (687) (607)
------ -------
Long-term debt.............................................. $5,802 $ --
====== =======
</TABLE>
Aggregate debt maturities for each of the years ending December 31 are as
follows (in millions):
<TABLE>
<CAPTION>
DISCONTINUED OPERATIONS
OPERATIONS ---------------------------
CONTINUING CAPITAL CAPITAL
DEBT LEASES DEBT LEASES TOTAL
---------- ---------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
1999............................... $ 681 $ 7 $ -- $ 7 $ 695
2000............................... 898 5 1 7 911
2001............................... 243 2 -- 7 252
2002............................... 627 1 150 2 780
2003............................... 2,690 -- 2,143 1 4,834
Thereafter......................... 1,336 -- -- -- 1,336
------ --- ------ --- ------
6,475 15 2,294 24 8,808
Less amounts representing
interest......................... -- (1) -- (2) (3)
------ --- ------ --- ------
$6,475 $14 $2,294 $22 $8,805
====== === ====== === ======
</TABLE>
On February 23, 1998, the Company obtained two credit facilities ($5.6
billion in total) with Lehman Commercial Paper Inc., Bankers Trust Company and
The Chase Manhattan Bank to fund the cash portion of the ITT Merger
consideration, to refinance a portion of the Company's existing indebtedness
(including indebtedness outstanding under the $2.2 billion credit facility
entered into in connection with the Westin Merger) and to provide funds for
general corporate purposes. These facilities are comprised of a $3.1 billion
senior secured credit facility (the "$3.1 Billion Facility") and a $2.5 billion,
five-year secured increasing rate notes facility ("IRN Facility I").
The $3.1 Billion Facility has three tranches: a $1.0 billion, one-year term
loan; a $1.0 billion, five-year term loan; and a $1.1 billion, five-year
revolving credit facility. The Company, the Trust and certain of their
respective direct and indirect subsidiaries may be designated as borrowers or
co-borrowers under all or a portion of the $3.1 Billion Facility. The interest
rate for the $3.1 Billion Facility was one-, two- or three-month LIBOR, at the
Company's option, plus a margin of 125 basis points at December 31, 1998. The
margin is determined pursuant to a pricing "grid" with rates based on the
Company's leverage and/or senior unsecured debt rating. Quarterly amortization
of the five-year term loan begins in the third year, with total amortization
F-26
<PAGE> 30
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of 10%, 20% and 70% of the principal amount over the third, fourth and fifth
year, respectively. Repayment of amounts borrowed under the $3.1 Billion
Facility is guaranteed by the Trust, the Company and substantially all their
respective significant subsidiaries (including the Partnerships) other than
gaming and foreign subsidiaries and joint venture entities (the "Guarantor
Subsidiaries"), to the extent such entities are not borrowers or co-borrowers,
and is secured by a pledge of all the capital stock, partnership interests and
other equity interests of the Guarantor Subsidiaries.
IRN Facility I consists of a single drawdown, increasing rate,
non-amortizing five-year term loan for $2.5 billion. The Company is the borrower
under IRN Facility I; the Trust and all Guarantor Subsidiaries are guarantors of
IRN Facility I. IRN Facility I is secured equally and ratably by all the
collateral securing the $3.1 Billion Facility and is pari passu in right of
payment with all other senior indebtedness of the borrower and the Guarantor
Subsidiaries, including the $3.1 Billion Facility. Amounts borrowed under IRN
Facility I bore interest at one-, two- or three-month LIBOR plus 325 basis
points at December 31, 1998, with the interest rate increasing by 50 basis
points every three months thereafter, up to a maximum rate of one-, two- or
three-month LIBOR plus 375 basis points.
In September 1998, the Company entered into a new $1 billion, five-year
term borrowing facility ("IRN Facility II" and, together with IRN Facility I,
the "IRN Facilities"). IRN Facility II bears interest at one-, two- or
three-month LIBOR plus 275 basis points at December 31, 1998. The Company is the
borrower under IRN Facility II; the Trust and all Guarantor Subsidiaries are
guarantors of IRN Facility II. IRN Facility II is secured equally and ratably by
all the collateral securing the $3.1 Billion Facility and is pari passu in right
of payment with all other senior indebtedness of the borrower and the Guarantor
Subsidiaries, including the $3.1 Billion Facility.
The Company maintains lines of credit under which bank loans and other
short-term debt are drawn. In addition, smaller credit lines are maintained by
the Company's foreign subsidiaries. The Company had approximately $390 million
of available borrowing capacity under the revolving credit agreements as of
December 31, 1998.
The Company is subject to certain restrictive debt covenants under its
short-term borrowing and long-term debt obligations including defined financial
covenants, escrow account funding requirements for capital purchases and tax
payments, limitations on capital expenditures and on the Company's right to
incur further debt, and restrictions on transactions with affiliates and related
persons. The Company was in compliance with all of the short-term borrowing and
long-term debt obligation covenants at December 31, 1998.
In January 1999, the Company completed a $542 million long-term financing
(the "Mortgage Loan"), secured by mortgages on a portfolio of 11 hotels. The
Mortgage Loan bears interest at a blended rate of 6.98%. The Mortgage Loan is
due in February 2009 and the proceeds from the Mortgage Loan were used to pay
down the one-year term loan under the $3.1 Billion Facility.
The weighted average interest rate for short-term borrowings was 5.87% and
6.71% at December 31, 1998 and 1997, respectively, and their fair values
approximated carrying value given their short-term nature. This average is
composed of interest rates on both U.S. dollar and non-U.S. dollar denominated
indebtedness.
For adjustable rate debt, fair value approximates carrying value due to the
variable nature of the interest rates. For fixed rate debt, fair value is
determined based upon discounted cash flows for the debt at rates deemed
reasonable for the type of debt and prevailing market conditions and, if
appropriate, the length to maturity for the debt. The estimated fair value of
long-term debt at December 31, 1998 and 1997 was $8.7 billion and $3.0 billion,
respectively, and was determined based on quoted market prices and/or discounted
cash flows using the Company's incremental borrowing rates for similar
arrangements.
F-27
<PAGE> 31
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16. EMPLOYEE BENEFIT PLANS
PENSION AND POSTRETIREMENT BENEFIT PLANS. The Company and its subsidiaries
sponsor numerous pension plans. The ITT plans are funded with trustees, except
in some countries outside the U.S. where funding is not required. The ITT plan's
assets are comprised of a broad range of domestic and foreign equity securities,
fixed income investments, and real estate. The Westin Supplemental Executive
Retirement Plan is a non-contributory, non-qualified plan that provides benefits
for certain executives. The plan is unfunded apart from general assets of the
Company.
The Company also sponsors multiple non-pension postretirement benefit
plans. The ITT plans provide health care and life insurance benefits for certain
eligible retired employees. The Company has prefunded a portion of the health
care and life insurance obligations through trust funds where such prefunding
can be accomplished on a tax effective basis. The Westin plan covers certain
eligible retired employees. The plan provides medical and dental benefits, and
is a contributory plan, with retiree contributions adjusted annually. The plan
also contains other cost-sharing features such as deductibles and coinsurance.
The Company funds the health plan on a pay-as-you-go basis.
The following table sets forth the benefit obligation, fair value of plan
assets, and the funded status of the Company's pension and other benefit plans,
amounts recognized in the Company's consolidated balance sheets at December 31,
1998 and 1997, and the principal weighted average assumptions inherent in their
determination (amounts are in millions):
<TABLE>
<CAPTION>
FOREIGN PENSION
PENSION BENEFITS BENEFITS OTHER BENEFITS
---------------- --------------- --------------
1998 1997 1998 1997 1998 1997
------ ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year...... $260 $214 $ 152 $150 $ 27 $ 30
Service cost............................... 15 15 6 11 1 1
Interest cost.............................. 18 18 5 9 2 2
Actuarial loss............................. 45 20 4 89 8 1
Divestitures............................... (1) -- (72) -- -- --
Curtailments............................... (64) -- (1) -- -- (4)
Settlements................................ -- -- (2) (3) -- (2)
Effect of foreign exchange rates........... -- -- 1 (12) -- --
Special termination benefits............... 6 -- -- -- -- --
Benefits paid.............................. (8) (7) (13) (92) (2) (1)
---- ---- ----- ---- ---- ----
Benefit obligation at end of year............ $271 $260 $ 80 $152 $ 36 $ 27
==== ==== ===== ==== ==== ====
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
year....................................... $227 $183 $ 152 $143 $ 19 $ 23
Actual return on plan assets............... 12 45 4 18 1 4
Employer contribution...................... 12 6 11 97 2 (4)
Divestitures............................... (3) -- (107) -- -- --
401(h) transfer............................ -- -- -- -- -- 1
Settlements................................ -- -- (2) -- -- (4)
Effect of foreign exchange rates........... -- -- 2 (14) -- --
Benefits paid.............................. (8) (7) (13) (92) (2) (1)
---- ---- ----- ---- ---- ----
Fair value of plan assets at end of year..... $240 $227 $ 47 $152 $ 20 $ 19
==== ==== ===== ==== ==== ====
Funded status................................ $(31) $(33) $ (33) $ -- $(16) $ (8)
Unrecognized net actuarial (gain)loss...... (12) (16) 8 (26) (1) (12)
</TABLE>
F-28
<PAGE> 32
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOREIGN PENSION
PENSION BENEFITS BENEFITS OTHER BENEFITS
---------------- --------------- --------------
1998 1997 1998 1997 1998 1997
------ ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Unrecognized prior service cost............ -- 17 2 2 (2) (3)
Unrecognized net transition obligation..... -- (1) (1) (1) -- --
---- ---- ----- ---- ---- ----
Accrued benefit cost......................... $(43) $(33) $ (24) $(25) $(19) $(23)
==== ==== ===== ==== ==== ====
Amounts recognized in the consolidated
balance sheet consist of:
Prepaid benefit cost....................... $ 3 $ 3 $ 6 $ 11 $ -- $ --
Accrued benefit cost....................... (46) (36) (30) (36) (19) (23)
Additional minimum liability............... (1) -- -- -- -- --
Adjustment for purchase accounting......... -- -- -- -- -- 3
Accumulated other comprehensive income..... 1 -- -- -- -- --
---- ---- ----- ---- ---- ----
Net amount recognized at end of year......... $(43) $(33) $ (24) $(25) $(19) $(20)
==== ==== ===== ==== ==== ====
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER
31
Discount rate................................ 6.50% 7.25% 5.88% 6.67% 6.50% 7.25%
Expected return on plan assets............... 9.75% 9.75% 7.00% 7.82% 9.75% 9.75%
Rate of compensation increase................ 5.00% 5.00% 3.20% 4.12% 4.50% 4.50%
</TABLE>
For measurement purposes, a 6.80% to 7.00% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1998. The rate was
assumed to decrease gradually to 5.00% for 2001 for the ITT plans, and 2007 for
the Westin plan, and remain at that level thereafter.
<TABLE>
<CAPTION>
PENSION BENEFITS FOREIGN PENSION BENEFITS OTHER BENEFITS
------------------ ------------------------ ------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
---- ---- ---- ------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost..................... $ 15 $ 15 $ 15 $ 6 $ 11 $ 11 $ 1 $ 1 $ 1
Interest cost.................... 18 18 16 5 9 9 2 2 2
Expected return on plan assets... (18) (16) (15) (5) (11) (10) (2) (2) (2)
Amortization of:
Prior service cost............. 1 2 2 -- -- -- -- -- --
Actuarial (gain) loss.......... 1 -- -- -- -- -- -- (1) (1)
---- ---- ---- --- ---- ---- --- --- ---
SFAS 87 cost/SFAS 106 cost....... 17 19 18 6 9 10 1 -- --
---- ---- ---- --- ---- ---- --- --- ---
SFAS 88 charges:
Special termination benefit
charge (credit)............. (1) -- -- -- -- -- -- -- --
Curtailment charge (credit).... 4 -- -- (1) -- -- -- (3) --
Settlement charge (credit)..... -- -- -- 5 (3) 2 -- 1 --
---- ---- ---- --- ---- ---- --- --- ---
Net periodic benefit cost........ $ 20 $ 19 $ 18 $10 $ 6 $ 12 $ 1 $(2) $--
==== ==== ==== === ==== ==== === === ===
</TABLE>
F-29
<PAGE> 33
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOREIGN
PENSION PENSION
BENEFITS BENEFITS
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Plans with ABO exceeding assets at end of year:
ABO.................................................... $15 $10 $29 $34
PBO.................................................... $-- $-- $32 $37
Fair value of plan assets.............................. $-- $-- $-- $ 2
</TABLE>
Educational Services was spun off from the ITT Corporation Salaried
Retirement Plan in June 1998 resulting in a release of future pension
obligations. WD was spun off from the Salaried Plan in February 1998 resulting
in a release of all pension obligations along with approximately $110 million of
plan assets. The curtailment and special termination benefit amounts resulting
from these two spin-offs, as well as the charges triggered by the change in
control provisions, are presented in accordance with SFAS No. 88, Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Terminated Benefits.
Effective February 23, 1999 all future accruals of defined benefits were
eliminated under the ITT Corporation Salaried Retirement Plan and the ITT
Sheraton Corporation Pension Plan for Hourly Employees. The Westin Hotel Company
Supplemental Executive Retirement Plan was closed to future participation on
October 1, 1998, and all future accruals of defined benefits were eliminated
effective February 23, 1999. Curtailment accounting was done at September 30,
1998, based on beginning of year estimates for all plans except the ITT
Corporation Salaried Retirement Plan, which was remeasured as of September 30,
1998.
The postretirement medical and life plans were also frozen February 23,
1999, with certain protections for "grandfathered" groups. Gains and losses
associated with these changes are expected to be relatively small.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects (in
millions):
<TABLE>
<CAPTION>
1% 1%
INCREASE DECREASE
-------- --------
<S> <C> <C>
Effect on total of service and interest cost components..... $-- $--
Effect on the postretirement benefit obligation............. $1 $(1)
</TABLE>
DEFINED CONTRIBUTION PLANS. The Company sponsors numerous 401(k) plans,
which are voluntary defined contribution plans allowing participation by
domestic employees that meet certain age and service requirements. Each
participant may contribute on a pretax basis between 1% and 16% of his or her
compensation to the plans. The plans also contain additional provisions for
matching and/or profit sharing contributions, both of which are based on a
portion of a participant's eligible compensation. The amount of expense for
matching and profit sharing contributions totaled $15.3 million in 1998, $10
million in 1997 and $10 million in 1996.
NOTE 17. LEASES AND RENTALS
At December 31, 1998, the Trust owned equity interests in 102 hotels, of
which 90 properties were owned and 12 were held pursuant to long-term leases.
All of the Trust's hotels are leased to the Corporation as of December 31,
1998. The leases between the Trust and the Corporation are generally long-term
and provide for annual base, or minimum rents, plus contingent, or percentage
rents based on the gross revenues of the properties and are accounted for as
operating leases. The leases are "triple-net" in that the lessee is generally
responsible for paying all operating expenses of the properties, including
maintenance, insurance and real property taxes. The lessee is also
F-30
<PAGE> 34
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
generally responsible for any payments required pursuant to underlying ground
leases. The Corporation is committed under its leases with the Trust to pay the
rents payable with respect to ground leases. Total rental expense incurred by
the Corporation under such leases was approximately $386 million for the year
ended December 31, 1998, of which approximately $100 million related to
percentage rent.
The Corporation's minimum future rents, exclusive of gaming operation
commitments, at December 31, 1998 payable under non-cancelable operating leases
with the Trust and with others for the years ended December 31 are as follows
(in millions):
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Trust............................... $340 $248 $ 71 $15 $10 $ 60
Other............................... 37 35 31 27 27 266
---- ---- ---- --- --- ----
Total............................... $377 $283 $102 $42 $37 $326
==== ==== ==== === === ====
</TABLE>
The Corporation leases certain equipment for the hotels' operations under
various lease agreements. The leases extend for varying periods through 2023 and
generally are for a fixed amount each month. Future minimum lease payments under
the non-cancelable operating leases are included in the other minimum future
rents above.
Rent expense under other non-cancelable operating leases was $37 million,
$31 million and $39 million in 1998, 1997 and 1996, respectively.
The Trust's rents receivable from the Corporation relating to leased hotel
properties at December 31, 1998 was $20 million.
The Corporation is committed under its leases with the Trust to pay rents
payable with respect to ground leases, which expire in 1999 through 2069,
including renewal options. The ground leases generally provide for a minimum
rent plus a percentage of gross revenues of the properties in excess of the
minimum rent. Future minimum lease payments under the ground leases for the
years ending December 31, 1999 through December 31, 2003 are $9 million each
year and $235 million thereafter. Rent expense, inclusive of percentage rents,
incurred by the Corporation, as the operator under the ground leases, was
approximately $15 million in 1998.
NOTE 18. EQUITY PUT OPTIONS
As a part of its share repurchase program, defined below, the Company sold
equity put options during 1998 that entitle the holder, at the expiration date,
to sell Shares to the Company at contractually specified prices. The Company
issued put options for the purchase of one million Shares for $1.8 million in
premiums. As of December 31, 1998, none of the equity put options had been
exercised and equity put options with an aggregate exercise price of
approximately $32 million for one million Shares remained outstanding at strike
prices ranging from $30.24 to $32.95 with expiration dates through March 1999.
The exercise price is included in temporary equity in the accompanying financial
statements. In the event the options are exercised, the Company is required to
deliver the full stated amount of cash to the put holder for the full stated
number of Shares. The Company may elect, under certain circumstances, to pay the
put holder in cash or shares equal to fair market value of the difference
between the strike price and the market price of the Shares.
During the first quarter of 1999, the Company repurchased 500,000 Shares
for $16 million under certain of the equity put option contracts. As of March
31, 1999, all of the remaining equity put option contracts had expired.
F-31
<PAGE> 35
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19. STOCKHOLDERS' EQUITY
SHARE REPURCHASES. In 1998, the Board of Directors of the Company approved
the repurchase of up to $1 billion of Shares (the "Share Repurchase Program").
Pursuant to the Share Repurchase Program, the Company repurchased approximately
10.1 million Shares in the open market at an average purchase price of $36.70
during 1998.
FORWARD EQUITY TRANSACTIONS. Pursuant to a Purchase Agreement dated
October 10, 1997, the Company sold to UBS Limited ("UBS Ltd.") 2.185 million
Shares ("UBS Shares") at a cash price of $57.25 per share, and paid to Warburg
Dillon Read LLC (formerly UBS Securities LLC), an affiliate of UBS Ltd., a
placement fee equal to 2.5% of the gross proceeds to the Company from such sale
of shares. Concurrently therewith, the Company entered into an agreement that
provided for a settlement payment to be made, in the form of Shares or cash, by
the Company to an affiliate of Union Bank of Switzerland, London Branch, or by
that affiliate to the Company, based on the market price of the Shares over a
specified "unwind period," as compared to a "forward price." The Company settled
its obligations under this agreement in September 1998 by repurchasing the UBS
Shares for approximately $130.3 million in cash. As a result of this settlement,
the Company has no further obligations under this agreement and Shares were
reduced by approximately 2.185 million.
On February 24, 1998, the Company sold an aggregate of 4.641 million Shares
to Merrill Lynch International, NMS Services, Inc., Lehman Brothers Inc. and
certain affiliates for a cash purchase price per Share of $52.798, which price
reflected a 2% discount from the last reported sale price of the Shares on the
date of the purchase. Concurrently with these sales, the Company entered into
three separate agreements with these purchasers and/or certain of their
affiliates pursuant to which each of these purchasers or their respective
affiliates agreed to sell, as directed by the Company in an underwritten fixed
price offering or other specified methods, a sufficient number of the Shares to
achieve net sales proceeds equal to the aggregate market value of the Shares
purchased in February 1998, plus a forward accretion component, minus an
adjustment for dividends paid on the purchased Shares. Additional Shares were
required to be delivered by the Company as security in the event the market
prices of the Shares dropped below certain specified levels. In October 1998,
the Company settled its obligations under these agreements by repurchasing all
of the Shares issued to these purchasers for an aggregate of approximately $255
million in cash. As a result of this settlement, the Company has no further
obligations under these agreements and Shares outstanding were reduced by
approximately 7.379 million (4.641 million original Shares issued and 2.738
million Shares previously issued as security).
EXCHANGEABLE PREFERRED SHARES. During 1998, 6.3 million shares of Class A
EPS and 5.5 million shares of Class B EPS were issued by the Trust in connection
with the Westin Merger. Class A EPS have a par value of $0.01 per share and are
convertible on a one-for-one basis (subject to certain adjustments) to Shares.
Class B EPS have a liquidation preference of $38.50 per share and provide the
holders with the right, from and after the fifth anniversary of the closing date
of the Westin Merger, to require the Trust to redeem such shares at a price of
$38.50. Shares of Class B EPS are convertible on a one-for-one basis (subject to
certain adjustments) to Class A EPS. During 1998, the Trust consented to the
conversion of approximately 1.3 million shares of Class B EPS by certain
stockholders into an equal number of shares of Class A EPS; stockholders
thereafter converted approximately 3.2 million shares of Class A EPS into an
equal number of Shares. Additionally, approximately 0.3 million Class B EPS were
canceled in satisfaction of certain employee tax withholding liabilities which
were paid by the Company. At December 31, 1998, the Trust had 150 million
preferred shares authorized and 4.4 million and 3.9 million of Class A EPS and B
EPS outstanding, respectively.
F-32
<PAGE> 36
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20. STOCK INCENTIVE PLANS
The Trust and the Corporation each adopted Incentive and Non-Qualified
Share Option Plans in 1986 which provided for the purchase of up to an aggregate
of 175,000 Shares by Trustees, Directors, officers and employees pursuant to
option grants. At December 31, 1998, the Company had options outstanding to
purchase approximately 4,000 Shares at exercise prices ranging from $11.00 to
$14.50 per Share under these plans. Such options, which have exercise prices
equal to the Shares' fair market value on the date of grant, vest over three
years.
During 1995, the Trust and the Corporation each adopted a 1995 Share Option
Plan (together, as amended, the "1995 LTIP"), which provided for the purchase of
Shares by Trustees, Directors, officers, employees, consultants and advisors,
pursuant to option grants. The aggregate number of Shares subject to
non-qualified or incentive stock options, performance shares, restricted stock
or any combination of the foregoing which are available to be granted under the
1995 LTIP at December 31, 1998 was approximately 9.7 million.
The 1995 LTIP provided for the grant of Shares that are subject to
performance measures or restriction periods and performance awards in tandem
with certain Share options to be paid in cash subject to performance measures.
The 1995 LTIP also provided for the automatic annual grant of Share options, as
defined, to Trustees and Directors for options to purchase 4,500 Shares and
provided for the annual fee of Trustees and Directors to be paid in Shares,
subject to each Trustee's and Director's option to receive up to half in cash
and to defer receipt of such annual fee until after terminating service with the
Company.
In May 1999, the Company adopted the 1999 Long-Term Incentive Compensation
Plan ("1999 LTIP") which supersedes the 1995 LTIP and provides for the purchase
of Shares by Directors, officers, employees, consultants and advisors, pursuant
to option grants. Although no additional awards will be granted under the 1995
LTIP, the 1995 LTIP will continue to govern awards that have been granted and
remain outstanding under the 1995 LTIP. The number of Shares reserved for
issuance under the 1999 LTIP is approximately 24.4 million.
As of the date of the ITT Merger (February 23, 1998), each ITT stock option
("ITT Stock Option") and related stock appreciation right that was outstanding
immediately prior to February 23, 1998, pursuant to ITT's stock option plans in
effect on the date of the original merger agreement (November 1997), was assumed
by the Company and became and represent a fully exercisable option to purchase
the number of Shares ("Substitute Option") determined by applying the conversion
factor of 1.543 to the ITT Stock Options outstanding immediately prior to
February 23, 1998 and to the exercise price immediately prior to February 23,
1998. As of February 23, 1998, each Substitute Option became subject to the same
terms and conditions as were applicable immediately prior to that date under the
related ITT Stock Option under which it was granted, including those providing
for the accelerated exercisability and other special rights arising under
certain circumstances. The ITT Merger triggered an accelerated exercisability
event and, as such, entitled each holder to receive an amount equal to the
excess of $85 over the adjusted exercise price of the related ITT Stock Option.
The Company applied APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations; accordingly, compensation cost was not
recognized for grants of stock options at market price. In November 1997, due to
the election of the holder of each ITT Stock Option to receive either cash,
Shares or a combination, variable accounting required an expense to be
recognized for the difference between the option price and the formula market
price totaling $342 million.
Had compensation cost for grants been determined based on the fair value at
the grant dates consistent with SFAS No. 123, Accounting for Stock-Based
Compensation, the Company's net income would have been reduced by $86 million
($0.46 per Share) and $20 million ($0.16 per Share) in 1998 and 1996,
respectively.
F-33
<PAGE> 37
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net income would not have been affected in 1997 as a result of the application
of the variable accounting, as noted above. The fair value of each option grant
used in the 1998 and 1996 pro forma amounts was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998 and 1996, respectively: dividend yield of
2.6% and 0.0%; expected volatility of 47.6% and 33.0%; risk-free interest rates
of 4.5% and 5.3%; and an expected life of three and four years for all options.
The following table summarizes stock option activity for the Company,
including stock options granted to the gaming operation employees, as of and for
the years ended December 31:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
EXERCISE
OPTIONS PRICE PER SHARE
----------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995....................... 9,684,788 $24.13
Granted................................................ 2,687,205 36.16
Exercised.............................................. (444,549) 21.93
Cancelled.............................................. (179,383) 32.18
----------- ------
Outstanding at December 31, 1996....................... 11,748,061 26.85
Granted................................................ 3,248,478 37.50
Exercised.............................................. (1,347,453) 26.71
Forfeited.............................................. (380,109) 33.01
----------- ------
Outstanding at December 31, 1997....................... 13,268,977 29.29
Granted(1)............................................. 19,783,847 43.18
Exercised(2)........................................... (12,536,071) 28.45
Forfeited.............................................. (2,393,977) 44.61
----------- ------
Outstanding at December 31, 1998....................... 18,122,776 $43.80
=========== ======
Exercisable at December 31, 1997....................... 10,234,509 $27.20
=========== ======
Exercisable at December 31, 1998....................... 6,963,014 $32.51
=========== ======
</TABLE>
- ---------------
(1) Represents Company options of 17,055,147 outstanding at February 23, 1998
(the ITT Merger date) and shares granted by the Company during 1998.
(2) Represents options exercised during 1998, including the ITT Stock Options
which were exercised upon the occurrence of the accelerated exercisability
event (the ITT Merger).
F-34
<PAGE> 38
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about outstanding stock options
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED-AVERAGE ------------------------------
REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE IN YEARS PRICE/SHARE EXERCISABLE PRICE/SHARE
- --------------- ----------- ------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.00 - $20.31 1,984,637 7.98 $14.42 1,346,137 $11.95
$21.33 - $23.92 2,178,724 7.43 23.43 2,178,724 23.43
$24.25 - $42.31 2,722,342 8.38 38.20 1,394,286 34.28
$42.69 - $49.19 2,967,428 9.31 48.91 184,000 44.69
$50.23 - $53.94 2,085,774 8.48 52.93 682,943 52.96
$54.63 - $54.63 2,500,000 9.13 54.63 833,334 54.63
$54.85 - $55.83 2,673,613 9.13 55.21 166,666 55.83
$57.88 - $76.13 1,010,258 9.28 69.67 176,924 69.12
---------- ---- ------ --------- ------
18,122,776 8.65 $43.80 6,963,014 $32.51
========== ==== ====== ========= ======
</TABLE>
During 1998, the Company granted restricted stock awards for 327,000
Shares. As of December 31, 1998, approximately 300,000 of these awards had
vested. The remaining restricted stock awards vest at varying rates over four
years from the award grant date. Compensation expense of approximately $16
million and $1 million was recorded during 1998 and 1997, respectively, related
to restricted stock awards.
NOTE 21. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate swap agreements to manage interest
rate fluctuations on its variable rate debt. The Company currently has five
outstanding forward interest rate swap agreements under which the Company pays a
fixed rate and receives variable rates of interest. The aggregate notional
amount of these forward interest rate swaps was approximately $1.031 billion and
the estimated unrealized loss on these interest rate swaps was approximately $36
million at December 31, 1998. Four of these five forward interest rate swap
agreements, representing $1.0 billion of the total notional amount, are required
by the terms of the Company's existing credit facilities. The unrealized loss
represents the amount the Company would pay to terminate the swap agreements
based on current interest rates.
The Company enters into forward foreign exchange contracts to hedge the
foreign currency exposure associated with the Company's foreign currency
denominated assets and liabilities. The Company currently has two forward
foreign exchange contracts outstanding with a dollar equivalent of the
contractual amounts of these hedges at December 31, 1998 of approximately $54.9
million. These contracts mature in September 1999.
A long-term debt offering that the Company was contemplating was delayed
due to market conditions and the Restructuring. As a result, certain of the
Company's forward interest rate swaps with a notional amount of $500 million no
longer correlated with this anticipated indebtedness. In accordance with the
Company's accounting policies, these forward interest rate swaps were marked to
market by the Company and, as such, the Company recognized a loss of $40 million
during 1998, which is included in interest expense. These contracts were
terminated by the Company in 1998.
NOTE 22. RELATED PARTY TRANSACTIONS
STARWOOD CAPITAL. Starwood Capital Group, L.L.C. ("Starwood Capital") has
granted to Starwood an exclusive, non-transferable, royalty-free license to use
the "Starwood" name and trademarks in connection
F-35
<PAGE> 39
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
with the hotel and hospitality services business worldwide, and to use the
"Starwood" name in its corporate name worldwide, in perpetuity.
Starwood Capital and Starwood agreed that, subject to approval by the
independent Trustees or Directors, as appropriate, until December 31, 1998,
Starwood would reimburse Starwood Capital for its out-of-pocket expenses and
internal costs (including allocation of overhead) for services provided to
Starwood, other than internal costs of Starwood Capital for services of senior
management of Starwood Capital. During 1998, Starwood reimbursed Starwood
Capital approximately $391,000 for out-of-pocket expenses and approximately
$253,000 for internal costs in accordance with this agreement. This agreement
was terminated in 1998.
Starwood Capital's engagement to act as financial advisor to Starwood in
connection with the ITT Merger was not subject to the above reimbursement
limitation. For its services as a financial advisor, Starwood Capital was paid
$15.5 million in cash and 131,388 Shares were issued.
Starwood Capital and its affiliates hold a 37% interest in a golf course
management company that currently manages one golf course that is associated
with a Westin hotel and hold a 20% non-controlling equity interest in a company
which operates the timeshare component of The Regina Resorts in Los Cabos,
Cancun and Puerto Vallarta, Mexico. Individuals affiliated with Starwood
Capital, including individuals who are Trustees of the Trust and Directors of
the Corporation, and certain other affiliates of Starwood Capital hold a 100%
interest in the company that owns the Westin Innisbrook Resort and the Tamarron
Hilton.
In February 1999, the Company purchased in the open market from
unaffiliated third parties debt securities of an affiliated party for $23
million.
In February 1998, a subsidiary of the Corporation leased a Gulfstream III
Aircraft from an affiliate of Starwood Capital. The term of the lease is one
year and automatically renews for one-year terms thereafter unless either party
terminates the lease upon 90 days' written notice. The rent for the aircraft,
which was set at approximately 90% of fair market value (based on two
competitive bids from unrelated third parties), is (i) a monthly payment of
1.25% of the lessor's total costs relating to the aircraft (approximately
$123,000 at the beginning of the lease) which shall be increased accordingly for
additional costs incurred by the lessor plus (ii) $300 for each hour that the
aircraft is in use.
REALTY PARTNERSHIP AND OPERATING PARTNERSHIP. In November 1998, the
Operating Partnership and other affiliates distributed certain partnership
interests in Moorland Hotel LP ("Moorland") to the Corporation in exchange for
the redemption of 576,995 LP Units in the Operating Partnership held by the
Corporation. Subsequently, the Corporation owned 100% of the net assets of
Moorland and paid off the mortgage note payable in the amount of $37 million
from Moorland to the Realty Partnership with proceeds from an intercompany loan
from the Trust. The real and personal property of Moorland was then contributed
to the Realty Partnership by the Corporation in exchange for 1,810,951 LP Units
in the Realty Partnership to conform to the ownership structure of the Company's
other domestically owned hotels, excluding properties acquired in the ITT
Merger. A three-year lease for the Moorland property, which provides for a
monthly base rent of $333,000 and annual percentage rent payments, was entered
into by the Trust and the Corporation.
In December 1998, the Operating Partnership distributed its 100% interest
in Midland Holding ("Midland") to the Corporation in redemption of 3,733,630 LP
Units in the Operating Partnership held by the Corporation. Subsequently, the
Corporation owned 100% of the net assets of Midland and paid off the mortgage
note payable in the amount of $22 million from Midland to the Realty Partnership
with proceeds from an intercompany loan from the Trust. The real and personal
property of Midland was then contributed to the Realty Partnership by the
Corporation in exchange for 2,479,214 LP Units in the Realty Partnership to
conform to the ownership structure of the Company's other domestically owned
hotels, excluding properties acquired in the ITT Merger. A three-year lease for
the Midland hotel, which provides for a monthly base rent
F-36
<PAGE> 40
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of $400,000 and annual percentage rent payments, was entered into by the Realty
Partnership and the Corporation.
EMPLOYEE AND OFFICER LOANS. In connection with specific employees' and
officers' relocation to Starwood headquarters in 1998, Starwood made
non-interest bearing loans to certain individuals. The original loan amounts
totaled approximately $7.8 million and the amount outstanding at December 31,
1998 was approximately $6.9 million. These loans are due five years from the
date of issuance or upon the individual's termination.
NOTE 23. COMMITMENTS AND CONTINGENCIES
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. Reserves have been established 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.
ENVIRONMENTAL MATTERS. The Company is subject to certain requirements and
potential liabilities under various federal, state and local environmental laws,
ordinances and regulations. Such laws often impose liability without regard to
whether the current or previous owner or operator knew of, or was responsible
for, the presence of such hazardous or toxic substances. Although the Company
has incurred and expects to incur remediation and other environmental costs
during the ordinary course of operations, management anticipates that such costs
will not have a material adverse effect on the operations or financial condition
of the Company.
CAPTIVE INSURANCE COMPANY. Through its captive insurance company, which
was acquired in connection with the Westin Merger, the Company provides
insurance coverage for workers' compensation and general liability claims
arising at hotel properties owned or managed by the Company through policies
written directly and through assumed reinsurance arrangements. Estimated
insurance claims payable represent outstanding claims and those estimated to
have been incurred but not reported based upon historical loss experience.
Actual costs may vary from estimates based on trends of losses for filed claims
and claims estimated to be incurred but not yet filed.
Estimated insurance claims payable at December 31, 1998 was $26 million. At
December 31, 1998, standby letters of credit amounting to $18.4 million had been
issued to provide collateral for the estimated claims. The letters of credit are
guaranteed by the predecessor owner of Westin and Bankers Trust Company.
GUARANTEED LOANS AND COMMITMENTS. The Company has guaranteed certain loans
and commitments of various ventures to which it is a party. These commitments,
which in the aggregate were approximately $7.2 billion and $91 million at
December 31, 1998 and 1997, respectively, are not expected to have a material
adverse effect on the Company's consolidated financial position or results of
operations.
ITT INDUSTRIES. In 1995, the former ITT Corporation, renamed ITT
Industries, Inc. ("ITT Industries"), distributed to its stockholders all of the
outstanding shares of common stock of ITT, then a wholly owned subsidiary of ITT
Industries (the "Distribution"). In connection with this Distribution, ITT,
which was then named ITT Destinations, Inc., changed its name to ITT
Corporation.
For purposes of governing certain of the ongoing relationships between the
Company and ITT Industries after the Distribution and spin-off of ITT and to
provide for an orderly transition, the Company and ITT Industries have entered
into various agreements including a spin-off agreement, Employee Benefits
Services and Liability Agreement, Tax Allocation Agreement and Intellectual
Property Transfer and License Agreements. The Company may be liable to or due
reimbursement from ITT Industries relating to the resolution of certain
pre-spin-off matters under these agreements.
F-37
<PAGE> 41
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 24. BUSINESS SEGMENT INFORMATION
The Company has one operating segment, Hotels. The Hotels segment
represents a worldwide network of owned, leased and consolidated joint venture
hotels and resorts operated primarily under the Company's proprietary brand
names including Sheraton, Westin, St. Regis/Luxury Collection, Four Points and W
and hotels generated or flagged under these brand names in exchange for
management and franchise fees. Also included are earnings from the Company's
interest in unconsolidated joint ventures.
The performance of the Hotel segment is evaluated primarily on operating
profit before corporate selling, general and administrative expense, interest,
gains on the sale of real estate, investments and restructuring and other
special charges. The Company does not allocate these items to the segment.
The following table presents revenues, operating profit, assets and capital
expenditures for the Company's reportable segment:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
REVENUES.................................................... $ 3,333 $1,762 $1,646
======= ====== ======
OPERATING PROFIT(A)(B)...................................... $ 742 $ 359 $ 311
======= ====== ======
ASSETS
Hotels.................................................... $11,827 $4,136 $4,425
Corporate................................................. 487 775 1,607
Discontinued operations................................... 1,103 1,879 1,420
------- ------ ------
$13,417 $6,790 $7,452
======= ====== ======
CAPITAL EXPENDITURES
Hotels.................................................... $ 427 $ 233 $ 260
Corporate................................................. -- -- 39
------- ------ ------
$ 427 $ 233 $ 299
======= ====== ======
</TABLE>
- ---------------
(a) Hotels operating profit has been reduced by the minority-owned portion of
consolidated joint ventures totalling $42, $19 and $21 in 1998, 1997 and
1996, respectively.
(b) The following costs are not allocated to Hotels in evaluating operating
profit:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Corporate selling, general and administrative........... 98 68 78
Restructuring and other special charges................. 149 640 --
</TABLE>
F-38
<PAGE> 42
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 25. GEOGRAPHICAL INFORMATION -- TOTAL SEGMENTS
<TABLE>
<CAPTION>
REVENUES LONG-LIVED ASSETS
-------------------------- --------------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
United States........................ $2,209 $ 803 $ 780 $6,179 $1,548 $1,695
Italy................................ 325 302 300 655 610 701
All other international.............. 799 657 566 1,359 1,256 1,310
------ ------ ------ ------ ------ ------
Total................................ $3,333 $1,762 $1,646 $8,193 $3,414 $3,706
====== ====== ====== ====== ====== ======
</TABLE>
There were no other individual international countries, except for Italy,
which comprised over 10% of the total revenues and long-lived assets of the
Company as of December 31, 1998, 1997 or 1996.
NOTE 26. QUARTERLY RESULTS (UNAUDITED)
The following unaudited quarterly results have been restated from amounts
previously reported by the Company for the change in accounting policy related
to non-owned managed hotel revenues and for the presentation of the gaming
operations as discontinued operations (see Note 1).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
-------- ------- ------------ ----------- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1998
Revenues.................................. $ 565 $ 949 $ 886 $ 933 $3,333
Costs and expenses........................ $ 473 $ 761 $ 904 $ 658 $2,796
Income (loss) from continuing
operations.............................. $ 42 $ 82 $ (79) $ 175 $ 220
Discontinued operations................... $ 954 $ 154 $ (2) $ (24) $1,082
Net income (loss)......................... $ 996 $ 236 $ (81) $ 151 $1,302
Earnings per Share:
Basic --
Income (loss) from continuing
operations........................... $0.19 $0.38 $(0.42) $ 0.92 $ 1.06
Discontinued operations................. $5.06 $0.77 $(0.01) $(0.13) $ 5.64
Net income (loss)....................... $5.25 $1.15 $(0.43) $ 0.79 $ 6.70
Diluted --
Income (loss) from continuing
operations........................... $0.19 $0.38 $(0.42) $ 0.87 $ 1.05
Discontinued operations................. $4.98 $0.72 $(0.01) $(0.12) $ 5.58
Net income (loss)....................... $5.17 $1.10 $(0.43) $ 0.75 $ 6.63
</TABLE>
F-39
<PAGE> 43
SCHEDULE II
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions (Deductions)
-----------------------------------------------------------------
CHARGED
BALANCE CHARGED to/from Other Payments/ Balance
JANUARY 1 TO EXPENSES Accounts(a) Other December 31
--------- ----------- ------------- --------- -----------
(in millions)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Trade receivables -- allowance for
doubtful accounts..................... $ 45 $ 13 $ 7 $ (10) $ 55
Notes receivable -- allowance for
doubtful accounts..................... $ 55 $ -- $ -- $ (24) $ 31
Reserves included in accrued expenses
and other liabilities:
Restructuring and other special
charges............................ $730 $149 $(79) $(598) $202
YEAR ENDED DECEMBER 31, 1997
Trade receivables -- allowance for
doubtful accounts..................... $ 42 $ 6 $ -- $ (3) $ 45
Notes receivable -- allowance for
doubtful accounts..................... $ 50 $ -- $ -- $ 5 $ 55
Reserves included in accrued expenses
and other liabilities:
Restructuring and other special
charges............................ $ 39 $792(b) $(39) $ (62) $730
YEAR ENDED DECEMBER 31, 1996
Trade receivables -- allowance for
doubtful accounts..................... $ 22 $ 5 $ -- $ 15 $ 42
Notes receivable -- allowance for
doubtful accounts..................... $ 98 $ -- $ -- $ (48) $ 50
Reserves included in accrued and other
liabilities:
Restructuring and other special
charges............................ $ 65 $ -- $ -- $ (26) $ 39
</TABLE>
- ---------------
(a) Charged to/from other accounts:
<TABLE>
<CAPTION>
TRADE
RECEIVABLES -- RESTRUCTURING
ALLOWANCE FOR AND OTHER
DOUBTFUL ACCOUNTS SPECIAL CHARGES
------------------- ---------------
<S> <C> <C>
1998
Notes receivable..................................... $ -- $(20)
Investments.......................................... -- (27)
Other assets......................................... -- (15)
Other long-term liabilities.......................... -- (17)
Acquired assets...................................... 7 --
---- ----
Total charged to/from other accounts................. $ 7 $(79)
==== ====
1997
Plant, property and equipment........................ $ -- $ (7)
Other assets......................................... -- (32)
---- ----
Total charged to/from other accounts................. $ -- $(39)
==== ====
(b) Restructuring and other special charges:
Provision charged to costs and expenses.............. $640
Provision charged to miscellaneous expense........... 152
----
$792
----
</TABLE>
S-1
<PAGE> 44
SCHEDULE III
STARWOOD HOTELS & RESORTS
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INITIAL COST TO COSTS SUBSEQUENT
COMPANY TO ACQUISITION
---------------------------- -------------------
BUILDING BUILDING
AND AND
DESCRIPTION CITY STATE LAND IMPROVEMENTS LAND IMPROVEMENTS
- ----------- ---------------- ----- ----- ------------ ---- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
HOTEL ASSETS:
Plaza Hotel & Conference Center........ Tucson AZ $ -- $ 5.0 $-- $1.1
Chicago Midland........................ Chicago IL 23.8 17.6 -- --
St. Regis Aspen........................ Aspen CO 20.4 139.5 -- 0.1
Luxury Collection Hotel................ Houston TX 6.1 41.5 -- 0.1
Westin Central Park South.............. New York NY -- 77.9 -- 0.4
Westin Fairfax Hotel................... Washington DC 5.7 38.8 -- 0.1
Four Points Hotel Denver Cherry
Creek................................ Denver CO 3.7 22.4 -- 0.2
Westin South Coast Plaza............... Costa Mesa CA -- 28.7 -- 0.1
Westin Indianapolis.................... Indianapolis IN 12.9 73.3 -- --
Westin San Francisco Airport........... Millbrae CA 11.4 69.5 -- --
Westin Ft. Lauderdale.................. Ft. Lauderdale FL 3.3 20.1 -- --
Westin Seattle......................... Seattle WA 21.6 149.2 -- 0.1
Westin Cincinnati...................... Cincinnati OH -- 62.8 -- --
Westin Tabor Center.................... Denver CO 9.8 66.8 -- 0.4
Westin Galleria Houston................ Houston TX -- 10.7 -- --
Westin Oaks............................ Houston TX -- 13.2 -- --
The St. Regis.......................... New York NY 65.0 149.8 -- --
Danbury Hilton and Towers.............. Danbury CT 2.0 15.8 -- --
BWI Airport Marriott................... Baltimore MD 3.6 51.6 -- --
Charleston Hilton North................ North Charleston SC 2.6 24.1 -- 0.2
Sheraton Edison Hotel Raritan Center... Edison NJ 1.7 20.2 -- 0.3
Courtyard by Marriott Crystal City..... Arlington VA 3.7 31.0 -- --
Novi Hilton............................ Novi MI 1.8 36.7 -- 0.1
Sheraton Norfolk Waterside Hotel....... Norfolk VA 5.2 44.9 -- 0.2
Park Ridge Hotel....................... King of Prussia PA 3.1 39.4 -- 0.3
Westin Long Beach...................... Long Beach CA 4.3 48.0 -- --
Sonoma County Hilton................... Santa Rosa CA 1.8 15.4 -- 1.5
<CAPTION>
GROSS AMOUNT BOOK
VALUE AT
DECEMBER 31, 1998
--------------------
(1)(2)
BUILDING ACCUMULATED
(1) AND DEPRECIATION YEAR OF DATE
DESCRIPTION LAND IMPROVEMENTS AMORTIZATION CONSTRUCTION ACQUIRED LIFE
- ----------- ----- ------------ ------------ ------------ -------- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
HOTEL ASSETS:
Plaza Hotel & Conference Center........ $ -- $ 6.1 $0.2 1971 02/98 21
Chicago Midland........................ 23.8 17.6 -- 1934 12/98 40
St. Regis Aspen........................ 20.4 139.6 3.7 1992 01/98 40
Luxury Collection Hotel................ 6.1 41.6 1.1 1982 01/98 40
Westin Central Park South.............. -- 78.3 3.0 1929 01/98 25
Westin Fairfax Hotel................... 5.7 38.9 1.2 1927 01/98 40
Four Points Hotel Denver Cherry
Creek................................ 3.7 22.6 0.6 1979 01/98 40
Westin South Coast Plaza............... -- 28.8 1.1 1975 01/98 40
Westin Indianapolis.................... 12.9 73.3 2.1 1989 01/98 40
Westin San Francisco Airport........... 11.4 69.5 2.0 1987 01/98 40
Westin Ft. Lauderdale.................. 3.3 20.1 0.6 1986 01/98 40
Westin Seattle......................... 21.6 149.4 3.9 1969 01/98 40
Westin Cincinnati...................... -- 62.8 1.8 1981 01/98 40
Westin Tabor Center.................... 9.8 67.1 1.9 1984 01/98 40
Westin Galleria Houston................ -- 10.7 1.2 1977 01/98 9
Westin Oaks............................ -- 13.2 1.5 1971 01/98 9
The St. Regis.......................... 65.0 149.8 1.7 1904 06/98 40
Danbury Hilton and Towers.............. 2.0 15.8 0.2 1981 05/98 40
BWI Airport Marriott................... 3.6 51.6 1.0 1988 02/98 40
Charleston Hilton North................ 2.6 24.3 0.5 1983 02/98 40
Sheraton Edison Hotel Raritan Center... 1.7 20.4 0.4 1987 02/98 40
Courtyard by Marriott Crystal City..... 3.7 31.1 0.7 1990 02/98 40
Novi Hilton............................ 1.8 36.8 0.8 1985 02/98 40
Sheraton Norfolk Waterside Hotel....... 5.2 45.1 0.9 1976 02/98 40
Park Ridge Hotel....................... 3.1 39.7 0.8 1973 02/98 40
Westin Long Beach...................... 4.3 48.0 1.0 1988 02/98 40
Sonoma County Hilton................... 1.8 16.9 0.3 1984 02/98 40
</TABLE>
S-2
<PAGE> 45
<TABLE>
<CAPTION>
INITIAL COST TO COSTS SUBSEQUENT
COMPANY TO ACQUISITION
---------------------------- -------------------
BUILDING BUILDING
AND AND
DESCRIPTION CITY STATE LAND IMPROVEMENTS LAND IMPROVEMENTS
- ----------- ---------------- ----- ----- ------------ ---- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Tremont Hotel.......................... Chicago IL 3.2 17.2 -- 0.6
Westin Stamford Hotel.................. Stamford CT 6.2 27.2 -- 0.3
Sheraton Tara Lexington Inn............ Lexington MA 1.5 17.5 -- --
Sheraton Tara Hotel, Newton............ Newton MA -- 37.7 -- --
Sheraton Tara Hotel, South Portland.... South Portland ME 2.9 20.6 -- --
Wayfarer Inn........................... Bedford NH 2.5 10.1 -- 0.1
Merrimack Hotel & Conference Center.... Merrimack NH 0.7 0.3 -- --
Sheraton Tara Airport Hotel............ Warwick RI 2.7 18.2 -- 0.1
Sheraton Stamford Hotel................ Stamford CT 5.8 43.4 -- 0.1
Sheraton Tara Hotel, Braintree......... Braintree MA 4.9 59.0 -- 0.1
Sheraton Ferncroft Resort Danvers...... Danvers MA 4.8 55.6 -- 0.1
Sheraton Tara Hotel, Framingham........ Framingham MA 4.8 46.6 -- 0.2
Four Points Hotel Hyannis Cape Cod..... Hyannis MA 3.4 13.1 -- 0.2
Sheraton Hyannis Resort................ Hyannis MA 2.9 23.1 -- 0.3
Sheraton Colonial Hotel & Golf Club
Boston North......................... Lynnfield MA 3.6 53.6 -- 0.2
Sheraton Tara Hotel, Nashua............ Nashua NH 4.4 23.3 -- 0.1
Sheraton Tara Hotel, Parsippany........ Parsippany NJ 5.1 89.2 -- 0.1
Crowne Plaza New Orleans............... New Orleans LA 5.7 62.7 -- --
Best Western Airport Inn (NM).......... Albuquerque NM -- 10.3 -- 0.2
One Washington Circle.................. Washington DC 2.0 23.6 -- --
Westin Aquila.......................... Omaha NE 1.9 10.9 -- 0.1
Westin Mission Hills Resort............ Rancho Mirage CA 6.6 105.7 -- (0.1)
Riverside Inn.......................... Portland OR 1.8 21.7 -- 0.1
Days Inn City Center................... Portland OR 2.2 18.0 -- 0.6
Days Inn -- Town Center............... Seattle WA -- 1.7 -- 0.3
Sixth Avenue Inn....................... Seattle WA -- 2.7 -- 0.2
Edmond Meany Hotel..................... Seattle WA 2.0 16.3 -- --
San Diego Marriott Suites.............. San Diego CA 2.2 42.5 -- --
Raphael Hotel.......................... Chicago IL 3.0 18.2 -- 0.2
Westin Southfield -- Detroit........... Southfield MI 1.7 52.0 -- 0.2
Sheraton Indianapolis North Hotel...... Indianapolis IN 7.2 43.7 -- 0.7
Sheraton Gainesville Hotel............. Gainesville FL 2.5 8.1 -- 1.0
<CAPTION>
GROSS AMOUNT BOOK
VALUE AT
DECEMBER 31, 1998
--------------------
(1)(2)
BUILDING ACCUMULATED
(1) AND DEPRECIATION YEAR OF DATE
DESCRIPTION LAND IMPROVEMENTS AMORTIZATION CONSTRUCTION ACQUIRED LIFE
- ----------- ----- ------------ ------------ ------------ -------- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Tremont Hotel.......................... 3.2 17.8 0.4 1974 02/98 40
Westin Stamford Hotel.................. 6.2 27.5 0.6 1985 02/98 40
Sheraton Tara Lexington Inn............ 1.5 17.5 0.4 1958 02/98 40
Sheraton Tara Hotel, Newton............ -- 37.8 2.9 1968 02/98 10
Sheraton Tara Hotel, South Portland.... 2.9 20.6 0.4 1973 02/98 40
Wayfarer Inn........................... 2.5 10.1 0.2 1966 02/98 40
Merrimack Hotel & Conference Center.... 0.7 0.3 -- 1979 02/98 40
Sheraton Tara Airport Hotel............ 2.7 18.3 0.4 1979 02/98 40
Sheraton Stamford Hotel................ 5.8 43.6 0.9 1984 02/98 40
Sheraton Tara Hotel, Braintree......... 4.9 59.1 1.2 1971 02/98 40
Sheraton Ferncroft Resort Danvers...... 4.8 55.7 1.2 1978 02/98 40
Sheraton Tara Hotel, Framingham........ 4.8 46.8 1.0 1973 02/98 40
Four Points Hotel Hyannis Cape Cod..... 3.4 13.3 0.3 1975 02/98 40
Sheraton Hyannis Resort................ 2.9 23.4 0.5 1967 02/98 40
Sheraton Colonial Hotel & Golf Club
Boston North......................... 3.6 53.8 1.1 1966 02/98 40
Sheraton Tara Hotel, Nashua............ 4.4 23.4 0.5 1980 02/98 40
Sheraton Tara Hotel, Parsippany........ 5.1 89.2 1.9 1987 02/98 40
Crowne Plaza New Orleans............... 5.7 62.8 1.3 1984 02/98 40
Best Western Airport Inn (NM).......... -- 10.5 0.3 1980 02/98 30
One Washington Circle.................. 2.0 23.6 0.5 1964 02/98 40
Westin Aquila.......................... 1.9 11.0 0.3 1924 02/98 40
Westin Mission Hills Resort............ 6.6 105.7 2.2 1987 02/98 40
Riverside Inn.......................... 1.8 21.8 0.5 1964 02/98 40
Days Inn City Center................... 2.2 18.6 0.4 1962 02/98 40
Days Inn -- Town Center............... -- 2.0 1.9 1957 09/86 10
Sixth Avenue Inn....................... -- 2.9 2.7 1959 09/86 12
Edmond Meany Hotel..................... 2.0 16.4 0.3 1932 02/98 40
San Diego Marriott Suites.............. 2.2 42.5 0.9 1989 02/98 40
Raphael Hotel.......................... 3.0 18.4 0.4 1929 02/98 40
Westin Southfield -- Detroit........... 1.7 52.1 1.1 1987 02/98 40
Sheraton Indianapolis North Hotel...... 7.2 44.4 0.9 1983 02/98 40
Sheraton Gainesville Hotel............. 2.5 9.1 0.2 1974 02/98 40
</TABLE>
S-3
<PAGE> 46
<TABLE>
<CAPTION>
INITIAL COST TO COSTS SUBSEQUENT
COMPANY TO ACQUISITION
---------------------------- -------------------
BUILDING BUILDING
AND AND
DESCRIPTION CITY STATE LAND IMPROVEMENTS LAND IMPROVEMENTS
- ----------- ---------------- ----- ----- ------------ ---- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Marriott Forrestal Village Hotel....... Princeton NJ 3.2 31.6 -- 0.1
Westwood Marquis Hotel & Gardens....... Los Angeles CA 5.2 22.1 -- 0.8
Deerfield Beach Hilton................. Deerfield FL 1.5 17.8 -- 0.3
Sheraton Denver Tech Center Hotel...... Denver CO 2.3 26.7 -- 0.1
Days Inn Lake Shore Drive.............. Chicago IL 11.3 41.6 -- 0.1
Sheraton Milwaukee..................... Milwaukee WI 4.9 27.8 -- --
W -- Tuscany........................... New York NY 1.7 11.8 -- 6.0
W -- The Court......................... New York NY 6.1 21.0 -- 7.2
Residence Inn Tyson's Corner........... Vienna VA 1.2 17.0 -- 0.5
Westin Hermitage....................... Nashville TN 2.4 15.4 -- 0.3
Hotel De La Poste...................... New Orleans LA 1.7 18.0 -- 0.2
Tyee Hotel............................. Olympia WA 2.0 6.3 -- 0.2
Capital Hill Suites.................... Washington DC 2.0 15.4 -- 0.2
Holiday Inn -- Albany.................. Albany GA 2.0 5.1 -- --
Doubletree Club Hotel Rancho
Bernardo............................. Rancho Bernardo CA 2.7 20.4 -- 0.1
Four Points Hotel Wichita.............. Wichita KS 3.4 6.4 -- 0.2
Sheraton Chapel Hill Hotel............. Chapel Hill NC 2.2 15.4 -- --
Sheraton Colony Square................. Atlanta GA 3.4 64.4 -- 0.4
W -- Doral Inn......................... New York NY 8.5 -- -- --
Sheraton Buckhead Hotel Atlanta........ Atlanta GA 4.7 34.6 -- 2.0
Four Points Hotel Atlanta Buckhead..... Atlanta GA 2.3 15.4 -- 0.1
Holiday Inn -- Calverton............... Beltsville MD 2.7 17.4 -- --
Westin Washington, DC.................. Washington DC 8.5 38.5 -- --
Park Plaza Hotel....................... Boston MA 12.5 124.0 -- 3.4
<CAPTION>
GROSS AMOUNT BOOK
VALUE AT
DECEMBER 31, 1998
--------------------
(1)(2)
BUILDING ACCUMULATED
(1) AND DEPRECIATION YEAR OF DATE
DESCRIPTION LAND IMPROVEMENTS AMORTIZATION CONSTRUCTION ACQUIRED LIFE
- ----------- ----- ------------ ------------ ------------ -------- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Marriott Forrestal Village Hotel....... 3.2 31.7 0.7 1987 02/98 40
Westwood Marquis Hotel & Gardens....... 5.2 22.9 0.5 1969 02/98 40
Deerfield Beach Hilton................. 1.5 18.0 0.4 1985 02/98 40
Sheraton Denver Tech Center Hotel...... 2.3 26.7 0.6 1986 02/98 40
Days Inn Lake Shore Drive.............. 11.3 41.7 0.9 1965 02/98 40
Sheraton Milwaukee..................... 4.9 27.8 0.1 1972 02/98 40
W -- Tuscany........................... 1.7 17.9 0.3 1935 02/98 40
W -- The Court......................... 6.1 28.3 0.5 1927 02/98 40
Residence Inn Tyson's Corner........... 1.2 17.6 0.4 1984 02/98 40
Westin Hermitage....................... 2.4 15.7 0.3 1910 02/98 40
Hotel De La Poste...................... 1.7 18.2 0.4 1973 02/98 40
Tyee Hotel............................. 2.0 6.4 0.1 1961 02/98 40
Capital Hill Suites.................... 2.0 15.6 0.3 1955 02/98 40
Holiday Inn -- Albany.................. 2.0 5.1 0.1 1989 02/98 40
Doubletree Club Hotel Rancho
Bernardo............................. 2.7 20.5 0.4 1988 02/98 40
Four Points Hotel Wichita.............. 3.4 6.6 -- 1974 02/98 40
Sheraton Chapel Hill Hotel............. 2.2 15.4 0.3 1981 02/98 40
Sheraton Colony Square................. 3.4 64.7 1.4 1973 02/98 40
W -- Doral Inn......................... 8.5 -- -- 1927 02/98 40
Sheraton Buckhead Hotel Atlanta........ 4.7 36.6 0.8 1975 02/98 40
Four Points Hotel Atlanta Buckhead..... 2.3 15.5 0.3 1965 02/98 40
Holiday Inn -- Calverton............... 2.7 17.5 0.4 1987 02/98 40
Westin Washington, DC.................. 8.5 38.5 0.8 1984 02/98 40
Park Plaza Hotel....................... 12.5 127.2 9.4 1927 02/98 40
</TABLE>
S-4
<PAGE> 47
STARWOOD HOTELS & RESORTS
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INITIAL COST TO COSTS SUBSEQUENT
COMPANY TO ACQUISITION
-------------------- -------------------
BUILDING BUILDING
AND AND
DESCRIPTION CITY STATE LAND IMPROVEMENTS LAND IMPROVEMENTS
- ----------- ----------------- ----- ------ ------------ ---- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Westin Philadelphia Int'l Airport.... Philadelphia PA 2.9 29.9 -- 0.2
Sheraton Philadelphia Airport........ Philadelphia PA 1.9 7.1 -- 1.2
Sheraton Suites Tampa Airport........ Tampa FL 2.3 30.5 -- 0.7
Clarion at San Francisco Airport..... Milbrae CA 7.2 46.6 -- 1.2
Sheraton Tucson Hotel & Suites....... Tucson AZ 1.8 14.3 -- 0.2
W -- Atlanta......................... Atlanta GA 3.8 11.4 -- 0.6
Sheraton Minneapolis Metrodome....... Minneapolis MN 1.8 26.7 -- 0.3
Westin Atlanta N. at Perimeter....... Atlanta GA 5.4 45.4 -- --
Westin Los Angeles Airport........... Los Angeles CA 8.8 40.4 -- 0.2
Doubletree Hotel Minneapolis Airport
at the Mall........................ Bloomington MN 2.9 47.6 -- 0.3
Westin Horton Plaza San Diego........ San Diego CA 6.5 88.4 -- 1.0
Ritz-Carlton Kansas City............. Kansas City MO 9.4 52.6 -- 1.7
Ritz-Carlton Philadelphia............ Philadelphia PA 5.2 56.5 -- 0.1
Sheraton Ft. Lauderdale Airport
Hotel.............................. Dania FL 2.9 27.1 -- 0.1
Westin Waltham Hotel................. Waltham MA 5.0 63.9 -- 0.1
Sheraton Needham Hotel............... Needham MA 3.0 40.6 -- --
Allentown Hilton..................... Allentown PA 1.2 17.3 -- 0.2
Arlington Park Hilton................ Arlington Heights IL 5.5 42.3 0.4
------ -------- -- -----
$487.6 $3,610.4 $-- $41.9
====== ======== == =====
Land.................................
Furniture, fixtures and equipment....
Construction in progress.............
<CAPTION>
GROSS AMOUNT BOOK
VALUE AT
DECEMBER 31, 1998
---------------------
(1)(2)
BUILDING ACCUMULATED
(1) AND DEPRECIATION YEAR OF DATE
DESCRIPTION LAND IMPROVEMENTS AMORTIZATION CONSTRUCTION ACQUIRED LIFE
- ----------- ------ ------------ ------------ ------------ -------- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Westin Philadelphia Int'l Airport.... 2.9 30.0 0.6 1985 02/98 40
Sheraton Philadelphia Airport........ 1.9 8.3 0.2 1984 02/98 40
Sheraton Suites Tampa Airport........ 2.3 31.3 0.6 1987 02/98 40
Clarion at San Francisco Airport..... 7.2 47.7 0.9 1962 02/98 40
Sheraton Tucson Hotel & Suites....... 1.8 14.5 0.3 1986 02/98 40
W -- Atlanta......................... 3.8 12.1 0.2 1980 02/98 40
Sheraton Minneapolis Metrodome....... 1.8 27.0 0.6 1980 02/98 40
Westin Atlanta N. at Perimeter....... 5.4 45.4 1.0 1986 02/98 40
Westin Los Angeles Airport........... 8.8 40.6 0.8 1986 02/98 40
Doubletree Hotel Minneapolis Airport
at the Mall........................ 2.9 48.0 1.0 1975 02/98 40
Westin Horton Plaza San Diego........ 6.5 89.3 1.9 1987 02/98 40
Ritz-Carlton Kansas City............. 9.4 54.3 1.1 1973 02/98 40
Ritz-Carlton Philadelphia............ 5.2 56.7 1.2 1990 02/98 40
Sheraton Ft. Lauderdale Airport
Hotel.............................. 2.9 27.2 0.5 1985 02/98 40
Westin Waltham Hotel................. 5.0 63.9 1.3 1990 02/98 40
Sheraton Needham Hotel............... 3.0 40.6 0.9 1986 02/98 40
Allentown Hilton..................... 1.2 17.5 0.4 1981 02/98 40
Arlington Park Hilton................ 5.5 42.7 0.9 1968 02/98 40
------ -------- ------
$487.6 3,652.3 95.8
======
Land................................. 487.6 --
Furniture, fixtures and equipment.... 280.2 50.1
Construction in progress............. 154.9 --
-------- ------
$4,575.0 $145.9
======== ======
</TABLE>
- ---------------
(1) As of December 31, 1998, land, building, furniture, fixtures and equipment
and construction in progress have a cost basis of $415.7 million, $2,315.1
million, $353.1 million and $154.9 million, respectively, for federal income
tax purposes.
(2) Building and improvements include amounts allocated for leasehold interest
in land and net assets held for sale.
S-5
<PAGE> 48
A reconciliation of the Trust's investment in real estate, furniture and
fixtures and related accumulated depreciation is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
-------------
(IN MILLIONS)
<S> <C>
REAL ESTATE AND FURNITURE AND FIXTURES
Balance at beginning of period.............................. $4,255
Additions during period:
Acquisitions.............................................. 314
Improvements.............................................. 206
Deductions during period:
Sale of properties........................................ (200)
------
Balance at end of period.................................... $4,575
======
ACCUMULATED DEPRECIATION
Balance at beginning of period.............................. $ (49)
Additions during period:
Depreciation expense...................................... (123)
Deductions during period:
Sale of properties........................................ 26
------
Balance at end of period.................................... $ (146)
======
</TABLE>
S-6
<PAGE> 49
SCHEDULE IV
STARWOOD HOTELS & RESORTS
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
<TABLE>
<CAPTION>
CARRYING PRINCIPAL AMOUNT
ORIGINAL AMOUNT OF LOANS SUBJECT
INTEREST FINAL PERIODIC PRIOR FACE AMOUNT OF TO DELINQUENT
DESCRIPTION RATE MATURITY PAYMENT LIENS OF MORTGAGES MORTGAGES PRINCIPAL OR INTEREST
- ----------- ---------- -------- ---------- ----- ------------ --------- ---------------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
First Mortgages:
Ramada Inn -- Tucker, GA....... 9.00% 1998 17(3) No $ 2 $ 2
Ramada Suites -- Secaucus,
NJ........................... (2) 1999 Adjustable(4) No 14 12
Westin Maui -- Maui, HI........ 10.00% 2000 (5) No 105 105
Harvey Hotel Addison -- Dallas,
TX........................... 8.00% 2002 324(6) No 11 8
Harvey Bristol
Suites -- Dallas, TX......... 8.00% 2002 518(7) No 18 13
Harvey DFW Airport Hotel --
Dallas, TX................... 8.00% 2002 806(8) No 28 21
Vagabond Inns -- Modesto, CA... 10.00% 2006 (9) No 2 1
Ramada Inn -- Fayetteville,
NC........................... 9.00% 2006 9(10) No 1 --
Second Mortgages:
Harvey Hotel Addison -- Dallas,
TX........................... Prin. Only 2002 2(11) Yes -- --
Harvey Bristol
Suites -- Dallas, TX......... Prin. Only 2002 5(12) Yes -- --
Harvey DFW Airport Hotel --
Dallas, TX................... Prin. Only 2002 2(13) Yes -- --
Westin Portland -- Portland,
OR........................... 11.50% 2003 (14) Yes 2 2
------ ------
$ 183 $ 164
====== ======
Intercompany Mortgage Loans
First Mortgages:
W New York, NY................. 9.50% 2006 (15) No $ 40 $ 40
Westin Regina -- Cancun,
Mexico....................... 8.00% 1999 (16) No 41 39
Westin Regina -- Los Cabos,
Mexico....................... 8.00% 1999 (16) No 53 44
Westin Regina -- Puerto
Vallarta, Mexico............. 8.00% 1999 (16) No 25 23
Westin Hotel -- Turnberry,
Scotland..................... 10.00% 2000 (17) No 27 30
ITT Corporation Mortgage
Note......................... 8.50% 2005 (18) No 2,699 2,699
Starwood Hotels & Resorts
Worldwide, Inc............... 8.50% 2005 (18) No 100 100
Starwood Hotels & Resorts
Worldwide, Inc............... 8.50% 2005 (18) No 50 50
------ ------
$3,035 $3,025
====== ======
</TABLE>
- ---------------
(1) As of December 31, 1998, the aggregate cost (before allowance for loan
losses) for federal income tax purposes is not significantly different from
that used for book purposes.
(2) The interest rate is the ninety-day LIBOR plus 1.25% or prime rate, at
borrower's option. At December 31, 1998, the interest rate was 6.5625%.
(3) Forbearance agreement extended due date to 1999. Payments of $20,000 due
monthly towards interest and principal.
(4) Principal and interest due monthly. Principal amount adjusts annually based
on note schedule.
(5) Interest only payable monthly. Interest based on current principal balance
and 10% interest rate. Principal balance comprised of initial advance of
$105 million with additional advances up to $121 million available.
Principal and all accrued and unpaid interest are due January 29, 2000.
S-7
<PAGE> 50
(6) Principal and interest due quarterly based on note schedule. A 25%
participation on both the first and second mortgages was sold to a third
party in 1995.
(7) Principal and interest due quarterly based on note schedule.
(8) Principal and interest due quarterly based on note schedule.
(9) Note provides for monthly payments of interest plus additional annual
payments based on a percentage of the hotel's sales, a portion of which is
applied to principal. On April 29, 1996, the borrower exercised its right
under the terms of the note to extend the maturity of the note to June
2006.
(10) Principal and interest due monthly based on a 12-year amortization schedule
with unpaid principal of $9,000 due in December 2006.
(11) Forty equal principal payments of $125,125 each of which the Realty
Partnership has a 2.0% interest. The note carrying amount is net of $39,000
allowance. The face amount represents the Realty Partnership's 2.0%
interest in the mortgage loan. The remaining payment amounts are passed
through to the participants.
(12) Forty equal principal payments of $237,500 each of which the Realty
Partnership has a 2.0% interest. The note carrying amount is net of $76,000
allowance. The face amount represents the Realty Partnership's 2.0%
interest in the mortgage loan. The remaining payment amounts are passed
through to the participants.
(13) Forty equal principal payments of $90,000 each of which the Realty
Partnership has a 2.0% interest. The note carrying amount is net of $29,000
allowance. The face amount represents the Realty Partnership's 2.0%
interest in the mortgage loan. The remaining payment amounts are passed
through to the participants.
(14) Interest only payable monthly. Interest calculated based upon 11.5%
interest rate, $1.8 million principal balance and actual/365-day basis.
Principal and all accrued and unpaid interest are due June 4, 2003.
(15) One hundred thirty-two equal installments of interest only. Principal and
all accrued and unpaid interest due October 1, 2006.
(16) Principal and all accrued and unpaid interest are due May 1999.
(17) Interest only payable monthly. Principal and all accrued and unpaid
interest are due December 2000.
(18) Interest only payable monthly. Principal and all accrued and unpaid
interest are due February 2005.
S-8
<PAGE> 51
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Balance at beginning of period.............................. $ 51 $ 91 $ 80
Additions:
New mortgage loans........................................ 107 -- 31
Purchase accounting revaluation........................... 12 5 3
Deductions:
Principal repayments...................................... (6) (45) (23)
---- ---- ----
Balance at end of period.................................... $164 $ 51 $ 91
==== ==== ====
</TABLE>
INTERCOMPANY MORTGAGE ROLLFORWARD
DECEMBER 31, 1998
<TABLE>
<CAPTION>
BEGINNING ACCRUED PRINCIPAL ENDING
DESCRIPTION BALANCE ADDITIONS INTEREST PAYMENTS BALANCE
- ----------- --------- --------- -------- --------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
W New York..................................... $ 40 $-- $-- $ -- $ 40
Westin Regina -- Cancun(1)..................... 43 -- 2 (6) 39
Westin Regina -- Los Cabos(1).................. 55 -- 3 (14) 44
Westin Regina -- Puerto Vallarta(1)............ 26 -- 2 (5) 23
Westin Hotel -- Turnberry(1)................... 28 -- 2 -- 30
ITT Corporation................................ 2,699 -- -- -- 2,699
Starwood Hotels & Resorts Worldwide, Inc....... 100 -- -- -- 100
Starwood Hotels & Resorts Worldwide, Inc....... 50 -- -- -- 50
------ -- -- ---- ------
$3,041 $-- $9 $(25) $3,025
====== == == ==== ======
</TABLE>
- ---------------
(1) Per mortgage loan agreements, the borrowers are not required to pay monthly
interest if the cash flows are insufficient. Thus, the Trust has accrued
interest on the notes.
S-9
<PAGE> 52
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27.1.................... Financial Data Schedule
27.2.................... Financial Data Schedule
27.3.................... Financial Data Schedule
27.4.................... Financial Data Schedule
27.5.................... Financial Data Schedule
27.6.................... Financial Data Schedule
27.7.................... Financial Data Schedule
27.8.................... Financial Data Schedule
27.9.................... Financial Data Schedule
27.10................... Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000316206
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 175
<SECURITIES> 0
<RECEIVABLES> 539
<ALLOWANCES> 55
<INVENTORY> 58
<CURRENT-ASSETS> 792
<PP&E> 8,756
<DEPRECIATION> 899
<TOTAL-ASSETS> 13,417
<CURRENT-LIABILITIES> 1,821
<BONDS> 6,489
181
0
<COMMON> 4
<OTHER-SE> 4,452
<TOTAL-LIABILITY-AND-EQUITY> 13,417
<SALES> 0
<TOTAL-REVENUES> 3,333
<CGS> 0
<TOTAL-COSTS> 2,796
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 447
<INCOME-PRETAX> 131
<INCOME-TAX> (89)
<INCOME-CONTINUING> 220
<DISCONTINUED> 1,082
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,302
<EPS-BASIC> 6.70
<EPS-DILUTED> 6.63
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000048595
<NAME> STARWOOD HOTELS & RESORTS
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 2,649
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 81
<PP&E> 4,557
<DEPRECIATION> 146
<TOTAL-ASSETS> 8,646
<CURRENT-LIABILITIES> 75
<BONDS> 738
172
0
<COMMON> 2
<OTHER-SE> 7,727
<TOTAL-LIABILITY-AND-EQUITY> 8,646
<SALES> 0
<TOTAL-REVENUES> 600
<CGS> 0
<TOTAL-COSTS> 153
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> 413
<INCOME-TAX> 1
<INCOME-CONTINUING> 412
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 412
<EPS-BASIC> 2.05
<EPS-DILUTED> 2.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000316206
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 2,400
<CGS> 0
<TOTAL-COSTS> 2,138
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 322
<INCOME-PRETAX> (21)
<INCOME-TAX> (66)
<INCOME-CONTINUING> 45
<DISCONTINUED> 1,106
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,151
<EPS-BASIC> 5.87
<EPS-DILUTED> 5.87
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000048595
<NAME> STARWOOD HOLTES & RESORTS
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 440
<CGS> 0
<TOTAL-COSTS> 122
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> 300
<INCOME-TAX> 1
<INCOME-CONTINUING> 299
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 299
<EPS-BASIC> 1.44
<EPS-DILUTED> 1.43
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000316206
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 1,514
<CGS> 0
<TOTAL-COSTS> 1,234
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164
<INCOME-PRETAX> 160
<INCOME-TAX> 36
<INCOME-CONTINUING> 124
<DISCONTINUED> 1,108
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,232
<EPS-BASIC> 6.33
<EPS-DILUTED> 6.22
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000048595
<NAME> STARWOOD HOTELS & RESORTS
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 256
<CGS> 0
<TOTAL-COSTS> 81
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 166
<INCOME-TAX> 1
<INCOME-CONTINUING> 165
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 165
<EPS-BASIC> 0.79
<EPS-DILUTED> 0.79
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000316206
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 565
<CGS> 0
<TOTAL-COSTS> 473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> 52
<INCOME-TAX> 10
<INCOME-CONTINUING> 42
<DISCONTINUED> 954
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 996
<EPS-BASIC> 5.25
<EPS-DILUTED> 5.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000048595
<NAME> STARWOOD HOTELS & RESORTS
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> FEB-23-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 82
<CGS> 0
<TOTAL-COSTS> 18
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 61
<INCOME-TAX> 0
<INCOME-CONTINUING> 61
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000316206
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 126
<SECURITIES> 0
<RECEIVABLES> 332
<ALLOWANCES> 45
<INVENTORY> 47
<CURRENT-ASSETS> 525
<PP&E> 3,698
<DEPRECIATION> 634
<TOTAL-ASSETS> 6,790
<CURRENT-LIABILITIES> 1,850
<BONDS> 607
0
0
<COMMON> 2
<OTHER-SE> 2,742
<TOTAL-LIABILITY-AND-EQUITY> 6,790
<SALES> 0
<TOTAL-REVENUES> 1,762
<CGS> 0
<TOTAL-COSTS> 2,092
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> (79)
<INCOME-TAX> 154
<INCOME-CONTINUING> (233)
<DISCONTINUED> (12)
<EXTRAORDINARY> (42)
<CHANGES> (11)
<NET-INCOME> (298)
<EPS-BASIC> (2.36)
<EPS-DILUTED> (2.36)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EPS HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS
HAVE BEEN ENTERED IN THE PRIMARY AND FULLY DILUTED LINE ITEMS, RESPECTIVELY.
</LEGEND>
<RESTATED>
<CIK> 0000316206
<NAME> STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 118
<SECURITIES> 599
<RECEIVABLES> 251
<ALLOWANCES> 0
<INVENTORY> 43
<CURRENT-ASSETS> 1,082
<PP&E> 3,913
<DEPRECIATION> 583
<TOTAL-ASSETS> 7,452
<CURRENT-LIABILITIES> 977
<BONDS> 1,183
0
0
<COMMON> 2
<OTHER-SE> 3,072
<TOTAL-LIABILITY-AND-EQUITY> 7,452
<SALES> 0
<TOTAL-REVENUES> 1,646
<CGS> 0
<TOTAL-COSTS> 1,392
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 273
<INCOME-TAX> 117
<INCOME-CONTINUING> 156
<DISCONTINUED> 93
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 249
<EPS-BASIC> 1.99
<EPS-DILUTED> 1.96
</TABLE>
