EX-99.1 2 a16-11366_1ex99d1.htm EX-99.1

Exhibit 99.1

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

 

Introduction

 

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

 

Upon the completion of the Transactions, Vistana became a wholly-owned subsidiary of ILG.  In addition, as a result of the Transactions, Starwood stockholders own approximately 55% of the outstanding shares of ILG on a fully-diluted basis, and the existing shareholders of ILG own approximately 45% of ILG on a fully-diluted basis.

 

Pro Forma Financial Information

 

The following unaudited pro forma condensed consolidated financial statements are based on our historical audited consolidated financial statements and should be read in conjunction with those historical financial statements and accompanying notes. The unaudited pro forma condensed consolidated statements of income for the three months ended March 31, 2016 and the years ended December 31, 2015, 2014, and 2013 are presented as if the Transactions had occurred on January 1, 2013. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2016 is presented as if the Transactions had occurred on March 31, 2016.

 

Starwood has adjusted its historical consolidated financial statements to give pro forma effect to events that are (1) directly attributable to the Transactions, (2) factually supportable, and (3) for the pro forma statements of income, expected to have a continuing impact on Starwood’s results of operations.

 

Costs related to the Transactions (e.g., investment banker, advisory, legal, valuation, and other professional fees) are expensed as incurred. The pro forma balance sheet reflects the $23 million of costs related to the Transactions as accrued expenses with a corresponding decrease in retained earnings. We have not presented these costs in the pro forma statements of income because they will not have a continuing impact on the results of Starwood.

 

In connection with the Transactions, we expect to record a significant non-cash pre-tax impairment charge in the second quarter of 2016 resulting from the difference between the carrying value of our investment in the Vistana Vacation Ownership Business and the fair value of the consideration received at the transaction date, which is primarily based on the value of ILG common stock received by our stockholders and unitholders. We have not presented the impairment charge in the pro forma statements of income because it will not have a continuing impact on the results of Starwood.  In addition, we have not separately presented the impact of the impairment in the pro forma condensed consolidated balance sheet as it would not impact the balances reported in the Starwood Historical Adjusted column.

 

Both the distribution of the shares of Vistana common stock and merger of Vistana with ILG Merger Sub are expected to generally qualify as transactions that are tax-free for U.S. federal income tax purposes to our U.S. stockholders. The sale of certain assets and liabilities related to the Vistana Vacation Ownership Business and the distribution of Vistana common shares could be taxable to us, including as a result of events subsequent to the Transactions.  These events could include, but are not limited to, consummation of the proposed merger with Marriott International, Inc.  An estimate of the range of the potential tax liability, if any, that may result if the Transactions are taxable to us is not practicable at this time.  This potential tax liability, if any, could also be mitigated by payments from ILG under the tax matters agreement entered into by and among Starwood, Vistana and ILG in connection with the Transactions in certain circumstances.

 

The pro forma consolidated financial statements are provided for informational purposes only and are not necessarily indicative of what our financial position or results of operations would actually have been had the Transactions occurred on the dates indicated or what our future financial position or results of operations will be after giving effect to the completion of the Transactions.

 

1


 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF MARCH 31, 2016

(In millions)

 

 

 

Starwood
Historical

 

Vistana
Adjustments (a)

 

Transaction-
Related
Adjustments

 

Notes

 

Starwood
Historical
Adjusted

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,180

 

$

(33

)

$

121

 

(b)

 

$

1,268

 

Restricted cash

 

68

 

(49

)

—

 

 

 

19

 

Accounts receivable, net of allowance for doubtful accounts

 

671

 

(91

)

—

 

 

 

580

 

Inventories

 

355

 

(340

)

—

 

 

 

15

 

Securitized vacation ownership notes receivable net of allowance for doubtful accounts

 

31

 

(31

)

—

 

 

 

—

 

Prepaid expenses and other

 

175

 

(52

)

—

 

 

 

123

 

Total current assets

 

2,480

 

(596

)

121

 

 

 

2,005

 

Investments

 

197

 

(14

)

—

 

 

 

183

 

Plant, property and equipment, net

 

2,068

 

(456

)

—

 

 

 

1,612

 

Goodwill and intangible assets, net

 

1,948

 

(162

)

—

 

 

 

1,786

 

Deferred income taxes

 

757

 

(29

)

(16

)

(c)

 

712

 

Other assets

 

867

 

(428

)

—

 

 

 

439

 

Securitized vacation ownership notes receivable, net

 

127

 

(127

)

—

 

 

 

—

 

 

 

$

8,444

 

$

(1,812

)

$

105

 

 

 

$

6,737

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

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

 

$

34

 

$

—

 

$

—

 

 

 

$

34

 

Accounts payable

 

115

 

(15

)

—

 

 

 

100

 

Current maturities of long-term securitized vacation ownership debt

 

45

 

(45

)

—

 

 

 

—

 

Accrued expenses

 

1,399

 

(181

)

23

 

(d)

 

1,241

 

Accrued salaries, wages and benefits

 

325

 

(29

)

—

 

 

 

296

 

Accrued taxes and other

 

312

 

(21

)

(16

)

(c)

 

275

 

Total current liabilities

 

2,230

 

(291

)

7

 

 

 

1,946

 

Long-term debt

 

2,318

 

—

 

—

 

 

 

2,318

 

Long-term securitized vacation ownership debt

 

111

 

(111

)

—

 

 

 

—

 

Deferred income taxes

 

31

 

(9

)

—

 

 

 

22

 

Other liabilities

 

2,407

 

(35

)

—

 

 

 

2,372

 

Total liabilities

 

7,097

 

(446

)

7

 

 

 

6,658

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

2

 

—

 

—

 

 

 

2

 

Additional paid-in capital

 

115

 

—

 

—

 

 

 

115

 

Accumulated other comprehensive loss

 

(645

)

—

 

—

 

 

 

(645

)

Retained Earnings

 

1,872

 

(1,366

)

98

 

(b)(c)(d)

 

604

 

Total Starwood stockholders’ equity

 

1,344

 

(1,366

)

98

 

 

 

76

 

Noncontrolling interest

 

3

 

—

 

—

 

 

 

3

 

Total equity

 

1,347

 

(1,366

)

98

 

 

 

79

 

Total liabilities and stockholders’ equity

 

$

8,444

 

$

(1,812

)

$

105

 

 

 

$

6,737

 

 

See accompanying notes to the unaudited pro forma condensed consolidated financial statements.

 

2


 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2016

(In millions, except per share amounts)

 

 

 

Starwood
Historical

 

Vistana
Adjustments (a)

 

Transaction-
Related
Adjustments

 

Notes

 

Starwood
Historical
Adjusted

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

Owned, leased and consolidated joint venture hotels

 

$

265

 

$

(30

)

$

—

 

 

 

$

235

 

Vacation ownership and residential sales and services

 

185

 

(184

)

—

 

 

 

1

 

Management fees, franchise fees and other income

 

256

 

—

 

9

 

(e)

 

265

 

Other revenues from managed and franchised properties

 

698

 

(45

)

8

 

(f)

 

661

 

 

 

1,404

 

(259

)

17

 

 

 

1,162

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

Owned, leased and consolidated joint venture hotels

 

217

 

(18

)

—

 

 

 

199

 

Vacation ownership and residential

 

142

 

(141

)

—

 

 

 

1

 

Selling, general, administrative and other

 

86

 

—

 

—

 

 

 

86

 

Restructuring and other special charges (credits), net

 

39

 

(7

)

—

 

 

 

32

 

Depreciation

 

62

 

(10

)

—

 

 

 

52

 

Amortization

 

8

 

—

 

—

 

 

 

8

 

Other expenses from managed and franchised properties

 

698

 

(45

)

8

 

(f)

 

661

 

 

 

1,252

 

(221

)

8

 

 

 

1,039

 

Operating income

 

152

 

(38

)

9

 

 

 

123

 

Equity earnings and gains from unconsolidated ventures, net

 

12

 

—

 

—

 

 

 

12

 

Interest expense, net of interest income

 

(23

)

2

 

(2

)

(g)

 

(23

)

Gain (loss) on asset dispositions and impairments, net

 

2

 

—

 

—

 

 

 

2

 

Income from continuing operations before taxes and noncontrolling interests

 

143

 

(36

)

7

 

 

 

114

 

Income tax expense

 

(53

)

20

 

(3

)

(c)

 

(36

)

Income from continuing operations

 

$

90

 

$

(16

)

$

4

 

 

 

$

78

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share — Basic

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

167

 

 

 

 

 

 

 

167

 

Earnings per share

 

$

0.54

 

 

 

 

 

 

 

$

0.47

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share — Diluted

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

168

 

 

 

 

 

 

 

168

 

Earnings per share

 

$

0.53

 

 

 

 

 

 

 

$

0.46

 

 

See accompanying notes to the unaudited pro forma condensed consolidated financial statements.

 

3


 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

YEAR ENDED DECEMBER 31, 2015

(In millions, except per share amounts)

 

 

 

Starwood
Historical

 

Vistana
Adjustments (a)

 

Transaction-
Related
Adjustments

 

Notes

 

Starwood
Historical
Adjusted

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

Owned, leased and consolidated joint venture hotels

 

$

1,293

 

$

(101

)

$

—

 

 

 

$

1,192

 

Vacation ownership and residential sales and services

 

687

 

(680

)

—

 

 

 

7

 

Management fees, franchise fees and other income

 

1,047

 

—

 

37

 

(e)

 

1,084

 

Other revenues from managed and franchised properties

 

2,736

 

(181

)

38

 

(f)

 

2,593

 

 

 

5,763

 

(962

)

75

 

 

 

4,876

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

Owned, leased and consolidated joint venture hotels

 

1,005

 

(74

)

—

 

 

 

931

 

Vacation ownership and residential

 

514

 

(508

)

—

 

 

 

6

 

Selling, general, administrative and other

 

388

 

—

 

—

 

 

 

388

 

Restructuring and other special charges (credits), net

 

100

 

(28

)

—

 

 

 

72

 

Depreciation

 

251

 

(39

)

—

 

 

 

212

 

Amortization

 

29

 

—

 

—

 

 

 

29

 

Other expenses from managed and franchised properties

 

2,736

 

(181

)

38

 

(f)

 

2,593

 

 

 

5,023

 

(830

)

38

 

 

 

4,231

 

Operating income

 

740

 

(132

)

37

 

 

 

645

 

Equity earnings and gains from unconsolidated ventures, net

 

41

 

(1

)

—

 

 

 

40

 

Interest expense, net of interest income

 

(111

)

8

 

(5

)

(g)

 

(108

)

Gain (loss) on asset dispositions and impairments, net

 

(1

)

(3

)

—

 

 

 

(4

)

Income from continuing operations before taxes and noncontrolling interests

 

669

 

(128

)

32

 

 

 

573

 

Income tax expense

 

(180

)

28

 

(13

)

(c)

 

(165

)

Income from continuing operations

 

$

489

 

$

(100

)

$

19

 

 

 

$

408

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share — Basic

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

169

 

 

 

 

 

 

 

169

 

Earnings per share

 

$

2.90

 

 

 

 

 

 

 

$

2.42

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share — Diluted

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

170

 

 

 

 

 

 

 

170

 

Earnings per share

 

$

2.88

 

 

 

 

 

 

 

$

2.40

 

 

See accompanying notes to the unaudited pro forma condensed consolidated financial statements.

 

4


 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

YEAR ENDED DECEMBER 31, 2014

(In millions, except per share amounts)

 

 

 

Starwood
Historical

 

Vistana
Adjustments (a)

 

Transaction-
Related
Adjustments

 

Notes

 

Starwood
Historical
Adjusted

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

Owned, leased and consolidated joint venture hotels

 

$

1,541

 

$

(100

)

$

—

 

 

 

$

1,441

 

Vacation ownership and residential sales and services

 

674

 

(642

)

—

 

 

 

32

 

Management fees, franchise fees and other income

 

1,057

 

—

 

37

 

(e)

 

1,094

 

Other revenues from managed and franchised properties

 

2,711

 

(175

)

37

 

(f)

 

2,573

 

 

 

5,983

 

(917

)

74

 

 

 

5,140

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

Owned, leased and consolidated joint venture hotels

 

1,211

 

(81

)

—

 

 

 

1,130

 

Vacation ownership and residential

 

497

 

(480

)

—

 

 

 

17

 

Selling, general, administrative and other

 

402

 

(2

)

—

 

 

 

400

 

Restructuring and other special charges (credits), net

 

(4

)

1

 

—

 

 

 

(3

)

Depreciation

 

254

 

(38

)

—

 

 

 

216

 

Amortization

 

29

 

—

 

—

 

 

 

29

 

Other expenses from managed and franchised properties

 

2,711

 

(175

)

37

 

(f)

 

2,573

 

 

 

5,100

 

(775

)

37

 

 

 

4,362

 

Operating income

 

883

 

(142

)

37

 

 

 

778

 

Equity earnings and gains from unconsolidated ventures, net

 

27

 

(1

)

—

 

 

 

26

 

Interest expense, net of interest income

 

(94

)

12

 

(1

)

(g)

 

(83

)

Loss on early extinguishment of debt, net

 

(1

)

—

 

—

 

 

 

(1

)

Gain (loss) on asset dispositions and impairments, net

 

(33

)

—

 

—

 

 

 

(33

)

Income from continuing operations before taxes and noncontrolling interests

 

782

 

(131

)

36

 

 

 

687

 

Income tax expense

 

(139

)

52

 

(14

)

(c)

 

(101

)

Income from continuing operations

 

$

643

 

$

(79

)

$

22

 

 

 

$

586

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share — Basic

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

185

 

 

 

 

 

 

 

185

 

Earnings per share

 

$

3.49

 

 

 

 

 

 

 

$

3.17

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share — Diluted

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

186

 

 

 

 

 

 

 

186

 

Earnings per share

 

$

3.46

 

 

 

 

 

 

 

$

3.15

 

 

See accompanying notes to the unaudited pro forma condensed consolidated financial statements.

 

5


 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

YEAR ENDED DECEMBER 31, 2013

(In millions, except per share amounts)

 

 

 

Starwood
Historical

 

Vistana
Adjustments (a)

 

Transaction-
Related
Adjustments

 

Notes

 

Starwood
Historical
Adjusted

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

Owned, leased and consolidated joint venture hotels

 

$

1,612

 

$

(93

)

$

—

 

 

 

$

1,519

 

Vacation ownership and residential sales and services

 

924

 

(638

)

—

 

 

 

286

 

Management fees, franchise fees and other income

 

965

 

—

 

38

 

(e)

 

1,003

 

Other revenues from managed and franchised properties

 

2,614

 

(167

)

34

 

(f)

 

2,481

 

 

 

6,115

 

(898

)

72

 

 

 

5,289

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

Owned, leased and consolidated joint venture hotels

 

1,292

 

(77

)

—

 

 

 

1,215

 

Vacation ownership and residential

 

632

 

(477

)

—

 

 

 

155

 

Selling, general, administrative and other

 

384

 

—

 

—

 

 

 

384

 

Restructuring and other special charges (credits), net

 

1

 

2

 

—

 

 

 

3

 

Depreciation

 

239

 

(35

)

—

 

 

 

204

 

Amortization

 

28

 

—

 

—

 

 

 

28

 

Other expenses from managed and franchised properties

 

2,614

 

(167

)

34

 

(f)

 

2,481

 

 

 

5,190

 

(754

)

34

 

 

 

4,470

 

Operating income

 

925

 

(144

)

38

 

 

 

819

 

Equity earnings and gains from unconsolidated ventures, net

 

26

 

(2

)

—

 

 

 

24

 

Interest expense, net of interest income

 

(100

)

19

 

(1

)

(g)

 

(82

)

Gain (loss) on asset dispositions and impairments, net

 

(23

)

—

 

—

 

 

 

(23

)

Income from continuing operations before taxes and noncontrolling interests

 

828

 

(127

)

37

 

 

 

738

 

Income tax expense

 

(263

)

62

 

(14

)

(c)

 

(215

)

Income from continuing operations

 

$

565

 

$

(65

)

$

23

 

 

 

$

523

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share — Basic

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

191

 

 

 

 

 

 

 

191

 

Earnings per share

 

$

2.96

 

 

 

 

 

 

 

$

2.74

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share — Diluted

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

193

 

 

 

 

 

 

 

193

 

Earnings per share

 

$

2.92

 

 

 

 

 

 

 

$

2.71

 

 

See accompanying notes to the unaudited pro forma condensed consolidated financial statements.

 

6


 

The pro forma financial statements reflect the following adjustments for the Transactions:

 

(a)            Represents the historical assets and liabilities and results of operations of Vistana, as well as the operations and accounts of the five hotels transferred to subsidiaries of ILG in connection with the Transactions as recorded by Starwood, including the related tax effects.

 

(b)            Represents the approximately $123 million of cash that certain of our subsidiaries received in connection with the Transactions, less Starwood’s $2 million payment to ILG related to an employee deferred compensation plan.

 

(c)             Represents tax-related adjustments arising out of the Transactions. Starwood determined the income tax expense impact of the Transactions by applying an estimated statutory tax rate of 38.5% to the related pro forma adjustments.  Starwood estimated the impact to accrued income taxes and deferred income taxes for events occurring after the balance sheet date through the date of the Transactions, where practicable.

 

(d)         Represents an accrual for additional transaction costs that Starwood had not yet incurred at March 31, 2016 in connection with the Transactions.

 

(e)          Represents the fixed and variable components of the license fees that Starwood expects to receive from Vistana pursuant to agreements executed with Vistana and ILG in connection with the Transactions.  Under the terms of these agreements, Vistana will pay Starwood an annual base license fee of $30 million, which is adjusted every five years for inflation, compounded annually.  In addition, Vistana has agreed to pay Starwood a variable license fee equal to two percent of the gross sales of vacation ownership interests that are identified with or use the Starwood brands.

 

(f)           Represents cost reimbursements for salaries, wages, and benefits and reservations, marketing, and other centralized services related to the five hotels and the Vistana vacation ownership properties included in the Transactions.  In connection with the Transactions, Vistana and its affiliates have agreed to reimburse Starwood for certain of those expenses at cost with no added margin.

 

(g)          Represents the reversal of capitalized interest expense related to construction of vacation ownership inventory.

 

7