Balance Sheet

Starwood ended 3Q10 with cash and cash equivalents (including restricted cash) of $418.0 million versus $134.0 million at the end of 4Q09. Accounts receivable at the end of 3Q10 were $508.0 million versus $447.0 million in 4Q09. Total current asset at the end of 3Q10 was $1,923.0 million versus $1,491.0 million in 4Q09.

Accounts payable at the end of 3Q10 were $148.0 million versus $139.0 million in 4Q09. Total current liability at the end of 3Q10 was $2,182 million versus $2,027 million at the end of 4Q09. Total shareholders’ equity at the end of 3Q10 was $2,059 million compared with $1,824.0 million at the end of 4Q09.

Capital Expenditure and Structure

In 3Q10, gross capital spending included nearly $28 million in maintenance capex and nearly $24 million in development capital. Investment spending on vacation ownership was nearly $30 million, primarily related to the St. Regis Bal Harbour project.

Looking ahead, HOT indicated that full-year capex for maintenance, renovations, and technology will be nearly $140 million (a decrease of $10 million from 2Q10 guidance), while capex for in-flight investment projects and prior commitments for joint ventures and other investments will be nearly $140 million (also a decrease of $10 million from 2Q10 guidance). Bal Harbour capital will be nearly $150 million (an increase of $10 million from 2Q10 guidance).

Bal Harbour project

Starwood intends to open the 210-room Bal Harbour St. Regis hotel in 1Q12. The average selling price represents $1,000 per square foot with units ranging from 2,000 to 4,000 square feet. Starwood estimates that cash into the project will total $650 million, and projected cash flow will likely ultimately reach $775 million from sales, plus any incremental cash flow from ownership of the St. Regis hotel.
 

Internal Revenue Service (IRS) Tax Settlement
 

In January 2009, Starwood and the IRS reached an agreement in principle to settle the litigation pertaining to the tax treatment of the Company’s 1998 disposition of World Directories, Inc. Under the proposed settlement, on December 9, 2010, the Company received a refund of previously paid taxes and related interest from the Internal Revenue Service of approximately $245.0 million relating to the 1998 disposition of World Directories, Inc.
 

Asset Sales

During 3Q10, the Company sold one St. Regis Aspen for gross proceeds of $70 million. The hotel was sold subject to a long-term management contract. Starwood remains committed to reducing its exposure to owned real estate and timeshare. Further, Starwood puts an effort to become more of a fee-based business model and generate a targeted approximately 80% of EBITDA (pre-corporate overhead) from management and franchise fees. Currently, Starwood generates 57% of overall EBITDA from fees. A higher concentration of fees will serve to reduce earnings volatility and provide a more stable growth profile.
 

Rising costs: Higher health care, insurance, and workers’ compensation will limit improvements in operating margin. Expenses, especially in owned hotel operations, will continue to be under pressure.

Stiff competition: Growing competition, particularly from Marriott, is a serious concern and Starwood will have to keep rolling out new products to keep pace with its rivals’ new launches.

Debt financing, and interest rate risk: Starwood has investment-grade rated credit for its unsecured bonds, as well as property-specific mortgages. These debts subject the Company to greater interest rate and refinancing risks than some of its competitors.

Geographic concentration: Geographic concentration may lead to earnings volatility. Excessive exposure to Asia-Pacific makes Starwood prone to currency fluctuation.