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SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-K

| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| | x | Joint Annual Report Pursuant to
    Section 13 or 15(d) of the Securities Exchange Act of
    1934

| |                                                
| | -----------------------------------------------
| | For the Fiscal Year Ended December 31,
    2002
|
| | OR                                             



| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| | o | Transition Report Pursuant to Section 13
    or 15(d) of the Securities Exchange Act of 1934

| |                                                          
| | ---------------------------------------------------------
| | For the Transition Period
    from                     to

|                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Commission File Number: 1-7959
    STARWOOD HOTELS &
    RESORTS WORLDWIDE, INC.(Exact name of Registrant as specified
    in its charter)                                                                                                                                                                       |  | 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)52-1193298(I.R.S. employer identification no.)1111 Westchester Avenue
    White Plains, NY 10604(Address of principal executive
    offices, including zip code)(914) 640-8100(Registrants telephone number,
    including area code) |  | Maryland(State or other jurisdiction
    of incorporation or organization)52-0901263(I.R.S. employer identification no.)1111 Westchester Avenue
    White Plains, NY 10604(Address of principal executive
    offices, including zip code)(914) 640-8100(Registrants telephone number,
    including area code)

Securities Registered Pursuant to
Section 12(b) of the Act:

|                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                          
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------
|Title of Each Class                                                                                                                                                                                                                                                                                                                                                                                               |  | Name of Each Exchange on Which Registered
|                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                          
|Common Stock, par value $0.01 per share
    (Corporation Share), of Starwood Hotels &
    Resorts Worldwide, Inc. (the Corporation), the
    Class B shares of beneficial interest, par value $0.01 per
    share (Class B Shares), of Starwood Hotels
    & Resorts (the Trust), and Preferred Stock
    Purchase Rights of the Corporation, all of which are attached
    and trade together as a Share |  | New York Stock Exchange                  

Securities Registered Pursuant to
Section 12(g) of the Act:

None


Indicate by check mark whether the Registrants
(1) have filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrants were required to file such reports), and
(2) have been subject to such filing requirements for the
past 90 days.
Yes x      No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
each Registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this
Form 10-K. x

Indicate by check mark whether the Registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).
Yes x      No o

As of June 30, 2002, the aggregate market
value of the Registrants voting and non-voting common
equity (for purposes of this Joint Annual Report only, includes
all shares other than those held by the Registrants
Directors, Trustees and executive officers) was $6,539,800,304.

As of February 26, 2003, the Corporation had
outstanding 199,744,218 Corporation Shares and the Trust had
outstanding 199,744,218 Class B Shares and 100 Class A
shares of beneficial interest, par value $0.01 per share
(Class A Shares).

For information concerning ownership of shares,
see the Proxy Statement for the Corporations Annual
Meeting of Stockholders that is currently expected to be held on
May 9, 2003 (the Proxy Statement), which is
incorporated by reference under various Items of this Joint
Annual Report.

Document Incorporated by Reference:

|                |  |                           
|--------------- |  | --------------------------
|Document        |  | Where Incorporated        
|                |  |                           
|Proxy Statement |  | Part III (Items 11 and 12)



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|                                            |                                                                                                          |  |  |  |  |  |  | 
|------------------------------------------- | -------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                     
|                                            | Forward-Looking Statements                                                                              
|                                            | Item 1. Business.                                                                                       
|                                            | Item 2. Properties.                                                                                     
|                                            | Item 3. Legal Proceedings.                                                                              
|                                            | Item 4. Submission of Matters to a Vote of Security Holders.                                            
|                                            | Executive Officers of the Registrants                                                                   
|PART II                                    
|                                            | Item 5. Market for Registrants Common Equity and Related Stockholder Matters.                          
|                                            | Item 6. Selected Financial Data.                                                                        
|                                            | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.          
|                                            | Item 7A. Quantitative and Qualitative Disclosures about Market Risk.                                    
|                                            | Item 8. Financial Statements and Supplementary Data.                                                    
|                                            | Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.           
|PART III                                   
|                                            | Item 10. Directors, Trustees and Executive Officers of the Registrants.                                 
|                                            | Item 11. Executive Compensation.                                                                        
|                                            | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|                                            | Item 13. Certain Relationships and Related Transactions.                                                
|                                            | Item 14. Controls and Procedures.                                                                       
|PART IV                                    
|                                            | Item 15. Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K.         
|SIGNATURES                                 
|INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
|                                            | REPORT OF INDEPENDENT AUDITORS                                                                          
|STARWOOD HOTELS & RESORTS WORLDWIDE, INC.  
|CONSOLIDATED BALANCE SHEETS                
|CONSOLIDATED STATEMENTS OF INCOME          
|CONSOLIDATED STATEMENTS OF CASH FLOWS      
|STARWOOD HOTELS & RESORTS                  
|CONSOLIDATED BALANCE SHEETS                
|CONSOLIDATED STATEMENTS OF INCOME          
|CONSOLIDATED STATEMENTS OF CASH FLOWS      
|NOTES TO FINANCIAL STATEMENTS              
|SCHEDULE II                                
|SCHEDULE III                               
|SCHEDULE IV                                
|EX-10.49                                   
|EX-10.53                                   
|EX-10.54                                   
|EX-10.55                                   
|EX-10.56                                   
|EX-10.57                                   
|EX-10.61                                   
|EX-12.1                                    
|EX-21.1                                    
|EX-23.1                                    
|EX-99.1                                    
|EX-99.2                                    
|EX-99.3                                    
|EX-99.4                                    



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TABLE OF CONTENTS

|         |  |                                                                                                    |  |      |    | 
|-------- |  | -------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                                    |  | Page
|         |  |                                                                                                    |  |     
|PART I  
|         |  | Forward-Looking Statements                                                                         |  |      | 1  | 
|Item 1.  |  | Business                                                                                           |  |      | 8  | 
|Item 2.  |  | Properties                                                                                         |  |      | 13 | 
|Item 3.  |  | Legal Proceedings                                                                                  |  |      | 16 | 
|Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                            |  |      | 17 | 
|         |  | Executive Officers of the Registrants                                                              |  |      | 17 | 
|PART II 
|Item 5.  |  | Market for Registrants Common Equity and
    Related Stockholder Matters                          |  |      | 17 | 
|Item 6.  |  | Selected Financial Data                                                                            |  |      | 18 | 
|Item 7.  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |  |      | 20 | 
|Item 7A. |  | Quantitative and Qualitative Disclosures about
    Market Risk                                     |  |      | 32 | 
|Item 8.  |  | Financial Statements and Supplementary Data                                                        |  |      | 33 | 
|Item 9.  |  | Changes In and Disagreements with Accountants on
    Accounting and Financial Disclosure           |  |      | 34 | 
|PART III
|Item 10. |  | Directors, Trustees and Executive Officers of the
    Registrants                                  |  |      | 34 | 
|Item 11. |  | Executive Compensation                                                                             |  |      | 38 | 
|Item 12. |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |  |      | 38 | 
|Item 13. |  | Certain Relationships and Related Transactions                                                     |  |      | 39 | 
|Item 14. |  | Controls and Procedures                                                                            |  |      | 42 | 
|PART IV 
|Item 15. |  | Exhibits, Financial Statements, Financial
    Statement Schedules and Reports on Form 8-K          |  |      | 43 | 



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This Joint Annual Report is filed by Starwood
Hotels & Resorts Worldwide, Inc., a Maryland corporation
(the Corporation), and its subsidiary, Starwood
Hotels & Resorts, a Maryland real estate investment trust
(the Trust). Unless the context otherwise requires,
all references to the Corporation include those entities owned
or controlled by the Corporation, including SLC Operating
Limited Partnership, a Delaware limited partnership (the
Operating Partnership), but excluding the Trust; all
references herein to the Trust include the Trust and those
entities owned or controlled by the Trust, including SLT Realty
Limited Partnership, a Delaware limited partnership (the
Realty Partnership); and all references to
Starwood or the Company refer to the
Corporation, the Trust and their respective subsidiaries,
collectively. The shares of common stock, par value $0.01 per
share, of the Corporation (Corporation Shares) and
the Class B shares of beneficial interest, par value
$0.01 per share, of the Trust (Class B
Shares) are attached and trade together and may be held or
transferred only in units consisting of one Corporation Share
and one Class B Share (a Share). Prior to the
reorganization of Starwood (the Reorganization) on
January 6, 1999, the common shares of beneficial interest,
par value $0.01 per share, of the Trust were traded together
with the Corporation Shares as Paired Shares, just
as the Class B Shares and the Corporation Shares are
currently traded as Shares. Unless otherwise stated herein, all
information with respect to Shares refers to Shares on and since
January 6, 1999 and to Paired Shares for periods before
January 6, 1999.




PART I




Forward-Looking Statements

This Joint Annual Report contains statements that
constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such
statements appear in a number of places in this Joint Annual
Report, including, without limitation, the section of
Item 1, Business, captioned Business
Strategy and Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations. Such forward-looking statements may include
statements regarding the intent, belief or current expectations
of Starwood, its Directors or Trustees or its officers with
respect to the matters discussed in this Joint Annual Report.
All such forward-looking statements involve risks and
uncertainties that could cause actual results to differ
materially from those projected in the forward-looking
statements including, without limitation, the risks and
uncertainties set forth below. The Company undertakes no
obligation to publicly update or revise any forward-looking
statements to reflect current or future events or circumstances.

Where you can find more
information

We file annual, quarterly and special reports,
proxy statements and other information with the SEC. Our SEC
filings are available to the public over the Internet at the
SECs web site at http://www.sec.gov. Our SEC
filings are also available on our website at
http://www.starwood.com as soon as reasonably practicable
following the time that they are filed with or furnished to the
SEC. You may also read and copy any document we file with the
SEC at its public reference rooms in Washington, D.C., New
York, NY and Chicago, IL. Please call the SEC at
(800) SEC-0330 for further information on the public
reference rooms. Our filings with the SEC are also available at
the New York Stock Exchange. For more information on obtaining
copies of our public filings at the New York Stock Exchange, you
should call (212) 656-5060. You may also obtain a copy of
our filings free of charge by calling David Matheson, Vice
President, Investor Relations at (914) 640-5204.

Risks Relating to Hotel, Resort and Vacation
Ownership Operations

We Are Subject to All the Operating Risks
Common to the Hotel and Vacation Ownership Industries.Operating risks common to the
hotel and vacation ownership industries include:



| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in general economic conditions, including
    the severity and duration of the current economic downturn;                                                                           
|
| |  | decreases in the level of demand for transient
    rooms and related lodging services, including the recent
    reduction in business travel as a result of general economic
    conditions;

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| |   |                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the impact of internet intermediaries on pricing;                                                                                                                  
|
| |  | cyclical over-building in the hotel and vacation
    ownership industries;                                                                                         
|
| |  | restrictive changes in zoning and similar land
    use laws and regulations or in health, safety and environmental
    laws, rules and regulations;                
|
| |  | changes in travel patterns;                                                                                                                                        
|
| |  | changes in operating costs including, but not
    limited to, energy, labor costs, insurance and unanticipated
    costs such as water damage and its consequences;
|
| |  | disputes with owners of properties, franchisees
    and homeowner associations which may at times result in
    litigation;                                        
|
| |  | the availability of capital to allow us and
    potential hotel owners and franchisees to fund construction and
    investments;                                   
|
| |  | the financial condition of third-party property
    owners and franchisees; and                                                                                    
|
| |  | the financial condition of the airline industry
    and the impact on air travel.                                                                                  

We are also impacted by our relationships with
owners and franchisees. Our hotel management contracts are
typically long-term arrangements, but most allow the hotel owner
to replace us if certain financial or performance criteria are
not met. Our ability to meet these financial and performance
criteria is subject to, among other things, the risks described
in this section. Additionally, our operating results would be
adversely affected if we could not maintain existing management,
franchise or representation agreements or obtain new agreements
on as favorable terms as the existing agreements.

General Economic Conditions May Negatively
Impact Our Results.Moderate or
severe economic downturns or adverse conditions may negatively
affect our operations. These conditions may be widespread or
isolated to one or more geographic regions. Our worldwide
results, primarily in North America, were negatively impacted by
the significant drop in industry-wide lodging demand as a result
of the current economic downturn. In addition, a tightening of
the labor markets in one or more geographic regions may result
in fewer and/or less qualified applicants for job openings in
our facilities and higher wages, and the increasing cost trends
in the insurance markets may negatively impact our results as
the costs of premiums increase.

We Must Compete for Customers.The hotel and vacation ownership
industries are highly competitive. Our properties compete for
customers with other hotel and resort properties, and, with
respect to our vacation ownership resorts, with owners reselling
their vacation ownership interests (VOIs), in their
geographic markets. Some of our competitors may have
substantially greater marketing and financial resources than we
do, and they may improve their facilities, reduce their prices
or expand or improve their marketing programs in ways that
adversely affect our operating results.

We Must Compete for Management and
Franchise Agreements.We compete
with other hotel companies for management and franchise
agreements. As a result, the terms of such agreements may not be
as favorable as our current agreements. In connection with
entering into management or franchise agreements, we may be
required to make investments in or guarantee the obligations of
third parties.

The Hotel Industry Is Seasonal in Nature.The hotel industry is seasonal in
nature; however, the periods during which we experience higher
revenue vary from property to property and depend principally
upon location. Our revenue historically has been lower in the
first quarter than in the second, third or fourth quarters.

Internet Reservation
Channels.Some of our hotel rooms
are booked through internet travel intermediaries such as
Travelocity.com, Inc., Expedia, Inc. and Priceline.com, Inc. As
the percentage of internet bookings increases, these
intermediaries may be able to obtain higher commissions, reduced
room rates or other significant contract concessions from us.
Moreover, some of these internet travel intermediaries are
attempting to commoditize hotel rooms, by increasing the
importance of price and general indicators of quality

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(such as three-star downtown hotel)
at the expense of brand identification. These agencies hope that
consumers will eventually develop brand loyalties to their
reservations system rather than to our lodging brands. Although
most of our business is expected to be derived from traditional
channels, if the amount of sales made through internet
intermediaries increases significantly, our business and
profitability may be significantly harmed.


Reliance on
Technology.The hospitality
industry continues to demand the use of sophisticated technology
and systems including technology utilized for property
management, procurement, reservation systems, operation of our
customer loyalty program, distribution and guest amenities.
These technologies can be expected to require refinements and
there is the risk that advanced new technologies will be
introduced. There can be no assurance that as various systems
and technologies become outdated or new technology is required
we will be able to replace or introduce them as quickly as our
competition or within budgeted costs for such technology.
Further, there can be no assurance that we will achieve the
benefits that may have been anticipated from any new technology
or system.

The Hotel and Vacation Ownership Businesses
Are Capital Intensive.In order
for our owned, managed and franchised properties to remain
attractive and competitive, we and the property owners have to
spend money periodically to keep them well maintained,
modernized and refurbished. This creates an ongoing need for
cash and, to the extent we and the property owners cannot fund
expenditures from cash generated by operations, funds must be
borrowed or otherwise obtained. In addition, in order to
continue growing our vacation ownership business, we need to
spend money developing new units. Accordingly, our financial
results may be sensitive to the cost and availability of funds.

Real Estate Investments Are Subject to
Numerous Risks.Because we own and
lease hotels and resorts, we are subject to the risks that
generally relate to investments in real property. The investment
returns available from equity investments in real estate depend
in large part on the amount of income earned and capital
appreciation generated by the related properties, as well as the
expenses incurred. In addition, a variety of other factors
affect income from properties and real estate values, including
governmental regulations, real estate, insurance, zoning, tax
and eminent domain laws, interest rate levels and the
availability of financing. For example, new or existing real
estate zoning or tax laws can make it more expensive and/or
time-consuming to develop real property or expand, modify or
renovate hotels. When interest rates increase, the cost of
acquiring, developing, expanding or renovating real property
increases and real property values may decrease as the number of
potential buyers decreases. Similarly, as financing becomes less
available, it becomes more difficult both to acquire and to sell
real property. Finally, governments can, under eminent domain
laws, take real property. Sometimes this taking is for less
compensation than the owner believes the property is worth. Any
of these factors could have a material adverse impact on our
results of operations or financial condition, as well as on our
ability to make distributions to our shareholders. In addition,
equity real estate investments, such as the investments we hold
and any additional properties that we may acquire, are
relatively difficult to sell quickly. If our properties do not
generate revenue sufficient to meet operating expenses,
including debt service and capital expenditures, our income will
be adversely affected.

Hotel and Resort Development Is Subject to
Timing, Budgeting and Other Risks.We intend to develop hotel and
resort properties, including VOIs and residential components, as
suitable opportunities arise, taking into consideration the
general economic climate. New project development has a number
of risks, including risks associated with:



| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | construction delays or cost overruns that may
    increase project costs;                                            
|
| |  | receipt of zoning, occupancy and other required
    governmental permits and authorizations;                         
|
| |  | development costs incurred for projects that are
    not pursued to completion;                                      
|
| |  | so-called acts of God such as earthquakes,
    hurricanes, floods or fires that could adversely impact a
    project;

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| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | ability to raise capital; and                                                            
|
| |  | governmental restrictions on the nature or size
    of a project or timing of completion.

We cannot assure you that any development project
will be completed on time or within budget.

Environmental Regulations.Environmental laws, ordinances and
regulations of various federal, state, local and foreign
governments regulate certain of our properties and could make us
liable for the costs of removing or cleaning up hazardous or
toxic substances on, under or in property we currently own or
operate or that we previously owned or operated. Those laws
could impose liability without regard to whether we knew of, or
were responsible for, the presence of hazardous or toxic
substances. The presence of hazardous or toxic substances, or
the failure to properly clean up such substances when present,
could jeopardize our ability to develop, use, sell or rent the
real property or to borrow using the real property as
collateral. If we arrange for the disposal or treatment of
hazardous or toxic wastes, we could be liable for the costs of
removing or cleaning up wastes at the disposal or treatment
facility, even if we never owned or operated that facility.
Other laws, ordinances and regulations could require us to
manage, abate or remove lead- or asbestos-containing materials.
Similarly, the operation and closure of storage tanks are often
regulated by federal, state, local and foreign laws. Finally,
certain laws, ordinances and regulations, particularly those
governing the management or preservation of wetlands, coastal
zones and threatened or endangered species, could limit our
ability to develop, use, sell or rent our real property.

International Operations Are Subject to
Special Political and Monetary Risks.We have significant international
operations which as of December 31, 2002 included 170
owned, managed or franchised properties in Europe, Africa and
the Middle East (including 34 properties with majority
ownership); 40 owned, managed or franchised properties in Latin
America (including 13 properties with majority ownership); and
88 owned, managed or franchised properties in the Asia Pacific
region (including 4 properties with majority ownership).
International operations generally are subject to various
political, geopolitical, and other risks that are not present in
U.S. operations. These risks include the risk of war, terrorism
or civil unrest, expropriation and nationalization. In addition,
some international jurisdictions restrict the repatriation of
non-U.S. earnings. Various international jurisdictions also have
laws limiting the right and ability of non-U.S. entities to pay
dividends and remit earnings to affiliated companies unless
specified conditions have been met. In addition, sales in
international jurisdictions typically are made in local
currencies, which subject us to risks associated with currency
fluctuations. Currency devaluations and unfavorable changes in
international monetary and tax policies could have a material
adverse effect on our profitability and financing plans, as
could other changes in the international regulatory climate and
international economic conditions. Other than Italy, where our
risks are heightened due to the 18 properties we own, our
international properties are geographically diversified and are
not concentrated in any particular region.

Debt Financing

As a result of our debt obligations, we are
subject to the following risks: (i) the risk that cash flow
from operations will be insufficient to meet required payments
of principal and interest; and (ii) the risk that (to the
extent that we maintain floating rate indebtedness) interest
rates will increase. In addition, we have significant
indebtedness maturing in 2003, and although we anticipate that
we will be able to repay or refinance our existing indebtedness
and any other indebtedness when it matures, there can be no
assurance that we will be able to do so or that the terms of
such refinancings will be favorable. Our leverage may have
important consequences including the following: (i) our
ability to obtain additional financing for acquisitions, working
capital, capital expenditures or other purposes, if necessary,
may be impaired or such financing may not be available on terms
favorable to us; (ii) a substantial decrease in operating
cash flow or an increase in our expenses could make it difficult
for us to meet our debt service requirements and force us to
sell assets and/or modify our operations; and (iii) our
higher level of debt and resulting interest expense may place us
at a competitive disadvantage with respect to certain
competitors with lower amounts of indebtedness and/ or higher
credit ratings. While our senior debt is currently rated
investment grade by one of the two major rating agencies, there
can be no assurance we will be able to maintain this rating. On
December 20, 2002, that rating agency placed the
Companys investment grade rating on CreditWatch with
negative implications. In the

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event our senior debt is not investment grade, we
would likely incur higher borrowing costs on future financings.


Risks Relating to Acts of God, Terrorist
Activity and War

Our financial and operating performance may be
adversely affected by acts of God, such as natural disasters, in
locations where we own and/or operate significant properties and
areas of the world from which we draw a large number of
customers. Some types of losses, such as from earthquake,
hurricane, terrorism and environmental hazards may be either
uninsurable or too expensive to justify insuring against. Should
an uninsured loss or a loss in excess of insured limits occur,
we could lose all or a portion of the capital we have invested
in a hotel or resort, as well as the anticipated future revenue
from the hotel or resort. In that event, we might nevertheless
remain obligated for any mortgage debt or other financial
obligations related to the property. Similarly, wars (including
the potential for war), terrorist activity (including threats of
terrorist activity), political unrest and other forms of civil
strife as well as geopolitical uncertainty have caused in the
past, and may cause in the future, our results to differ
materially from anticipated results.

Acquisitions

We intend to make acquisitions that complement
our business. There can be no assurance, however, that we will
be able to identify acquisition candidates or complete
acquisitions on commercially reasonable terms or at all. If
additional acquisitions are made, there can be no assurance that
any anticipated benefits will actually be realized. Similarly,
there can be no assurance that we will be able to obtain
additional financing for acquisitions, or that the ability to
obtain such financing will not be restricted by the terms of our
debt agreements.

Investing Through Partnerships or Joint
Ventures Decreases Our Ability to Manage Risk

In addition to acquiring or developing hotels and
resorts directly, we have from time to time invested, and expect
to continue to invest, as a co-venturer. Joint venturers often
have shared control over the operation of the joint venture
assets. Therefore, joint venture investments may involve risks
such as the possibility that the co-venturer in an investment
might become bankrupt, or have economic or business interests or
goals that are inconsistent with our business interests or
goals, or be in a position to take action contrary to our
instructions or requests or contrary to our policies or
objectives. Consequently, actions by a co-venturer might subject
hotels and resorts owned by the joint venture to additional
risk. Although we generally seek to maintain sufficient control
of any joint venture, we may be unable to take action without
the approval of our joint venture partners. Alternatively, our
joint venture partners could take actions binding on the joint
venture without our consent. Additionally, should a joint
venture partner become bankrupt, we could become liable for our
partners share of joint venture liabilities.

Dispositions

We periodically review our business with a view
to identifying properties or other assets that we believe either
are non-core, no longer complement our business, are in markets
which may not benefit us as much as other markets during an
economic recovery or could be sold at significant premiums. We
are focused on restructuring and enhancing real estate returns
and monetizing investments. In the fourth quarter of 2002, we
completed the sale of the Doubletree Minneapolis hotel for
$47 million. Including this sale, we are targeting net
proceeds of at least $500 million from domestic and/or
international asset sales by the end of 2003. There can be no
assurance, however, that we will be able to complete
dispositions on commercially reasonable terms or at all.

Our Vacation Ownership Business Is Subject to
Extensive Regulation and Risk of Default

We market and sell VOIs, which typically entitle
the buyer to ownership of a fully-furnished resort unit for a
one-week period on either an annual or an alternate-year basis.
We also acquire, develop and operate vacation ownership resorts,
and provide financing to purchasers of VOIs. These activities
are all subject to

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extensive regulation by the federal government
and the states in which vacation ownership resorts are located
and in which VOIs are marketed and sold including regulation of
our telemarketing activities under state and federal Do
Not Call laws. In addition, the laws of most states in
which we sell VOIs grant the purchaser of this type of interest
the right to rescind the purchase contract at any time within a
statutory rescission period. Although we believe that we are in
material compliance with all applicable federal, state, local
and foreign laws and regulations to which vacation ownership
marketing, sales and operations are currently subject, changes
in these requirements or a determination by a regulatory
authority that we were not in compliance could adversely affect
us. In particular, increased regulations of telemarketing
activities, could adversely impact the marketing of our VOIs.


We bear the risk of defaults under our customer
mortgages on VOIs. If a purchaser of a VOI defaults on the
mortgage during the early part of the loan amortization period,
we will not have recovered its marketing, selling (other than
commissions in certain events), and general and administrative
costs associated with such VOI, and such costs will again be
incurred in connection with the subsequent resale of the
repossessed VOI. Accordingly, there is no assurance that the
sales price will be fully or partially recovered from a
defaulting customer or, in the event of such defaults, that our
allowance for losses will be adequate.

Certain Interests

Barry S. Sternlicht is the Chairman and Chief
Executive Officer the Corporation and the Trust.
Mr. Sternlicht also serves as the President and Chief
Executive Officer of, and may be deemed to control, Starwood
Capital Group, L.L.C. (Starwood Capital), a real
estate investment firm. Starwood Capital and the Company have
entered into a non-compete agreement whereby Starwood Capital
may not purchase a hotel property in the United States until
such opportunity is first presented to the Company. See
Item 13, Certain Relationships and Related
Transactions. Although Starwood Capital is not subject to
a non-compete agreement with the Company for hotel properties
outside of the United States, as a matter of practice, all
opportunities to purchase such properties are also first
presented to the Company. In each case, the Governance Committee
of the Board of Directors (or other committee of independent
directors) will make a decision as to whether or not the Company
will pursue the opportunity. In addition, certain officers and
directors of the Company have interests in businesses that may,
from time to time, do business with the Company. To the extent
such individuals have a material interest in such businesses,
any agreements relating thereto are subject to Governance
Committee (or other committee of independent directors) approval.

Ability to Manage Growth

Our future success and our ability to manage
future growth depend in large part upon the efforts of our
senior management and our ability to attract and retain key
officers and other highly qualified personnel. Competition for
such personnel is intense. There can be no assurance that we
will continue to be successful in attracting and retaining
qualified personnel. Accordingly, there can be no assurance that
our senior management will be able to successfully execute and
implement our growth and operating strategies.

Tax Risks

Failure of the Trust to Qualify as a REIT
Would Increase Our Tax Liability.Qualifying as a real estate investment trust (a
REIT) requires compliance with highly technical and
complex tax provisions that courts and administrative agencies
have interpreted only to a limited degree. Due to the
complexities of our ownership, structure and operations, the
Trust is more likely than are other REITs to face interpretative
issues for which there are no clear answers. Also, facts and
circumstances that we do not control may affect the Trusts
ability to qualify as a REIT. The Trust believes that since the
taxable year ended December 31, 1995, it has qualified as a
REIT under the Internal Revenue Code of 1986, as amended. The
Trust intends to continue to operate so as to qualify as a REIT.
However, the Trust cannot assure you that it will continue to
qualify as a REIT. If the Trust failed to qualify as a REIT for
any prior tax year, the Trust would be liable to pay a
significant amount of taxes for those years. Similarly, if the
Trust fails to qualify as a REIT in the future, our liability
for taxes would increase.

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Additional Legislation Could Eliminate or
Reduce Certain Benefits of Our
Structure.On January 6,
1999, we consummated the Reorganization pursuant to an Agreement
and Plan of Restructuring dated as of September 16, 1998,
as amended, among the Corporation, ST Acquisition Trust, a
wholly owned subsidiary of the Corporation, and the Trust.
Pursuant to the Reorganization, the Trust became a subsidiary of
the Corporation, which, through a wholly-owned subsidiary, holds
all the outstanding Class A shares of beneficial interest,
par value $0.01 per share, of the Trust. The Reorganization was
proposed in response to the Internal Revenue Service
Restructuring and Reform Act of 1998
(H.R. 2676), which made it difficult for us to
acquire and operate additional hotels while still maintaining
our former status as a grandfathered paired share real
estate investment trust. While we believe that the
Reorganization was the best alternative in light of
H.R. 2676 and that our new structure does not raise the
same concerns that led Congress to enact such legislation, no
assurance can be given that additional legislation, regulations
or administrative interpretations will not be adopted that could
eliminate or reduce certain benefits of the Reorganization and
have a material adverse effect on our results of operations,
financial condition and prospects.

President Bush has proposed that dividends paid
by corporations not be taxed at the shareholder level. The
consequences, if any, of such a change in the tax law on our
structure and the benefits derived from it cannot currently be
determined. We will continue to monitor this potential
legislation and its impact on us.

We undertake global tax planning in the normal
course of business. These activities may be subject to review by
tax authorities. As a result of the review process,
uncertainties exist and it is possible that some matters could
be resolved adversely to us.

Risks Relating to Ownership of Our
Shares

No Person or Group May Own More Than 8% of
Our Shares.Our governing
documents provide (subject to certain exceptions) that no one
person or group may own or be deemed to own more than 8% of our
outstanding stock or Shares of beneficial interest, whether
measured by vote, value or number of Shares. There is an
exception for shareholders who owned more than 8% as of
February 1, 1995, who may not own or be deemed to own more
than the lesser of 9.9% or the percentage of Shares they held on
that date, provided, that if the percentage of Shares
beneficially owned by such a holder decreases after
February 1, 1995, such a holder may not own or be deemed to
own more than the greater of 8% or the percentage owned after
giving effect to the decrease. We may waive this limitation if
we are satisfied that such ownership will not jeopardize the
Trusts status as a REIT. In addition, if Shares which
would cause the Trust to be beneficially owned by fewer than
100 persons are issued or transferred to any person, such
issuance or transfer shall be null and void. This ownership
limit may have the effect of precluding a change in control of
us by a third party without the consent of our Board of
Directors, even if such change in control would otherwise give
the holders of Shares or other of our equity securities the
opportunity to realize a premium over then-prevailing market
prices, and even if such change in control would not reasonably
jeopardize the status of the Trust as a REIT.

At Least Two Annual Meetings Must Be Held
Before a Majority of Our Board of Directors Can Be
Changed.Our Board of Directors is
divided into three classes. Each class is elected for a
three-year term. At each annual meeting of shareholders,
approximately one-third of the members of the Board of Directors
are elected for a three-year term and the other directors remain
in office until their three-year terms expire. Furthermore, our
governing documents provide that no director may be removed
without cause. Any removal for cause requires the affirmative
vote of the holders of at least two-thirds of all the votes
entitled to be cast for the election of directors.

Thus, control of the Board of Directors cannot be
changed in one year without removing the directors for cause as
described above. Consequently, at least two annual meetings must
be held before a majority of the members of the Board of
Directors can be changed. Our charter provides that the charter
cannot be amended without the approval of the holders of at
least a majority of the outstanding Shares entitled to vote
thereon.

Our Board of Directors May Issue Preferred
Stock and Establish the Preferences and Rights of Any Such
Preferred Stock.Our charter
provides that the total number of Shares of stock of all classes
which the Corporation has authority to issue is 1,350,000,000,
initially consisting of one billion Shares of common stock,
50 million Shares of excess common stock, 200 million
Shares of preferred stock and 100 million Shares of

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excess preferred stock. Our Board of Directors
has the authority, without a vote of shareholders, to establish
the preferences and rights of any preferred or other class or
series of Shares to be issued and to issue such Shares. The
issuance of preferred shares or other shares having special
preferences or rights could delay or prevent a change in control
even if a change in control would be in the interests of our
shareholders. Because our Board of Directors has the power to
establish the preferences and rights of additional classes or
series of shares without a shareholder vote, our Board of
Directors may give the holders of any class or series
preferences, powers and rights, including voting rights, senior
to the rights of holders of our Shares.


Certain Provisions of Our Charter May
Require the Approval of Two-Thirds of Our Shares and Only Our
Directors May Amend Our Bylaws.Our charter contains provisions relating to restrictions on
transferability of the Corporation Shares, which may be amended
only by the affirmative vote of our shareholders holding
two-thirds of the votes entitled to be cast on the matter. As
permitted under the Maryland General Corporation Law, our Bylaws
provide that directors have the exclusive right to amend our
Bylaws.

Our Shareholder Rights Plan Would Cause
Substantial Dilution to Any Shareholder That Attempts to Acquire
Us on Terms Not Approved by Our Board of
Directors.We adopted a
shareholder rights plan which provides, among other things, that
when specified events occur, our shareholders will be entitled
to purchase from us a newly created series of junior preferred
stock, subject to the ownership limit described above. The
preferred stock purchase rights are triggered by the earlier to
occur of (i) ten days after the date of a public
announcement that a person or group acting in concert has
acquired, or obtained the right to acquire, beneficial ownership
of 15% or more of our outstanding Corporation Shares or
(ii) ten business days after the commencement of or
announcement of an intention to make a tender offer or exchange
offer, the consummation of which would result in the acquiring
person becoming the beneficial owner of 15% or more of our
outstanding Corporation Shares. The preferred stock purchase
rights would cause substantial dilution to a person or group
that attempts to acquire us on terms not approved by our Board
of Directors.




Item 1.     Business.

General

Starwood is one of the worlds largest hotel
and leisure companies. Starwoods status as one of the
leading hotel and leisure companies resulted from the 1998
acquisition of Westin Hotels & Resorts Worldwide, Inc.
and certain of its affiliates (Westin) (the
Westin Merger) and the acquisition of
ITT Corporation (the ITT Merger), renamed
Sheraton Holding Corporation (Sheraton Holding) and
the acquisition of Vistana Inc. (renamed Starwood Vacation
Ownership, Inc. or SVO) in October 1999. The Company
conducts its hotel and leisure business both directly and
through its subsidiaries. The Companys brand names include
St. Regis®, The Luxury Collection®,
Sheraton®, Westin®, W® and Four Points® by
Sheraton. Through these brands, Starwood is well represented in
most major markets around the world. The Companys
operations are grouped into two business segments, hotels and
vacation ownership operations.

The Companys revenue and earnings are
derived primarily from hotel operations, which include the
operation of the Companys owned hotels; management and
other fees earned from hotels the Company manages pursuant to
management contracts; and the receipt of franchise and other
fees.

The Companys hotel business emphasizes the
global operation of hotels and resorts primarily in the luxury
and upscale segment of the lodging industry. Starwood seeks to
acquire interests in, or management or franchise rights with
respect to properties in this segment. At December 31,
2002, the Companys hotel portfolio included owned, leased,
managed and franchised hotels totaling 748 hotels with
approximately 227,000 rooms in 79 countries, and is
comprised of 163 hotels that Starwood owns or leases or in
which Starwood has a majority equity interest (substantially all
of which hotels Starwood also manages), 277 hotels managed
by Starwood on behalf of third-party owners (including entities
in which Starwood has a minority equity interest) and
308 hotels for which Starwood receives franchise fees.

The Companys revenues and earnings are also
derived from the development, ownership and operation of
vacation ownership resorts, marketing and selling VOIs in the
resorts and providing financing to customers

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who purchase such interests. At December 31,
2002, the Company had 18 vacation ownership resorts in the
United States and the Bahamas.


The Trust was organized in 1969, and the
Corporation was incorporated in 1980, both under the laws of
Maryland. Sheraton Hotels & Resorts and Westin
Hotels & Resorts, Starwoods largest brands, have
been serving guests for more than 60 years. Starwood
Vacation Ownership (and its predecessor, Vistana, Inc.) has been
selling VOIs for more than 20 years.

The Companys principal executive offices
are located at 1111 Westchester Avenue, White Plains, New
York 10604, and its telephone number is (914) 640-8100.

For a discussion of the Companys revenues,
profits, assets and geographical segments, see the notes to
financial statements of this Joint Annual Report. For additional
information concerning the Companys business, see
Item 2, Properties, of this Joint Annual Report.

Competitive Strengths

Management believes that the following factors
contribute to the Companys position as a leader in the
lodging and vacation ownership industry and provide a foundation
for the Companys business strategy:

Brand Strength.Starwood believes that it has
strong brand leadership in major markets worldwide based on the
global recognition of the Companys lodging brands. With
the Companys well-known lodging brands, Starwood benefits
from a luxury and upscale branding strategy that provides strong
operating performance from new customer penetration and customer
loyalty. The strength of the Companys brands is evidenced,
in part, by the superior ratings received from the
Companys hotel guests and from industry publications.
Starwood was again designated as the Worlds Best
Global Hotel Company by Global Finance magazine in their
November 2002 issue. Also, for the third time in four years,
Starwood brands took top honors in Business Travel News
2003 Annual Top U.S. Hotel Chain Survey, with Westin Hotels
& Resorts and W Hotels earning first and second place,
respectively, in the upper-upscale category. Additionally, Four
Points by Sheraton was voted number one in the mid-price
category by this same publication.

Frequent Guest Program.The Companys loyalty
program, Starwood Preferred Guest® (SPG) has
over 15 million members and in 2002 was awarded the Hotel
Program of the Year for the third year in a row by consumers via
the prestigious Freddie Awards. SPG also received awards for
Best Customer Service, Best Web Site, Best Elite-Level Program,
Best Award Redemption and Best Newsletter. SPG, which was the
first loyalty program in the hotel industry with a policy of no
blackout dates and no capacity controls, enables members to
redeem stays when they want and where they want. SPG yields
repeat guest business due to rewarding frequent stays and
purchasers of VOIs with points towards free hotel stays and
other rewards, or airline miles with any of the participating
30 airline programs.

Significant Presence in Top Markets.The Companys luxury and
upscale hotel and resort assets are well positioned throughout
the world. These assets are primarily located in major cities
and resort areas that management believes have historically
demonstrated a strong breadth, depth and growing demand for
luxury and upscale hotels and resorts, in which the supply of
sites suitable for hotel development has been limited and in
which development of such sites is relatively expensive.

Premier and Distinctive Properties.Starwood controls a distinguished
and diversified group of hotel properties throughout the world,
including the St. Regis in New York, New York; The Phoenician in
Scottsdale, Arizona; the Hotel Gritti Palace in Venice, Italy;
the St. Regis in Beijing, China; and the Westin Palace in
Madrid, Spain. These are among the leading hotels in the
industry and are at the forefront of providing the highest
quality and service. Starwoods properties are consistently
recognized as the best of the best by readers of Condé Nast
Traveler, who are among the worlds most sophisticated and
discerning group of travelers. The Condé Nast Traveler
Magazine January 2003 issue included 55 Starwood properties
among its prestigious Gold List and Gold List Reserve, more than
any other hotel company.

Scale.As one
of the largest hotel and leisure companies focusing on the
luxury and upscale full-service lodging market, Starwood has the
scale to support its core marketing and reservation functions.
The Company

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also believes that its scale will contribute to
lowering its cost of operations through purchasing economies in
such areas as insurance, energy, telecommunications, technology,
employee benefits, food and beverage, furniture, fixtures and
equipment and operating supplies.


Diversification of Cash Flow and Assets.Management believes that the
diversity of the Companys brands, market segments served,
revenue sources and geographic locations provides a broad base
from which to enhance revenue and profits and to strengthen the
Companys global brands. This diversity limits the
Companys exposure to any particular lodging or vacation
ownership asset, brand or geographic region.

While Starwood focuses on the luxury and upscale
portion of the full-service lodging and vacation ownership
market, the Companys brands cater to a diverse group of
sub-markets within this market. For example, the St. Regis
hotels cater to high-end hotel and resort clientele while Four
Points by Sheraton hotels deliver extensive amenities and
services at more affordable rates.

Starwood derives its cash flow from multiple
sources within its hotel and vacation ownership segments,
including owned hotels activity and management and franchise
fees, and is geographically diverse with operations around the
world. The following tables reflect the Companys hotel and
vacation ownership properties by type of revenue source and
geographical presence by major geographic area as of
December 31, 2002:

|                                                |  |            |     |       |  |  |         | 
|----------------------------------------------- |  | ---------- | --- | ----- |  |  | ------- | 
|                                                |  | Number of  |     |      
|                                                |  | Properties |     | Rooms
|                                                |  |            |     |      
|Owned hotels(a)                                 |  |            | 163 |       |  |  | 56,000  | 
|Managed and unconsolidated joint venture hotels |  |            | 277 |       |  |  | 94,000  | 
|Franchised hotels                               |  |            | 308 |       |  |  | 77,000  | 
|Vacation ownership resorts                      |  |            | 18  |       |  |  | 4,000   | 
|                                                |  |            |     |       |  |  |         | 
|Total properties                                |  |            | 766 |       |  |  | 231,000 | 
|                                                |  |            |     |       |  |  |         | 



---



|    |                                                             
|--- | ------------------------------------------------------------
|(a) | Includes wholly owned, majority owned and leased
    hotels.

|                                   |  |            |     |       |  |  |         | 
|---------------------------------- |  | ---------- | --- | ----- |  |  | ------- | 
|                                   |  | Number of  |     |      
|                                   |  | Properties |     | Rooms
|                                   |  |            |     |      
|North America                      |  |            | 468 |       |  |  | 152,000 | 
|Europe, Africa and the Middle East |  |            | 170 |       |  |  | 40,000  | 
|Latin America                      |  |            | 40  |       |  |  | 9,000   | 
|Asia Pacific                       |  |            | 88  |       |  |  | 30,000  | 
|                                   |  |            |     |       |  |  |         | 
|Total                              |  |            | 766 |       |  |  | 231,000 | 
|                                   |  |            |     |       |  |  |         | 

Business Segment and Geographical
Information

Incorporated by reference in Note 20,
Business Segment and Geographical Information, in
the notes to financial statements set forth in Part II,
Item 8, Financial Statements and Supplementary
Data.

Business Strategy

The Companys primary business objective is
to maximize earnings and cash flow by increasing the
profitability of the Companys existing portfolio;
selectively acquiring interests in additional assets; increasing
the number of the Companys hotel management contracts and
franchise agreements; acquiring, developing and selling VOIs;
and maximizing the value of its owned real estate properties,
including selectively disposing of non-core hotels and
trophy assets that may be sold at significant
premiums. The Company plans to meet these objectives by
leveraging its global assets, broad customer base and other
resources and by taking advantage of the Companys scale to
reduce costs. The weakness in the North American and European
economies, combined with current political and economic
environments in South America, the Middle East

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and other parts of the world and their consequent
impact on travel in their respective regions and the rest of the
world, make financial planning and implementation of our
strategy more challenging.


Growth Opportunities.Management has identified several
growth opportunities with a goal of enhancing the Companys
operating performance and profitability, including:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continuing to expand the Companys role as a
    third-party manager of hotels and resorts. This allows Starwood
    to expand the presence of its lodging brands and gain additional
    cash flow generally with modest capital commitment;                                                                                                                                                                                                                                                                                                     
|
| |  | Franchising the Sheraton, Westin, Four Points by
    Sheraton and Luxury Collection brands to selected third-party
    operators, thereby expanding the Companys market presence,
    enhancing the exposure of its hotel brands and providing
    additional income through franchise fees;                                                                                                                                                                                                                                                     
|
| |  | Expanding the Companys internet presence
    and sales capabilities to increase revenue and improve customer
    service;                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Continuing to grow the Companys frequent
    guest program, thereby increasing occupancy rates while
    providing the Companys customers with benefits based upon
    loyalty to the Companys hotels and vacation ownership
    resorts;                                                                                                                                                                                                                                                                                                      
|
| |  | Enhancing the Companys marketing efforts by
    integrating the Companys proprietary customer databases,
    so as to sell additional products and services to existing
    customers, improve occupancy rates and create additional
    marketing opportunities;                                                                                                                                                                                                                                                                               
|
| |  | Optimizing the Companys use of its real
    estate assets to improve ancillary revenue, such as condominium
    sales and restaurant, beverage and parking revenue from the
    Companys hotels and resorts;                                                                                                                                                                                                                                                                                                                                    
|
| |  | Continuing to build the W hotel brand
    to appeal to upscale business travelers and other customers
    seeking full-service hotels in major markets, and expanding the
    brand to resorts in non-urban areas;                                                                                                                                                                                                                                                                                                                              
|
| |  | Innovations such as the Heavenly® Bed and
    Bath, the Sheraton Sweet Sleeper® Bed and the Sheraton
    Service Promise®;                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Renovating, upgrading and expanding the
    Companys branded hotels to further its strategy of
    strengthening brand identity. By re-branding certain owned
    hotels to one of Starwoods proprietary brands, Starwood
    will seek to further solidify its brand reputation and market
    presence, leading to enhanced revenue per available room
    (REVPAR), which we consider to be a meaningful
    indicator of our performance, as it measures the
    period-over-period growth in rooms revenue for comparable
    properties;
|
| |  | Developing additional vacation ownership resorts
    and leveraging our hotel real estate assets where possible
    through VOI construction and residential or condominium sales;
    and                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Increasing operating efficiencies through
    increased use of technology.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

Starwood intends to explore opportunities to
expand and diversify the Companys hotel portfolio through
minority investments and selective acquisitions of properties
domestically and internationally that meet some or all of the
following criteria:



| |   |                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Luxury and upscale hotels and resorts in major
    metropolitan areas and business centers;                                                                                                                                                                                                                 
|
| |  | Major tourist hotels, destination resorts or
    conference centers that have favorable demographic trends and
    are located in markets with significant barriers to entry or
    with major room demand generators such as office or retail
    complexes, airports, tourist attractions or universities;
|
| |  | Undervalued hotels whose performance can be
    increased by re-branding to one of the Companys hotel
    brands, the introduction of better and more efficient management
    techniques and practices and/or the injection of capital for
    renovating, expanding or repositioning the property;       

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| |   |                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Hotels or brands which would enable the Company
    to provide a wider range of amenities and services to customers;
    and                                                                                                                                                          
|
| |  | Portfolios of hotels or hotel companies that
    exhibit some or all of the criteria listed above, where the
    purchase of several hotels in one transaction enables Starwood
    to obtain favorable pricing or obtain attractive assets that
    would otherwise not be available.

Starwood may also selectively choose to develop
and construct desirable hotels and resorts to help the Company
meet its strategic goals, such as the ongoing development of the
St. Regis Museum Tower Hotel in San Francisco, California which
is expected to have approximately 269 rooms and 102 condominiums.

Furthermore, the Company has developed plans for
flexible new-build Sheraton and Westin prototypes, with the
intent of expanding these brands into tertiary markets.

Competition

The hotel industry is highly competitive.
Competition is generally based on quality and consistency of
room, restaurant and meeting facilities and services,
attractiveness of locations, availability of a global
distribution system, price and other factors. Management
believes that Starwood competes favorably in these areas.
Starwoods properties compete with other hotels and
resorts, including facilities owned by local interests and
facilities owned by national and international chains, in their
geographic markets. The principal competitors of Starwood
include other hotel operating companies, ownership companies
(including hotel REITs) and national and international hotel
brands.

Starwood encounters strong competition as a
hotel, resort and vacation ownership operator and developer.
While some of the Companys competitors are private
management firms, several are large national and international
chains that own and operate their own hotels, as well as manage
hotels for third-party owners and develop and sell VOIs, under a
variety of brands that compete directly with the Companys
brands. In addition, hotel management contracts are typically
long-term arrangements, but most allow the hotel owner to
replace the management firm if certain financial or performance
criteria are not met.

Environmental Matters

Starwood is subject to certain requirements and
potential liabilities under various federal, state and local
environmental laws, ordinances and regulations
(Environmental Laws). For example, a current or
previous owner or operator of real property may become liable
for the costs of removal or remediation of hazardous or toxic
substances on, under or in such property. Such laws often impose
liability without regard to whether the owner or operator knew
of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of hazardous or toxic substances
may adversely affect the owners ability to sell or rent
such real property or to borrow using such real property as
collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic wastes may be liable for the costs of removal
or remediation of such wastes at the treatment, storage or
disposal facility, regardless of whether such facility is owned
or operated by such person. Starwood uses certain substances and
generates certain wastes that may be deemed hazardous or toxic
under applicable Environmental Laws, and Starwood from time to
time has incurred, and in the future may incur, costs related to
cleaning up contamination resulting from historic uses of
certain of the Companys current or former properties or
the Companys treatment, storage or disposal of wastes at
facilities owned by others. Other Environmental Laws require
abatement or removal of certain asbestos-containing materials
(ACMs) (limited quantities of which are present in
various building materials such as spray-on insulation, floor
coverings, ceiling coverings, tiles, decorative treatments and
piping located at certain of the Companys hotels) in the
event of damage or demolition, or certain renovations or
remodeling. These laws also govern emissions of and exposure to
asbestos fibers in the air. Environmental Laws also regulate
polychlorinated biphenyls (PCBs), which may be
present in electrical equipment. A number of the Companys
hotels have underground storage tanks (USTs) and
equipment containing chlorofluorocarbons (CFCs); the
operation and subsequent removal or upgrading of certain USTs
and the use of equipment containing CFCs also are regulated by
Environmental Laws. In connection with the Companys
ownership, operation and management

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of its properties, Starwood could be held liable
for costs of remedial or other action with respect to PCBs, USTs
or CFCs.


Environmental Laws are not the only source of
environmental liability. Under the common law, owners and
operators of real property may face liability for personal
injury or property damage because of various environmental
conditions such as alleged exposure to hazardous or toxic
substances (including, but not limited to, ACMs, PCBs and CFCs),
poor indoor air quality, radon or poor drinking water quality.

Although Starwood has incurred and expects to
incur remediation and various environmental-related 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.

Seasonality and Diversification

The hotel industry is seasonal in nature;
however, the periods during which the Companys properties
experience higher revenue activities vary from property to
property and depend principally upon location. Other than 2001,
which was dramatically impacted by the September 11, 2001
terrorist attacks in New York, Washington, D.C. and Pennsylvania
(the September 11 Attacks) and their aftermath,
the Companys revenues and EBITDA(1)
historically have been lower in the first quarter than in the
second, third or fourth quarters.

Comparability of Owned Hotel Results

Starwood continually updates and renovates its
owned, leased and consolidated joint venture hotels. While
undergoing renovation, these hotels are generally not operating
at full capacity and, as such, these renovations can initially
negatively impact Starwoods revenues and EBITDA.

Employees

At December 31, 2002, Starwood employed
approximately 105,000 persons at its corporate offices, owned
and managed hotels and vacation ownership resorts, of whom
approximately 60% were employed in the United States. At
December 31, 2002, approximately 28% of the U.S.-based
employees were covered by various collective bargaining
agreements providing, generally, for basic pay rates, working
hours, other conditions of employment and orderly settlement of
labor disputes. Generally, labor relations have been maintained
in a normal and satisfactory manner, and management believes
that the Companys employee relations are good.




Item 2.     Properties.

Starwood is one of the largest hotel and leisure
companies in the world, with operations in 79 countries.
Starwood considers its hotels and resorts, including vacation
ownership resorts (together Resorts), generally to
be premier establishments with respect to desirability of
location, size, facilities, physical condition, quality and
variety of services offered in the markets in which they are
located. Although obsolescence arising from age and condition of
facilities can adversely affect the Companys Resorts,
Starwood and third-party owners of managed and franchised
Resorts expend substantial funds to renovate and maintain their
facilities in order to remain competitive. For further
information, see Item 7, Managements Discussion
and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital
Resources  Capital Expenditures, in this Joint
Annual Report.





---

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | EBITDA is defined as income before interest
    expense, income tax expense, depreciation and amortization.
    Restructuring and other special items and gains and losses on
    asset dispositions and impairments are also excluded from EBITDA
    as these items do not impact operating results on a recurring
    basis. Management considers EBITDA to be one measure of the cash
    flows from operations of the Company before debt service that
    provides a relevant basis for comparison, and EBITDA is
    presented to assist investors and lenders in analyzing the
    performance of the Company. This information should not be
    considered as an alternative to any measure of performance as
    promulgated under accounting principles generally accepted in
    the United States, nor should it be considered as an indicator
    of the overall financial performance of the Company. The
    Companys calculation of EBITDA may be different from the
    calculation used by other companies and, therefore,
    comparability may be limited.

13



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##### Table of Contents



The Companys hotel business included 748
owned, managed or franchised hotels with approximately 227,000
rooms and its vacation ownership business included 18 vacation
ownership resorts at December 31, 2002, predominantly under
six brands. All brands are full-service properties that range in
amenities from luxury hotels and resorts to more moderately
priced hotels.

The following table reflects the Companys
hotel and vacation ownership properties, by brand:

|                                |  |            |     |       |  |            |         |       |  |  |    |  |  |  |       | 
|------------------------------- |  | ---------- | --- | ----- |  | ---------- | ------- | ----- |  |  | -- |  |  |  | ----- | 
|                                |  |            |     |      
|                                |  | Hotels     |     | VOI  
|                                |  |            |     |      
|                                |  | Properties |     | Rooms |  | Properties |         | Rooms
|                                |  |            |     |       |  |            |         |      
|St. Regis and Luxury Collection |  |            | 50  |       |  |            | 9,000   |       |  |  |   |  |  |  |      | 
|Sheraton                        |  |            | 396 |       |  |            | 134,000 |       |  |  | 7  |  |  |  | 3,000 | 
|Westin                          |  |            | 115 |       |  |            | 47,000  |       |  |  | 4  |  |  |  | 400   | 
|W                               |  |            | 17  |       |  |            | 5,000   |       |  |  |   |  |  |  |      | 
|Four Points                     |  |            | 144 |       |  |            | 26,000  |       |  |  |   |  |  |  |      | 
|Independent/Other               |  |            | 26  |       |  |            | 6,000   |       |  |  | 7  |  |  |  | 600   | 
|                                |  |            |     |       |  |            |         |       |  |  |    |  |  |  |       | 
|Total                           |  |            | 748 |       |  |            | 227,000 |       |  |  | 18 |  |  |  | 4,000 | 

St. Regis Hotels & Resorts(luxury full-service hotels and
resorts) deliver the most discreet, personalized and
anticipatory level of service to high-end leisure and business
travelers. St. Regis hotels typically have individual
design characteristics to accentuate each individual location
and city. Most St. Regis hotels have spacious, luxurious rooms
and suites with highly designed, residential surroundings and
include a 4- or 5-Star restaurant on premises.

The Luxury Collection(luxury full-service hotels and
resorts) is a group of unique hotels and resorts offering
exceptional service to an elite clientele (some of which may
also be branded a St. Regis, Sheraton or Westin). The Luxury
Collection includes some of the worlds most renowned and
legendary hotels generally well known by the individual hotel
name. These hotels are distinguished by magnificent decor,
spectacular settings and impeccable service.

Sheraton Hotels & Resorts(upscale full-service hotels and
resorts) is the Companys largest brand serving the needs
of upscale business and leisure travelers worldwide. Sheraton
hotels and resorts offer the entire spectrum of comfort, from
full-service hotels in major cities to luxurious resorts. These
hotels and resorts typically feature a wide variety of on-site
business services and a full range of amenities including rooms
that feature generous work spaces, allowing business travelers
to stay productive on the road.

Westin Hotels & Resorts(luxury and upscale full-service
hotels and resorts) are first-class, signature hotels that
typically make up an integral part of a city or region in which
the hotels are located. Westin hotels and resorts are
characterized by a commitment to uncompromised elegance, service
and guest experience.

W Hotels(stylish boutique full-service
urban hotels) was inaugurated in December 1998 with the opening
of the W New York. W hotels provide a unique hotel alternative
to business travelers, combining the personality, style and
distinctive flavor of an intimate hotel with the functionality,
reliability and attentive service of a major business and
leisure hotel. W hotels feature modern, sophisticated design
with custom-made furnishings and accessories, fully wired rooms
with the most advanced technology in the industry, and unique,
high-quality signature restaurants and bars.

Four Points by Sheraton(moderately priced full-service
hotels) deliver extensive amenities and services such as room
service, dry cleaning, fitness centers, meeting facilities and
business centers to frequent business travelers at reasonable
prices. These hotels provide a comfortable, well-appointed room,
which typically includes a two-line telephone, a large desk for
working or in-room dining, comfortable seating and full-service
restaurants.

14



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##### Table of Contents



Hotel Business

Owned, Leased and Consolidated Joint
Venture Hotels.The following
table summarizes REVPAR(1), average daily rates
(ADR) and average occupancy rates on a year-to-year
basis for the Companys 155 owned, leased and consolidated
joint venture hotels (excluding 8 hotels without prior year
results and 5 hotels sold during 2001 and 2002)
(Same-Store Owned Hotels) for the years ended
December 31, 2002 and 2001:

|                                                              |  |              |        |      |  |          |        |   |  |  |      |   
|------------------------------------------------------------- |  | ------------ | ------ | ---- |  | -------- | ------ | - |  |  | ---- | --
|                                                              |  |              |        |     
|                                                              |  | Year Ended   |        |     
|                                                              |  | December 31, |        |     
|                                                              |  |              |        |     
|                                                              |  | 2002         |        | 2001 |  | Variance
|                                                              |  |              |        |      |  |         
|Worldwide(155
    hotels with approximately 53,000 rooms)     |  |              |        |      |  |          |        |   |  |  |      |   
|REVPAR                                                        |  | $            | 95.46  |      |  | $        | 101.44 |   |  |  | (5.9 | )%
|ADR                                                           |  | $            | 150.42 |      |  | $        | 155.77 |   |  |  | (3.4 | )%
|Occupancy                                                     |  |              | 63.5   | %    |  |          | 65.1   | % |  |  | (1.6 | ) 
|North America(109
    hotels with approximately 40,000 rooms) |  |              |        |      |  |          |        |   |  |  |      |   
|REVPAR                                                        |  | $            | 94.40  |      |  | $        | 100.42 |   |  |  | (6.0 | )%
|ADR                                                           |  | $            | 145.61 |      |  | $        | 152.39 |   |  |  | (4.4 | )%
|Occupancy                                                     |  |              | 64.8   | %    |  |          | 65.9   | % |  |  | (1.1 | ) 
|International(46
    hotels with approximately 13,000 rooms)  |  |              |        |      |  |          |        |   |  |  |      |   
|REVPAR                                                        |  | $            | 98.65  |      |  | $        | 104.55 |   |  |  | (5.6 | )%
|ADR                                                           |  | $            | 166.35 |      |  | $        | 166.55 |   |  |  | (0.1 | )%
|Occupancy                                                     |  |              | 59.3   | %    |  |          | 62.8   | % |  |  | (3.5 | ) 

During the years ended December 31, 2002 and
2001, the Company invested approximately $262 million and
$460 million, respectively, for capital improvements
primarily at owned hotel assets and capital expenditures on
technology developments. These capital expenditures included
significant new growth investment for the development of the
St. Regis Museum Tower in San Francisco, California. Other
major expenditures during 2002 included the renovations of the
Sheraton New York, the Westin Excelsior in Rome, Italy, the
Westin Galleria and Oaks in Houston, Texas and The Phoenician in
Scottsdale, Arizona. During 2001, the Company completed the
development of the W Times Square and the conversions of the
Days Inn Chicago and Midland Hotel to the W Lakeshore and W
Chicago, respectively.

Managed and Franchised
Hotels.Hotel and resort
properties in the United States are often owned by entities that
neither manage hotels nor own a brand name. Hotel owners
typically enter into management contracts with hotel management
companies to operate their hotels. When a management company
does not offer a brand affiliation, the hotel owner often
chooses to pay separate franchise fees to secure the benefits of
brand marketing, centralized reservations and other centralized
administrative functions, particularly in the sales and
marketing area. Management believes that companies, such as
Starwood, that offer both hotel management services and
well-established worldwide brand names appeal to hotel owners by
providing the full range of management and marketing services.

Managed
HotelsStarwood manages hotels
worldwide, usually under a long-term agreement with the hotel
owner (including entities in which Starwood has a minority
equity interest). The Companys responsibilities under
hotel management contracts typically include hiring, training
and supervising the managers and employees that operate these
facilities. For additional fees, Starwood provides reservation
services and coordinates national advertising and certain
marketing and promotional services. Starwood prepares and
implements annual budgets for the hotels it manages and is
responsible for allocating property-owner funds for periodic
maintenance and repair of buildings and furnishings. In addition
to the Companys owned and leased hotels, at
December 31, 2002, Starwood managed an additional 277
hotels with approximately 94,000 rooms worldwide.





---

|    |                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | REVPAR is calculated by dividing rooms revenue,
    which is derived from rooms and suites rented or leased, by
    total room nights available for a given period. REVPAR may not
    be comparable to similarly titled measures such as revenues.

15



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##### Table of Contents



Management contracts typically provide for base
fees tied to gross revenue and incentive fees tied to profits as
well as fees for other services, including centralized
reservations, sales and marketing, public relations and national
and international media advertising. In the Companys
experience, owners seek hotel managers that can provide
attractively priced base, incentive, marketing and franchise
fees combined with demonstrated sales and marketing expertise
and operations-focused management designed to enhance
profitability. Some of the Companys management contracts
permit the hotel owner to terminate the agreement when the hotel
is sold or otherwise transferred to a third party, as well as if
Starwood fails to meet established performance criteria. In
addition, many hotel owners seek equity, debt or other
investments from Starwood to help finance hotel renovations or
conversion to a Starwood brand so as to align the interests of
the owner and the Company. The Companys ability or
willingness to make such investments may determine, in part,
whether Starwood will be offered, will accept, or will retain a
particular management contract. In 2002, the Company made
numerous investments in management contracts, the most
significant of which was a $25 million equity investment in
the Westin Savannah Harbor resort in Savannah, Georgia. During
2002, the Company signed management agreements for
23 hotels with approximately 7,000 rooms.

Brand
FranchisingStarwood franchises
its Sheraton, Westin, Four Points by Sheraton and Luxury
Collection brand names and generally derives licensing and other
fees from franchisees based on a fixed percentage of the
franchised hotels room revenue, as well as fees for other
services, including centralized reservations, sales and
marketing, public relations and national and international media
advertising. In addition, a franchisee may also purchase hotel
supplies, including brand-specific products, from certain
Starwood-approved vendors. Starwood approves certain plans for,
and the location of, franchised hotels and reviews their design.
At December 31, 2002, there were 308 franchised properties
with approximately 77,000 rooms operating under the Sheraton,
Westin, Four Points by Sheraton and Luxury Collection brands.
During 2002, the Company signed franchise agreements with 10
hotels with approximately 3,000 rooms.

Vacation Ownership Business

The Company develops, owns and operates vacation
ownership resorts, markets and sells the VOIs in the resorts
and, in many cases, provides financing to customers who purchase
such ownership interests. Owners of VOIs can trade their
interval for intervals at other Starwood vacation ownership
resorts or for intervals at certain vacation ownership resorts
not otherwise sponsored by Starwood through an exchange company.
From time to time, the Company securitizes or sells the
receivables generated from its sales of VOIs as a form of a
financing vehicle.

At December 31, 2002, the Company had 18
vacation ownership resorts in its portfolio with 11 actively
selling VOIs, one under construction, one expected to start
construction shortly and five that had sold all existing
inventory. During the year ended December 31, 2002, the
Company invested approximately $96 million for capital
expenditures, including VOI construction, at Westin Mission
Hills Resort Villas in Rancho Mirage, California and Westin
Kaanapali Ocean Resort Villa in Maui, Hawaii, as well as
the acquisition of 18.5 acres of zone 1 land for a new
Westin vacation ownership development in Princeville, Hawaii.
During 2001, the Company invested $66 million in vacation
ownership capital expenditures, including VOI construction,
primarily related to the VOI construction at the Mission Hills
and Maui resorts noted above, as well as VOI construction at
Sheratons Mountain Vista in Avon, Colorado.




Item 3.     Legal
Proceedings.

Incorporated by reference to the description of
legal proceedings in Note 19, Commitments and
Contingencies, in the notes to financial statements set
forth in Part II, Item 8, Financial Statements
and Supplementary Data.

16



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##### Table of Contents






Item 4.     Submission
of Matters to a Vote of Security Holders.

Not applicable.




Executive Officers of the
Registrants

See Part III, Item 10, of this Joint Annual
Report for information regarding the executive officers of the
Registrants, which information is incorporated herein by
reference.




PART II




Item 5.     Market
for Registrants Common Equity and Related Stockholder
Matters.

Market Information

The Shares are traded on the New York Stock
Exchange (the NYSE) under the symbol
HOT. The Class A Shares are all currently held
by the Corporation and have never been traded.

The following table sets forth, for the fiscal
periods indicated, the high and low sale prices per Share on the
NYSE Composite Tape.

|               |  |      |       |     |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | - | ----- | 
|               |  | High |       | Low
|               |  |      |       |    
|2002           |  |      |       |     |  |   |       | 
|Fourth quarter |  | $    | 26.01 |     |  | $ | 19.00 | 
|Third quarter  |  | $    | 33.50 |     |  | $ | 21.50 | 
|Second quarter |  | $    | 39.94 |     |  | $ | 32.50 | 
|First quarter  |  | $    | 39.48 |     |  | $ | 29.31 | 
|2001           |  |      |       |     |  |   |       | 
|Fourth quarter |  | $    | 30.59 |     |  | $ | 20.80 | 
|Third quarter  |  | $    | 37.74 |     |  | $ | 17.10 | 
|Second quarter |  | $    | 40.89 |     |  | $ | 31.30 | 
|First quarter  |  | $    | 39.55 |     |  | $ | 31.75 | 

Holders

As of February 26, 2003, there were
approximately 19,000 holders of record of Shares and one holder
of record (the Corporation) of the Class A Shares.

Distributions Made/ Declared

The following table sets forth the frequency and
amount of distributions made by the Trust to holders of Shares
for the years ended December 31, 2002 and 2001:

|                    |  |               |      |    
|------------------- |  | ------------- | ---- | ---
|                    |  | Distributions
|                    |  | Made         
|                    |  |              
|2002                |  |               |      |    
|Annual distribution |  | $             | 0.84 | (a)
|2001                |  |               |      |    
|Fourth quarter      |  | $             | 0.20 | (a)
|Third quarter       |  | $             | 0.20 |    
|Second quarter      |  | $             | 0.20 |    
|First quarter       |  | $             | 0.20 |    

17



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##### Table of Contents





---



|    |                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The Company switched from a quarterly
    distribution to an annual distribution in 2002 and the Trust
    declared distributions in the fourth quarter of 2002 and 2001 to
    shareholders of record on December 31, 2002 and 2001,
    respectively. The distributions were paid in January 2003 and
    2002, respectively.

The Corporation has not paid any cash dividends
since its organization and does not anticipate that it will make
any such dividends in the foreseeable future.

As a consequence of the Reorganization, holders
of Class B Shares are entitled, subject to certain
conditions, to receive a non-cumulative annual distribution,
which was set at an initial rate of $0.60 per Share for 1999, to
the extent the distribution is authorized by the Board of
Trustees of the Trust. The distribution was increased to an
annual rate of $0.80 in 2001. In the beginning of 2002, the
Company shifted from paying a quarterly distribution to holders
of Shares to paying an annual distribution (and intends to
continue its distributions on an annual basis for 2003). For
2002, the Trust paid a distribution of $0.84 per Share. Unless
distributions for the then current distribution period have been
paid on the Class B Shares, the Trust is not permitted to
pay a distribution on the Class A Shares (except in certain
circumstances). We anticipate that the 2003 distributions will
be held constant at $0.84 per Share. The final determination of
the amount of the distribution will be subject to economic and
financial consideration, as well as approval by the Board of
Trustees of the Trust.

Conversion of Securities; Sale of Unregistered
Securities

During 2002, approximately 4,000 shares of
Class B Exchangeable Preferred Shares (Class B
EPS) were exchanged by certain stockholders for an equal
number of shares of Class A Exchangeable Preferred Shares
(Class A EPS). Additionally, approximately
60,000 shares of Class A EPS were exchanged for an
equal number of Shares. Through January 31, 2003, in
accordance with the terms of the Class B EPS, which allow
the shareholders to put these units back to the Company at
$38.50 beginning on the fifth anniversary of the Westin
acquisition, 422,753 units of Class B EPS were put
back to the Company for approximately $16 million.
Mr. Sternlicht held, individually and through various
family trusts, an aggregate of 240,391 Class B EPS and
limited partnership units of the Realty Partnership and
Operating Partnership convertible to Class B EPS on a
one-to-one basis. On January 2, 2003, Mr. Sternlicht
redeemed all of these Class B EPS for $38.50 per Share.

During 2002, the Company exchanged approximately
126,000 limited partnership units of the Realty Partnership and
the Operating Partnership held by third parties for Shares on a
one-for-one basis.




Item 6.     Selected
Financial Data.

The following financial and operating data should
be read in conjunction with the information set forth under
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements of the Company and related notes thereto
appearing elsewhere in this Joint Annual Report and incorporated
herein by reference. The historical information represents the
historical results of Sheraton Holding up to the date of the ITT
Merger, because the ITT Merger was treated as a reverse purchase
for accounting purposes. This income statement and operating
data excludes the results of the discontinued lines of business,
which include the Companys gaming operations, ITT
Educational Services, Inc. (Educational Services)
and ITT World Directories (WD), all of which were
substantially disposed of in 1999 and 1998.

18



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##### Table of Contents



|                                                                 |  |                                      |       |      |  |      |       |      |  |      |       |   |  |   |        |   |  |   |        |    
|---------------------------------------------------------------- |  | ------------------------------------ | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ------ | - |  | - | ------ | ---
|                                                                 |  |                                     
|                                                                 |  | Year Ended December 31,             
|                                                                 |  |                                     
|                                                                 |  | 2002                                 |       | 2001 |  | 2000 |       | 1999 |  | 1998
|                                                                 |  |                                      |       |      |  |      |       |      |  |     
|                                                                 |  |                                     
|                                                                 |  | (In millions, except per Share data)
|Income Statement Data                                            |  |                                      |       |      |  |      |       |      |  |      |       |   |  |   |        |   |  |   |        |    
|Revenues(a)                                                      |  | $                                    | 3,879 |      |  | $    | 3,967 |      |  | $    | 4,345 |   |  | $ | 3,829  |   |  | $ | 3,281  |    
|Operating income                                                 |  | $                                    | 587   |      |  | $    | 615   |      |  | $    | 1,028 |   |  | $ | 841    |   |  | $ | 537    |    
|Income (loss) from continuing operations                         |  | $                                    | 246   |      |  | $    | 145   |      |  | $    | 398   |   |  | $ | (670   | ) |  | $ | 220    |    
|Diluted earnings (loss) per Share from
    continuing operations |  | $                                    | 1.20  |      |  | $    | 0.70  |      |  | $    | 1.95  |   |  | $ | (3.58  | ) |  | $ | 1.05   |    
|Operating Data                                                   |  |                                      |       |      |  |      |       |      |  |      |       |   |  |   |        |   |  |   |        |    
|Cash from continuing operations                                  |  | $                                    | 703   |      |  | $    | 755   |      |  | $    | 811   |   |  | $ | 533    |   |  | $ | 32     |    
|Cash from (used for) investing activities                        |  | $                                    | (286  | )    |  | $    | (621  | )    |  | $    | (659  | ) |  | $ | 3,172  |   |  | $ | 2,340  |    
|Cash used for financing activities                               |  | $                                    | (427  | )    |  | $    | (162  | )    |  | $    | (417  | ) |  | $ | (3,335 | ) |  | $ | (2,056 | )  
|Aggregate cash distributions paid                                |  | $                                    | 40    |      |  | $    | 156   |      |  | $    | 134   |   |  | $ | 116    |   |  | $ | 324    | (b)
|Cash distributions declared per Share                            |  | $                                    | 0.84  |      |  | $    | 0.80  |      |  | $    | 0.69  |   |  | $ | 0.60   |   |  | $ | 1.71   |    



---



|    |                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------
|(a) | Excluding other revenues from managed and
    franchised properties.                                                                 
|   
|(b) | Excludes approximately $3.0 billion of
    consideration paid to Sheraton Holding stockholders in
    connection with the ITT Merger.

|                                                                                                            |  |                 |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|----------------------------------------------------------------------------------------------------------- |  | --------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                                                                            |  |                
|                                                                                                            |  | At December 31,
|                                                                                                            |  |                
|                                                                                                            |  | 2002            |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                                                                                                            |  |                 |        |      |  |      |        |      |  |     
|                                                                                                            |  |                
|                                                                                                            |  | (In millions)  
|Balance Sheet Data                                                                                          |  |                 |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Total assets                                                                                                |  | $               | 12,259 |      |  | $    | 12,461 |      |  | $    | 12,697 |  |  | $ | 12,940 |  |  | $ | 13,417 | 
|Long-term debt, net of current maturities and
    including exchangeable units and Class B preferred shares |  | $               | 4,500  |      |  | $    | 5,301  |      |  | $    | 5,090  |  |  | $ | 4,799  |  |  | $ | 5,981  | 

The following table presents systemwide revenues
and a reconciliation of operating income to EBITDA (in millions):

|                                                  |  |                         |       |      |  |      |       |   |  |   |       | 
|------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | 
|                                                  |  |                        
|                                                  |  | Year Ended December 31,
|                                                  |  |                        
|                                                  |  | 2002                    |       | 2001 |  | 2000
|                                                  |  |                         |       |      |  |     
|Systemwide revenues(1)                            |  | $                       | 8,075 |      |  | $    | 8,150 |   |  | $ | 8,901 | 
|                                                  |  |                         |       |      |  |      |       |   |  |   |       | 
|Operating income                                  |  | $                       | 587   |      |  | $    | 615   |   |  | $ | 1,028 | 
|Depreciation(2)                                   |  |                         | 499   |      |  |      | 460   |   |  |   | 418   | 
|Amortization                                      |  |                         | 20    |      |  |      | 93    |   |  |   | 90    | 
|Interest expense of unconsolidated joint ventures |  |                         | 16    |      |  |      | 25    |   |  |   | 18    | 
|Interest income                                   |  |                         | 2     |      |  |      | 11    |   |  |   | 19    | 
|Restructuring and other special charges           |  |                         | (7    | )    |  |      | 50    |   |  |   |      | 
|Argentina foreign exchange gain                   |  |                         | (30   | )    |  |      | (24   | ) |  |   |      | 
|Costs associated with construction remediation    |  |                         | 8     |      |  |      |      |   |  |   |      | 
|                                                  |  |                         |       |      |  |      |       |   |  |   |       | 
|EBITDA(3)                                         |  | $                       | 1,095 |      |  | $    | 1,230 |   |  | $ | 1,573 | 
|                                                  |  |                         |       |      |  |      |       |   |  |   |       | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Systemwide revenues include gross operating
    revenues generated by owned, leased, consolidated joint venture
    and managed hotels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(2) | Includes the Companys share of depreciation
    expense of unconsolidated joint ventures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(3) | EBITDA is defined as income before interest
    expense, income tax expense, depreciation and amortization.
    Restructuring and other special items and gains and losses on
    asset dispositions and impairments are also excluded from EBITDA
    as these items do not impact operating results on a recurring
    basis. Management considers EBITDA to be one measure of the cash
    flows from operations of the Company before debt service that
    provides a relevant basis for comparison, and EBITDA is
    presented to assist investors and lenders in analyzing the
    performance of the Company. This information should not be
    considered as an alternative to any measure of

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| |                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | performance as promulgated under accounting
    principles generally accepted in the United States, nor should
    it be considered as an indicator of the overall financial
    performance of the Company. The Companys calculation of
    EBITDA may be different from the calculation used by other
    companies and, therefore, comparability may be limited.




Item 7.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations.

RESULTS OF OPERATIONS

Managements Discussion and Analysis of
Financial Condition and Results of Operations
(MD&A) discusses the Companys consolidated
financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United
States. The preparation of these consolidated financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and costs and expenses during the reporting periods.
On an ongoing basis, management evaluates its estimates and
judgments, including those relating to revenue recognition, bad
debts, inventories, investments, plant, property and equipment,
goodwill and intangible assets, income taxes, financing
operations, frequent guest program liability, self-insurance
claims payable, restructuring costs, retirement benefits and
contingencies and litigation.

Management bases its estimates and judgments on
historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily available
from other sources. Actual results may differ from these
estimates under different assumptions and conditions.

The Company believes the following to be its
critical accounting policies:

Revenue Recognition.The Companys revenues are
primarily derived from the following sources: (1) hotel and
resort revenues at the Companys owned, leased and
consolidated joint venture properties; (2) management and
franchise fees; (3) vacation ownership revenues; and
(4) other revenues which are ancillary to the
Companys operations. Generally, revenues are recognized
when the services have been rendered. The following is a
description of the composition of revenues for the Company:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Owned, Leased and Consolidated Joint
    Ventures  Represents revenue primarily derived from
    hotel operations, including the rental of rooms and food and
    beverage sales, from a worldwide network of owned, leased or
    consolidated joint venture hotels and resorts operated primarily
    under the Companys proprietary brand names including St.
    Regis, The Luxury Collection, Sheraton, Westin, W and Four
    Points by Sheraton. Revenue is recognized when rooms are
    occupied and services have been rendered.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | 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, Four Points by Sheraton and
    Luxury Collection brand names. Management fees are comprised of
    a base fee, which is generally based on a percentage of gross
    revenues, and an incentive fee, which is generally based on the
    propertys profitability. Base fee revenues are recognized
    when earned in accordance with the terms of the contract. For
    any time during the year, incentive fees are recognized for the
    fees due and earned as if the contract was terminated at that
    date, exclusive of any termination fees due or payable.
    Franchise fees are generally based on a percentage of hotel room
    revenues and are recognized in accordance with Statement of
    Financial Accounting Standards (SFAS) No. 45,
    Accounting for Franchise Fee Revenue, as the fees
    are earned and become due from the franchisee. Management and
    franchise fees are recognized in other hotel and leisure
    revenues in the consolidated statements of income.
|
| |  | Vacation Ownership  The Company
    recognizes revenue from VOI sales in accordance with SFAS
    No. 66, Accounting for Sales of Real Estate.
    The Company recognizes sales when a minimum of 10% of the
    purchase price for the VOI has been received in cash, the period
    of cancellation with refund has expired and receivables are
    deemed collectible. For sales that do not qualify for full
    revenue recognition as the project has progressed beyond the
    preliminary stages but has not yet reached                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | completion, all revenue and profit are initially
    deferred and recognized in earnings through the
    percentage-of-completion method. Vacation ownership revenues are
    recognized in other hotel and leisure revenues in the
    consolidated statements of income. From time to time, the
    Company may also securitize or sell its VOI receivables. These
    securitizations are accounted for as sales transactions under
    the guidance of SFAS No. 140 Accounting for Transfers
    and Servicing of Financial Assets and Extinguishments of
    Liabilities  replacement of FASB Statement
    No. 125. See Note 5 for additional discussion.

Frequent Guest Program.SPG is the Companys frequent
guest incentive marketing program. SPG members earn points based
on their spending at the Companys properties and, to a
lesser degree, through participation in affiliated
partners programs, such as those offered by airlines.
Points can be redeemed at most Company owned, leased, managed
and franchised properties.

SPG is provided as a marketing program to the
Companys properties, including as incentives to first time
buyers of VOIs. The cost of operating the program, including the
estimated cost of award redemption, is charged to properties
based on members qualifying expenditures. Revenue is
recognized by participating hotels and resorts when points are
redeemed for hotel stays.

The Company, through the services of third-party
actuarial analysts, determines the fair value of the future
redemption obligation based on statistical formulas which
project the timing of future point redemption based on
historical experience, including an estimate of the
breakage for points that will never be redeemed, and
an estimate of the points that will eventually be redeemed.
These factors determine the required liability for outstanding
points. The Companys management and franchise agreements
require that the Company be reimbursed currently for the costs
of operating the program, including marketing, promotion,
communications with, and performing member services for the SPG
members. Actual expenditures for SPG may differ from the
actuarially determined liability.

The liability for the SPG program is included in
other long-term liabilities and accrued expenses in the
accompanying consolidated balance sheets. The total actuarially
determined liability as of December 31, 2002 and 2001 is
$175 million and $159 million, respectively.

Asset
Valuations.The Company
continually evaluates the carrying value of its assets for
impairment. Asset impairment analysis is conducted on the
following classes of assets: (1) long lived assets;
(2) investments; and (3) goodwill and intangible
assets.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Long Lived Assets  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. Fair value is based upon
    discounted cash flows of the assets at a rate deemed reasonable
    for the type of asset and prevailing market conditions,
    appraisals and, if appropriate, current estimated net sales
    proceeds from pending offers. The Company evaluates the carrying
    value of its long-lived assets based on its plans, at the time,
    for such assets. Changes to the Companys plans, including
    a decision to dispose of an asset, can have a material impact on
    the carrying value of the asset, the Companys financial
    position and the Companys results from operations.
|
| |  | Investments  The Company also assesses
    the carrying value of its long-term investments. The fair market
    value of investments is based on the market prices for the last
    day of the accounting period if the investment trades on quoted
    exchanges. For non-traded investments, fair value is estimated
    based on the underlying value of the investment, which is
    dependent on the performance of the companies or ventures in
    which the Company has invested, as well as the volatility
    inherent in external markets for these types of investments.                                                                                                                                                                                                                                                                                                                                                                                       

In assessing potential impairment for these
investments, the Company will consider these factors as well as
forecasted financial performance of its investees. If these
forecasts are not met, the Company may have to record impairment
charges. Thus, fair value of investments, which is based on
market prices or the value of the underlying collateral, exceeds
the carrying value of investments at December 31, 2002 and
2001.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Goodwill and Intangible Assets 
    Goodwill and intangible assets arise in connection with
    acquisitions, including the acquisition of management contracts.
    The Company has ceased amortizing goodwill in connection with
    the adoption of SFAS No. 142 Goodwill and Other
    Intangible Assets. Intangible assets with finite lives
    continue to amortize on a straight-line basis over their
    respective useful lives. The Company reviews all goodwill and
    intangible assets with indefinite lives for impairment by
    comparisons of fair value to net book value annually, or upon
    the occurrence of a trigger event. Impairments, excluding those
    in the year of adoption, are recognized in operating results.
    Intangibles with finite lives are assessed for impairment on a
    basis consistent with the analysis conducted for long-lived
    assets described above.

Beneficial and Retained Interests.The Company periodically sells
notes receivable originated by its vacation ownership business
in connection with the sale of VOIs. The Company retains
interests in the assets transferred to qualified and
non-qualified special purpose entities which are accounted for
as over-collateralizations and interest only strips
(Beneficial or Retained Interests). These Beneficial
or Retained Interests are treated as trading for
transactions prior to 2002 and available-for-sale
for transactions thereafter under the provisions of SFAS
No. 115 Accounting for Certain Investments in Debt
and Equity Securities. The Company reports changes in the
fair values of these Beneficial or Retained Interests through
the accompanying consolidated statements of income for trading
securities and through the accompanying consolidated statements
of comprehensive income for available-for-sale securities. The
Company had Beneficial and Retained Interests of
$47 million and $31 million at December 31, 2002
and 2001, respectively.

Legal Contingencies.The Company is subject to various
legal proceedings and claims, the outcomes of which are subject
to significant uncertainty. SFAS No. 5, Accounting
for Contingencies, requires that an estimated loss from a
loss contingency should be accrued by a charge to income if it
is probable that an asset has been impaired or a liability has
been incurred and the amount of the loss can be reasonably
estimated. Disclosure of a contingency is required if there is
at least a reasonable possibility that a significant loss has
been incurred. The Company evaluates, among other factors, the
degree of probability of an unfavorable outcome and the ability
to make a reasonable estimate of the amount of loss. Changes in
these factors could materially impact the Companys
financial position or its results of operations.

Income Taxes.SFAS No. 109,
Accounting for Income Taxes, establishes financial
accounting and reporting standards for the effect of income
taxes. The objectives of accounting for income taxes are to
recognize the amount of taxes payable or refundable for the
current year and deferred tax liabilities and assets for the
future tax consequences of events that have been recognized in
an entitys financial statements or tax returns. Judgment
is required in assessing the future tax consequences of events
that have been recognized in the Companys financial
statements or tax returns. Fluctuations in the actual outcome of
these future tax consequences could materially impact the
Companys financial position or its results of operations.

The following discussion presents an analysis of
results of our operations for the years ended December 31,
2002, 2001 and 2000.

Year Ended December 31, 2002 Compared
with Year Ended December 31, 2001

Continuing Operations

The Companys operating results for the year
ended December 31, 2002 were significantly impacted by the
weakened worldwide economic environment, which has resulted in a
dramatic slowdown in business and transient travel. The decrease
in business transient demand, when compared to the same period
of 2001, had an adverse impact on the Companys majority
owned hotels, many of which are located in major urban markets.

Revenues.Total revenues, excluding other
revenues from managed and franchised properties (Total
Revenues), decreased 2.2% from $3.967 billion to
$3.879 billion for the year ended December 31, 2002
when compared to the corresponding period in 2001. The decrease
in Total Revenues reflects a 3.3% decrease in revenues from the
Companys owned, leased and consolidated joint venture
hotels to $3.232 billion for the year

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ended December 31, 2002 when compared to
$3.343 billion in the corresponding period of 2001
partially offset by a 3.7% increase in other hotel and leisure
revenues to $647 million for the year ended
December 31, 2002 when compared to $624 million in the
corresponding period of 2001.


The decrease in revenues from owned, leased and
consolidated joint venture hotels is due primarily to decreased
revenues at the Companys Same-Store Owned Hotels offset in
part by revenues generated by the W Times Square, which
opened in late December 2001, the Westin Dublin, which opened in
September 2001, the W Lakeshore Drive in Chicago, Illinois
which reopened in October 2001 after a significant renovation
and repositioning, and the Sheraton Centre Toronto in Toronto,
Canada of which the Company acquired the remaining 50% not
previously owned in April 2001. Revenues at the Companys
Same-Store Owned Hotels decreased 6.0% to $3.013 billion
for the year ended December 31, 2002 when compared to the
same period of 2001 due primarily to a decrease in REVPAR.
REVPAR at the Companys Same-Store Owned Hotels decreased
5.9% to $95.46 for the year ended December 31, 2002 when
compared to the corresponding 2001 period. The decrease in
REVPAR at these Same-Store Owned Hotels was attributed to a
decrease in occupancy to 63.5% in the year ended
December 31, 2002 when compared to 65.1% in the same period
of 2001 and a decrease in ADR at these Same-Store Owned Hotels.
ADR decreased 3.4% to $150.42 for the year ended
December 31, 2002 compared to $155.77 for the corresponding
2001 period. REVPAR at Same-Store Owned Hotels in North America
decreased 6.0% for the year ended December 31, 2002 when
compared to the same period of 2001. As discussed above, the
decrease in REVPAR and revenues from owned, leased and
consolidated joint venture hotels in North America was primarily
due to the decline in business transient demand as a result of
the weakened global economies. REVPAR at the Companys
international Same-Store Owned Hotels, which decreased by 5.6%
for the year ended December 31, 2002 when compared to the
same period of 2001, was also impacted by weakened global
economies, the unfavorable effect of foreign currency
translation and adverse political and economic conditions.
REVPAR for Same-Store Owned Hotels in Europe decreased 0.3%, in
Latin America decreased 22.7% and in Asia Pacific increased 6.8%
when compared to 2001.

The increase in other hotel and leisure revenues,
for the year ended December 31, 2002 when compared to the
same period in 2001, resulted from the increase in VOI sales of
14.0% to $276 million in 2002 compared to $242 million
in 2001. Contract sales of VOI inventory increased 16.8% in the
year ended December 31, 2002 when compared to the same
period in 2001, primarily as a result of sales at the Westin
Mission Hills Resort Villas in Rancho Mirage, California and the
Westin Kaanapali Ocean Resort Villas in Maui, Hawaii.
These increases were partially offset by lower management fees,
primarily due to reduced incentive management fees, and
decreased equity earnings from joint ventures, as a result of
the previously discussed weakened global economies and the
construction remediation costs at an unconsolidated joint
venture property. Other hotel and leisure revenues also include
$16 million and $12 million, respectively, primarily
related to gains from the sale of $133 million and
$226 million of vacation ownership receivables during the
years ended December 31, 2002 and 2001, respectively.
Included in the $226 million of VOI receivable sales in
2001 are $145 million of VOI receivables which were
repurchased from existing securitizations.

Other revenues and expenses from managed and
franchised properties were $780 million and
$740 million for 2002 and 2001, respectively. These
revenues represent reimbursements of costs incurred on behalf of
managed hotel properties and franchisees. These costs relate
primarily to payroll costs at managed properties where the
Company is the employer. Since the reimbursements are made based
upon the costs incurred with no added margin, these revenues and
corresponding expenses have no effect on the Companys
operating income, net income or profit margins.

EBITDA.Total
Company EBITDA (which excludes $7 million of restructuring
and other special credits, $30 million of foreign exchange
gains related to the devaluation of the Argentine Peso and
$8 million of construction remediation charges in 2002 and
$50 million of restructuring and other special charges and
$24 million of foreign exchange gains related to the
devaluation of the Argentine Peso in 2001) decreased 11.0% or
$135 million to $1.095 billion for the year ended
December 31, 2002 when compared to 2001, primarily due to
EBITDA declines at the Companys owned, leased and
consolidated joint venture hotels. EBITDA for the Companys
owned, leased and consolidated joint venture hotels decreased
$123 million or 12.6% to $855 million for the year
ended December 31, 2002 when compared to the corresponding
period in

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2001. This decrease was primarily due to a
$139 million or 14.5% decrease in EBITDA at the
Companys Same-Store Owned Hotels to $819 million
resulting primarily from the weakened global economies as
discussed earlier. The decrease in EBITDA at these hotels was
due primarily to the $111 million decrease in EBITDA over
the same period in 2001 at the Companys Same-Store Owned
Hotels in North America, as well as the effects of the
devaluation of the Argentine Peso and other South American
currencies. The declines in our hotel segment were partially
offset by a $29 million increase in EBITDA for the vacation
ownership segment, primarily related to the contract sales
growth noted above.


Selling, General, Administrative and Other.Selling, general, administrative
and other expenses were $426 million and $411 million
for the year ended December 31, 2002 and 2001,
respectively. The increase in selling, general, administrative
and other expenses is due to the inclusion, in the year ended
December 31, 2001, of a $14 million pretax gain
resulting from the termination of a pension plan, compared to a
$3 million pretax gain in 2002 offset by the net
$30 million and $24 million of foreign exchange gain
resulting from the devaluation of the Argentine Peso, included
in the years ended December 31, 2002 and 2001, respectively.

Restructuring and Other Special Charges
(Credits).During the year ended
December 31, 2002, the Company reversed $7 million of
previously recorded restructuring and other special charges
primarily related to adjustments to the severance liability
established in connection with the cost containment efforts
after the September 11 Attacks, sales of its investments in
certain e-business ventures previously deemed impaired and the
collection of receivables which were previously deemed
uncollectible.

Due to the September 11 Attacks and the
weakening of the U.S. economy, in the third and fourth quarters
of 2001, the Company implemented a cost reduction plan and
conducted a comprehensive review of the carrying value of
certain assets for potential impairment, resulting in 2001
restructuring charges of $15 million and noncash other
special charges aggregating approximately $36 million. The
restructuring charges were primarily for severance costs
incurred as part of the cost reduction plan. The other special
charges consisted primarily of employee retention costs
associated with the accelerated vesting of 50% of restricted
stock awards granted in February 2001 (approximately
$11 million); bad debt expense associated with receivables
no longer deemed collectible (approximately $17 million);
impairments of certain investments and other assets
(approximately $5 million); and abandoned pursuit projects
(approximately $3 million).

In addition, in early 2001, the Company wrote
down its investments in various e-business ventures by
approximately $19 million based on the market conditions
for the technology sector at the time and managements
assessment that the impairment of these investments was
other-than-temporary. This special charge was offset by the
reversal of a $20 million restructuring charge taken in
1998 relating to a note receivable, which previously had been
written down due to non-performance.

Depreciation and Amortization.Depreciation expense increased to
$476 million in the year ended December 31, 2002
compared to $433 million in the corresponding period of
2001. The increase was due to additional depreciation resulting
from capital expenditures at the Companys owned, leased
and consolidated joint venture hotels including the opening of
the W Times Square in December 2001 and the Westin Dublin
in September 2001, as well as costs to reposition the
W Lakeshore and the W Midland hotels in Chicago and
capital expenditures on technology development. Amortization
expense decreased to $20 million in the year ended
December 31, 2002 compared to $93 million in the
corresponding period of 2001. The decrease in the amortization
expense was primarily attributable to the implementation of SFAS
No. 142, Goodwill and Other Intangible Assets,
which resulted in a $75 million pretax reduction in
amortization expense.

Net Interest Expense.Interest expense for the years
ended December 31, 2002 and 2001, which is net of interest
income of $2 million and $11 million, respectively,
decreased to $338 million from $367 million. Excluding
$30 million and $9 million related to the early
extinguishment of debt for 2002 and 2001, respectively, and an
$11 million reversal of accrued interest on tax liabilities
that have now been settled in 2002, net interest expense
decreased $39 million from the comparable period of the
prior year. This decrease was due primarily to lower interest
rates compared to 2001 and the impact of certain financing
transactions during the past two years. The Companys
weighted average interest rate was 5.64% at December 31,
2002 versus 5.10% at December 31, 2001.

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Gain (loss) on Asset Dispositions and
Impairments, Net.During 2002, the
Company sold its investment in Interval International, for a
gain of $6 million. This gain is offset primarily by a net
loss on the disposition of two hotels. In 2001, due to the
September 11 Attacks and the weakening of the
U.S. economy, the Company conducted a comprehensive review
of the carrying value of certain assets for potential
impairment. As a result, the Company recorded a net charge
relating primarily to the impairment of certain investments
totaling $57 million.

Income Tax Expense.The effective income tax rate for
the year ended December 31, 2002, excluding special items,
decreased to 15.2% compared to 26.6% in the corresponding period
in 2001. Including the $32 million net tax benefit on
special items primarily related to approximately
$39 million of various adjustments to federal and state tax
liabilities resulting from the successful settlement of tax
matters dating back to 1993, the Companys effective tax
rate was 1.6% for the year ended December 31, 2002 and
23.2% for the year ended December 31, 2001. The
Companys effective income tax rate is determined by the
level and composition of pretax income subject to varying
foreign, state and local taxes and other items. The tax rate for
the year ended December 31, 2002 is significantly lower
than the prior year due to the combination of lower pretax
income, the distribution of $0.84 per share and the cessation of
amortization of goodwill (as discussed above), which was not
deductible for tax purposes.

Discontinued Operations

During 2002, the Company recorded an after tax
gain of $109 million from discontinued operations primarily
related to the issuance of new Internal Revenue Service
(IRS) regulations in early 2002, which allowed the
Company to recognize a $79 million tax benefit from a tax
loss on the 1999 sale of Caesars World, Inc. The tax loss was
previously disallowed under the old regulations. In addition,
the Company recorded a $25 million gain resulting from an
adjustment to the Companys tax basis in ITT World
Directories, a subsidiary which was disposed of in early 1998
through a tax deferred reorganization. The increase in the tax
basis has the effect of reducing the deferred tax charge
recorded on the disposition in 1998. This gain also included the
reversal of $5 million (after tax) of liabilities set up in
conjunction with the sale of the gaming segment that are no
longer required as the related contingencies have been resolved.

Year Ended December 31, 2001 Compared
with Year Ended December 31, 2000

Continuing Operations

The Companys operating results for 2001
were dramatically impacted by the continued weakening of the
general global economy and, in particular, the U.S. economy
which was exacerbated by the September 11 Attacks, leading
to an unprecedented decline in industry-wide demand in the U.S.
and internationally. The initial closing of all airports in the
United States and the significant decline in business and
leisure travel following the September 11 Attacks resulted
in significant decreases in revenues and earnings for September
and the fourth quarter of 2001 when compared to the same periods
in 2000. Immediately following the September 11 Attacks,
the Company began developing operating plans commensurate with
the reduced demand levels and began implementing cost reduction
plans at all owned and managed hotels worldwide as well as
corporate and division offices.

Revenues.Total Revenues decreased 8.7% from
$4.345 billion to $3.967 billion for the year ended
December 31, 2001 when compared to the corresponding period
in 2000. The decrease in Total Revenues reflects an 8.6%
decrease in revenues from the Companys owned, leased and
consolidated joint venture hotels to $3.343 billion for the
year ended December 31, 2001 when compared to $3.659
billion in the corresponding period of 2000 and a slight
decrease in other hotel and leisure revenues to
$624 million for the year ended December 31, 2001 when
compared to $686 million in the corresponding periods of
2000 due primarily to a decline in management and franchise
fees, offset by a slight increase in revenues from the sale of
VOIs.

The decrease in revenues from owned, leased and
consolidated joint venture hotels is due primarily to decreased
revenues at the Companys hotels owned during both periods
(Comparable Owned Hotels) (157 hotels for the
year ended December 31, 2001, excluding 10 hotels sold and
8 hotels without comparable results during 2000 and 2001).
Revenues at the Companys Comparable Owned Hotels decreased
10.8% to

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$3.211 billion for the year ended
December 31, 2001 when compared to the same period of 2000
due primarily to a decrease in REVPAR. REVPAR at the
Companys Comparable Owned Hotels decreased 11.3% to
$101.98 for the year ended December 31, 2001 when compared
to the corresponding 2000 period. The decrease in REVPAR at
these 155 Comparable Owned Hotels was attributed to a decrease
in occupancy to 65.1% from 71.2% in the year ended
December 31, 2001 when compared to the same period of 2000.
ADR decreased slightly to $156.73 for the year ended
December 31, 2001 when compared to $161.59 in the
corresponding 2000 period. REVPAR at Comparable Owned Hotels in
North America decreased 11.9% for the year ended
December 31, 2001 when compared to the same period of 2000
due to the weakening of the U.S. economy which was
exacerbated by the September 11 Attacks, resulting in an
unprecedented decline in industry-wide demand, particularly in
New York City, where the Company has seven owned hotels with a
total of approximately 3,900 rooms. REVPAR at the Companys
international Comparable Owned Hotels, which decreased by 9.6%
for the year ended December 31, 2001 when compared to the
same period of 2000, was also impacted by the September 11
Attacks as international travel from the U.S. declined
dramatically. The unfavorable effect of foreign currency
translation and adverse political and economic conditions,
primarily in countries like Argentina and Australia, also
contributed to these declines in REVPAR. REVPAR for Comparable
Owned Hotels in Europe, the Companys largest international
presence, decreased 1.0% excluding the unfavorable effect of
foreign currency translation.


The decrease in other hotel and leisure revenue
for the year ended December 31, 2001, when compared to the
same period in 2000, resulted from lower management fees,
primarily due to reduced incentive management fees, decreased
equity earnings from joint ventures as a result of the
previously discussed weakened global economies, offset by an
increase in VOI volume sales of 3.5%, to $242 million in
2001 compared to $234 million in 2000. Other hotel and
leisure revenues also include $12 million and
$14 million for the years ended December 31, 2001 and
2000, respectively, primarily related to gains from the sale of
VOI receivables.

Other revenues and expenses from managed and
franchised properties were $740 million and
$695 million for 2001 and 2000, respectively. These
revenues represent reimbursements of costs incurred on behalf of
managed hotel properties and franchisees. These costs relate
primarily to payroll costs at managed properties where the
Company is the employer. Since the reimbursements are made based
upon the costs incurred with no added margin, these revenues and
corresponding expenses have no effect on the Companys
operating income, net income or profit margins.

EBITDA.Total
Company EBITDA (which excludes $50 million in restructuring
and other special charges and $24 million of foreign
exchange gains related to the devaluation of the Argentine Peso
in 2001) decreased $343 million to $1.230 billion as
of December 31, 2001, primarily due to EBITDA declines at
the Companys owned, leased and consolidated joint venture
hotels. EBITDA for the Companys owned, leased and
consolidated joint venture hotels decreased $248 million to
$978 million for the year ended December 31, 2001 when
compared to the corresponding period in 2000. This decrease was
primarily due to a $255 million or 21.0% decrease in EBITDA
at the Companys Comparable Owned Hotels, with North
America accounting for most of this decline, ($209 million
decrease over the same period in 2000) resulting primarily from
the weakening U.S. economy and the September 11
Attacks. As mentioned above, the Companys significant
presence in New York contributed to the decline as EBITDA at
seven owned hotels in this city decreased $73 million in
2001 when compared to 2000. The sale of nine hotels during 2000
and early 2001 and the effective closure of two hotels in
Chicago which were being converted to W hotels also
contributed to the decline in EBITDA. EBITDA was also impacted
by a $29 million decrease in the vacation ownership segment.

Selling, General, Administrative and Other.Selling, general, administrative
and other expenses were $411 million and $403 million
for the years ended December 31, 2001 and 2000,
respectively. The increase in selling, general, administrative
and other expenses was due primarily to increased expenses
associated with SVO in connection with increased sales, offset
by a $24 million foreign exchange gain as a result of the
devaluation of the Argentinean Peso and reduced corporate
overhead, including a $14 million pretax gain resulting
from the termination of a pension plan for 2001.

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Restructuring and Other Special Charges
(Credits).During the year ended
December 31, 2001, the Company recorded $50 million in
restructuring and other special charges related primarily to the
September 11 Attacks and the resulting decline in
industry-wide demand.

Due to the September 11 Attacks and the
weakening of the U.S. economy, in the third and fourth
quarter of 2001, the Company implemented a cost reduction plan
and conducted a comprehensive review of the carrying value of
certain assets for potential impairment, resulting in 2001
restructuring charges of $15 million and noncash other
special charges aggregating approximately $36 million. The
restructuring charges were primarily for severance costs
incurred as part of the cost reduction plan. The other special
charges consisted primarily of employee retention costs
associated with the accelerated vesting of 50% of restricted
stock awards granted in February 2001 (approximately
$11 million); bad debt expense associated with receivables
no longer deemed collectible (approximately $17 million);
impairments of certain investments and other assets
(approximately $5 million); and abandoned pursuit projects
(approximately $3 million).

In addition, in early 2001, the Company wrote
down its investments in various e-business ventures by
approximately $19 million based on the market conditions
for the technology sector at the time and managements
assessment that impairment of these investments, was
other-than-temporary. This special charge was offset by the
reversal of a $20 million bad debt restructuring charge
taken in 1998 relating to a note receivable, which is now fully
performing.

Depreciation and Amortization.Depreciation and amortization
expense increased to $433 million and $93 million,
respectively, in the year ended December 31, 2001 compared
to $391 million and $90 million, respectively, in the
corresponding period of 2000. The increase in depreciation
expense for the year ended December 31, 2001 was primarily
attributable to the additional depreciation resulting from
capital expenditures at many of the Companys owned, leased
and consolidated joint venture hotels over the past two years.

Net Interest Expense.Interest expense for the years
ended December 31, 2001 and 2000, which is net of interest
income of $11 million and $19 million, respectively,
and discontinued gaming operations allocations of
$6 million in the year ended December 31, 2000,
decreased to $367 million from $423 million. These
balances also include charges of $9 and $3 million for 2001
and 2000, respectively, related to debt extinguishment costs.
This decrease was due primarily to lower interest rates compared
to 2000 and the impact of certain financing transactions,
including the issuance of zero coupon convertible debt in May
2001. The Companys weighted average interest rate was
5.10% at December 31, 2001 versus 7.44% at
December 31, 2000.

Gain (Loss) on Asset Dispositions and
Impairments, Net.Due to the
September 11 Attacks and the weakening of the
U.S. economy, the Company conducted a comprehensive review
of the carrying value of certain assets for potential
impairment. As a result, the Company recorded a net charge
relating primarily to the impairment of certain investments in
the fourth quarter of 2001 totaling $57 million. In 2000,
the Company recorded a net gain of $2 million related
primarily to seven hotel sales.

Income Tax Expense.The effective income tax rate for
the year ended December 31, 2001 decreased to 23.2%
compared to 33.0% in the corresponding period in 2000. The
Companys effective income tax rate is determined by the
level and composition of pretax income subject to varying
foreign, state and local taxes and other items. The decrease
from prior year is due to the combination of lower pretax income
in 2001 due primarily to the weakening U.S. economy and the
September 11 Attacks, while maintaining the Companys
normal dividend level.

LIQUIDITY AND CAPITAL RESOURCES

Cash from Operating Activities

Cash flow from operating activities is the
principal source of cash used to fund the Companys
operating expenses, interest payments on debt, maintenance
capital expenditures and distribution payments by the Trust.
Despite the weakened global economies, the Company anticipates
that cash flow provided by operating activities will be
sufficient to service these cash requirements. In 2002, the
Company shifted from a quarterly distribution to an annual
distribution, declaring a distribution of $0.84 per share to
shareholders of record on

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December 31, 2002. The Company paid the 2002
distribution in January 2003. The Company believes that existing
borrowing availability together with capacity from additional
borrowings and cash from operations will be adequate to meet all
funding requirements for the foreseeable future.


Cash Used for Investing Activities

In limited cases, the Company has made loans to
owners of or partners in hotel or resort ventures for which the
Company has a management or franchise agreement. Loans
outstanding under this program totaled $156 million at
December 31, 2002. The Company evaluates these loans for
impairment, and at December 31, 2002, believes these loans
are collectible. Unfunded loan commitments aggregating
$33 million were outstanding at December 31, 2002, of
which $7 million are expected to be funded in 2003 and
$15 million are expected to be funded in total. These loans
typically are secured by pledges of project ownership interests
and/or mortgages on the projects.

The Company participates in programs with
unaffiliated lenders in which the Company may partially
guarantee loans made to facilitate third-party ownership of
hotels that the Company manages or franchises. As of
December 31, 2002, the Company was a guarantor for loans
which could reach a maximum of $164 million relating to
three projects: the St. Regis in Monarch Beach, California,
which opened in mid-2001; the Westin Kierland Resort and Spa in
Scottsdale, Arizona, which opened in November 2002; and the
Westin in Charlotte, North Carolina, which is scheduled to open
in the first quarter of 2003. In connection with the loan
guarantee for the Westin Charlotte, the Company also entered
into a guarantee to fund working capital shortfalls for this
resort through 2005. No fundings are anticipated under this
working capital guarantee. With respect to the Westin Kierland,
the guarantee is joint and several with another equity partner.
The Company does not anticipate any funding under these loan
guarantees in 2003, as all projects are well capitalized.
Furthermore, since each of these properties was funded with
significant equity and subordinated debt financing, if the
Companys loan guarantees were to be called, the Company
could take an equity position in these properties at values
significantly below construction costs.

Surety bonds issued on behalf of the Company as
of December 31, 2002 totaled $119 million, the
majority of which were required by state or local governments
relating to our vacation ownership operations and by our
insurers to secure large deductible insurance programs.

Furthermore, in order to secure management and
franchise contracts, the Company may provide performance
guarantees to third-party owners. Most of these performance
guarantees allow the Company to terminate the contract rather
than fund shortfalls if certain performance levels are not met.
In limited cases, the Company is obliged to fund shortfalls in
performance levels. As of December 31, 2002, the Company
had eight management contracts with performance guarantees with
possible cash outlays of up to $74 million,
$50 million of which, if required, would be funded over a
period of 25 years and would be largely offset by
management fees received under these contracts. Many of the
performance tests are multi-year tests, are tied to the results
of a competitive set of hotels, and have exclusions for force
majeure and acts of war and terrorism. The Company does not
anticipate any significant funding under the performance
guarantees in 2003. In addition, the Company has agreed to
guarantee certain performance levels at a managed property that
has authorized VOI sales and marketing. The exact amount and
nature of the guaranty is currently under dispute. However, the
Company does not believe that any payments under this guaranty
will be significant. Lastly, the Company does not anticipate
losing a significant number of management or franchise contracts
in 2003.

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The Company had the following contractual
obligations outstanding as of December 31, 2002 (in
millions):

|                                      |  |       |       |             |  |           |       |           |  |           |       |  |  |   |       |  |  |   |       | 
|------------------------------------- |  | ----- | ----- | ----------- |  | --------- | ----- | --------- |  | --------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                      |  |       |       | Due in Less |  |           |       |           |  |          
|                                      |  |       |       | Than 1      |  | Due in    |       | Due in    |  | Due After
|                                      |  | Total |       | Year        |  | 1-3 Years |       | 4-5 Years |  | 5 Years  
|                                      |  |       |       |             |  |           |       |           |  |          
|Long-term debt                        |  | $     | 5,318 |             |  | $         | 869   |           |  | $         | 1,025 |  |  | $ | 1,332 |  |  | $ | 2,092 | 
|Capital lease obligations             |  |       | 1     |             |  |           | 1     |           |  |           |      |  |  |   |      |  |  |   |      | 
|Operating lease obligations           |  |       | 949   |             |  |           | 73    |           |  |           | 120   |  |  |   | 98    |  |  |   | 658   | 
|Unconditional purchase obligations(1) |  |       | 165   |             |  |           | 66    |           |  |           | 78    |  |  |   | 20    |  |  |   | 1     | 
|Other long-term obligations           |  |       | 6     |             |  |           |      |           |  |           | 6     |  |  |   |      |  |  |   |      | 
|                                      |  |       |       |             |  |           |       |           |  |           |       |  |  |   |       |  |  |   |       | 
|Total contractual obligations         |  | $     | 6,439 |             |  | $         | 1,009 |           |  | $         | 1,229 |  |  | $ | 1,450 |  |  | $ | 2,751 | 
|                                      |  |       |       |             |  |           |       |           |  |           |       |  |  |   |       |  |  |   |       | 



---



|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(1) | Included in these balances are commitments that
    may be satisfied by the Companys managed and franchised
    properties.

The Company had the following commercial
commitments outstanding as of December 31, 2002 (in
millions):

|                             |  |       |     |                                            |  |           |     |           |  |         |    |  |  |   |   |  |  |   |    | 
|---------------------------- |  | ----- | --- | ------------------------------------------ |  | --------- | --- | --------- |  | ------- | -- |  |  | - | - |  |  | - | -- | 
|                             |  |       |     |                                           
|                             |  |       |     | Amount of Commitment Expiration Per Period
|                             |  |       |     |                                           
|                             |  |       |     | Less Than                                  |  |           |     | After    
|                             |  | Total |     | 1 Year                                     |  | 1-3 Years |     | 4-5 Years |  | 5 Years
|                             |  |       |     |                                            |  |           |     |           |  |        
|Standby letters of credit    |  | $     | 125 |                                            |  | $         | 122 |           |  | $       |   |  |  | $ |  |  |  | $ | 3  | 
|Hotel loan guarantees        |  |       | 164 |                                            |  |           | 55  |           |  |         | 79 |  |  |   |  |  |  |   | 30 | 
|Other commercial commitments |  |       |    |                                            |  |           |    |           |  |         |   |  |  |   |  |  |  |   |   | 
|                             |  |       |     |                                            |  |           |     |           |  |         |    |  |  |   |   |  |  |   |    | 
|Total commercial commitments |  | $     | 289 |                                            |  | $         | 177 |           |  | $       | 79 |  |  | $ |  |  |  | $ | 33 | 
|                             |  |       |     |                                            |  |           |     |           |  |         |    |  |  |   |   |  |  |   |    | 

The Company intends to finance the acquisition of
additional hotel properties (including equity investments),
hotel renovations, VOI construction, capital improvements,
technology spend and other core business acquisitions and
investments and provide for general corporate purposes through
its credit facilities described below, through the net proceeds
from dispositions and when market conditions warrant, through
the issuance of additional equity or debt securities.

The Company periodically reviews its business
with a view to identifying properties or other assets that we
believe either are non-core, no longer complement our business,
are in markets which may not benefit us as much as other markets
during an economic recovery or could be sold at significant
premiums. The Company is focused on restructuring and enhancing
real estate returns and monetizing investments. In the fourth
quarter of 2002, the Company completed the sale of the
Doubletree Minneapolis hotel for $47 million. Including
this sale, the Company is targeting net proceeds of at least
$500 million from domestic and/or international asset sales
by the end of 2003. There can be no assurance, however, that the
Company will be able to complete dispositions on commercially
reasonable terms or at all.

Cash Used for Financing Activities

In October 2002, the Company refinanced its
previous Senior Credit Facility with a new four-year
$1.3 billion Senior Credit Facility. The new facility is
comprised of a $1.0 billion revolving facility and a
$300 million term loan, each maturing in 2006, with a
one-year extension option, and an initial interest rate of LIBOR
+ 1.625%. The proceeds of the new Senior Credit Facility were
used to pay off all amounts owed under the Companys
previous Senior Credit Facility, which was due to mature in
February 2003. The Company incurred approximately
$1 million in charges in connection with this early
extinguishment of debt.

In September 2002, the Company terminated certain
Fair Value Swaps, resulting in a $78 million cash payment
to the Company. These proceeds were used to pay down the
previous revolving credit facility and will result in a decrease
to the interest expense on the hedged debt through its maturity
in 2007. In order to retain its fixed versus floating rate debt
position, the Company immediately entered into five new Fair
Value Swaps on the same underlying debt as the terminated swaps.

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In April 2002, the Company sold $1.5 billion
of senior notes in two tranches  $700 million
principal amount of 7 3/8% senior notes due 2007 and
$800 million principal amount of 7 7/8% senior notes
due 2012 (the Senior Notes Offering). The Company
used the proceeds to repay all of its senior secured notes
facility and a portion of its previous Senior Credit Facility.
In connection with the repayment of debt, the Company incurred
charges of approximately $29 million including
approximately $23 million for the early termination of
interest rate swap agreements associated with repaid debt, and
$6 million write-off of deferred financing costs and
termination fees for the early extinguishment of debt.

In December 2001, the Company entered into an
18-month 450 million Euro loan that automatically extended
for six additional months until December 2003, as the lender
group elected not to exercise its put option. The loan has an
interest rate of Euribor plus 195 basis points. The proceeds of
the Euro loan were drawn down in two tranches; the first
270 million Euros was drawn down in December 2001 and used
to repay the previously outstanding 270 million Euro
facility and the remaining 180 million Euros was drawn down
in January 2002 and the proceeds were used to pay down a portion
of the Companys previous Senior Credit Facility.

The Company maintains non-U.S.-dollar-denominated
debt, which provides a hedge of the Companys international
net assets and operations but also exposes its debt balance to
fluctuations in foreign currency exchange rates. During the
years ended December 31, 2002 and 2001, the effect of
changes in foreign currency exchange rates was a net increase in
debt of approximately $135 million and a net decrease in
debt of approximately $27 million, respectively. The
Companys debt balance is also affected by changes in
interest rates as a result of the Companys Fair Value
Swaps. The fair market value of the Fair Value Swaps is recorded
as an asset or liability and as the Fair Value Swaps are deemed
to be effective, an adjustment is recorded against the
corresponding debt. At December 31, 2002, the
Companys debt included an increase of approximately
$75 million related to the unamortized gain on terminated
fair value swaps and the fair market value of current Fair Value
Swap assets. At December 31, 2001 the Companys debt
included a decrease of approximately $1 million related to
Fair Value Swap liabilities.

In May 2001, the Company sold an aggregate face
amount of $816 million zero coupon convertible senior notes
due 2021. The two series of notes had an initial blended yield
to maturity of 2.35%. The notes are convertible, subject to
certain conditions, into an aggregate 9,657,000 Shares. The
Company received gross proceeds from these sales of
approximately $500 million, which were used to repay a
portion of its senior secured notes facility that bore interest
at LIBOR plus 275 basis points. The Company incurred
approximately $9 million of charges in connection with this
early debt extinguishment. In May 2002, the Company repurchased
all of the outstanding Series A convertible notes for
$202 million in cash. Holders of Series B Notes may
first put these notes to the Company in May 2004 for a purchase
price of approximately $330 million.

In addition to the $450 million Euro loan
maturing in December 2003, approximately $250 million of
the Sheraton Holdings public debt matures in November 2003.
Based upon the current level of operations, management believes
that the Companys cash flow from operations, together with
available borrowings under the Revolving Credit Facility
(approximately $555 million at December 31, 2002),
available borrowings from international revolving lines of
credit (approximately $112 million at December 31,
2002), capacity from additional borrowings and proceeds from
non-core asset sales, will be adequate to meet anticipated
requirements for scheduled maturities, dividends, working
capital, capital expenditures, marketing and advertising program
expenditures, other discretionary investments, interest and
scheduled principal payments for the foreseeable future.
Starwood has a substantial amount of indebtedness and had a
working capital deficiency of $1.249 billion at
December 31, 2002. There can be no assurance that the
Company will be able to refinance its indebtedness as it becomes
due and, if so, on favorable terms, nor can there be assurance
that the Companys business will continue to generate cash
flow at or above historical levels or that currently anticipated
results will be achieved.

While the Companys senior debt is currently
rated investment grade by one of the two major rating agencies,
there can be no assurance the Company will be able to maintain
this rating. On December 20, 2002, that rating agency
placed the Companys investment grade rating on
CreditWatch with negative implica-

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##### Table of Contents



tions. In the event the senior debt is not
investment grade, the Company would likely incur higher
borrowing costs on future financings. At December 31, 2002,
the Companys overall Corporate Credit Rating by Standard
& Poors was BBB (investment grade), and the
Companys Senior Implied Issuer Rating by Moodys was
Ba1 (the highest non-investment grade rating).


If Starwood is unable to generate sufficient cash
flow from operations in the future to service the Companys
debt, the Company may be required to sell additional assets,
reduce capital expenditures, refinance all or a portion of its
existing debt or obtain additional financing. The Companys
ability to make scheduled principal payments, to pay interest on
or to refinance the Companys indebtedness depends on its
future performance and financial results, which, to a certain
extent, are subject to general conditions in or affecting the
hotel and vacation ownership industries and to general economic,
political, financial, competitive, legislative and regulatory
factors beyond the Companys control, including the
severity and duration of the current economic downturn.

Following is a summary of the Companys debt
portfolio as of December 31, 2002:

|                                    |                           |                       |        |                |  |                  |                |                |  |  |      |      |   |  |           |           | 
|----------------------------------- | ------------------------- | --------------------- | ------ | -------------- |  | ---------------- | -------------- | -------------- |  |  | ---- | ---- | - |  | --------- | --------- | 
|                                    |                           | Amount                |        |                |  | Interest Rate at |                |               
|                                    |                           | Outstanding at        |        |                |  | December 31,     |                | Average       
|                                    |                           | December 31, 2002(a)  |        | Interest Terms |  | 2002             |                | Maturity      
|                                    |                           |                       |        |                |  |                  |                |               
|                                    |                           | (Dollars in millions) |        |                |  |                  |                |               
|Floating Rate Debt                  |                           |                       |        |                |  |                  |                |                |  |  |      |      |   |  |           |          
|Senior Credit Facility:             |                           |                       |        |                |  |                  |                |                |  |  |      |      |   |  |           |          
|                                    | Term Loan                 |                       | $      | 300            |  |                  |                | LIBOR(c)+162.5 |  |  |      | 3.01 | % |  |           | 3.0 years | 
|                                    | Revolving Credit Facility |                       |        | 325            |  |                  |                | Various        |  |  |      | 4.10 | % |  |           | 3.8 years | 
|Euro Loan                           |                           |                       | 473    |                |  |                  | Euribor(d)+195 |                |  |  | 4.81 | %    |   |  | 1.0 years |          
|Mortgages and Other                 |                           |                       | 255    |                |  |                  | Various        |                |  |  | 5.53 | %    |   |  | 2.6 years |          
|Interest Rate Swaps                 |                           |                       | 1,002  |                |  |                  |                |                |  |  | 5.29 | %    |   |  |          |          
|                                    |                           |                       |        |                |  |                  |                |                |  |  |      |      |   |  |           |          
|Total/ Average                      |                           | $                     | 2,355  |                |  |                  |                |                |  |  | 4.76 | %    |   |  | 2.4 years |          
|                                    |                           |                       |        |                |  |                  |                |                |  |  |      |      |   |  |           |          
|Fixed Rate Debt                     |                           |                       |        |                |  |                  |                |                |  |  |      |      |   |  |           |          
|Sheraton Holding Public Debt        |                           | $                     | 1,324  | (e)            |  |                  |                |                |  |  | 6.52 | %    |   |  | 8.2 years |          
|Senior Notes                        |                           |                       | 1,542  | (e)            |  |                  |                |                |  |  | 7.13 | %    |   |  | 7.0 years |          
|Convertible Senior Notes  Series B |                           |                       | 316    |                |  |                  |                |                |  |  | 3.25 | %    |   |  | 1.4 years | (b)      
|Mortgages and Other                 |                           |                       | 784    |                |  |                  |                |                |  |  | 7.37 | %    |   |  | 9.4 years |          
|Interest Rate Swaps                 |                           |                       | (1,002 | )              |  |                  |                |                |  |  | 7.19 | %    |   |  |          |          
|                                    |                           |                       |        |                |  |                  |                |                |  |  |      |      |   |  |           |          
|Total/ Average                      |                           | $                     | 2,964  |                |  |                  |                |                |  |  | 6.34 | %    |   |  | 7.4 years |          
|                                    |                           |                       |        |                |  |                  |                |                |  |  |      |      |   |  |           |          
|Total Debt                          |                           |                       |        |                |  |                  |                |                |  |  |      |      |   |  |           |          
|Total Debt and Average Terms        |                           | $                     | 5,319  |                |  |                  |                |                |  |  | 5.64 | %    |   |  | 6.2 years |          
|                                    |                           |                       |        |                |  |                  |                |                |  |  |      |      |   |  |           |          



---



|    |                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Excludes approximately $355 million of the
    Companys share of unconsolidated joint venture debt, all
    of which was non-recourse, except as noted earlier.                                                                               
|   
|(b) | Maturity reflects the earliest date the debt can
    be put to the Company.                                                                                                                                                                    
|   
|(c) | At December 31, 2002, LIBOR was 1.38%                                                                                                                                                                                                          
|   
|(d) | At December 31, 2002, Euribor was 2.86%                                                                                                                                                                                                        
|   
|(e) | Included approximately $27 million and
    $48 million at December 31, 2002 of fair value
    adjustments related to the fixed-to-floating interest rate swaps
    for the Sheraton Holding public debt and the Senior Notes,
    respectively.

During each of the quarters of 2001, the Trust
declared a distribution of $0.20 per Share. Total 2001
distributions were $156 million. In 2002, the Company
shifted from a quarterly distribution to an annual distribution.
A distribution of $0.84 per Share, representing a 5% increase
over the aggregate 2001 distribution, was paid in January 2003
to shareholders of record as of December 31, 2002.

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Stock Sales and Repurchases

At December 31, 2002, Starwood had
outstanding approximately 200 million Shares,
1 million partnership units and 2 million Class A
EPS, Class B EPS and exchangeable units. Through
January 31, 2003, in accordance with the terms of the
Class B EPS, which allow the shareholders to put these
units back to the Company at $38.50 beginning on the fifth
anniversary of the Westin acquisition, 422,753 units of
Class B EPS were put back to the Company for approximately
$16 million. Mr. Sternlicht held, individually and
through various family trusts, an aggregate of 240,391
Class B EPS and limited partnership units of the Realty
Partnership and Operating Partnership convertible to
Class B EPS on a one-to-one basis. On January 2, 2003,
Mr. Sternlicht redeemed all of these Class B EPS for
$38.50 per Share.

In 1998, the Board of Directors of the Company
approved the repurchase of up to $1 billion of Shares under
a Share repurchase program (the Share Repurchase
Program). On April 2, 2001, the Companys Board
of Directors authorized the repurchase of up to an additional
$500 million of Shares under the Share Repurchase Program,
subject to the terms of the previous Senior Credit Facility.
Pursuant to the Share Repurchase Program, Starwood repurchased
3.2 million Shares in the open market for an aggregate cost
of $96 million during 2001. No shares were repurchased
during 2002. As of December 31, 2002, approximately
$633 million remains available under the Share Repurchase
Program.

During 2002, approximately 4,000 shares of
Class B EPS were exchanged by certain stockholders for an
equal number of shares of Class A EPS. Additionally,
approximately 60,000 shares of Class A EPS were exchanged
for an equal number of Shares.

During 2002, the Company exchanged approximately
126,000 limited partnership units of the Realty Partnership and
the Operating Partnership held by third parties for Shares on a
one-for-one basis.






|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    about Market Risk.

In limited instances, the Company seeks to reduce
earnings and cash flow volatility associated with changes in
interest rates and foreign currency exchange rates by entering
into financial arrangements intended to provide a hedge against
a portion of the risks associated with such volatility. The
Company continues to have exposure to such risks to the extent
they are not hedged.

Interest rate swap agreements are the primary
instruments used to manage interest rate risk. At
December 31, 2002, the Company had five outstanding
long-term interest rate swap agreements under which the Company
pays variable interest rates and receives fixed interest rates.
At December 31, 2002, the Company also had one interest
rate swap agreement under which the Company pays a fixed rate
and receives a

32



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##### Table of Contents



variable rate. The following table sets forth the
scheduled maturities and the total fair value of the
Companys debt portfolio:


|                                    |                      |                                       |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |     |  |  |   |       |  |  |  |        |           |  |   |       |  | 
|----------------------------------- | -------------------- | ------------------------------------- | --- | ---- |  | ------------ | --- | ------------ |  | ---- | --- | ---------- |  | ---- | --- | ---- |  | - | --- |  |  | - | ----- |  |  |  | ------ | --------- |  | - | ----- |  | 
|                                    |                      |                                       |     |      |  |              |     |             
|                                    |                      | Expected Maturity or Transaction Date |     |      |  |              |     | Total Fair  
|                                    |                      | At December 31,                       |     |      |  | Total at     |     | Value at    
|                                    |                      |                                       |     |      |  | December 31, |     | December 31,
|                                    |                      | 2003                                  |     | 2004 |  | 2005         |     | 2006         |  | 2007 |     | Thereafter |  | 2002 |     | 2002
|                                    |                      |                                       |     |      |  |              |     |              |  |      |     |            |  |      |     |     
|Liabilities                         |                      |                                       |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |     |  |  |   |       |  |  |  |        |           |  |   |       | 
|Fixed rate (in millions)            |                      | $                                     | 273 |      |  | $            | 340 |              |  | $    | 498 |            |  | $    | 21  |      |  | $ | 769 |  |  | $ | 2,065 |  |  |  | $3,966 |           |  | $ | 3,824 | 
|Average interest rate               |                      |                                       |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |     |  |  |   |       |  |  |  | 6.54%  |           |  |   |       | 
|Floating rate (in millions)         |                      | $                                     | 597 |      |  | $            | 70  |              |  | $    | 118 |            |  | $    | 533 |      |  | $ | 9   |  |  | $ | 26    |  |  |  | $1,353 |           |  | $ | 1,353 | 
|Average interest rate               |                      |                                       |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |     |  |  |   |       |  |  |  | 4.37%  |           |  |   |       | 
|Interest Rate Swaps                 |                      |                                       |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |     |  |  |   |       |  |  |  |        |           |  |   |       | 
|Variable to fixed
    (in millions) |                      | $                                     | 48  |      |  | $            |    |              |  | $    |    |            |  | $    |    |      |  | $ |    |  |  | $ |      |  |  |  | $   48 |           |  |   |       | 
|                                    | Pay rate             |                                       |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |     |  |  |   |       |  |  |  |        | 4.09%     |  |   |       |  | 
|                                    | Receive rate         |                                       |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |     |  |  |   |       |  |  |  |        | ST. LIBOR |  |   |       |  | 
|Fixed to variable
    (in millions) |                      | $                                     |    |      |  | $            |    |              |  | $    | 450 |            |  | $    |    |      |  | $ | 600 |  |  | $ |      |  |  |  | $1,050 |           |  |   |       | 
|                                    | Average pay rate     |                                       |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |     |  |  |   |       |  |  |  |        | LIBOR     |  |   |       |  | 
|                                    | Average receive rate |                                       |     |      |  |              |     |              |  |      |     |            |  |      |     |      |  |   |     |  |  |   |       |  |  |  |        | 3.19%     |  |   |       |  | 

Foreign currency forward transactions are used by
the Company to hedge exposure to foreign currency exchange rate
fluctuations. The gains or losses on the forward contracts are
largely offset by the gains or losses of the underlying
transactions, and consequently, a sudden significant change in
foreign currency exchange rates would not have a material impact
on future net income or cash flows on such underlying
transactions. The Company monitors its foreign currency exposure
on a monthly basis to maximize the overall effectiveness of its
foreign currency hedge positions. Changes in the value of
forward foreign exchange contracts designated as hedges of
foreign currency denominated assets and liabilities are
classified in the same manner as changes in the underlying
assets and liabilities. At December 31, 2002, the notional
amount of the Companys open forward foreign exchange
contract protecting the value of the Companys foreign
currency denominated assets and liabilities was approximately
$2 million. A hypothetical 10% change in currency exchange
rates under the remaining contracts would result in an increase
or decrease of approximately $240,000 to the fair value of the
forward foreign exchange contract at December 31, 2002,
which would be offset by an opposite effect on the related
hedged position.

The Company enters into a derivative financial
arrangement only to the extent it meets the objectives described
above, and the Company does not engage in such transactions for
trading or speculative purposes.

See Note 17 in the notes to financial
statements filed as part of this Joint Annual Report and
incorporated herein by reference for further description of
derivative financial instruments.






|        |                                                 
|------- | ------------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data.

The financial statements and supplementary data
required by this Item are included in Item 15 of this Joint
Annual Report and are incorporated herein by reference.

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##### Table of Contents








|        |                                                                                              
|------- | ---------------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements with
    Accountants on Accounting and Financial
    Disclosure.

Not applicable.




PART III






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 10. | Directors, Trustees and Executive Officers
    of the Registrants.

The Board of Directors of the Corporation and the
Board of Trustees of the Trust are currently comprised of
10 members, each of whom is elected for a three-year term.
The following table sets forth, for each of the members of the
Board of Directors and the Board of Trustees as of the date of
this Joint Annual Report, the class to which such Director or
Trustee has been elected and certain other information regarding
such Director or Trustee.

|                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                       |  | 
|------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------- |  | 
|Name (Age)                                                               |  | Principal Occupation and Business Experience                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Service Period                                       
|                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                      
|Directors and Trustees Whose Terms Expire at
    the 2005 Annual Meeting |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                      
|Charlene Barshefsky (52)                                                 |  | Senior International Partner at the law firm of
    Wilmer, Cutler & Pickering, Washington, D.C. From
    March 1997 to January 2001, Ambassador Barshefsky was the United
    States Trade Representative, the chief trade negotiator and
    principal trade policy maker for the United States and a member
    of the Presidents Cabinet. Ambassador Barshefsky is a
    director of The Estee Lauder Companies, Inc., American Express
    Company and Idenix Pharmaceuticals, Inc. (a privately held
    company) and serves on the Policy Advisory Board of Intel
    Corporation.                                                                                                                                                                                                                                                   |  | Director since October 2001Trustee since October 2001
|Bruce W. Duncan (51)                                                     |  | President, Chief Executive Officer and Trustee of
    Equity Residential (EQR) since April 2002, the
    largest publicly traded apartment company in the United States.
    From April 2000 until March 2002, he was a private investor.
    From December 1995 until March 2000, Mr. Duncan served as
    Chairman, President and Chief Executive Officer of The Cadillac
    Fairview Corporation Limited, a real estate operating company.
    Mr. Duncan is a member of the Partnership Committee of the
    Rubenstein Company, L.P., a real estate operating company
    focused on office properties in the mid-atlantic region.
    Mr. Duncan is a member and past trustee of the
    International Council of Shopping Centres and a member of the
    Board and executive committee of the National Multi-Housing
    Council. |  | Director since April 1999Trustee since August 1995   
|Stephen R. Quazzo (43)                                                   |  | Managing Director, Chief Executive Officer and
    co- founder of Transwestern Investment Company, L.L.C., a real
    estate principal investment firm, since March 1996. From April
    1991 to March 1996, Mr. Quazzo was President of Equity
    Institutional Investors, Inc., a subsidiary of Equity Group
    Investments, Inc., a Chicago-based holding company controlled by
    Samuel Zell. Mr. Quazzo is an advisory board member of City
    Year Chicago and a trustee of The Latin School of Chicago.                                                                                                                                                                                                                                                                                                                          |  | Director since April 1999Trustee since August 1995   

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|                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                      |  | 
|------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------- |  | 
|Name (Age)                                                               |  | Principal Occupation and Business Experience                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Service Period                                      
|                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                     
|Directors and Trustees Whose Terms Expire at
    the 2004 Annual Meeting |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                     
|Eric Hippeau (51)                                                        |  | Managing Partner of Softbank Capital Partners, an
    Internet venture capital firm, since March 2000.
    Mr. Hippeau served as Chairman and Chief Executive Officer
    of Ziff-Davis Inc., an integrated media and marketing company,
    from 1993 to March 2000 and held various other positions with
    Ziff-Davis from 1989 to 1993. Mr. Hippeau is a director of
    CNET Networks, Inc. and Yahoo! Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | Director since April 1999Trustee since April 1999   
|George J. Mitchell (69)                                                  |  | Partner in the law firm of Piper Rudnick since
    October 2002. From January 1995 to October 2002 he was Special
    Counsel to the law firm of Verner, Liipfert, Bernhard, McPherson
    and Hand (Verner Liipfert) and served as Chairman of
    that firm from November 2001 to October 2002. Verner Liipfert
    merged into Piper Rudnick in October 2002. He served as a United
    States Senator from January 1980 to January 1995, and was the
    Senate Majority Leader from 1989 to 1995. From 1995 to 1997,
    Senator Mitchell served as the Special Advisor to the President
    of the United States on economic initiatives in Ireland.
    Subsequently, at the request of the British and Irish
    Governments, he served as Chairman of the peace negotiations in
    Northern Ireland. Senator Mitchell is a director of The Walt
    Disney Company, Federal Express Corporation and Staples, Inc. In
    addition, Senator Mitchell serves as President of the Economic
    Club of Washington. |  | Director since April 1999Trustee since November 1997
|Daniel W. Yih (44)                                                       |  | Principal, with GTCR Golder Rauner, LLC, a
    private equity firm, since March 2000 and is currently its Chief
    Operating Partner. From June 1995 until March 2000, Mr. Yih
    was a general partner of Chilmark Partners, L.P., a private
    equity firm. He is a director of several privately-held
    companies, including Comsys, AETEA Information Technology, Inc.,
    InteCap, Inc. and National Computer Print.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | Director since August 1995Trustee since April 1999  
|Kneeland C. Youngblood (47)                                              |  | Managing partner of Pharos Capital Group, L.L.C.,
    a private equity fund focused on technology companies, business
    service companies and health care companies, since January 1998.
    From July 1985 to December 1997, he was in private medical
    practice. He is a director of the American Advantage Funds, a
    mutual fund company managed by AMR Investments, an investment
    affiliate of American Airlines.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | Director since April 2001Trustee since April 2001   

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|                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                         |  | 
|------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | 
|Name (Age)                                                               |  | Principal Occupation and Business Experience                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | Service Period                                                                         
|                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                        
|Directors and Trustees Whose Terms Expire at
    the 2003 Annual Meeting |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                        
|Jean-Marc Chapus (43)                                                    |  | Group Managing Director and Portfolio Manager of
    Trust Company of the West, an investment management firm, and
    President of TCW/ Crescent Mezzanine L.L.C., a private
    investment fund, since March 1995. Mr. Chapus is a director
    of MEMC Electrical Materials, Inc. He also serves as a director
    of Magnequench International, Inc., and TCW Asset Management
    Company (both privately held companies).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Director from August 1995 to November 1997; since April 1999Trustee since November 1997
|Thomas O. Ryder (58)                                                     |  | Chairman of the Board, Chief Executive Officer
    and a Director of The Readers Digest Association, Inc.
    since April 1998. Mr. Ryder was President, American Express
    Travel Related Services International, a division of American
    Express Company, which provides travel, financial and network
    services, from October 1995 to April 1998. He is a director of
    Amazon.com Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | Director since April 2001Trustee since April 2001                                      
|Barry S. Sternlicht (42)                                                 |  | Chairman and Chief Executive Officer of the
    Company since September 1997 and January 1999, respectively.
    Mr. Sternlicht has served as Chairman and Chief Executive
    Officer of the Trust since January 1995. Mr. Sternlicht
    also has been the President and Chief Executive Officer of
    Starwood Capital and its predecessor entities since its
    formation in 1991. Mr. Sternlicht was Chief Executive
    Officer of iStar Financial, Inc. (iStar), a
    publicly-held real estate investment firm, from September 1996
    to November 1997 and served as the Chairman of the Board of
    Directors of iStar from September 1996 to April 2000.
    Mr. Sternlicht has been a Director (or Trustee, as
    applicable) of iStar since September 1996. He serves on the
    Boards of Healthmarket, Inc., The Greenwich YMCA, the Harvard
    Club and the Business Committee for the Arts.
    Mr. Sternlicht is a member of the Council of Foreign
    Relations, a member of the Advisory Board of Directors of the
    Juvenile Diabetes Research Foundation and the Council for
    Christian and Jewish Understanding. He is a member of the Young
    Presidents Organization, the Board of Trustees of Thirteen/
    WNET, the Board of Trustees of Brown University, the Committee
    to Encourage Corporate Philanthropy and the Council for
    Italian-American Relations. |  | Director since December 1994Trustee since December 1994                                

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##### Table of Contents



Executive Officers of the
Registrants

The following table includes certain information
with respect to each of Starwoods executive officers as of
December 31, 2002.

|                    |  |     |    |             |  |                                                                                                                                                                      
|------------------- |  | --- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                |  | Age |    | Position(s)
|                    |  |     |    |            
|Barry S. Sternlicht |  |     | 42 |             |  | Chairman, Chief Executive Officer and a Director
    of the Corporation and Chairman, Chief Executive Officer and a
    Trustee of the Trust                         
|Robert F. Cotter    |  |     | 51 |             |  | Chief Operating Officer of the Corporation and a
    Vice President of the Trust                                                                                     
|Ronald C. Brown     |  |     | 48 |             |  | Executive Vice President and Chief Financial
    Officer of the Corporation and Vice President, Chief Financial
    Officer and Chief Accounting Officer of the Trust
|Kenneth S. Siegel   |  |     | 47 |             |  | Executive Vice President, General Counsel and
    Secretary of the Corporation and Vice President, General Counsel
    and Secretary of the Trust                    
|David K. Norton     |  |     | 47 |             |  | Executive Vice President  Human
    Resources of the Corporation and Vice President 
    Human Resources of the Trust                                              
|Theodore W. Darnall |  |     | 45 |             |  | President, Real Estate Group of the Corporation                                                                                                                      
|Steven M. Hankin    |  |     | 42 |             |  | President, Starwood Technology and Revenue
    Systems of the Corporation                                                                                            

Barry S. Sternlicht.See Item 10 above.

Robert F. Cotter.Mr. Cotter has been the Chief
Operating Officer of the Corporation since February 2000 and a
Vice President of the Trust since August 2000. From December
1999 to February 2000, he was President, International
Operations, and from March 1998 to December 1999, he served as
President, Europe, of the Company. Prior to joining the Company,
Mr. Cotter was President, Sheraton Europe Division, from
June 1994 to March 1998 and previously held various other
positions with Sheraton including President, Sheraton
Asia-Pacific Divisions, and numerous sales and marketing
positions in the United States and Asia.

Ronald C. Brown.Mr. Brown has been the
Executive Vice President and Chief Financial Officer of the
Corporation since March 1998 and has served as Vice President,
Chief Financial Officer and Chief Accounting Officer of the
Trust since January 1999. From July 1995 to March 1998, he was
the Senior Vice President and Chief Financial Officer of the
Trust.

Kenneth S. Siegel.Mr. Siegel has been the
Executive Vice President and General Counsel of the Corporation
and Vice President and General Counsel of the Trust since
November 2000. In February 2001, he was also appointed as the
Secretary to both the Corporation and the Trust. Mr. Siegel
was formerly the Senior Vice President and General Counsel of
Gartner, Inc., a provider of research and analysis on
information technology industries, from January 2000 to November
2000. Prior to that time, he served as Senior Vice President,
General Counsel and Corporate Secretary of IMS Health
Incorporated, an information services company, and its
predecessors from February 1997 to December 1999. Prior to that
time, Mr. Siegel was a Partner in the law firm of Baker
& Botts, LLP. Mr. Siegel is also a Trustee and
President of Cancer Hope Network, a non-profit entity.

David K. Norton.Mr. Norton has been the
Executive Vice PresidentHuman Resources of the Corporation
and Vice PresidentHuman Resources of the Trust since May
2000. Prior to joining the Company, Mr. Norton held various
positions with PepsiCo, Inc. from September 1990 to April 2000
including Senior Vice President, Human Resources of Frito-Lay, a
division of PepsiCo, from November 1995 to April 2000 and Senior
Vice President, Human Resources of PepsiCo Food Systems from
December 1994 to October 1995.

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##### Table of Contents



Theodore W. Darnall.Mr. Darnall has been the
President of the Real Estate Group since August 2002. From July
1999 to August 2002, he was the President of the Companys
North America Group. From April 1998 to July 1999 Mr. Darnall
was Executive Vice President, North America Operations.
Mr. Darnall was also Executive Vice President and COO of
Starwood Lodging between April 1996 and April 1998.

Steve M. Hankin.Mr. Hankin has been the
President of Starwood Technology and Revenue Systems
(STARS) since June 2000. He joined Starwood as
Senior Vice President of Strategic Planning in October 1999 and
held that position until May 2000, when he became the Executive
Vice President of the Company and President  STARS.
From October 1986 to September 1999, he was a partner at
McKinsey & Company, Inc., an international management
consulting firm. Mr. Hankin is a director of the United Way
of New York City and Hudson River Museum, both non-profit
entities, and of TravelWeb, LLC, a private company.

Section 16(a) Beneficial Ownership
Reporting Compliance

Section 16(a) of the Securities Exchange Act
of 1934, as amended, requires that Directors, Trustees and
executive officers of the Company, and persons who own more than
10 percent of the outstanding Shares, file with the SEC
(and provide a copy to the Company) certain reports relating to
their ownership of Shares and other equity securities of the
Company.

To the Companys knowledge, based solely on
a review of the copies of these reports furnished to the Company
for the fiscal year ended December 31, 2002, and written
representations that no other reports were required, all
Section 16(a) filing requirements applicable to its
Directors, Trustees, executive officers and greater than
10 percent beneficial owners were complied with for the
most recent fiscal year, except that Ambassador Barshefsky and
Messrs. Chapus, Duncan, Hippeau, Mitchell, Quazzo, Ryder,
Yih and Youngblood each failed to timely file three Forms 4 with
respect to three transactions; and Messrs. Brown, Cotter,
Darnall, Hankin, Norton, Siegel and Sternlicht each failed to
timely file one Form 4 with respect to one transaction.
These transactions were not filed timely as a result of an
internal administrative error.




Item 11.     Executive
Compensation.

The information called for by Item 11 is
incorporated by reference to the information under the following
captions in the Proxy Statement: Compensation of Directors
and Trustees, Summary of Cash and Certain Other
Compensation, Executive Compensation,
Option Grants, Option Exercises and
Holdings, Employment and Compensation Agreements
with Executive Officers, Compensation Committee
Interlocks and Insider Participation and Certain
Relationships and Related Transactions.




Item 12.     Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.

Equity Compensation Plan
Information  December 31, 2002

(In millions, except per Share
amounts)


|                                                               |  |                      |            |                      |  |                           |       |  |  |  |           | 
|-------------------------------------------------------------- |  | -------------------- | ---------- | -------------------- |  | ------------------------- | ----- |  |  |  | --------- | 
|                                                               |  | (a)                  |            | (b)                  |  | (c)                      
|                                                               |  |                      |            |                      |  | Number of securities     
|                                                               |  | Number of securities |            |                      |  | remaining available for  
|                                                               |  | to be issued upon    |            | Weighted-average     |  | future issuance under    
|                                                               |  | exercise of          |            | exercise price of    |  | equity compensation plans
|                                                               |  | outstanding options, |            | outstanding options, |  | (excluding securities    
|                                                               |  | warrants and rights  |            | warrants and rights  |  | reflected in Column (a)) 
|                                                               |  |                      |            |                      |  |                          
|Equity compensation plans approved by security
    holders     |  |                      | 45,748,940 |                      |  | $                         | 31.56 |  |  |  | 7,766,680 | 
|Equity compensation plans not approved by
    security holders |  |                      |           |                      |  |                           |      |  |  |  |          | 
|                                                               |  |                      |            |                      |  |                           |       |  |  |  |           | 
|Total                                                          |  |                      | 45,748,940 |                      |  | $                         | 31.56 |  |  |  | 7,766,680 | 

38



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##### Table of Contents



The remaining information called for by
Item 12 is incorporated by reference to the information
under the caption Security Ownership of Certain Beneficial
Owners and Management in the Proxy Statement.




Item 13.     Certain
Relationships and Related Transactions.

Policies of the Board of Directors of the
Corporation and the Board of Trustees of the Trust

The policy of the Board of Directors of the
Corporation and the Board of Trustees of the Trust provides that
any contract or transaction between the Corporation or the
Trust, as the case may be, and any other entity in which one or
more of its Directors, Trustees or officers are directors or
officers, or have a financial interest, must be approved or
ratified by the Governance Committee (which is comprised of
Senator Mitchell and Messrs. Ryder and Youngblood) or by a
majority of the disinterested Directors or Trustees in either
case after the material facts as to the relationship or interest
and as to the contract or transaction are disclosed or are known
to them.

Starwood Capital

General.Barry S. Sternlicht, Chairman,
Chief Executive Officer and a Director of the Corporation, and
Chairman, Chief Executive Officer and a Trustee of the Trust,
controls and has been the President and Chief Executive Officer
of Starwood Capital since its formation in 1991. Affiliates of
Starwood Capital held an approximate 50% vote and 35.16%
interest in profits in the Westin entities acquired by a
predecessor of the Company, in 1997.

Trademark License.An affiliate of Starwood Capital
has granted to Starwood, subject to Starwood Capitals
unrestricted right to use such name, an exclusive,
non-transferable, royalty-free license to use the
Starwood name and trademarks in connection with the
acquisition, ownership, leasing, management, merchandising,
operation and disposition of hotels worldwide, and to use the
Starwood name in its corporate name worldwide, in
perpetuity.

Starwood Capital Noncompete.In connection with a restructuring
of the Company in 1995, Starwood Capital agreed that, with
certain exceptions, Starwood Capital would not compete directly
or indirectly with the Company within the United States and
would present to the Company all opportunities presented to
Starwood Capital to acquire fee interests in hotels in the
United States and debt interests in hotels in the United States
where it is anticipated that the equity will be acquired by the
debt holder within one year from the acquisition of such debt
(the Starwood Capital Noncompete). During the term
of the Starwood Capital Noncompete, neither Starwood Capital nor
any of its affiliates is permitted to acquire any such interest,
or any ground lease interest or other equity interest, in hotels
in the United States. In addition, the Companys Corporate
Opportunity Policy requires that each director and executive
officer submit to the Corporate Governance Committee any
opportunity that the director or executive officer reasonably
believes is within the Companys lines of business or in
which the Company has an interest. Therefore, as a matter of
practice, all opportunities to purchase hotel-related assets,
even those outside of the United States, that Starwood Capital
may pursue are first presented to the Company. The Starwood
Capital Noncompete continues until no officer, director, general
partner or employee of Starwood Capital is on either the Board
of Directors of the Corporation or the Board of Trustees of the
Trust (subject to exceptions for certain restructurings, mergers
or other combination transactions with unaffiliated parties).
Several properties owned or managed by the Company, including
the Westin Innisbrook Resort (the Innisbrook
Resort), the Westin Mission Hills Resort and the Turnberry
Hotel, were opportunities brought to the Company or its
predecessors by Starwood Capital or entities related to
Mr. Sternlicht. With the approval in each case of the
Governance Committee of the Board of Directors of the
Corporation and the Board of Trustees of the Trust, from time to
time the Company has waived the restrictions of the Starwood
Capital Noncompete, in whole or in part, (or passed on the
opportunity in cases of the Corporate Opportunity Policy for
non-U.S.-opportunities) with respect to particular acquisition
opportunities in which the Company had no interest. Since 1995,
a total of four such investments were made  the Radisson
Governors Inn Hotel in Research Triangle Park as part of a mixed
use property in Raleigh, North Carolina (deemed below the
quality of hotel the Company targets); the acquisition of Chevy
Chase Plaza, a mixed use property in Maryland that included a
Holiday Inn hotel leased on a long

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term basis to a third party operator (no
management or branding opportunity was available), the
acquisition of a small lower end hotel located in Kobe, Japan
operated by a third party at the date of acquisition and deemed
unsuitable for any Starwood brand and a 16-hotel portfolio of
lessor interests under which the properties were subject to
long-term operating leases which were essentially long-term
income investments and not an opportunity to manage or brand the
properties, and which were not of interest to the Company.


Portfolio Investments.An affiliate of Starwood Capital
holds an approximately 25% non-controlling interest in Troon
Golf (Troon), a golf course management company that
currently manages over 120 high-end golf courses.
Mr. Sternlichts indirect interest in Troon held
through such affiliate is approximately 12%. Troon is one of the
largest third-party managers of golf courses in the United
States. In January 2002, after extensive review of alternatives
and with the unanimous approval of the Governance Committee, the
Company entered into a Master Agreement with Troon covering the
United States and Canada whereby the Company has agreed to have
Troon manage all golf courses in the United States and Canada
that are owned by the Company and to use reasonable efforts to
have Troon manage golf courses at resorts that the Company
manages and franchises. The Company believes that the terms of
the Troon agreement are at or better than market terms.
Mr. Sternlicht did not participate in the negotiations or
the approval of the Troon Master Agreement. During 2002, Troon
managed 17 golf courses at resorts owned or managed by the
Company. The Company paid Troon a total of $2,688,000 ($962,000
of which represents management fees and payments for other
services and $1,726,000 of which represents reimbursements of
third-party expenses), in 2002 for eight golf courses at resorts
owned or managed by the Company. During 2001 and 2000, the
Company paid a total of $479,000 ($432,000 of which represents
management fees and payments for other services and $47,000 of
which represents reimbursements of third-party expenses), and
$545,000 ($458,000 of which represents management fees and
payments for other services and $87,000 of which represents
reimbursements of third-party expenses), respectively for two
golf courses at resorts owned by the Company.

An entity in which Mr. Sternlicht has a 38%
interest owned the common area of the Sheraton Tamarron Resort,
which the Company managed until December 2001. As of the date of
this filing, management fees earned and paid were, $197,000 and
$219,000 relating to 2001 and 2000, respectively. The Company
has outstanding receivables of approximately $314,000 at
December 31, 2002, which arose as a result of the
termination of the Tamarron management agreement. These
receivables are expected to be paid in connection with any
settlement of the Innisbrook matter discussed below. The Company
believes that the terms of the Tamarron agreement were at or
better than market terms.

In addition, a subsidiary of Starwood Capital is
a general partner of a limited partnership which owns
approximately 45% in an entity that manages over 40 health
clubs, including one health club and spa space in a hotel owned
by the Company. The Company paid approximately $84,000 annually
to the management company for such management services in 2002,
2001 and 2000. The Company believes that the terms of the
management agreement are at or better than market terms.

Other Management-Related Investments.Mr. Sternlicht has a 38%
indirect interest in an entity (the Innisbrook
Entity) that owns the common area facilities and certain
undeveloped land (but not the hotel) at the Innisbrook Resort.
In May 1997, the Innisbrook Entity entered into a management
agreement for the Innisbrook Resort with Westin, which was then
a privately held company partly owned by Starwood Capital and
Goldman, Sachs & Co. When the Company acquired Westin in
January 1998, it acquired Westins rights and obligations
under the management and other related agreements. Under these
agreements, the hotel manager was obligated to loan up to
$12.5 million to the owner in the event certain performance
levels were not achieved. Management fees earned under these
agreements were $584,000, $716,000 and $885,000 in 2002, 2001
and 2000, respectively. The operations of the Innisbrook Entity
have not generated sufficient cash flow to service the debt and
remain current in its payments to the Company. The Innisbrook
Entity, the Company and other lenders are currently in
discussions regarding the terms and timing of payments owed to
the Company and such other lenders. The discussions relate to
approximately $7 million in loans by the Company, which
funded resort operations and approximately $5 million of
deferred management fees and reimbursable expenses as well as
amounts owed by the Innisbrook Entity to other parties. While
there can be no assurance that the Company will be able to
collect these amounts, based on available information and the
establishment of applicable reserves, the Company does not
believe any resolution of this matter will have a

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material impact on the financial position,
results of operation or cash flows of the Company. Any
settlement of this matter would be subject to the approval of
the Governance Committee.


In July 2002, the Company acquired a 49% interest
in the Westin Savannah Harbor Resort and Spa in connection with
the restructuring of the indebtedness of that property. An
unrelated party holds an additional 49% interest in the
property. The remaining 2% is held by Troon. As disclosed above,
Mr. Sternlicht owns an approximate 12% non-controlling
interest in Troon through an affiliate of Starwood Capital.
Troon invested in the project on a pari-passu basis and manages
the golf course at the Westin Savannah. The unrelated third
party negotiated the terms of the golf management agreement with
Troon and approved the terms of its equity interest, and
therefore, the Company believes the arrangements are on an
arms-length basis.

Aircraft Lease.In February 1998, the Company
leased a Gulfstream III Aircraft (GIII) from
Star Flight LLC, an affiliate of Starwood Capital. The term of
the lease was one year and automatically renews for one-year
terms until 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 at the
time (based on two estimates 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 with this amount increasing as additional
costs are incurred by the lessor), plus (ii) $300 for each
hour that the aircraft is in use. Payments to Star Flight LLC
were $2,052,000, $1,682,000 and $840,000 in 2002, 2001 and 2000,
respectively. Starwood Capital has used the GIII as well as the
Gulfstream IV Aircraft (GIV) operated by the
Company. For use of the GIII, Starwood Capital relieves the
Company of lease payments for the days the plane is used and
reimburses the Company for costs of operating the aircraft.
Lease relief and reimbursed operating costs were approximately
$296,000, $95,000 and $176,000 for fiscal 2002, 2001 and 2000,
respectively. For use of the GIV, Starwood Capital pays a
charter rate that the Company believes is no less favorable than
that which the Company could receive from an unaffiliated third
party.

Other

The Company has on occasion made loans to
employees, including executive officers, principally in
connection with home purchases upon relocation. As of
December 31, 2002, approximately $11 million in loans
to approximately 36 employees was outstanding of which
approximately $7 million were non-interest bearing home
loans. Home loans are generally due five years from the date of
issuance or upon termination of employment and are secured by a
second mortgage on the employees home. Officers receiving
home loans in connection with relocation were Robert F. Cotter,
Chief Operating Officer in June 2001 (original balance of
$600,000), Ronald C. Brown, Executive Vice President and Chief
Financial Officer in June 1999 (original balance of $600,000),
David K. Norton, Executive Vice President of Human Resources in
July 2000 (original balance of $500,000), Theodore W. Darnall,
President, Real Estate Group, in 1996 and 1998 (original balance
of $750,000 ($150,000 bridge loan in 1996 of which $100,000 has
been repaid) and $600,000 home loan in 1998) and Steven M.
Hankin, President, Starwood Technology and Revenue Systems in
2000 (original balance of $300,000). The loans to
Messrs. Cotter, Norton, Darnall and Hankin are currently
outstanding. The loan made to Mr. Brown was repaid in 2001.
As a result of the acquisition of ITT Corporation in 1998,
restricted stock awarded to Messrs. Sternlicht, Brown and
Darnall in 1996 vested at a price for tax purposes of $53 per
Share. This amount was taxable at ordinary income rates. By late
1998, the value of the stock had fallen below the amount of
income tax owed. In order to avoid a situation in which the
executives could be required to sell all of the Shares acquired
by them to cover income taxes, in April 1999 the Company made
interest-bearing loans at 5.67% to Messrs. Sternlicht,
Brown and Darnall of $1,222,000, $218,000 and $416,000
respectively, to cover the taxes payable. Accrued interest on
these loans at December 31, 2002 is approximately $257,000,
$46,000 and $88,000, respectively. The notes and all associated
accumulated interest become due on their tenth anniversary.

Since July 2002, Richard Cotter has been the Vice
President, Operations, Mid Atlantic Region for the Company. From
January 2001 to July 2002 Mr. Cotter served as Vice
President, Operations, New York City and assisted in the
transition of a new General Manager for the St. Regis New York
and from July 1998 to January 2001, he served as Vice President,
the St. Regis Group, and Managing Director, St. Regis New York
(General Manager of the property). Mr. Cotters salary
and bonus were $272,571 and $181,335, respectively,

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for 2000, $283,336 and $71,549, respectively, for
2001 and $292,160 and $53,244 respectively, for 2002. In
connection with the Companys Long Term Incentive Plans,
Mr. Cotter was granted 31,000, 10,823 and 28,000 options to
purchase Company shares in 2000, 2001 and 2002, respectively,
and was awarded 3,487 shares of restricted stock in 2001. In
addition, in connection with his employment as general manager
of the St. Regis and these other positions, Mr. Cotter was
provided with the use of a Company-owned apartment in New York
City adjacent to the St. Regis, which the Company believes has a
rental value of $10,000 per month. Mr. Cotter has had the
use of the apartment since September 1998. In light of his new
position with the Company, Mr. Cotter will no longer have
use of the apartment starting during the first quarter of 2003.
Richard Cotter is the brother of Robert Cotter, who has been the
Chief Operating Officer of the Company since February 2000.


In 2002, Starwood retained the law firm Piper
Rudnick (as well as Verner Liipfert, which merged with Piper
Rudnick in October 2002), of which Senator George J. Mitchell, a
Director of the Corporation and Trustee of the Trust, is a
partner. We expect that this firm will continue to provide
services to the Company in 2003.




Item 14.     Controls
and Procedures.

Based on their evaluation, as of a date within
90 days of the filing of this Form 10-K, the
Companys Chief Executive Officer and Chief Financial
Officer have concluded the Companys disclosure controls
and procedures (as defined in Rules 13a-14 and 15d-14 under
the Securities Exchange Act of 1934, as amended) are effective.

There have been no significant changes in
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

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PART IV






|         |                                                                                           
|-------- | ------------------------------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statements, Financial
    Statement Schedules and Reports on Form 8-K.



|    |                                                                             
|--- | ----------------------------------------------------------------------------
|(a) | The following documents are filed as a part of
    this Joint Annual Report:



|   |                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | The financial statements and financial statement
    schedules listed in the Index to Financial Statements and
    Schedules following the signature pages hereof.

2.     Exhibits:

|        |   |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | - | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                       
|Number  |   | Description of Exhibit
|        |   |                       
|        | 2 | .1                     |  | Formation Agreement, dated as of
    November 11, 1994, among the Trust, the Corporation,
    Starwood Capital and the Starwood Partners (incorporated by
    reference to Exhibit 2 to the Trusts and the
    Corporations Joint Current Report on Form 8-K dated
    November 16, 1994). (The SEC file numbers of all filings
    made by the Corporation and the Trust pursuant to the Securities
    Exchange Act of 1934, as amended, and referenced herein are:
    1-7959 (the Corporation) and 1-6828 (the Trust)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 2 | .2                     |  | Form of Amendment No. 1 to Formation
    Agreement, dated as of July 1995, among the Trust, the
    Corporation and the Starwood Partners (incorporated by reference
    to Exhibit 10.23 to the Trusts and the
    Corporations Joint Registration Statement on Form S-2
    filed with the SEC on June 29, 1995 (Registration
    Nos. 33-59155 and 33-59155-01)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 2 | .3                     |  | Transaction Agreement, dated as of
    September 8, 1997, by and among the Trust, the Corporation,
    Realty Partnership, Operating Partnership, WHWE L.L.C., Woodstar
    Investor Partnership (Woodstar), Nomura Asset
    Capital Corporation, Juergen Bartels, Westin Hotels &
    Resorts Worldwide, Inc., W&S Lauderdale Corp., W&S
    Seattle Corp., Westin St. John Hotel Company, Inc., W&S
    Denver Corp., W&S Atlanta Corp. and W&S Hotel L.L.C.
    (incorporated by reference to Exhibit 2 to the Trusts
    and the Corporations Joint Current Report on Form 8-K
    dated September 9, 1997, as amended by the Form 8-K/ A
    dated December 18, 1997).                                                                                                                                                                                                                                                                                                                   
|        | 2 | .4                     |  | Amended and Restated Agreement and Plan of
    Merger, dated as of November 12, 1997, by and among the
    Corporation, the Trust, Chess Acquisition Corp.
    (Chess) and ITT Corporation (incorporated by
    reference to Exhibit 2.1 to the Trusts and the
    Corporations Joint Current Report on Form 8-K dated
    November 13, 1997).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 2 | .5                     |  | Agreement and Plan of Restructuring, dated as of
    September 16, 1998, and amended as of November 30,
    1998, among the Corporation, ST Acquisition Trust (ST
    Trust) and the Trust (incorporated by reference to
    Annex A to the Trusts and the Corporations
    Joint Proxy Statement dated December 3, 1998 (the
    1998 Proxy Statement)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 2 | .6                     |  | Form of Stock Purchase Agreement, dated as of
    February 23, 1998, between the Trust and the Corporation
    (incorporated by reference to Exhibit 10.4 to the
    Trusts and the Corporations Joint Annual Report on
    Form 10-K for the year ended December 31, 1997 (the
    1997 Form 10-K)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 3 | .1                     |  | Amended and Restated Declaration of Trust of the
    Trust, amended and restated as of January 6, 1999
    (incorporated by reference to Exhibit 1 to the Trusts
    Registration Statement on Form 8-A filed on
    December 21, 1998 (the Trust Form 8-A),
    except that the following changes were made on January 6,
    1999, upon the filing by the Trust and ST Trust of the Articles
    of Merger of ST Trust into the Trust (the Articles of
    Merger) with, and the acceptance thereof for record by,
    the State Department of Assessments and Taxation of the State of
    Maryland (the SDAT): Section 6.14 specifies
    January 6, 1999 as the date of the Intercompany Agreement;
    Section 6.19.1 specifies January 6, 1999 as the date
    of the acceptance for record by the SDAT of the Articles of
    Merger; and the definition of Intercompany Agreement
    in Section 6.19.2 specifies January 6, 1999 as the
    date of the Intercompany Agreement).

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|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | -- | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 3  | .2                     |  | Charter of the Corporation, amended and restated
    as of February 1, 1995, as amended through March 26,
    1999 (incorporated by reference to Exhibit 3.2 to the
    Trusts and the Corporations Joint Annual Report on
    Form 10-K for the year ended December 31, 1998, as
    amended by the Form 10-K/ A filed May 17, 1999 (as so
    amended, the 1998 Form 10-K)).                                    
|        | 3  | .3                     |  | Bylaws of the Trust, as amended through
    April 16, 1999 (incorporated by reference to
    Exhibit 3.3 to the Corporations and the Trusts
    Joint Quarterly Report on Form 10-Q for the quarterly
    period ended March 31, 1999 (the 1999
    Form 10-Q1)).                                                                                                                                                 
|        | 3  | .4                     |  | Bylaws of the Corporation, as amended through
    March 15, 1999 (incorporated by reference to Exhibit 3
    to the Corporations and the Trusts Joint Current
    Report on Form 8-K dated March 15, 1999 (the
    March 15 Form 8-K)).                                                                                                                                                                           
|        | 4  | .1                     |  | Amended and Restated Intercompany Agreement,
    dated as of January 6, 1999, between the Corporation and
    the Trust (incorporated by reference to Exhibit 3 to the
    Trust Form 8-A, except that on January 6, 1999, the
    Intercompany Agreement was executed and dated as of
    January 6, 1999).                                                                                                          
|        | 4  | .2                     |  | Rights Agreement, dated as of March 15,
    1999, between the Corporation and Chase Mellon Shareholder
    Services, L.L.C., as Rights Agent (incorporated by reference to
    Exhibit 4 to the March 15 Form 8-K).                                                                                                                                                                                                   
|        | 4  | .3                     |  | Amended and Restated Indenture, dated as of
    November 15, 1995, as Amended and Restated as of
    December 15, 1995 between ITT Corporation (formerly known
    as ITT Destinations, Inc.) and the First National Bank of
    Chicago, as trustee (incorporated by reference to
    Exhibit 4.A.IV to the First Amendment to ITT
    Corporations Registration Statement on Form S-3 filed
    November 13, 1996).
|        | 4  | .4                     |  | First Indenture Supplement, dated as of
    December 31, 1998, among ITT Corporation, the Corporation
    and The Bank of New York (incorporated by reference to
    Exhibit 4.1 to the Trusts and the Corporations
    Joint Current Report on Form 8-K filed January 8,
    1999).                                                                                                                                
|        | 4  | .5                     |  | The Registrants hereby agree to file with the
    Commission a copy of any instrument, including indentures,
    defining the rights of long-term debt holders of the Registrants
    and their consolidated subsidiaries upon the request of the
    Commission.                                                                                                                                                     
|        | 10 | .1                     |  | Third Amended and Restated Limited Partnership
    Agreement for Realty Partnership, dated January 6, 1999,
    among the Trust and the limited partners of Realty Partnership
    (incorporated by reference to Exhibit 10.1 to the 1998
    Form 10-K).                                                                                                                                                             
|        | 10 | .2                     |  | Third Amended and Restated Limited Partnership
    Agreement for Operating Partnership, dated January 6, 1999,
    among the Corporation and the limited partners of Operating
    Partnership (incorporated by reference to Exhibit 10.2 to
    the 1998 Form 10-K).                                                                                                                                                 
|        | 10 | .3                     |  | Form of Amended and Restated Lease Agreement,
    entered into as of January 1, 1993, between the Trust as
    Lessor and the Corporation (or a subsidiary) as Lessee
    (incorporated by reference to Exhibit 10.19 to the
    Trusts and the Corporations Joint Annual Report on
    Form 10-K for the year ended December 31, 1992).                                                                            
|        | 10 | .4                     |  | Employment Agreement, dated May 24, 1999,
    between the Corporation and Ronald C. Brown. (incorporated
    by reference to Exhibit 10.4 to the Corporations and
    the Trusts Joint Annual Report on Form 10-K for the
    year ended December 31, 1999 (the 1999
    Form 10-K)).(1)                                                                                                                          
|        | 10 | .5                     |  | Starwood Hotels & Resorts 1995 Long-Term
    Incentive Plan (Amended and Restated as of December 3,
    1998) (incorporated by reference to Annex D to the 1998
    Proxy Statement).(1)                                                                                                                                                                                                                              
|        | 10 | .6                     |  | Starwood Hotels & Resorts Worldwide,
    Inc. 1995 Long-Term Incentive Plan (Amended and Restated as of
    December 3, 1998) (incorporated by reference to
    Annex E to the 1998 Proxy Statement).(1)                                                                                                                                                                                                              

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|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | -- | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .7                     |  | Incentive and Non-Qualified Share Option Plan
    (1986) of the Trust (incorporated by reference to
    Exhibit 10.8 to the Trusts and the Corporations
    Joint Annual Report on Form 10-K for the year ended
    August 31, 1986 (the 1986
    Form 10-K)).(1)                                                                                                                                                                 
|        | 10 | .8                     |  | Corporation Stock Non-Qualified Stock Option Plan
    (1986) of the Trust (incorporated by reference to
    Exhibit 10.9 to the 1986 Form 10-K).(1)                                                                                                                                                                                                                                                                                   
|        | 10 | .9                     |  | Stock Option Plan (1986) of the Corporation
    (incorporated by reference to Exhibit 10.10 to the 1986
    Form 10-K).(1)                                                                                                                                                                                                                                                                                                            
|        | 10 | .10                    |  | Trust Shares Option Plan (1986) of the
    Corporation (incorporated by reference to Exhibit 10.11 to
    the 1986 Form 10-K).(1)                                                                                                                                                                                                                                                                                                     
|        | 10 | .11                    |  | Form of Indemnification Agreement and Amendment
    No. 1 to Indemnification Agreement between the Trust and
    each of its Trustees and executive officers (incorporated by
    reference to Exhibit 10.7 to the Trusts and the
    Corporations Joint Annual Report on Form 10-K for the
    year ended December 31, 1995 (the 1995
    Form 10-K)).(1)                                                                        
|        | 10 | .12                    |  | Form of Indemnification Agreement and Amendment
    No. 1 to Indemnification Agreement between the Corporation
    and each of its Directors and executive officers (incorporated
    by reference to Exhibit 10.8 to the 1995
    Form 10-K).(1)                                                                                                                                                                                     
|        | 10 | .13                    |  | Form of Amendment No. 2 to Indemnification
    Agreement, dated June 26, 1997, between the Trust and each
    of its Trustees and executive officers (incorporated by
    reference to Exhibit 10.1 to the Trusts and the
    Corporations Joint Quarterly Report on Form 10-Q for
    the quarterly period ended June 30, 1997 (the 1997
    Form 10-Q2)).(1)                                                                    
|        | 10 | .14                    |  | Form of Amendment No. 2 to Indemnification
    Agreement, dated June 26, 1997, between the Corporation and
    each of its Directors and executive officers (incorporated by
    reference to Exhibit 10.2 to the 1997
    Form 10-Q2).(1)                                                                                                                                                                                            
|        | 10 | .15                    |  | Form of Trademark License Agreement, dated as of
    December 10, 1997, between Starwood Capital and the Trust
    (incorporated by reference to Exhibit 10.22 to the 1997
    Form 10-K).                                                                                                                                                                                                                                            
|        | 10 | .16                    |  | Exchange Rights Agreement, dated as of
    January 1, 1995, among the Trust, the Corporation, Realty
    Partnership, Operating Partnership and the Starwood Partners
    (incorporated by reference to Exhibit 2B to the
    Trusts and the Corporations Joint Current Report on
    Form 8-K dated January 31, 1995 (the Formation
    Form 8-K)).                                                                              
|        | 10 | .17                    |  | Registration Rights Agreement, dated as of
    January 1, 1995, among the Trust, the Corporation and
    Starwood Capital (incorporated by reference to Exhibit 2C
    to the Formation Form 8-K).                                                                                                                                                                                                                                    
|        | 10 | .18                    |  | Exchange Rights Agreement, dated as of
    June 3, 1996, among the Trust, the Corporation, Realty
    Partnership, Operating Partnership, Philadelphia HIR Limited
    Partnership and Philadelphia HSR Limited Partnership
    (incorporated by reference to Exhibit 10.1 to the
    Trusts and the Corporations Joint Quarterly Report
    on Form 10-Q for the quarterly period ended June 30,
    1996 (the 1996 Form 10-Q2)).
|        | 10 | .19                    |  | Registration Rights Agreement, dated as of
    June 3, 1996, among the Trust, the Corporation and
    Philadelphia HSR Limited Partnership (incorporated by reference
    to Exhibit 10.2 to the 1996 Form 10-Q2).                                                                                                                                                                                                                    
|        | 10 | .20                    |  | Units Exchange Rights Agreement, dated as of
    February 14, 1997, by and among, inter alia, the
    Trust, the Corporation, Realty Partnership, Operating
    Partnership and the Starwood Partners (incorporated by reference
    to Exhibit 10.34 to the 1997 Form 10-K).                                                                                                                                                         
|        | 10 | .21                    |  | Class A Exchange Rights Agreement, dated as
    of February 14, 1997, by and among, inter alia, the
    Trust, the Corporation, Operating Partnership and the Starwood
    Partners (incorporated by reference to Exhibit 10.35 to the
    1997 Form 10-K).                                                                                                                                                                           
|        | 10 | .22                    |  | Exchange Rights Agreement, dated as of
    January 2, 1998, among, inter alia, the Trust,
    Realty Partnership and Woodstar (incorporated by reference to
    Exhibit 10.50 to the 1997 Form 10-K).                                                                                                                                                                                                                                 

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|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .23                    |  | Exchange Rights Agreement, dated as of
    January 2, 1998, among, inter alia, the Corporation,
    Operating Partnership and Woodstar (incorporated by reference to
    Exhibit 10.51 to the 1997 Form 10-K).                                                                                                                                                                                                  
|        | 10 | .24                    |  | Registration Rights Agreement, dated as of
    January 2, 1998, among, inter alia, the Trust, the
    Corporation, and Woodstar (incorporated by reference to
    Exhibit 10.52 to the 1997 Form 10-K).                                                                                                                                                                                                         
|        | 10 | .25                    |  | Pledge and Security Agreement, dated as of
    February 23, 1998, executed and delivered by the Trust, the
    Corporation and the other Pledgors party thereto, in favor of
    Bankers Trust Company as Collateral Agent (incorporated by
    reference to Exhibit 10.63 to the 1997 Form 10-K).                                                                                                              
|        | 10 | .26                    |  | Second Amended and Restated Senior Secured Note
    Agreement, dated December 30, 1999, among the Corporation,
    the Trust, the guarantors listed therein, the lenders listed
    therein, Lehman Commercial Paper Inc., as Arranger and
    Administrative Agent, and Alex Brown and Chase Securities Inc.,
    as Syndication Agents (incorporated by reference to
    Exhibit 10.46 to the 1999 Form 10-K).
|        | 10 | .27                    |  | Loan Agreement, dated as of February 23,
    1998, between the Trust and the Corporation, together with
    Promissory Note executed in connection therewith, by the
    Corporation to the order of the Trust, in the principal amount
    of $3,282,000,000 (incorporated by reference to
    Exhibit 10.65 to the 1997 Form 10-K).                                                                           
|        | 10 | .28                    |  | Loan Agreement, dated as of February 23,
    1998, between the Trust and the Corporation, together with
    Promissory Note executed in connection therewith, by the
    Corporation to the order of the Trust, in the principal amount
    of $100,000,000 (incorporated by reference to Exhibit 10.66
    to the 1997 Form 10-K).                                                                             
|        | 10 | .29                    |  | Loan Agreement, dated as of February 23,
    1998, between the Trust and the Corporation, together with
    Promissory Note executed in connection therewith, by the
    Corporation to the order of the Trust, in the principal amount
    of $50,000,000 (incorporated by reference to Exhibit 10.67
    to the 1997 Form 10-K).                                                                              
|        | 10 | .30                    |  | Loan Agreement, dated as of January 27,
    1999, among the Borrowers named therein, as Borrowers, Starwood
    Operator I LLC, as Operator, and Lehman Brothers Holding
    Inc., d/b/a Lehman Capital, a division of Lehman Brothers
    Holdings Inc. (incorporated by reference to Exhibit 10.58
    to the 1998 Form 10-K).                                                                                
|        | 10 | .31                    |  | Form of Severance Agreement, dated December 1999,
    between the Corporation and each of Barry S. Sternlicht,
    Ronald C. Brown and Steve R. Goldman (incorporated by
    reference to Exhibit 10.52 to the 1999
    Form 10-K).(1)                                                                                                                                                                          
|        | 10 | .32                    |  | Amended and Restated Employment Agreement,
    effective as of January 1, 2000, between Barry S.
    Sternlicht and the Company (incorporated by reference to
    Exhibit 10.1 to the Corporations and the Trusts
    Joint Quarterly Report on Form 10-Q for the quarterly
    period ended March 31, 2000). (1)                                                                                             
|        | 10 | .33                    |  | Employment Agreement, dated as of April 7,
    2000, between the Corporation and David K. Norton
    (incorporated by reference to Exhibit 10.1 to the
    Corporations and the Trusts Joint Quarterly Report
    on Form 10-Q for the quarterly period ended June 30,
    2000).(1)                                                                                                                          
|        | 10 | .34                    |  | Employment Agreement, dated as of June 27,
    2000, between the Corporation and Robert F. Cotter
    (incorporated by reference to Exhibit 10.1 to the
    Corporations and the Trusts Joint Quarterly Report
    on Form 10-Q for the quarterly period ended
    September 30, 2000).(1)                                                                                                                    
|        | 10 | .35                    |  | Form of Severance Agreement, dated as of
    August 14, 2000, between the Corporation and Robert F.
    Cotter (incorporated by reference to Exhibit 10.56 to the
    2000 Form 10-K).(1)                                                                                                                                                                                                                       
|        | 10 | .36                    |  | Employment Agreement, dated as of
    September 25, 2000, between the Corporation and
    Kenneth S. Siegel (incorporated by reference to
    Exhibit 10.57 to the 2000 Form 10-K).(1)                                                                                                                                                                                                                          
|        | 10 | .37                    |  | Form of Severance Agreement, dated as of
    September 26, 2000, between the Corporation and
    Kenneth S. Siegel (incorporated by reference to
    Exhibit 10.58 to the 2000 Form 10-K).(1)                                                                                                                                                                                                                   

46



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##### Table of Contents



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .38                    |  | Form of Severance Agreement, dated as of
    June 9, 2000, between the Corporation and David K.
    Norton (incorporated by reference to Exhibit 10.59 to the
    2000 Form 10-K).(1)                                                                                                                                                           
|        | 10 | .39                    |  | Stock Purchase Agreement, dated as of
    April 27, 1999, among the Corporation, ITT Sheraton
    Corporation, Starwood Canada Corp., Caesars World, Inc.,
    Sheraton Desert Inn Corporation, Sheraton Tunica Corporation and
    Park Place Entertainment Corporation (incorporated by reference
    to Exhibit 10.5 to the 1999 Form 10-Q1).
|        | 10 | .40                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    1999 Long-Term Incentive Compensation Plan (incorporated by
    reference to Exhibit 10.4 to the Corporations and the
    Trusts Joint Quarterly Report on Form 10-Q for the
    quarterly period ended June 30, 1999 (the 1999 Form
    10-Q2)).(1)                                          
|        | 10 | .41                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    1999 Annual Incentive Plan for Certain Executives (incorporated
    by reference to Exhibit 10.5 to the 1999
    Form 10-Q2).(1)                                                                                                                                                                  
|        | 10 | .42                    |  | First Amendment to the Starwood Hotels &
    Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation
    Plan, dated as of August 1, 2001 (incorporated by reference
    to Exhibit 10.1 to the Corporations and the
    Trusts Joint Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2001).(1)          
|        | 10 | .43                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    Deferred Compensation Plan, effective as of January 1, 2001
    (incorporated by reference to Exhibit 10.1 to the
    Corporations and the Trusts Joint Quarterly Report
    on Form 10-Q for the quarterly period ended June 30,
    2001 (the 2001 Form 10-Q2)).(1)                         
|        | 10 | .44                    |  | Indenture, dated as of May 25, 2001, by and
    among the Corporation, as Issuer, the guarantors named herein
    and Firstar Bank, N.A., as Trustee (incorporated by reference to
    Exhibit 10.2 to the 2001 Form 10-Q2).                                                                                                                    
|        | 10 | .45                    |  | Registration Rights Agreement, dated as of
    May 25, 2001, among the Corporation, the Trust, the
    guarantors named herein and Salomon Smith Barney Inc.
    (incorporated by reference to Exhibit 10.3 to the 2001
    Form 10-Q2).                                                                                                        
|        | 10 | .46                    |  | Addendum to Robert F. Cotter Offer Letter,
    effective as of February 16, 2002 (incorporated by
    reference to Exhibit 10.1 to the Corporations and
    Trusts Joint Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2002).                                                                                             
|        | 10 | .47                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    2002 Long-Term Incentive Compensation Plan (the 2002
    LTIP) (incorporated by reference to Annex B of the
    Corporations 2002 Proxy Statement).                                                                                                                                            
|        | 10 | .48                    |  | Starwood Hotels & Resorts Amended and
    Restated Non-Qualified Stock Option Agreement by and between the
    Trust and Barry S. Sternlicht, dated as of May 22, 2002
    relating to a grant made on June 29, 1995 (incorporated by
    reference to Exhibit 10.3 to the 2002 Form 10-Q2).                                                    
|        | 10 | .49                    |  | Form of Non-Qualified Stock Option Agreement
    pursuant to the 2002 LTIP.(2)                                                                                                                                                                                                                                                                  
|        | 10 | .50                    |  | Starwood Hotels & Resorts Amended and
    Restated Non-Qualified Stock Option Agreement by and between the
    Trust and Barry S. Sternlicht, dated as of May 22, 2002
    relating to a grant made on August 12, 1996 (incorporated
    by reference to Exhibit 10.4 to the 2002 Form 10-Q2).                                                  
|        | 10 | .51                    |  | Starwood Hotels & Resorts Amended and
    Restated Non-Qualified Stock Option Agreement by and between the
    Trust and Barry S. Sternlicht, dated as of May 22,
    2002 relating to a grant made on August 12, 1996
    (incorporated by reference to Exhibit 10.5 to the 2002
    Form 10-Q2).                                              
|        | 10 | .52                    |  | Letter to holders of the Corporations,
    Series B Zero Coupon Convertible Senior Notes due 2021
    (incorporated by reference to Exhibit 99.5 to the 2002
    Form 10-Q2).                                                                                                                                                                  
|        | 10 | .53                    |  | Amendment to Exchange Rights Agreement
    (Class A Realty Partnership Units), dated as of
    October 10, 2002, among the Trust, Realty Partnership and
    certain limited partners of the Realty Partnership.(2)                                                                                                                             
|        | 10 | .54                    |  | Amendment to Exchange Rights Agreement
    (Class B Operating Partnership Units), dated as of
    October 10, 2002, among the Corporation, Operating
    Partnership and certain limited partners of the Operating
    Partnership.(2)                                                                                                          

47



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##### Table of Contents



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .55                    |  | Severance Agreement, dated December 1999, between
    the Corporation and Theodore Darnall.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .56                    |  | Employment Agreement, dated September 2,
    1999, between Steven M. Hankin and the
    Corporation.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .57                    |  | Severance Agreement, dated October 2000, between
    Starwood Hotels & Resorts Worldwide, Inc., and Steve
    Hankin.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10 | .58                    |  | Credit Agreement, dated October 9, 2002,
    among the Corporation, certain additional alternative currency
    revolving loan borrowers and various lenders, Deutsche Bank, AG,
    New York Branch, as Administrative Agent, JP Morgan Chase
    Bank, as Syndication Agent, Bank of America, N.A., Fleet
    National Bank and Societe Generale, as Co-Documentation Agents,
    and Deutsche Bank Securities Inc. and JP Morgan Securities Inc.
    as Co-Lead Arrangers and joint Book Running Managers
    (incorporated by reference to Exhibit 10.1 of Form 8-K
    filed on October 11, 2002).
|        | 10 | .59                    |  | Indenture, dated as of April 19, 2002, among
    the Corporation, the guarantor parties named herein and U.S.
    Bank National Association, as trustee (incorporated by reference
    to Exhibit 4.1 to the Corporations and Sheraton
    Holding Corporations Joint Registration Statement on
    Form S-4 filed on November 19, 2002 the 2002
    Forms S4)).                                                                                                                                                                                                                                   
|        | 10 | .60                    |  | Registration Rights Agreement, dated as of
    April 19, 2002, among the Corporation, the guarantor
    parties named therein and Lehman Brothers, Inc., (incorporated
    by reference to Exhibit 4.4 to the 2002 Form S-4).                                                                                                                                                                                                                                                                                                                                                                          
|        | 10 | .61                    |  | Employment Agreement, dated March 25, 1998,
    between Theodore Darnall and Starwood Hotels & Resorts
    Worldwide, Inc.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 12 | .1                     |  | Calculation of Ratio of Earnings to Total Fixed
    Charges. (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 21 | .1                     |  | Subsidiaries of the Registrants.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 23 | .1                     |  | Consent of Ernst & Young LLP.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 99 | .1                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Executive Officer 
    Corporation.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 99 | .2                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Financial Officer 
    Corporation.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 99 | .3                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Executive Officer 
    Trust.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 99 | .4                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Financial and Accounting
    Officer  Trust.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                            



---



|    |                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------
|(1) | Management contract or compensatory plan or
    arrangement required to be filed as an exhibit pursuant to
    Item 14(c) of Form 10-K.
|   
|(2) | Filed herewith.                                                                                                                        



|    |                     
|--- | --------------------
|(b) | Reports on Form 8-K.

During the fourth quarter of 2002, Starwood filed
a Current Report on Form 8-K dated October 9, 2002,
reporting under Items 5 and 7 the execution of its
five-year $1.3 billion Senior Credit Facility.

48



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                          
| | -------------------------
| | STARWOOD HOTELS & RESORTS
| | WORLDWIDE, INC.          



| |     |                        
| | --- | -----------------------
| | By: | /s/ BARRY S. STERNLICHT

| |                                      
| | -------------------------------------
| |                                      
| | Barry S. Sternlicht                  
| | Chairman, Chief Executive Officer and
| | Director                             



| |     |                    
| | --- | -------------------
| | By: | /s/ RONALD C. BROWN

| |                             
| | ----------------------------
| |                             
| | Ronald C. Brown             
| | Executive Vice President and
| | Chief Financial Officer     

Date: February 26, 2003

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant in the capacities
and on the dates indicated.

|                                           |  |                                                                                                       |  |                   |  | 
|------------------------------------------ |  | ----------------------------------------------------------------------------------------------------- |  | ----------------- |  | 
|                                           |  |                                                                                                       |  |                  
|Signature                                  |  | Title                                                                                                 |  | Date             
|                                           |  |                                                                                                       |  |                  
|                                          
|/s/ BARRY S. STERNLICHTBarry S. Sternlicht |  | Chairman, Chief Executive Officer and Director
    (Principal Executive Officer)                      |  | February 26, 2003
|                                          
|/s/ RONALD C. BROWNRonald C. Brown         |  | Executive Vice President and Chief Financial
    Officer (Principal Financial and Accounting Officer) |  | February 26, 2003
|                                          
|                                          
|/s/ CHARLENE BARSHEFSKYCharlene Barshefsky |  | Director                                                                                              |  | February 26, 2003
|                                          
|/s/ JEAN-MARC CHAPUSJean-Marc Chapus       |  | Director                                                                                              |  | February 26, 2003
|                                          
|/s/ BRUCE W. DUNCANBruce W. Duncan         |  | Director                                                                                              |  | February 26, 2003
|                                          
|/s/ ERIC HIPPEAUEric Hippeau               |  | Director                                                                                              |  | February 26, 2003
|                                          
|/s/ GEORGE J. MITCHELLGeorge J. Mitchell   |  | Director                                                                                              |  | February 26, 2003

49



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##### Table of Contents



|                                                 |  |          |  |                   |  | 
|------------------------------------------------ |  | -------- |  | ----------------- |  | 
|                                                 |  |          |  |                  
|Signature                                        |  | Title    |  | Date             
|                                                 |  |          |  |                  
|                                                
|/s/ STEPHEN R. QUAZZOStephen R. Quazzo           |  | Director |  | February 26, 2003
|                                                
|/s/ THOMAS O. RYDERThomas O. Ryder               |  | Director |  | February 26, 2003
|                                                
|/s/ DANIEL W. YIHDaniel W. Yih                   |  | Director |  | February 26, 2003
|                                                
|/s/ KNEELAND C. YOUNGBLOODKneeland C. Youngblood |  | Director |  | February 26, 2003

50



---



##### Table of Contents



I, Barry S. Sternlicht, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Starwood Hotels & Resorts Worldwide,
    Inc.;                                                                                                                                                                                                                                       
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;



| |    |                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and



| |    |                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;



| |    |                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent functions):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and



| |    |                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and



| |    |                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this annual report whether there were
    significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent to
    the date of our most recent evaluation, including any corrective
    actions with regard to significant deficiencies and material
    weaknesses.

Date: February 26, 2003



| |     |                        
| | --- | -----------------------
| | By: | /s/ BARRY S. STERNLICHT

| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | ______________________________________________
    
     Barry S. Sternlicht 
     Chairman, Chief Executive Officer and Director

51



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##### Table of Contents



I, Ronald C. Brown, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Starwood Hotels & Resorts Worldwide, Inc.;                                                                                                                                                                                                                                           
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;



| |    |                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and



| |    |                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;



| |    |                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent functions):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and



| |    |                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and



| |    |                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this annual report whether there were
    significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent to
    the date of our most recent evaluation, including any corrective
    actions with regard to significant deficiencies and material
    weaknesses.

Date: February 26, 2003



| |     |                    
| | --- | -------------------
| | By: | /s/ RONALD C. BROWN

| |                             
| | ----------------------------
| |                             
| | Ronald C. Brown             
| | Executive Vice President and
| | Chief Financial Officer     

52



---



##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                          
| | -------------------------
| | STARWOOD HOTELS & RESORTS



| |     |                        
| | --- | -----------------------
| | By: | /s/ BARRY S. STERNLICHT

| |                                      
| | -------------------------------------
| |                                      
| | Barry S. Sternlicht                  
| | Chairman, Chief Executive Officer and
| | Trustee                              



| |     |                    
| | --- | -------------------
| | By: | /s/ RONALD C. BROWN

| |                             
| | ----------------------------
| |                             
| | Ronald C. Brown             
| | Executive Vice President and
| | Chief Financial Officer     

Date: February 26, 2003

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant in the capacities
and on the dates indicated.

|                                           |  |                                                                                                                       |  |                   |  |     
|------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | ----
|Signature                                  |  |                                                                                                                       |  | Title             |  | Date
|                                           |  |                                                                                                                       |  |                   |  |     
|/s/ BARRY S. STERNLICHTBarry S. Sternlicht |  | Chairman, Chief Executive Officer and Trustee
    (Principal Executive Officer)                                       |  | February 26, 2003
|                                          
|/s/ RONALD C. BROWNRonald C. Brown         |  | Vice President, Chief Financial Officer and Chief
    Accounting Officer (Principal Financial and Accounting Officer) |  | February 26, 2003
|                                          
|/s/ CHARLENE BARSHEFSKYCharlene Barshefsky |  | Trustee                                                                                                               |  | February 26, 2003
|                                          
|/s/ JEAN-MARC CHAPUSJean-Marc Chapus       |  | Trustee                                                                                                               |  | February 26, 2003
|                                          
|/s/ BRUCE W. DUNCANBruce W. Duncan         |  | Trustee                                                                                                               |  | February 26, 2003
|                                          
|/s/ ERIC HIPPEAUEric Hippeau               |  | Trustee                                                                                                               |  | February 26, 2003
|                                          
|/s/ GEORGE J. MITCHELLGeorge J. Mitchell   |  | Trustee                                                                                                               |  | February 26, 2003

53



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##### Table of Contents



|                                                 |  |         |  |                   |  |     
|------------------------------------------------ |  | ------- |  | ----------------- |  | ----
|Signature                                        |  |         |  | Title             |  | Date
|                                                 |  |         |  |                   |  |     
|                                                
|/s/ STEPHEN R. QUAZZOStephen R. Quazzo           |  | Trustee |  | February 26, 2003
|                                                
|/s/ THOMAS O. RYDERThomas O. Ryder               |  | Trustee |  | February 26, 2003
|                                                
|/s/ DANIEL W. YIHDaniel W. Yih                   |  | Trustee |  | February 26, 2003
|/s/ KNEELAND C. YOUNGBLOODKneeland C. Youngblood |  | Trustee |  | February 26, 2003

54



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##### Table of Contents



I, Barry S. Sternlicht, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Starwood Hotels & Resorts;                                                                                                                                                                                                                                                           
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;



| |    |                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and



| |    |                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;



| |    |                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent functions):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and



| |    |                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and



| |    |                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this annual report whether there were
    significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent to
    the date of our most recent evaluation, including any corrective
    actions with regard to significant deficiencies and material
    weaknesses.

Date: February 26, 2003



| |     |                        
| | --- | -----------------------
| | By: | /s/ BARRY S. STERNLICHT

| |                                              
| | ---------------------------------------------
| |                                              
| | Barry S. Sternlicht                          
| | Chairman, Chief Executive Officer and Trustee

55



---



##### Table of Contents



I, Ronald C. Brown certify that:



| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Starwood Hotels & Resorts;                                                                                                                                                                                                                                                           
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;



| |    |                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and



| |    |                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;



| |    |                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent functions):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and



| |    |                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and



| |    |                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this annual report whether there were
    significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent to
    the date of our most recent evaluation, including any corrective
    actions with regard to significant deficiencies and material
    weaknesses.

Date: February 26, 2003



| |     |                    
| | --- | -------------------
| | By: | /s/ RONALD C. BROWN

| |                                                                                      
| | -------------------------------------------------------------------------------------
| |                                                                                      
| | Ronald C. Brown 
     Vice President and Chief Financial 
     and Accounting Officer

56



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.

AND STARWOOD HOTELS & RESORTS







INDEX TO FINANCIAL STATEMENTS AND
SCHEDULES

|                                           |                                                                                                          |      |      |      | 
|------------------------------------------ | -------------------------------------------------------------------------------------------------------- | ---- | ---- | ---- | 
|                                           |                                                                                                          | Page
|                                           |                                                                                                          |     
|Report of Independent Auditors             |                                                                                                          |      | F-2  |     
|Starwood Hotels & Resorts Worldwide, Inc.: |                                                                                                          |      |      |     
|                                           | Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                         |      |      | F-3  | 
|                                           | Consolidated Statements of Income for the Years
    Ended December 31, 2002, 2001 and 2000               |      |      | F-4  | 
|                                           | Consolidated Statements of Comprehensive Income
    for the Years Ended December 31, 2002, 2001 and 2000 |      |      | F-5  | 
|                                           | Consolidated Statements of Equity for the Years
    Ended December 31, 2002, 2001 and 2000               |      |      | F-6  | 
|                                           | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2002, 2001 and 2000           |      |      | F-7  | 
|Starwood Hotels & Resorts:                 |                                                                                                          |      |      |     
|                                           | Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                         |      |      | F-8  | 
|                                           | Consolidated Statements of Income for the Years
    Ended December 31, 2002, 2001 and 2000               |      |      | F-9  | 
|                                           | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2002, 2001 and 2000           |      |      | 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-4  | 

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT AUDITORS

To the Board of Directors, Board of Trustees and
Shareholders of

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) and Starwood Hotels & Resorts (a
Maryland real estate investment trust) and its subsidiaries (the
Trust) as of December 31, 2002 and 2001, and
the related consolidated statements of income, comprehensive
income, equity, and cash flows of the Company for each of the
three years in the period ended December 31, 2002 and the
consolidated statements of income and cash flows of the Trust
for each of the three years in the period ended
December 31, 2002. Our audits also included the financial
statement schedules listed in the 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
auditing standards generally accepted in the United States.
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
consolidated financial position of the Company and the Trust at
December 31, 2002 and 2001, and the consolidated results of
the Companys and the Trusts operations and cash
flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion,
the related financial statement schedules, when considered in
relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set
forth therein.

As discussed in the notes to the financial
statements, in 2002 the Company and the Trust adopted Statement
of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets.



| |                  
| | -----------------
| | ERNST & YOUNG LLP

New York, New York

January 29, 2003


F-2



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##### Table of Contents






STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.






CONSOLIDATED BALANCE SHEETS


(In millions, except share data)


|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |       |       | 
|---------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|                                                                                   |                                                                                                                                                                                                       |                           
|                                                                                   |                                                                                                                                                                                                       | December 31,              
|                                                                                   |                                                                                                                                                                                                       |                           
|                                                                                   |                                                                                                                                                                                                       | 2002                       |        | 2001 
|                                                                                   |                                                                                                                                                                                                       |                            |        |      
|ASSETS                                                                            
|Current assets:                                                                    |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   | Cash and cash equivalents                                                                                                                                                                             |                            | $      | 108   |       |   | $      | 107   |      
|                                                                                   | Restricted cash                                                                                                                                                                                       |                            |        | 108   |       |   |        | 50    |      
|                                                                                   | Accounts receivable, net of allowance for
    doubtful accounts of $45 and $48                                                                                                                        |                            |        | 412   |       |   |        | 432   |      
|                                                                                   | Inventories                                                                                                                                                                                           |                            |        | 214   |       |   |        | 219   |      
|                                                                                   | Prepaid expenses and other                                                                                                                                                                            |                            |        | 108   |       |   |        | 89    |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   |                                                                                                                                                                                                       | Total current assets       |        |       | 950   |   |        |       | 897   | 
|Investments                                                                        |                                                                                                                                                                                                       |                            | 434    |       |       |   | 400    |      
|Plant, property and equipment, net                                                 |                                                                                                                                                                                                       |                            | 7,750  |       |       |   | 7,835  |      
|Goodwill and intangible assets, net                                                |                                                                                                                                                                                                       |                            | 2,570  |       |       |   | 2,825  |      
|Other assets                                                                       |                                                                                                                                                                                                       |                            | 555    |       |       |   | 504    |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   |                                                                                                                                                                                                       | $                          | 12,259 |       |       | $ | 12,461 |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                          
|Current liabilities:                                                               |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   | Short-term borrowings and current maturities of
    long-term debt                                                                                                                                    |                            | $      | 870   |       |   | $      | 310   |      
|                                                                                   | Accounts payable                                                                                                                                                                                      |                            |        | 223   |       |   |        | 225   |      
|                                                                                   | Accrued expenses                                                                                                                                                                                      |                            |        | 740   |       |   |        | 549   |      
|                                                                                   | Accrued salaries, wages and benefits                                                                                                                                                                  |                            |        | 178   |       |   |        | 161   |      
|                                                                                   | Accrued taxes and other                                                                                                                                                                               |                            |        | 188   |       |   |        | 320   |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   |                                                                                                                                                                                                       | Total current liabilities  |        |       | 2,199 |   |        |       | 1,565 | 
|Long-term debt                                                                     |                                                                                                                                                                                                       |                            | 4,449  |       |       |   | 5,249  |      
|Deferred income taxes                                                              |                                                                                                                                                                                                       |                            | 986    |       |       |   | 1,314  |      
|Other liabilities                                                                  |                                                                                                                                                                                                       |                            | 538    |       |       |   | 494    |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   |                                                                                                                                                                                                       |                            | 8,172  |       |       |   | 8,622  |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|Minority interest                                                                  |                                                                                                                                                                                                       |                            | 39     |       |       |   | 41     |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|Exchangeable units and Class B preferred
    shares, at redemption value of $38.50 |                                                                                                                                                                                                       |                            | 51     |       |       |   | 52     |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|Commitments and contingencies                                                      |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|Stockholders equity:                                                              |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   | Class A exchangeable preferred shares of the
    Trust; $0.01 par value; authorized 30,000,000 shares;
    outstanding 493,968 and 549,951 shares at December 31, 2002
    and 2001, respectively     |                            |        |      |       |   |        |      |      
|                                                                                   | Corporation common stock; $0.01 par value;
    authorized 1,050,000,000 shares; outstanding 199,579,542 and
    197,718,872 shares at December 31, 2002 and 2001,
    respectively                    |                            |        | 2     |       |   |        | 2     |      
|                                                                                   | Trust Class B shares of beneficial interest;
    $0.01 par value; authorized 1,000,000,000 shares; outstanding
    199,579,542 and 197,718,872 shares at December 31, 2002 and
    2001, respectively |                            |        | 2     |       |   |        | 2     |      
|                                                                                   | Additional paid-in capital                                                                                                                                                                            |                            |        | 4,905 |       |   |        | 4,851 |      
|                                                                                   | Deferred compensation                                                                                                                                                                                 |                            |        | (14   | )     |   |        | (16   | )    
|                                                                                   | Accumulated other comprehensive income                                                                                                                                                                |                            |        | (474  | )     |   |        | (484  | )    
|                                                                                   | Accumulated deficit                                                                                                                                                                                   |                            |        | (424  | )     |   |        | (609  | )    
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   |                                                                                                                                                                                                       | Total stockholders equity |        |       | 3,997 |   |        |       | 3,746 | 
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      
|                                                                                   |                                                                                                                                                                                                       | $                          | 12,259 |       |       | $ | 12,461 |      
|                                                                                   |                                                                                                                                                                                                       |                            |        |       |       |   |        |      

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

F-3



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.






CONSOLIDATED STATEMENTS OF INCOME


(In millions, except per Share data)


|                                                                |                                                                             |                         |       |      |  |      |       |   |  |   |       |   | 
|--------------------------------------------------------------- | --------------------------------------------------------------------------- | ----------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | - | 
|                                                                |                                                                             |                        
|                                                                |                                                                             | Year Ended December 31,
|                                                                |                                                                             |                        
|                                                                |                                                                             | 2002                    |       | 2001 |  | 2000
|                                                                |                                                                             |                         |       |      |  |     
|Revenues                                                        |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|Owned, leased and consolidated joint venture
    hotels         |                                                                             | $                       | 3,232 |      |  | $    | 3,343 |   |  | $ | 3,659 |  
|Other hotel and leisure                                         |                                                                             |                         | 647   |      |  |      | 624   |   |  |   | 686   |  
|                                                                |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|                                                                |                                                                             |                         | 3,879 |      |  |      | 3,967 |   |  |   | 4,345 |  
|Other revenues from managed and franchised
    properties       |                                                                             |                         | 780   |      |  |      | 740   |   |  |   | 695   |  
|                                                                |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|                                                                |                                                                             |                         | 4,659 |      |  |      | 4,707 |   |  |   | 5,040 |  
|Costs and Expenses                                              |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|Owned, leased and consolidated joint venture
    hotels         |                                                                             |                         | 2,377 |      |  |      | 2,365 |   |  |   | 2,433 |  
|Selling, general, administrative and other                      |                                                                             |                         | 426   |      |  |      | 411   |   |  |   | 403   |  
|Restructuring and other special charges
    (credits), net      |                                                                             |                         | (7    | )    |  |      | 50    |   |  |   |      |  
|Depreciation                                                    |                                                                             |                         | 476   |      |  |      | 433   |   |  |   | 391   |  
|Amortization                                                    |                                                                             |                         | 20    |      |  |      | 93    |   |  |   | 90    |  
|                                                                |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|                                                                |                                                                             |                         | 3,292 |      |  |      | 3,352 |   |  |   | 3,317 |  
|Other expenses from managed and franchised
    properties       |                                                                             |                         | 780   |      |  |      | 740   |   |  |   | 695   |  
|                                                                |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|                                                                |                                                                             |                         | 4,072 |      |  |      | 4,092 |   |  |   | 4,012 |  
|Operating income                                                |                                                                             |                         | 587   |      |  |      | 615   |   |  |   | 1,028 |  
|Interest expense, net of interest income of $2,
    $11 and $19 |                                                                             |                         | (338  | )    |  |      | (367  | ) |  |   | (423  | )
|Gain (loss) on asset dispositions and
    impairments, net      |                                                                             |                         | 3     |      |  |      | (57   | ) |  |   | 2     |  
|                                                                |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|                                                                |                                                                             |                         | 252   |      |  |      | 191   |   |  |   | 607   |  
|Income tax expense                                              |                                                                             |                         | (4    | )    |  |      | (43   | ) |  |   | (201  | )
|Minority equity in net income                                   |                                                                             |                         | (2    | )    |  |      | (3    | ) |  |   | (8    | )
|                                                                |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|Income from continuing operations                               |                                                                             |                         | 246   |      |  |      | 145   |   |  |   | 398   |  
|Discontinued operations:                                        |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|                                                                | Gain on dispositions, net of tax benefit
    (expense) of $104, $0 and $(2) |                         |       | 109  |  |      |       |  |  |   |       | 5 | 
|                                                                |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|Net income                                                      |                                                                             | $                       | 355   |      |  | $    | 145   |   |  | $ | 403   |  
|                                                                |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|Earnings Per Share  Basic                                      |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|Continuing operations                                           |                                                                             | $                       | 1.22  |      |  | $    | 0.72  |   |  | $ | 1.98  |  
|Discontinued operations                                         |                                                                             |                         | 0.54  |      |  |      |      |   |  |   | 0.02  |  
|                                                                |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|Net income                                                      |                                                                             | $                       | 1.76  |      |  | $    | 0.72  |   |  | $ | 2.00  |  
|                                                                |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|Earnings Per Share  Diluted                                    |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|Continuing operations                                           |                                                                             | $                       | 1.20  |      |  | $    | 0.70  |   |  | $ | 1.95  |  
|Discontinued operations                                         |                                                                             |                         | 0.53  |      |  |      |      |   |  |   | 0.02  |  
|                                                                |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|Net income                                                      |                                                                             | $                       | 1.73  |      |  | $    | 0.70  |   |  | $ | 1.97  |  
|                                                                |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|Weighted average number of Shares                               |                                                                             |                         | 201   |      |  |      | 201   |   |  |   | 202   |  
|                                                                |                                                                             |                         |       |      |  |      |       |   |  |   |       |  
|Weighted average number of Shares assuming
    dilution         |                                                                             |                         | 205   |      |  |      | 206   |   |  |   | 205   |  
|                                                                |                                                                             |                         |       |      |  |      |       |   |  |   |       |  

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

F-4



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME

(In millions)


|                                                           |                                                                 |                         |     |      |  |      |      |     |   |   |      |     |  
|---------------------------------------------------------- | --------------------------------------------------------------- | ----------------------- | --- | ---- |  | ---- | ---- | --- | - | - | ---- | --- | -
|                                                           |                                                                 |                        
|                                                           |                                                                 | Year Ended December 31,
|                                                           |                                                                 |                        
|                                                           |                                                                 | 2002                    |     | 2001 |  | 2000
|                                                           |                                                                 |                         |     |      |  |     
|Net income                                                 |                                                                 | $                       | 355 |      |  | $    | 145  |     |   | $ | 403  |    
|                                                           |                                                                 |                         |     |      |  |      |      |     |   |   |      |    
|Other comprehensive income (loss), net of taxes:           |                                                                 |                         |     |      |  |      |      |     |   |   |      |    
|Foreign currency translation arising during the
    period |                                                                 |                         | (2  | )    |  |      | (106 | )   |   |   | (104 | )  
|Minimum pension liability adjustments                      |                                                                 |                         | (13 | )    |  |      | (5   | )   |   |   |     |    
|Unrealized gains (losses) on securities,
    net          |                                                                 |                         |     |      |  |      |      |     |   |   |      |    
|                                                           | Unrealized holding gains (losses) arising
    during the period |                         |     | 4    |  |      |      | 1   |   |   |      | (11 | )
|Derivative instruments, net                               |                                                                 |                         |     |      |  |      |      |     |   |   |      |    
|                                                           | Change in fair value of derivative instruments                  |                         |     | 6    |  |      |      | (21 | ) |   |      |    |  
|                                                           | Early termination of derivative instruments                     |                         |     | 15   |  |      |      |    |   |   |      |    |  
|                                                           |                                                                 |                         |     |      |  |      |      |     |   |   |      |    
|                                                           |                                                                 |                         | 10  |      |  |      | (131 | )   |   |   | (115 | )  
|                                                           |                                                                 |                         |     |      |  |      |      |     |   |   |      |    
|Comprehensive income                                       |                                                                 | $                       | 365 |      |  | $    | 14   |     |   | $ | 288  |    
|                                                           |                                                                 |                         |     |      |  |      |      |     |   |   |      |    

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

F-5



---



##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In millions)


|                             |                                                                                   |                |    |              |   |             |   |        |   |            |     |          |   |               |   |              |   |              |   |           |  |          |     |    |   |   |   |   |  |   |       |     |   |   |     |     |   |   |      |      |   |   |      |      |  
|---------------------------- | --------------------------------------------------------------------------------- | -------------- | -- | ------------ | - | ----------- | - | ------ | - | ---------- | --- | -------- | - | ------------- | - | ------------ | - | ------------ | - | --------- |  | -------- | --- | -- | - | - | - | - |  | - | ----- | --- | - | - | --- | --- | - | - | ---- | ---- | - | - | ---- | ---- | -
|                             |                                                                                   |                |    |              |   |             |   |        |   |            |     |          |   |               |   |              |   |              |   |          
|                             |                                                                                   |                |    | Exchangeable |   |             |   |        |   |            |     |          |   |               |   |              |   |              |   |          
|                             |                                                                                   | Forward Equity |    | units and    |   |             |   |        |   |            |     |          |   | Accumulated   |   | Retained    
|                             |                                                                                   | Contracts      |    | Class B EPS  |   | Class A EPS |   | Shares |   | Additional |     |          |   | Other         |   | Earnings    
|                             |                                                                                   | and Equity     |    |              |   |             |   |        |   | Paid-in    |     | Deferred |   | Comprehensive |   | (Accumulated
|                             |                                                                                   | Put Options    |    | Shares       |   | Amount      |   | Shares |   | Amount     |     | Shares   |   | Amount        |   | Capital      |   | Compensation |   | Income(a) |  | Deficit)
|                             |                                                                                   |                |    |              |   |             |   |        |   |            |     |          |   |               |   |              |   |              |   |           |  |         
|Balance at December 31, 1999 |                                                                                   | $              | 19 |              |   |             | 4 |        |   | $          | 156 |          |   |               | 4 |              |   | $            |  |           |  |          | 189 |    |   | $ | 4 |   |  | $ | 4,765 |     |   | $ | (5  | )   |   | $ | (238 | )    |   | $ | (856 | )   
|                             | Net income                                                                        |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      |     |   |   |      | 403  |  
|                             | Stock option and restricted stock award
    transactions, net                     |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     | 2  |   |   |   |  |  |   |       | 47  |   |   |     | 1   |   |   |      |     |   |   |      |     |  
|                             | Issuance of equity put options                                                    |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      |     |   |   |      |     |  
|                             | Settlement of equity put options                                                  |                |    | (19          | ) |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       | 13  |   |   |     |    |   |   |      |     |   |   |      |     |  
|                             | Share repurchases                                                                 |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     | (3 | ) |   |   |  |  |   |       | (69 | ) |   |     |    |   |   |      |     |   |   |      |     |  
|                             | Conversion and cancellation of Class A EPS,
    Class B EPS and Partnership Units |                |    |             |   |             |   | (1     | ) |            |     | (23      | ) |               |   | (3           | ) |              |   |          |  |          |     | 6  |   |   |   |  |  |   |       | 24  |   |   |     |    |   |   |      |     |   |   |      |     |  
|                             | SVO acquisition                                                                   |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      |     |   |   |      |     |  
|                             | Foreign currency translation                                                      |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | (104 | ) |   |      |     |  
|                             | Unrealized gain on securities, net                                                |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | (11  | ) |   |      |     |  
|                             | Distributions declared                                                            |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      |     |   |   |      | (139 | )
|                             |                                                                                   |                |    |              |   |             |   |        |   |            |     |          |   |               |   |              |   |              |   |           |  |          |     |    |   |   |   |   |  |   |       |     |   |   |     |     |   |   |      |      |   |   |      |     
|Balance at December 31, 2000 |                                                                                   |                |   |              |   |             | 3 |        |   |            | 133 |          |   |               | 1 |              |   |              |  |           |  |          | 194 |    |   |   | 4 |   |  |   | 4,780 |     |   |   | (4  | )   |   |   | (353 | )    |   |   | (592 | )   
|                             | Net income                                                                        |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      |     |   |   |      | 145  |  
|                             | Stock option and restricted stock award
    transactions, net                     |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     | 3  |   |   |   |  |  |   |       | 86  |   |   |     | (12 | ) |   |      |     |   |   |      |     |  
|                             | Share repurchases                                                                 |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     | (3 | ) |   |   |  |  |   |       | (96 | ) |   |     |    |   |   |      |     |   |   |      |     |  
|                             | Conversion and cancellation of Class A EPS,
    Class B EPS and Partnership Units |                |    |             |   |             |   | (2     | ) |            |     | (81      | ) |               |   |             |   |              |   |          |  |          |     | 4  |   |   |   |  |  |   |       | 81  |   |   |     |    |   |   |      |     |   |   |      |     |  
|                             | Foreign currency translation                                                      |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | (106 | ) |   |      |     |  
|                             | Minimum pension liability adjustment                                              |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | (5   | ) |   |      |     |  
|                             | Unrealized loss on securities, net                                                |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | 1    |   |   |      |     |  
|                             | Unrealized loss on derivative instruments                                         |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | (21  | ) |   |      |     |  
|                             | Distributions declared                                                            |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      |     |   |   |      | (162 | )
|                             |                                                                                   |                |    |              |   |             |   |        |   |            |     |          |   |               |   |              |   |              |   |           |  |          |     |    |   |   |   |   |  |   |       |     |   |   |     |     |   |   |      |      |   |   |      |     
|Balance at December 31, 2001 |                                                                                   |                |   |              |   |             | 1 |        |   |            | 52  |          |   |               | 1 |              |   |              |  |           |  |          | 198 |    |   |   | 4 |   |  |   | 4,851 |     |   |   | (16 | )   |   |   | (484 | )    |   |   | (609 | )   
|                             | Net income                                                                        |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      |     |   |   |      | 355  |  
|                             | Stock option and restricted stock award
    transactions, net                     |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     | 2  |   |   |   |  |  |   |       | 52  |   |   |     | 2   |   |   |      |     |   |   |      |     |  
|                             | ESPP stock issuances                                                              |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       | 1   |   |   |     |    |   |   |      |     |   |   |      |     |  
|                             | Conversion and cancellation of Class A EPS,
    Class B EPS and Partnership Units |                |    |             |   |             |   |       |   |            |     | (1       | ) |               |   | (1           | ) |              |   |          |  |          |     |   |   |   |   |  |  |   |       | 1   |   |   |     |    |   |   |      |     |   |   |      |     |  
|                             | Foreign currency translation                                                      |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | (2   | ) |   |      |     |  
|                             | Minimum pension liability adjustment                                              |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | (13  | ) |   |      |     |  
|                             | Unrealized gain on securities, net                                                |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | 4    |   |   |      |     |  
|                             | Unrealized gain on derivative instruments                                         |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | 6    |   |   |      |     |  
|                             | Early termination of derivative instruments                                       |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      | 15   |   |   |      |     |  
|                             | Distributions declared                                                            |                |    |             |   |             |   |       |   |            |     |         |   |               |   |             |   |              |   |          |  |          |     |   |   |   |   |  |  |   |       |    |   |   |     |    |   |   |      |     |   |   |      | (170 | )
|                             |                                                                                   |                |    |              |   |             |   |        |   |            |     |          |   |               |   |              |   |              |   |           |  |          |     |    |   |   |   |   |  |   |       |     |   |   |     |     |   |   |      |      |   |   |      |     
|Balance at December 31, 2002 |                                                                                   | $              |   |              |   |             | 1 |        |   | $          | 51  |          |   |               |  |              |   | $            |  |           |  |          | 200 |    |   | $ | 4 |   |  | $ | 4,905 |     |   | $ | (14 | )   |   | $ | (474 | )    |   | $ | (424 | )   
|                             |                                                                                   |                |    |              |   |             |   |        |   |            |     |          |   |               |   |              |   |              |   |           |  |          |     |    |   |   |   |   |  |   |       |     |   |   |     |     |   |   |      |      |   |   |      |     



---



|    |                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | As of December 31, 2002, this balance is
    comprised of $458 million of cumulative translation
    adjustments, $2 million of cumulative unrealized gains on
    securities, including derivative instruments, and
    $18 million of cumulative minimum pension liability
    adjustment.

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

F-6



---



##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.






CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In millions)


|                                                             |                                                                                |                         |        |      |   |      |       |      |   |   |        |      |  
|------------------------------------------------------------ | ------------------------------------------------------------------------------ | ----------------------- | ------ | ---- | - | ---- | ----- | ---- | - | - | ------ | ---- | -
|                                                             |                                                                                |                        
|                                                             |                                                                                | Year Ended December 31,
|                                                             |                                                                                |                        
|                                                             |                                                                                | 2002                    |        | 2001 |   | 2000
|                                                             |                                                                                |                         |        |      |   |     
|Operating Activities                                         |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|Net income                                                   |                                                                                | $                       | 355    |      |   | $    | 145   |      |   | $ | 403    |     
|Exclude:                                                     |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|Discontinued operations                                      |                                                                                |                         | (109   | )    |   |      |      |      |   |   | (5     | )   
|                                                             |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|Income from continuing operations                            |                                                                                |                         | 246    |      |   |      | 145   |      |   |   | 398    |     
|Adjustments to income from continuing operations:            |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|                                                             | Depreciation and amortization                                                  |                         |        | 496  |   |      |       | 526  |   |   |        | 481  |  
|                                                             | Amortization of deferred loan costs                                            |                         |        | 15   |   |      |       | 15   |   |   |        | 11   |  
|                                                             | Amortization of hedge premiums                                                 |                         |        |     |   |      |       | 2    |   |   |        |     |  
|                                                             | Non-cash portion of restructuring and other
    special charges (credits), net |                         |        | (7   | ) |      |       | 34   |   |   |        |     |  
|                                                             | Non-cash foreign currency losses (gains), net                                  |                         |        | (33  | ) |      |       | (27  | ) |   |        | 7    |  
|                                                             | Provision for doubtful accounts                                                |                         |        | 27   |   |      |       | 20   |   |   |        | 19   |  
|                                                             | Minority equity in net income                                                  |                         |        | 2    |   |      |       | 3    |   |   |        | 8    |  
|                                                             | Distributions in excess of equity earnings                                     |                         |        | 26   |   |      |       | 14   |   |   |        | 13   |  
|                                                             | Gain on sale of VOI notes receivable                                           |                         |        | (16  | ) |      |       | (12  | ) |   |        | (14  | )
|                                                             | Loss (gain) on asset dispositions and
    impairments, net                     |                         |        | (3   | ) |      |       | 57   |   |   |        | (2   | )
|Changes in working capital:                                  |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|                                                             | Restricted cash                                                                |                         |        | (58  | ) |      |       | 1    |   |   |        | (38  | )
|                                                             | Accounts receivable                                                            |                         |        | 17   |   |      |       | 98   |   |   |        | (13  | )
|                                                             | Inventories                                                                    |                         |        | 14   |   |      |       | 6    |   |   |        | (63  | )
|                                                             | Accounts payable and accrued expenses                                          |                         |        | 78   |   |      |       | 11   |   |   |        | (53  | )
|Accrued and deferred income taxes                            |                                                                                |                         | (88    | )    |   |      | (90   | )    |   |   | 22     |     
|Other, net                                                   |                                                                                |                         | (13    | )    |   |      | (48   | )    |   |   | 35     |     
|                                                             |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|                                                             | Cash from continuing operations                                                |                         |        | 703  |   |      |       | 755  |   |   |        | 811  |  
|                                                             | Cash from discontinued operations                                              |                         |        | 3    |   |      |       |     |   |   |        | 3    |  
|                                                             |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|                                                             | Cash from operating activities                                                 |                         |        | 706  |   |      |       | 755  |   |   |        | 814  |  
|                                                             |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|Investing Activities                                         |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|Purchases of plant, property and equipment                   |                                                                                |                         | (300   | )    |   |      | (477  | )    |   |   | (544   | )   
|Proceeds from asset sales, net                               |                                                                                |                         | 65     |      |   |      | 39    |      |   |   | 261    |     
|Collection (issuance) of notes receivable,
    net           |                                                                                |                         | 7      |      |   |      | (23   | )    |   |   | (12    | )   
|Acquisitions, net of acquired cash                           |                                                                                |                         | (7     | )    |   |      | (51   | )    |   |   | (284   | )   
|Investments                                                  |                                                                                |                         | (41    | )    |   |      | (77   | )    |   |   | (45    | )   
|Other, net                                                   |                                                                                |                         | (10    | )    |   |      | (32   | )    |   |   | (35    | )   
|                                                             |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|                                                             | Cash used for investing activities                                             |                         |        | (286 | ) |      |       | (621 | ) |   |        | (659 | )
|                                                             |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|Financing Activities                                         |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|Revolving credit facility and short-term
    borrowings, net |                                                                                |                         | (400   | )    |   |      | (244  | )    |   |   | 547    |     
|Long-term debt issued                                        |                                                                                |                         | 1,964  |      |   |      | 1,048 |      |   |   | 231    |     
|Long-term debt repaid                                        |                                                                                |                         | (2,017 | )    |   |      | (743  | )    |   |   | (1,015 | )   
|Distributions paid                                           |                                                                                |                         | (40    | )    |   |      | (156  | )    |   |   | (134   | )   
|Share repurchases                                            |                                                                                |                         |       |      |   |      | (96   | )    |   |   | (69    | )   
|Other, net                                                   |                                                                                |                         | 66     |      |   |      | 29    |      |   |   | 23     |     
|                                                             |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|                                                             | Cash used for financing activities                                             |                         |        | (427 | ) |      |       | (162 | ) |   |        | (417 | )
|                                                             |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|Exchange rate effect on cash and cash equivalents            |                                                                                |                         | 8      |      |   |      | (3    | )    |   |   | (23    | )   
|                                                             |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|Increase (decrease) in cash and cash
    equivalents         |                                                                                |                         | 1      |      |   |      | (31   | )    |   |   | (285   | )   
|Cash and cash equivalents  beginning
    of period          |                                                                                |                         | 107    |      |   |      | 138   |      |   |   | 423    |     
|                                                             |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|Cash and cash equivalents  end of
    period                |                                                                                | $                       | 108    |      |   | $    | 107   |      |   | $ | 138    |     
|                                                             |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|Supplemental Disclosures of Cash Flow
    Information        |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|Cash paid during the period for:                             |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|                                                             | Interest                                                                       |                         | $      | 310  |   |      | $     | 358  |   |   | $      | 399  |  
|                                                             |                                                                                |                         |        |      |   |      |       |      |   |   |        |     
|                                                             | Income taxes, net of refunds                                                   |                         | $      | 94   |   |      | $     | 141  |   |   | $      | 179  |  
|                                                             |                                                                                |                         |        |      |   |      |       |      |   |   |        |     

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

F-7



---



##### Table of Contents






STARWOOD HOTELS & RESORTS






CONSOLIDATED BALANCE SHEETS


(In millions, except share data)


|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |        |       | 
|---------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----- | ------ | ----- | - | ----- | ------ | ----- | 
|                                                                                   |                                                                                                                                                                                                       |                           
|                                                                                   |                                                                                                                                                                                                       | December 31,              
|                                                                                   |                                                                                                                                                                                                       |                           
|                                                                                   |                                                                                                                                                                                                       | 2002                       |       | 2001  
|                                                                                   |                                                                                                                                                                                                       |                            |       |       
|ASSETS                                                                            
|Current assets:                                                                    |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   | Cash and cash equivalents                                                                                                                                                                             |                            | $     | 2      |       |   | $     | 3      |      
|                                                                                   | Receivable, Corporation                                                                                                                                                                               |                            |       | 41     |       |   |       | 35     |      
|                                                                                   | Prepaid expenses and other                                                                                                                                                                            |                            |       | 1      |       |   |       | 1      |      
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   |                                                                                                                                                                                                       | Total current assets       |       |        | 44    |   |       |        | 39    | 
|Investments, Corporation                                                           |                                                                                                                                                                                                       |                            | 848   |        |       |   | 848   |       
|Investments                                                                        |                                                                                                                                                                                                       |                            | 27    |        |       |   | 30    |       
|Plant, property and equipment, net                                                 |                                                                                                                                                                                                       |                            | 4,010 |        |       |   | 4,201 |       
|Long-term receivables, Corporation, net                                            |                                                                                                                                                                                                       |                            | 2,070 |        |       |   | 1,619 |       
|Goodwill and intangible assets, net                                                |                                                                                                                                                                                                       |                            | 223   |        |       |   | 233   |       
|Other assets                                                                       |                                                                                                                                                                                                       |                            | 8     |        |       |   | 14    |       
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   |                                                                                                                                                                                                       | $                          | 7,230 |        |       | $ | 6,984 |       
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                          
|Current liabilities:                                                               |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   | Short-term borrowings and current maturities of
    long-term debt                                                                                                                                    |                            | $     | 9      |       |   | $     | 36     |      
|                                                                                   | Accounts payable                                                                                                                                                                                      |                            |       | 8      |       |   |       | 7      |      
|                                                                                   | Accrued expenses                                                                                                                                                                                      |                            |       | 24     |       |   |       | 24     |      
|                                                                                   | Distributions payable, Corporation                                                                                                                                                                    |                            |       | 148    |       |   |       |       |      
|                                                                                   | Distributions payable                                                                                                                                                                                 |                            |       | 170    |       |   |       | 40     |      
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   |                                                                                                                                                                                                       | Total current liabilities  |       |        | 359   |   |       |        | 107   | 
|Long-term debt                                                                     |                                                                                                                                                                                                       |                            | 438   |        |       |   | 447   |       
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   |                                                                                                                                                                                                       |                            | 797   |        |       |   | 554   |       
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|Minority interest                                                                  |                                                                                                                                                                                                       |                            | 30    |        |       |   | 31    |       
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|Exchangeable units and Class B preferred
    shares, at redemption value of $38.50 |                                                                                                                                                                                                       |                            | 48    |        |       |   | 48    |       
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|Commitments and contingencies                                                      |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|Stockholders equity:                                                              |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   | Class A exchangeable preferred shares; $0.01
    par value; authorized 30,000,000 shares; outstanding 493,968 and
    549,951 shares at December 31, 2002 and 2001, respectively                      |                            |       |       |       |   |       |       |      
|                                                                                   | Class A shares of beneficial interest; $0.01
    par value; authorized 5,000 shares; outstanding 100 shares at
    December 31, 2002 and 2001.                                                        |                            |       |       |       |   |       |       |      
|                                                                                   | Trust Class B shares of beneficial interest;
    $0.01 par value; authorized 1,000,000,000 shares; outstanding
    199,579,542 and 197,718,872 shares at December 31, 2002 and
    2001, respectively |                            |       | 2      |       |   |       | 2      |      
|                                                                                   | Additional paid-in capital                                                                                                                                                                            |                            |       | 7,704  |       |   |       | 7,697  |      
|                                                                                   | Distributions in excess of net income                                                                                                                                                                 |                            |       | (1,351 | )     |   |       | (1,348 | )    
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   |                                                                                                                                                                                                       | Total stockholders equity |       |        | 6,355 |   |       |        | 6,351 | 
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       
|                                                                                   |                                                                                                                                                                                                       | $                          | 7,230 |        |       | $ | 6,984 |       
|                                                                                   |                                                                                                                                                                                                       |                            |       |        |       |   |       |       

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

F-8



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##### Table of Contents



STARWOOD HOTELS & RESORTS






CONSOLIDATED STATEMENTS OF INCOME


(In millions)


|                                                                          |  |                         |     |      |  |      |     |   |  |   |     |  
|------------------------------------------------------------------------- |  | ----------------------- | --- | ---- |  | ---- | --- | - |  | - | --- | -
|                                                                          |  |                        
|                                                                          |  | Year Ended December 31,
|                                                                          |  |                        
|                                                                          |  | 2002                    |     | 2001 |  | 2000
|                                                                          |  |                         |     |      |  |     
|Revenues                                                                  |  |                         |     |      |  |      |     |   |  |   |     |  
|Equity earnings (losses) from unconsolidated
    joint ventures and other |  | $                       | (1  | )    |  | $    | 3   |   |  | $ | 3   |  
|Rent and interest, Corporation                                            |  |                         | 587 |      |  |      | 633 |   |  |   | 692 |  
|                                                                          |  |                         |     |      |  |      |     |   |  |   |     |  
|                                                                          |  |                         | 586 |      |  |      | 636 |   |  |   | 695 |  
|                                                                          |  |                         |     |      |  |      |     |   |  |   |     |  
|Costs and Expenses                                                        |  |                         |     |      |  |      |     |   |  |   |     |  
|Selling, general and administrative                                       |  |                         | 3   |      |  |      | 3   |   |  |   | 3   |  
|Depreciation                                                              |  |                         | 222 |      |  |      | 206 |   |  |   | 183 |  
|Amortization                                                              |  |                         |    |      |  |      | 6   |   |  |   | 7   |  
|                                                                          |  |                         |     |      |  |      |     |   |  |   |     |  
|                                                                          |  |                         | 225 |      |  |      | 215 |   |  |   | 193 |  
|                                                                          |  |                         |     |      |  |      |     |   |  |   |     |  
|                                                                          |  |                         | 361 |      |  |      | 421 |   |  |   | 502 |  
|Interest expense, net                                                     |  |                         | (36 | )    |  |      | (37 | ) |  |   | (39 | )
|Gain (loss) on asset dispositions and
    impairments, net                |  |                         | (3  | )    |  |      | (3  | ) |  |   | 1   |  
|Income tax expense                                                        |  |                         | (4  | )    |  |      | (4  | ) |  |   | (1  | )
|Minority equity in net income                                             |  |                         | (3  | )    |  |      | (1  | ) |  |   | (3  | )
|                                                                          |  |                         |     |      |  |      |     |   |  |   |     |  
|Net income                                                                |  | $                       | 315 |      |  | $    | 376 |   |  | $ | 460 |  
|                                                                          |  |                         |     |      |  |      |     |   |  |   |     |  

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

F-9



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##### Table of Contents



STARWOOD HOTELS & RESORTS






CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In millions)


|                                                      |                                                            |                         |      |      |   |      |      |      |   |   |      |      |  
|----------------------------------------------------- | ---------------------------------------------------------- | ----------------------- | ---- | ---- | - | ---- | ---- | ---- | - | - | ---- | ---- | -
|                                                      |                                                            |                        
|                                                      |                                                            | Year Ended December 31,
|                                                      |                                                            |                        
|                                                      |                                                            | 2002                    |      | 2001 |   | 2000
|                                                      |                                                            |                         |      |      |   |     
|Operating Activities                                  |                                                            |                         |      |      |   |      |      |      |   |   |      |     
|Net income                                            |                                                            | $                       | 315  |      |   | $    | 376  |      |   | $ | 460  |     
|Adjustments to net income:                            |                                                            |                         |      |      |   |      |      |      |   |   |      |     
|                                                      | Depreciation and amortization                              |                         |      | 222  |   |      |      | 212  |   |   |      | 190  |  
|                                                      | Amortization of deferred loan costs                        |                         |      | 1    |   |      |      |     |   |   |      |     |  
|                                                      | Minority equity in net income                              |                         |      | 3    |   |      |      | 1    |   |   |      | 3    |  
|                                                      | Distributions in excess of equity earnings                 |                         |      | 3    |   |      |      | 3    |   |   |      | 3    |  
|                                                      | Loss (gain) on asset dispositions and
    impairments, net |                         |      | 3    |   |      |      | 3    |   |   |      | (1   | )
|Receivable, Corporation                               |                                                            |                         | (446 | )    |   |      | (1   | )    |   |   |     |     
|Other, net                                            |                                                            |                         | 3    |      |   |      | 8    |      |   |   | (14  | )   
|                                                      |                                                            |                         |      |      |   |      |      |      |   |   |      |     
|                                                      | Cash from operating activities                             |                         |      | 104  |   |      |      | 602  |   |   |      | 641  |  
|                                                      |                                                            |                         |      |      |   |      |      |      |   |   |      |     
|Investing Activities                                  |                                                            |                         |      |      |   |      |      |      |   |   |      |     
|Purchases of plant, property and equipment            |                                                            |                         | (82  | )    |   |      | (169 | )    |   |   | (204 | )   
|Proceeds from asset sales, net                        |                                                            |                         | 52   |      |   |      | 21   |      |   |   | 54   |     
|Acquisitions, net of acquired cash                    |                                                            |                         | (7   | )    |   |      | (6   | )    |   |   |     |     
|Collection (issuance) of notes receivable             |                                                            |                         | 2    |      |   |      | (10  | )    |   |   | 73   |     
|Other, net                                            |                                                            |                         |     |      |   |      |     |      |   |   | 9    |     
|                                                      |                                                            |                         |      |      |   |      |      |      |   |   |      |     
|                                                      | Cash used for investing activities                         |                         |      | (35  | ) |      |      | (164 | ) |   |      | (68  | )
|                                                      |                                                            |                         |      |      |   |      |      |      |   |   |      |     
|Financing Activities                                  |                                                            |                         |      |      |   |      |      |      |   |   |      |     
|Long-term debt issued                                 |                                                            |                         |     |      |   |      |     |      |   |   | 23   |     
|Long-term debt repaid                                 |                                                            |                         | (36  | )    |   |      | (35  | )    |   |   | (106 | )   
|Distributions paid                                    |                                                            |                         | (40  | )    |   |      | (156 | )    |   |   | (134 | )   
|Distributions paid to Corporation                     |                                                            |                         |     |      |   |      | (243 | )    |   |   | (338 | )   
|Share repurchases                                     |                                                            |                         |     |      |   |      | (14  | )    |   |   |     |     
|Other, net                                            |                                                            |                         | 6    |      |   |      | 4    |      |   |   | (10  | )   
|                                                      |                                                            |                         |      |      |   |      |      |      |   |   |      |     
|                                                      | Cash used for financing activities                         |                         |      | (70  | ) |      |      | (444 | ) |   |      | (565 | )
|                                                      |                                                            |                         |      |      |   |      |      |      |   |   |      |     
|Increase (decrease) in cash and cash
    equivalents  |                                                            |                         | (1   | )    |   |      | (6   | )    |   |   | 8    |     
|Cash and cash equivalents  beginning
    of period   |                                                            |                         | 3    |      |   |      | 9    |      |   |   | 1    |     
|                                                      |                                                            |                         |      |      |   |      |      |      |   |   |      |     
|Cash and cash equivalents  end of
    period         |                                                            | $                       | 2    |      |   | $    | 3    |      |   | $ | 9    |     
|                                                      |                                                            |                         |      |      |   |      |      |      |   |   |      |     
|Supplemental Disclosures of Cash Flow
    Information |                                                            |                         |      |      |   |      |      |      |   |   |      |     
|Cash paid during the period for:                      |                                                            |                         |      |      |   |      |      |      |   |   |      |     
|                                                      | Interest                                                   |                         | $    | 35   |   |      | $    | 36   |   |   | $    | 33   |  
|                                                      |                                                            |                         |      |      |   |      |      |      |   |   |      |     
|                                                      | Income taxes                                               |                         | $    | 4    |   |      | $    | 4    |   |   | $    | 1    |  
|                                                      |                                                            |                         |      |      |   |      |      |      |   |   |      |     

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

F-10



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.

AND STARWOOD HOTELS & RESORTS







NOTES TO FINANCIAL STATEMENTS




|        |                      
|------- | ---------------------
|Note 1. | Basis of Presentation

The accompanying consolidated financial
statements represent (i) Starwood Hotels & Resorts
Worldwide, Inc. and its subsidiaries (the
Corporation), including Sheraton Holding Corporation
and its subsidiaries (Sheraton Holding) (formerly
ITT Corporation) and Starwood Hotels & Resorts and its
subsidiaries (the Trust and, together with the
Corporation, Starwood or the Company),
and (ii) the Trust.

Starwood is one of the worlds largest hotel
and leisure companies. Starwoods status as one of the
leading hotel and leisure companies resulted from the 1998
acquisition of Westin Hotels & Resorts Worldwide, Inc.
and certain of its affiliates (Westin) (the
Westin Merger) and the acquisition of ITT
Corporation (the ITT Merger), renamed Sheraton
Holding Corporation (Sheraton Holding).

The Companys principal business is hotels
and leisure, which is comprised of a worldwide hospitality
network of more than 700 full-service hotels as well as
vacation ownership resorts primarily serving two markets: luxury
and upscale.

On October 1, 1999, the Company completed
the acquisition of Starwood Vacation Ownership, Inc. (formerly
Vistana, Inc.) (SVO), whereby SVO merged with and
into a subsidiary of the Corporation and thereby became a wholly
owned subsidiary of the Corporation. SVOs principal
operations include the acquisition, development and operation of
vacation ownership resorts; marketing and selling vacation
ownership interests (VOIs) in the resorts; and
providing financing to customers who purchase such interests.
Starwood considers SVOs vacation ownership operations to
be a separate segment from its hotel business.

The Trust was formed in 1969 and elected to be
taxed as a 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. The Trust is one of the largest real
estate investment trusts (REITs) in the United
States.

During 1998, Congress enacted tax legislation
that had the effect of eliminating the grandfathering for
certain interests in real property acquired after March 26,
1998 by a formation of a paired share REIT. In
response to this legislation, a reorganization of the
Corporation and the Trust (the Reorganization) was
proposed by the Company and was approved by the Corporation and
Trust shareholders on January 6, 1999. As a result of the
Reorganization, the Trust became a subsidiary of the
Corporation, which indirectly holds all outstanding shares of
the new Class A shares of beneficial interest in the Trust
(Class A Shares). 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 Reorganization
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. Unless otherwise
stated herein, all information with respect to Shares refers to
Shares on or since January 6, 1999 and to Paired Shares for
periods before January 6, 1999.

The Corporation, through its subsidiaries, is the
general partner of, and held, as of December 31, 2002, an
aggregate 98.0% partnership interest in, SLC Operating Limited
Partnership (the Operating Partnership). The Trust,
through its subsidiaries, is the general partner of, and held an
aggregate 97.2% partnership interest

F-11



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

in, SLT Realty Limited Partnership (the
Realty Partnership and, together with the Operating
Partnership, the Partnerships) as of
December 31, 2002. The units of the Partnerships (LP
Units) held by the limited partners of the respective
Partnerships are exchangeable on a one-for-one basis for Shares.
At December 31, 2002, there were approximately
5.8 million LP Units outstanding (including
4.3 million LP Units held by the Corporation). 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

Principles of Consolidation.The accompanying consolidated
financial statements of the Company and the Trust and their
subsidiaries include the assets, liabilities, revenues and
expenses of majority-owned subsidiaries over which the Company
and/or the Trust exercise control, and for which control is
other than temporary. Intercompany transactions and balances
have been eliminated in consolidation.

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.

Restricted Cash.Restricted cash primarily consists
of deposits received on sales of VOIs that are held in escrow
until a certificate of occupancy is obtained, the legal
rescission period has expired and the deed of trust has been
recorded in governmental property ownership records.

Inventories.Inventories are comprised
principally of VOIs of $137 million and $146 million as of
December 31, 2002 and December 31, 2001, respectively,
and hotel operating supplies. VOI inventory is carried at the
lower of cost or net realizable value and includes
$4 million, $4 million and $3 million of capitalized
interest in 2002, 2001 and 2000, respectively. Operating
supplies are generally valued at the lower of cost (first-in,
first-out) or market. Potential losses from obsolete and
slow-moving inventories are provided for in the current period.

Loan Loss Reserves.For the hotel segment, the Company
measures loan impairment based on the present value of expected
future cash flows discounted at the loans original
effective interest rate or the estimated fair value of the
collateral. For impaired loans, the Company establishes a
specific impairment reserve for the difference between the
recorded investment in the loan and the present value of the
expected future cash flows or the estimated fair value of the
collateral. The Company applies the loan impairment policy
individually to all loans in the portfolio and does not
aggregate loans for the purpose of applying such policy. For
loans that the Company has determined to be impaired, the
Company recognizes interest income on a cash basis.

For the vacation ownership segment, the Company
provides for estimated mortgages receivable cancellations and
defaults at the time the VOI sales are recorded with a charge to
selling, general administrative and other expenses. The Company
performs an analysis of factors such as economic condition and
industry trends, defaults, past due aging and historical
write-offs of mortgages and contracts receivable to evaluate the
adequacy of the allowance.

Investments.Investments in joint ventures are
accounted for using the equity method of accounting when the
Company has a 20% to 50% ownership interest or exercises
significant influence over the venture. If the Companys
interest exceeds 50% or in certain cases, if the Company
exercises control over the venture, the results of the joint
venture are consolidated herein. All other investments are
generally accounted for under the cost method.

Equity in earnings of unconsolidated subsidiaries
accounted for on the equity basis was $13 million,
$20 million and $37 million in 2002, 2001 and 2000,
respectively, and is included in hotel and leisure revenues in
the accompanying consolidated statements of income.

F-12



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

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, which is dependent on the performance
of the companies or ventures in which the Company has invested,
as well as the volatility inherent in external markets for these
types of investments.

In assessing potential impairment for these
investments, the Company will consider these factors as well as
forecasted financial performance of its investees. If these
forecasts are not met, the Company may have to record impairment
charges. Thus, the carrying value of other investments
approximates fair value, which is based on market prices or the
value of the underlying collateral.

Plant, Property and
Equipment.Plant, property and equipment,
including capitalized interest of $6 million,
$7 million and $3 million in 2002, 2001 and 2000,
respectively, applicable to major project expenditures, are
recorded at cost. The cost of improvements that extend the life
of plant, property and equipment are capitalized. These
capitalized costs may include structural improvements, equipment
and fixtures. Costs for normal repairs and maintenance are
expensed as incurred. Depreciation is provided on a
straight-line basis over the estimated useful economic lives of
15 to 40 years for buildings and improvements; 3 to
10 years for furniture, fixtures and equipment; 3 to
7 years for information technology software; and equipment
and the lesser of the lease 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 in use,
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 the fair value of the assets which have
been identified for sale is less than the net book value of the
assets, the carrying value of the assets is reduced to fair
value less selling costs. 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.

Goodwill and Intangible Assets.Goodwill and intangible assets
arise in connection with acquisitions, including the acquisition
of management contracts. Prior to January 1, 2002, all
goodwill and intangible assets with indefinite lives were
amortized using the straight-line method over the useful life of
the asset. Effective January 1, 2002, the Company adopted
Statement of Financial Accounting Standards (SFAS)
No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets.
In accordance with this guidance, the Company ceased amortizing
goodwill and intangible assets with indefinite lives. Intangible
assets with finite lives continue to amortize on a straight-line
basis over their respective useful lives. The Company reviews
all goodwill and intangible assets for impairment by comparisons
of fair value to book value annually, or upon the occurrence of
a trigger event. Impairment charges, if any, will be recognized
in operating results. In connection with the adoption of this
standard, the Company has completed its initial and first annual
recoverability tests on goodwill and intangible assets, which
did not result in any impairment write-downs.

Frequent Guest Program.Starwood Preferred Guest®
(SPG) is the Companys frequent guest incentive
marketing program. SPG members earn points based on their
spending at the Companys properties, including purchases
of VOIs, and, to a lesser degree, through participation in
affiliated partners programs,

F-13



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

such as those offered by airlines. Points can be
redeemed at most Company owned, leased, managed and franchised
properties.

SPG is provided as a marketing program to the
Companys properties, including as incentives to first time
buyers of VOIs. The cost of operating the program, including the
estimated cost of award redemption, is charged to properties
based on members qualifying expenditures. Revenue is
recognized by participating hotels and resorts when points are
redeemed for hotel stays.

The Company, through the services of third-party
actuarial analysts, determines the fair value of the future
redemption obligation based on statistical formulas which
project timing of future point redemption based on historical
experience, including an estimate of the breakage
for points that will never be redeemed, and an estimate of the
points that will eventually be redeemed. These factors determine
the required liability for outstanding points. The
Companys management and franchise agreements require that
the Company be reimbursed currently for the costs of operating
the program, including marketing, promotion, communications
with, and performing member services for the SPG members. Actual
expenditures for SPG may differ from the actuarially determined
liability.

The liability for the SPG program is included in
other long-term liabilities and accrued expenses in the
accompanying consolidated balance sheets. The total actuarially
determined liability as of December 31, 2002 and 2001 is
$175 million and $159 million, respectively.

Legal Contingencies.The Company is subject to various
legal proceedings and claims, the outcomes of which are subject
to significant uncertainty. SFAS No. 5, Accounting
for Contingencies, requires that an estimated loss from a
loss contingency should be accrued by a charge to income if it
is probable that an asset has been impaired or a liability has
been incurred and the amount of the loss can be reasonably
estimated. Disclosure of a contingency is required if there is
at least a reasonable possibility that a loss has been incurred.
The Company evaluates, among other factors, the degree of
probability of an unfavorable outcome and the ability to make a
reasonable estimate of the amount of loss. Changes in these
factors could materially impact the Companys financial
position or its results of operations.

Derivative Financial
Instruments.Effective January 1, 2001, the
Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended
by SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, which
established new accounting rules and disclosure requirements for
most derivative instruments and hedging activities. The adoption
of SFAS No. 133, as amended, resulted in an initial
reduction of other comprehensive income of approximately
$6.2 million but did not impact earnings. The Company
enters into interest rate swap agreements to manage interest
rate exposure. The net settlements paid or received under these
agreements are accrued consistent with the terms of the
agreements and are recognized in interest expense over the term
of the related debt. The related fair value of the swaps is
included in other liabilities or assets.

The Company enters into foreign currency forward
contracts as a means of hedging exposure to foreign currency
fluctuations. All foreign currency forward contracts have an
inverse correlation to the hedged items and are designated as,
and considered effective as, hedges of the underlying assets or
liabilities. 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. Discounts or premiums related to the contracts are
recognized in income over the life of the contract.

The Company does not enter into derivative
financial instruments for trading or speculative purposes and
monitors the financial stability and credit standing of its
counterparties.

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

F-14



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

during the year. The national currencies of
foreign operations are generally the functional currencies.
Gains and losses from foreign exchange 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. Gains and losses from
foreign exchange of intercompany receivables and payables that
are not of a long-term investment nature are reported currently
in costs and expenses and amounted to a gain (loss) of
$33 million, $27 million and $(7) million in 2002,
2001 and 2000, respectively. The $33 million gain in 2002
includes a $30 million gain recorded in selling, general,
administrative and other expenses related to the mark-to-market
of U.S. dollar intercompany receivables in Argentina as a
result of the devaluation of the Argentine Peso. The
$27 million gain in 2001 includes a $24 million gain
from the same U.S. dollar Argentine intercompany receivables.
Gains and losses from foreign currency transactions are reported
currently in costs and expenses and were insignificant for all
periods presented.

Income Taxes.SFAS No. 109,
Accounting for Income Taxes, establishes financial
accounting and reporting standards for the effect of income
taxes. The objectives of accounting for income taxes are to
recognize the amount of taxes payable or refundable for the
current year and deferred tax liabilities and assets for the
future tax consequences of events that have been recognized in
an entitys financial statements or tax returns. Judgment
is required in assessing the future tax consequences of events
that have been recognized in the Companys financial
statements or tax returns.

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 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 earnings 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. As a result, the Trust is not
subject to federal income tax on its taxable income at corporate
rates provided it distributes annually all of its taxable income
to its shareholders and complies with certain other requirements.

Earnings Per Share.The following represents a
reconciliation of basic earnings per Share to diluted earnings
per Share for income from continuing operations (in millions,
except per Share data):

|                                            |                                              |                         |     |        |  |           |     |          |  |        |      |           |  |          |     |        |  |           |     |   |  |   |      |  |  |   |     |   |  |  |     |   |  |   |      |  | 
|------------------------------------------- | -------------------------------------------- | ----------------------- | --- | ------ |  | --------- | --- | -------- |  | ------ | ---- | --------- |  | -------- | --- | ------ |  | --------- | --- | - |  | - | ---- |  |  | - | --- | - |  |  | --- | - |  | - | ---- |  | 
|                                            |                                              |                        
|                                            |                                              | Year Ended December 31,
|                                            |                                              |                        
|                                            |                                              |                         |     |        |  |          
|                                            |                                              | 2002                    |     | 2001   |  | 2000     
|                                            |                                              |                         |     |        |  |          
|                                            |                                              | Earnings                |     | Shares |  | Per Share |     | Earnings |  | Shares |      | Per Share |  | Earnings |     | Shares |  | Per Share
|                                            |                                              |                         |     |        |  |           |     |          |  |        |      |           |  |          |     |        |  |          
|Basic earnings from continuing operations   |                                              | $                       | 246 |        |  |           | 201 |          |  | $      | 1.22 |           |  | $        | 145 |        |  |           | 201 |   |  | $ | 0.72 |  |  | $ | 398 |   |  |  | 202 |   |  | $ | 1.98 | 
|Effect of dilutive securities:              |                                              |                         |     |        |  |           |     |          |  |        |      |           |  |          |     |        |  |           |     |   |  |   |      |  |  |   |     |   |  |  |     |   |  |   |      | 
|                                            | Employee options and restricted stock awards |                         |     |       |  |           |     | 4        |  |        |      |           |  |          |     |       |  |           |     | 5 |  |   |      |  |  |   |     |  |  |  |     | 3 |  |   |      |  | 
|                                            |                                              |                         |     |        |  |           |     |          |  |        |      |           |  |          |     |        |  |           |     |   |  |   |      |  |  |   |     |   |  |  |     |   |  |   |      | 
|Diluted earnings from continuing operations |                                              | $                       | 246 |        |  |           | 205 |          |  | $      | 1.20 |           |  | $        | 145 |        |  |           | 206 |   |  | $ | 0.70 |  |  | $ | 398 |   |  |  | 205 |   |  | $ | 1.95 | 
|                                            |                                              |                         |     |        |  |           |     |          |  |        |      |           |  |          |     |        |  |           |     |   |  |   |      |  |  |   |     |   |  |  |     |   |  |   |      | 

Included in the Basic Share numbers for the year
ended December 31, 2002, 2001 and 2000 are approximately
2 million, 2 million and 6 million shares,
respectively, of Class A EPS and Class B EPS.

Stock-Based
Compensation.The Company has
three stock-based employee long term incentive plans, which are
described in Note 16. Stock Incentive Plans. The Company
accounts for those plans under the recognition and measurement
principles of APB Opinion No. 25 Accounting for Stock
Issued to Employees

F-15



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

and related interpretations. No stock-based
employee compensation cost is reflected in net income as all
options granted to employees under these plans have an exercise
price equal to the fair value of the underlying common stock on
the date of grant. The following table illustrates the effect on
net income and earnings per Share if the Company had applied the
fair value recognition provisions of FASB Statement No. 123
Accounting for Stock-Based Compensation to
stock-based employee compensation:

|                                   |                                        |                         |   |       |    |      |   |       |    |  |   |       |    | 
|---------------------------------- | -------------------------------------- | ----------------------- | - | ----- | -- | ---- | - | ----- | -- |  | - | ----- | -- | 
|                                   |                                        |                        
|                                   |                                        | Year Ended December 31,
|                                   |                                        |                        
|                                   |                                        | 2002                    |   | 2001  |    | 2000
|                                   |                                        |                         |   |       |    |     
|                                   |                                        |                        
|                                   |                                        | (in millions, except   
|                                   |                                        | per Share data)        
|                                   | Net income, as reported                |                         | $ | 355   |    |      | $ | 145   |    |  | $ | 403   |   
|                                   | Deduct: SFAS No. 123 compensation cost |                         |   | (112  | )  |      |   | (103  | )  |  |   | (92   | ) 
|                                   |                                        | Tax effect              |   |       | 39 |      |   |       | 36 |  |   |       | 32 | 
|                                   |                                        |                         |   |       |    |      |   |       |    |  |   |      
|                                   | Proforma net income                    |                         | $ | 282   |    |      | $ | 78    |    |  | $ | 343   |   
|                                   |                                        |                         |   |       |    |      |   |       |    |  |   |      
|                                   | Earnings per Share:                    |                         |   |       |    |      |   |       |    |  |   |       |   
|                                   | Basic, as reported                     |                         | $ | 1.76  |    |      | $ | 0.72  |    |  | $ | 2.00  |   
|                                   |                                        |                         |   |       |    |      |   |       |    |  |   |      
|                                   | Basic, proforma                        |                         | $ | 1.40  |    |      | $ | 0.39  |    |  | $ | 1.70  |   
|                                   |                                        |                         |   |       |    |      |   |       |    |  |   |      
|                                   | Diluted, as reported                   |                         | $ | 1.73  |    |      | $ | 0.70  |    |  | $ | 1.97  |   
|                                   |                                        |                         |   |       |    |      |   |       |    |  |   |      
|                                   | Diluted, proforma                      |                         | $ | 1.38  |    |      | $ | 0.37  |    |  | $ | 1.68  |   
|                                   |                                        |                         |   |       |    |      |   |       |    |  |   |      
|Average Black Scholes Assumptions: |                                        |                         |   |       |    |      |   |       |    |  |   |      
|                                   | Dividend Yield                         |                         |   | 2.7   | %  |      |   | 2.2   | %  |  |   | 2.4   | % 
|                                   | Volatility                             |                         |   | 46    | %  |      |   | 47    | %  |  |   | 46    | % 
|                                   | Risk-free rate                         |                         |   | 3.1   | %  |      |   | 4.3   | %  |  |   | 6.5   | % 
|                                   | Expected life                          |                         |   | 3 yrs |    |      |   | 3 yrs |    |  |   | 3 yrs |   

The weighted average fair value per Share of
options granted in 2002, 2001 and 2000 was $13.58, $17.45 and
$13.38, respectively, using the assumptions noted in the table
above.

Revenue Recognition.The Companys revenues are
primarily derived from the following sources: (1) hotel and
resort revenues at the Companys owned, leased and
consolidated joint venture properties; (2) management and
franchise fees; (3) vacation ownership revenues; and
(4) other revenues which are ancillary to the
Companys operations. Generally, revenues are recognized
when the services have been rendered. The following is a
description of the composition of revenues for the Company:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Owned, Leased and Consolidated Joint
    Ventures  Represents revenue primarily derived from
    hotel operations, including the rental of rooms and food and
    beverage sales, from a worldwide network of owned, leased or
    consolidated joint venture hotels and resorts operated primarily
    under the Companys proprietary brand names including St.
    Regis, The Luxury Collection, Sheraton, Westin, W and Four
    Points by Sheraton. Revenue is recognized when rooms are
    occupied and services have been rendered.                                                                                                                                                                                                             
|
| |  | Management and Franchise Fees 
    Represents fees earned on hotels managed worldwide, usually
    under contracts with the hotel owner, and franchise fees
    received in connection with the franchise of the Companys
    Sheraton, Westin, Four Points by Sheraton and Luxury Collection
    brand names. Management fees are comprised of a base fee, which
    is generally based on a percentage of gross revenues, and an
    incentive fee, which is generally based on the propertys
    profitability. Base fee revenues are recognized when earned in
    accordance with the terms of the contract. For any time during
    the year, incentive fees are recognized for the fees due and
    earned as if the contract was terminated at

F-16



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | that date, exclusive of any termination fees due
    or payable. Franchise fees are generally based on a percentage
    of hotel room revenues and are recognized in accordance with
    SFAS No. 45, Accounting for Franchise Fee
    Revenue, as the fees are earned and become due from the
    franchisee. Management and franchise fees are recognized in
    other hotel and leisure revenues in the consolidated statements
    of income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Vacation Ownership  The Company
    recognizes revenue from VOI sales in accordance with SFAS
    No. 66, Accounting for Sales of Real Estate.
    The Company recognizes sales when a minimum of 10% of the
    purchase price for the VOI has been received in cash, the period
    of cancellation with refund has expired and receivables are
    deemed collectible. For sales that do not qualify for full
    revenue recognition as the project has progressed beyond the
    preliminary stages but has not yet reached completion, all
    revenue and profit are initially deferred and recognized in
    earnings through the percentage-of-completion method. Vacation
    ownership revenues are recognized in other hotel and leisure
    revenues in the consolidated statements of income. From time to
    time, the Company may also securitize or sell its VOI
    receivables. These securitizations are accounted for as sales
    transactions under the guidance of SFAS No. 140.

Insurance Retention.Through its captive insurance
company, the Company provides insurance coverage for
workers compensation, property 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 costs of these self-insurance programs are
accrued, based on the analysis of third-party actuaries.

Costs Incurred to Sell Vacation Ownership
Interests.The Company capitalizes
direct costs attributable to the sale of VOIs until the sales
are recognized. Selling and marketing costs capitalized under
this methodology were approximately $9 million and
$1 million as of December 31, 2002 and 2001,
respectively, and all such capitalized costs are included in
other assets in the accompanying consolidated balance sheets.
Costs eligible for capitalization follow the guidelines of SFAS
No. 67 Accounting for Costs and Initial Rental
Operation of Real Estate Projects. If a contact is
cancelled, the Company charges the unrecoverable direct selling
and marketing costs to expense, and records deposits forfeited
as income.

VOI Inventory Costs.Real estate and development costs
are valued at the lower of cost or net realizable value.
Development costs include both hard and soft construction costs
and together with real estate costs are allocated to VOIs on the
relative sales value method. Interest, taxes and other carrying
costs incurred during the construction process are capitalized
as incurred. Such costs associated with completed VOI units are
expensed as incurred.

Beneficial and Retained Interests.The Company periodically sells
notes receivable originated by our vacation ownership business
in connection with the sale of VOIs. The Company retains
interests in the assets transferred to qualified and
non-qualified special purpose entities which are accounted for
as over-collateralizations and interest only strips. These
Beneficial or Retained Interests are treated as
trading for transactions prior to 2002 and
available-for-sale for transactions thereafter under
the provisions of SFAS No. 115 Accounting for Certain
Investments in Debt and Equity Securities. The Company
reports changes in the fair values of these Beneficial or
Retained Interests through the accompanying consolidated
statement of income for trading securities and through the
accompanying consolidated statement of comprehensive income for
available-for-sale securities. The Company had Beneficial and
Retained Interests of $47 million and $31 million at
December 31, 2002 and 2001, respectively.

F-17



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STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Use of Estimates.The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States 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 years financial statements to
conform to the current year presentation.

Impact of Recently Issued Accounting
Standards.In January 2003, the
FASB issued Financial Interpretation (FIN)
No. 46, Consolidation of Variable Interest
Entities (VIEs) in an effort to expand and clarify
existing accounting guidance that addresses when a company
should include in its financial statements the assets,
liabilities and activities of another entity. FIN 46 is
effective immediately for all enterprises with variable
interests in VIEs created after January 31, 2003. FIN
46 provisions must be applied to variable interests in
VIEs created before February 1, 2003 from the
beginning of the third quarter of 2003. If an entity is
determined to be a VIE, it must be consolidated by the
enterprise that absorbs the majority of the VIEs expected
losses if they occur, receives a majority of the VIEs
expected residual returns if they occur, or both. Where it is
reasonably possible that the company will consolidate or
disclose information about a VIE, the company must disclose the
nature, purpose, size and activity of the VIE and the
companys maximum exposure to loss as a result of its
involvement with the VIE in all financial statements issued
after January 31, 2003.

The Company does not believe that it is
reasonably possible that the adoption of FIN 46 will result
in the consolidation of any previously unconsolidated entities.
The adoption of FIN 46 may result in additional disclosure about
a limited number of investments in VIEs. The Company does
not expect such disclosure to be material.

FIN 46 does not apply to qualifying special
purpose entities, such as those typically used by the Company to
sell notes receivable originated by the vacation ownership
business in connection with the sale of VOIs. These qualifying
special purpose entities will continue to be accounted for in
accordance with SFAS No. 140.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. This statement
addresses transition methodologies for companies who intend to
adopt the fair valuation methodology of SFAS No. 123 for
their employee stock-based compensation, as well as additional
annual and quarterly disclosure requirements for stock-based
compensation. Starwood has incorporated the new disclosure
requirements into Note 2 and Note 15 of this document.

In November 2002, the FASB issued FIN No. 45
Guarantor Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others. This interpretation modifies the accounting
treatment for certain guarantees and is effective for all
guarantees issued or modified after December 31, 2002. The
new disclosure rules are effective for interim or annual periods
ending after December 15, 2002. The Company has
incorporated the disclosure requirements into this filing and
will be monitoring its new guarantees for compliance. FIN
No. 45 is not expected to have a material impact on the
Company.

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. This statement addresses financial accounting
and reporting for costs associated with exit or disposal
activities. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The
Company does not believe that the adoption of SFAS No. 146
will have a material impact on its consolidated financial
position or cash flows; however it may affect the timing of
recognizing future restructuring costs.

F-18



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical
Corrections. This statement eliminates the requirement to
classify all gains and losses related to the extinguishment of
debt as extraordinary items. As a result, such gains and losses
may only be classified as extraordinary if they are both unusual
and infrequent. The Company has elected to adopt the rules
early. In connection with the early extinguishment of debt in
April 2002 and the refinancing of the credit facility in October
2002, the Company incurred charges of approximately
$30 million, $23 million of which was associated with
the termination of interest rate swap agreements discussed in
Note 17. The Company recorded these charges in interest expense
in 2002. The Company also reclassified early debt extinguishment
costs of $9 million and $3 million for 2001 and 2000,
respectively, which were previously recorded as extraordinary
items.

In response to a FASB staff announcement in
November 2001, and in accordance with the Emerging Issues Task
Force (EITF) Abstract 01-14 Income Statement
Characterization of Reimbursements received for
Out-Of-Pocket Expenses Incurred which was
issued in January 2002, the Company began recording the
reimbursements of costs incurred on behalf of managed hotel
properties and franchisees received as other revenues from
managed and franchised properties and the costs incurred on
behalf of managed hotel property owners and franchisees as other
expenses from managed and franchised properties in the first
quarter of 2002. These costs relate primarily to payroll costs
at managed properties where the Company is the employer.
Comparative financial statements for the prior periods were
reclassified to conform with the presentation in the 2002
financial statements. Since the reimbursements are made based
upon the costs incurred with no added margin, the adoption of
this guidance has no effect on the operating income, total or
per Share net income, cash flows or financial position of the
Company.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. The rules apply to the classification
and impairment analysis conducted on long-lived assets other
than intangible assets and became effective January 1,
2002. The rules provide a single accounting treatment for the
impairment of long-lived assets and implementation guidance
regarding impairment calculations. This statement also modifies
accounting and disclosure requirements for discontinued
operations. The adoption of SFAS No. 144 did not have a
material impact on the Company.

Effective January 1, 2002, the Company
adopted SFAS No. 141, Business Combinations,
and SFAS No. 142, Goodwill and Other Intangible
Assets. In accordance with this guidance, the Company has
ceased amortizing goodwill and intangible assets with indefinite
lives. Intangible assets with finite lives continue to amortize
on a straight-line basis over their respective useful lives.
Adoption of this standard did not result in any impairment
write-downs.

F-19



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Net income, basic earnings per Share and diluted
earnings per Share for the years ended December 31, 2002,
2001 and 2000, respectively, adjusted to exclude amortization
expense no longer required due to the adoption of SFAS
No. 142, are as follows (net of tax, in millions, except
per Share data):

|                                      |                                                   |                         |      |      |  |      |      |      |  |   |      |      | 
|------------------------------------- | ------------------------------------------------- | ----------------------- | ---- | ---- |  | ---- | ---- | ---- |  | - | ---- | ---- | 
|                                      |                                                   |                        
|                                      |                                                   | Year Ended December 31,
|                                      |                                                   |                        
|                                      |                                                   | 2002                    |      | 2001 |  | 2000
|                                      |                                                   |                         |      |      |  |     
|Reported net income                   |                                                   | $                       | 355  |      |  | $    | 145  |      |  | $ | 403  |     
|                                      | Add back: goodwill amortization                   |                         |      |     |  |      |      | 57   |  |   |      | 59   | 
|                                      | Add back: trademarks and trade names amortization |                         |      |     |  |      |      | 5    |  |   |      | 5    | 
|                                      |                                                   |                         |      |      |  |      |      |      |  |   |      |     
|Adjusted net income                   |                                                   | $                       | 355  |      |  | $    | 207  |      |  | $ | 467  |     
|                                      |                                                   |                         |      |      |  |      |      |      |  |   |      |     
|Reported earnings per Share  basic   |                                                   | $                       | 1.76 |      |  | $    | 0.72 |      |  | $ | 2.00 |     
|                                      | Add back: goodwill amortization                   |                         |      |     |  |      |      | 0.28 |  |   |      | 0.29 | 
|                                      | Add back: trademarks and trade names amortization |                         |      |     |  |      |      | 0.03 |  |   |      | 0.03 | 
|                                      |                                                   |                         |      |      |  |      |      |      |  |   |      |     
|Adjusted earnings per Share  basic   |                                                   | $                       | 1.76 |      |  | $    | 1.03 |      |  | $ | 2.32 |     
|                                      |                                                   |                         |      |      |  |      |      |      |  |   |      |     
|Reported earnings per Share  diluted |                                                   | $                       | 1.73 |      |  | $    | 0.70 |      |  | $ | 1.97 |     
|                                      | Add back: goodwill amortization                   |                         |      |     |  |      |      | 0.28 |  |   |      | 0.28 | 
|                                      | Add back: trademarks and trade names amortization |                         |      |     |  |      |      | 0.03 |  |   |      | 0.03 | 
|                                      |                                                   |                         |      |      |  |      |      |      |  |   |      |     
|Adjusted earnings per Share  diluted |                                                   | $                       | 1.73 |      |  | $    | 1.01 |      |  | $ | 2.28 |     
|                                      |                                                   |                         |      |      |  |      |      |      |  |   |      |     

Note
3.     Acquisitions

Acquisition of Westin Savannah Harbor
Resort and Spa.In July 2002, the
Company acquired a 49% interest in the 403 room Westin Savannah
Harbor Resort and Spa for $25 million in connection with
the restructuring of the indebtedness of that property. See
Note 18, Related Party Transactions for further detail
regarding the ownership structure of this resort.

Acquisition of Sheraton Centre Toronto.In April 2001, the Company
completed the acquisition of the remaining 50% interest not
previously owned by the Company in the 1,377-room Sheraton
Centre Toronto for approximately $48 million based on exchange
rates at the time. The Company accounted for the acquisition as
a step acquisition in accordance with Accounting Principles
Board (APB) Opinion No. 16, Business
Combinations. The results of the acquisition have been
included in the accompanying consolidated financial statements
since the acquisition date.

Acquisition of Royal Orchid Hotel.In April 2001, the Company
completed the acquisition of 44% of an entity, which owns the
740 room Royal Orchid Hotel in Bangkok, Thailand for
approximately $27 million based on the exchange rates at
the time.

Acquisition of CIGA S.p.A.In June 2000, the Company
completed the acquisition of the minority ownership interest of
CIGA S.p.A. (CIGA) not previously owned by Starwood.
The aggregate purchase price of the incremental shares was
approximately $312 million based on the exchange rates at
the time. The Company accounted for the acquisition of the
outstanding CIGA shares as a step acquisition in accordance with
APB Opinion No.16, resulting in an allocation to property and
goodwill of approximately $102 million. The results of the
acquisition have been included in the accompanying consolidated
financial statements since the acquisition date.

The pro forma effect on the Companys
revenues, net income and earnings per Share, as though these
acquisitions occurred as of January 1 of the respective
years, is not material.

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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Note 4.     Gain
(Loss) on Asset Dispositions and Impairments, Net

During 2002, the Company sold two hotels for net
proceeds of $51 million. The Company recorded a net loss on
these sales of $3 million in 2002.

In September 2002, the Company sold its 2%
investment in Interval International, a timeshare exchange
company. The Company received gross proceeds of approximately
$8 million as a result of this sale and recorded a pretax
gain of approximately $6 million.

In 2001, the Company sold one hotel for net
proceeds of $21 million. No gain or loss on the sale of
this hotel was recorded in 2001.

Due to the September 11, 2001 terrorist
attacks in New York, Washington, D.C. and Pennsylvania (the
September 11 Attacks) and the weakening of the
U.S. economy, the Company conducted a comprehensive review of
the carrying value of certain assets for potential impairment.
As a result, the Company recorded a net charge relating
primarily to the impairment of certain investments in the fourth
quarter of 2001 totaling $57 million.

In 2000, the Company recorded a net gain of
$2 million primarily related to seven hotel sales.

Note 5.     Asset
Securitizations

At December 31, 2002 and 2001, the Company
has approximately $204 million and $190 million,
respectively, in vacation ownership notes receivable,
representing receivables from over 20,000 customers. From time
to time, the Company securitizes or sells these vacation
ownership notes receivable.

The Company accounts for its notes receivable
securitizations and sales as transactions in accordance with
SFAS No. 140. The Company accounted for both of the
transactions described below as SFAS No. 140 sales.

During 2002, the Company sold, without recourse,
through a special purpose entity (the SPE), notes
receivable originated in connection with the sale of vacation
ownership interests (VOIs) (the 2002 Note
Sales). The Company continues to service the sold notes.
This sale and servicing arrangement was negotiated on an
arms-length basis based on market conditions. The Company has
retained an interest (the Retained Interests) in the
sold notes that is economically equivalent to
over-collateralization and an interest-only strip that provides
credit enhancement to the third-party purchaser of the notes.
The Companys right to receive cash flows from the Retained
Interests is limited to cash available after paying the
SPEs financing expenses, program fees and absorbing credit
losses related to the sold notes. Net cash proceeds received
from this sale of notes receivable were approximately
$120 million. Gains from the sale of these notes totaled
$14 million for the year ended December 31, 2002 and
are included in other hotel and leisure revenues in the
consolidated statements of income.

The key assumptions used in measuring the fair
value of the Retained Interests at the time of the sale were as
follows: discount rate of 14%; annual prepayments, which yields
an average expected life of prepayable notes receivable of
86 months; and expected annual gross credit losses of 2.2%.

During 2001, the Company sold, without recourse,
through a bankruptcy-remote qualified special purpose entity
(the QSPE), the beneficial interest in notes
receivable originated in connection with the sale of VOIs (the
2001 Securitizations). The Company continues to
service the notes. This sale and servicing arrangement was
negotiated on an arms-length basis based on market conditions.
The Companys retained interests in the 2001
Securitizations is in the form of a security (the
Beneficial Interests) that is equivalent to
over-collateralization and an interest-only strip, which
provides credit enhancement to the third party investors in the
QSPE. The Companys right to receive cash flows from the
Beneficial Interests is limited to

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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

cash available after paying the QSPEs
financing expenses, program fees and absorbing the QSPEs
credit losses related to the sold notes. Gains from the 2001
Securitizations totaled $10 million for the year ended
December 31, 2001 and are included in other hotel and
leisure revenues in the consolidated statements of income.

At December 31, 2002, $142 million of
principal amounts of notes is outstanding under the 2001
Securitizations and an additional $118 million of principal
amounts of notes is outstanding under the 2002 Note Sales.
Delinquencies of more than 90 days on these receivables at
December 31, 2002 amounted to approximately
$4.8 million and $2.0 million for the 2001
Securitizations and 2002 Note Sales, respectively.

Under the 2001 Securitizations and 2002 Note
Sales, the Company has an option to repurchase defaulted notes
(as defined) included in the transactions for their outstanding
principal amounts. The Company has been able to resell vacation
ownership interests underlying the loans that it repurchased
under these provisions without incurring significant losses,
resulting in additional gains of approximately $2 million
and $300,000 in 2002 and 2001, respectively.

At the time of the 2001 Securitizations and 2002
Note Sales and at the end of each financial reporting period,
the Company estimates the fair value of its Beneficial and
Retained Interests using a discounted cash flow model. All
assumptions used in the models are reviewed and updated, if
necessary, based on current trends and historical experience.
The Beneficial and Retained Interests are classified as either
trading or available-for-sale securities
in accordance with the provisions of SFAS No. 115
Accounting for Certain Investments in Debt and Equity
Securities and SFAS No. 140. The Beneficial Interests
from the 2001 Securitizations are classified as trading, with
changes in fair value reported through operating results. The
Retained Interests from the 2002 sale of notes receivable are
classified as available-for-sale, with changes in fair value
reported through equity in other comprehensive income. During
2002, the Company changed its assumption for the 2001
Securitizations discount rate from the initial rate of 16% to
14%, bringing its rates in line with comparable industry
assumptions. The change did not have a material impact on the
Beneficial Interest balance.

During 2000, the Company sold without recourse
through SPEs notes receivable originated by the Companys
vacation ownership operations in connection with the sale of
VOIs. The Company held retained interests in these
mortage-receivable sales, whose rights were limited to cash
available after paying the related SPEs financing
expenses, program fees and absorbing the related SPEs
credit losses. Gains from such sales totaled $14 million in
2000 and are included in other hotel and leisure revenues in the
consolidated statements of income. In connection with the 2001
Securitizations discussed above, the Company repurchased all
existing receivables under the 2000 SPEs.

The Company has completed a sensitivity analysis
on the net present value of the Beneficial and Retained
Interests to measure the change in value associated with
independent changes in individual key variables. The methodology
used applied unfavorable changes that would be considered
statistically significant for the key variables of prepayment
rate, discount rate and expected gross credit losses. The net
present value of Beneficial and Retained Interests at
December 31, 2002 was approximately $24.9 million and
approximately

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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

$22.5 million, respectively. The decrease in
value of the Beneficial and Retained Interests as a result of
various changes in key variables are as follows (in millions):

|                                    |                               |            |   |           |   |  |   |      |  
|----------------------------------- | ----------------------------- | ---------- | - | --------- | - |  | - | ---- | -
|                                    |                               | Beneficial |   | Retained 
|                                    |                               | Interests  |   | Interests
|                                    |                               |            |   |          
|Annual prepayment:                  |                               |            |   |           |   |  |   |     
|                                    | 100 basis points  dollars    |            | $ | 0.1       |   |  | $ | 0.1  |  
|                                    | 100 basis points  percentage |            |   | 0.6       | % |  |   | 0.6  | %
|                                    | 200 basis points  dollars    |            | $ | 0.3       |   |  | $ | 0.3  |  
|                                    | 200 basis points  percentage |            |   | 1.1       | % |  |   | 1.3  | %
|Discount Rate:                      |                               |            |   |           |   |  |   |     
|                                    | 100 basis points  dollars    |            | $ | 0.4       |   |  | $ | 0.5  |  
|                                    | 100 basis points  percentage |            |   | 1.7       | % |  |   | 2.0  | %
|                                    | 200 basis points  dollars    |            | $ | 0.8       |   |  | $ | 0.9  |  
|                                    | 200 basis points  percentage |            |   | 3.4       | % |  |   | 4.0  | %
|Gross Annual Rate of Credit Losses: |                               |            |   |           |   |  |   |     
|                                    | 100 basis points  dollars    |            | $ | 1.5       |   |  | $ | 1.8  |  
|                                    | 100 basis points  percentage |            |   | 5.9       | % |  |   | 7.9  | %
|                                    | 200 basis points  dollars    |            | $ | 2.9       |   |  | $ | 3.5  |  
|                                    | 200 basis points  percentage |            |   | 11.6      | % |  |   | 15.5 | %

Note 6.     Discontinued
Operations

During 2002, the Company recorded an after tax
gain of $109 million from discontinued operations primarily
related to the issuance of new Internal Revenue Service
(IRS) regulations in early 2002, which allowed the
Company to recognize a $79 million tax benefit from a tax
loss on the 1999 sale of Caesars World, Inc. The tax loss was
previously disallowed under the old regulations. In addition,
the Company recorded a $25 million gain resulting from an
adjustment to the Companys tax basis in ITT World
Directories, a subsidiary which was disposed of in early 1998
through a tax deferred reorganization. The increase in the tax
basis has the effect of reducing the deferred tax charge
recorded on the disposition in 1998. This gain also included the
reversal of $5 million (after tax) of liabilities set up in
conjunction with the sale of the gaming segment that are no
longer required as the related contingencies have been resolved.

On June 23, 2000, the sale of the Desert Inn
Resort & Casino (the Desert Inn) was completed.
This sale constituted the disposition of Starwoods
remaining gaming operations. In 1999, the Company provided for
losses on the disposal of the Desert Inn of $9 million (net
of a $5 million tax benefit), primarily as a result of
anticipated operating losses prior to the sale. During 2000, the
Company reversed $5 million (after-tax) of the amount
previously provided related to this disposition following the
finalization of the purchase price with the buyers.

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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Summary financial information of the discontinued
gaming operations is as follows (in millions):

|                                               |  |                  |    |  
|---------------------------------------------- |  | ---------------- | -- | -
|                                               |  | Period from     
|                                               |  | January 1, 2000 
|                                               |  | to June 23, 2000
|                                               |  |                 
|Income Statement Data                          |  |                  |    |  
|Revenues                                       |  | $                | 57 |  
|Operating loss                                 |  | $                | (3 | )
|Interest expense, including allocated interest |  | $                | (6 | )
|Income tax benefit                             |  | $                | 1  |  
|Loss from discontinued operations              |  | $                | (8 | )

Note 7.     Goodwill
and Intangible Assets

Prior to the adoption of SFAS No. 142,
goodwill and trademarks and trade names were amortized on a
straight-line basis over a 40-year period. Effective
January 1, 2002, goodwill and trademarks and trade names,
which are deemed intangible assets with an indefinite life, were
no longer amortized. Intangible assets associated with
management and franchise contracts are amortized on a
straight-line basis over the initial life of the respective
contract.

The changes in the carrying amount of goodwill
for the year ended December 31, 2002 are as follows (in
millions):

|                                       |  |               |       |           |  |       |     |   |  |   |       |  
|-------------------------------------- |  | ------------- | ----- | --------- |  | ----- | --- | - |  | - | ----- | -
|                                       |  |               |       | Vacation  |  |      
|                                       |  |               |       | Ownership |  |      
|                                       |  | Hotel Segment |       | Segment   |  | Total
|                                       |  |               |       |           |  |      
|Balance at January 1, 2002             |  | $             | 2,224 |           |  | $     | 242 |   |  | $ | 2,466 |  
|Purchase accounting adjustment         |  |               | (57   | )         |  |       | (1  | ) |  |   | (58   | )
|Cumulative translation adjustment      |  |               | 19    |           |  |       |    |   |  |   | 19    |  
|SFAS No. 142 implementation adjustment |  |               | (223  | )         |  |       |    |   |  |   | (223  | )
|Other                                  |  |               | (4    | )         |  |       |    |   |  |   | (4    | )
|                                       |  |               |       |           |  |       |     |   |  |   |       |  
|Balance at December 31, 2002           |  | $             | 1,959 |           |  | $     | 241 |   |  | $ | 2,200 |  
|                                       |  |               |       |           |  |       |     |   |  |   |       |  

Intangible assets consisted of the following (in
millions):

|                                    |  |              |     |      |  |   |     |  
|----------------------------------- |  | ------------ | --- | ---- |  | - | --- | -
|                                    |  |             
|                                    |  | December 31,
|                                    |  |             
|                                    |  | 2002         |     | 2001
|                                    |  |              |     |     
|Trademarks and trade names          |  | $            | 226 |      |  | $ | 226 |  
|Management and franchise agreements |  |              | 147 |      |  |   | 143 |  
|Other                               |  |              | 64  |      |  |   | 57  |  
|                                    |  |              |     |      |  |   |     |  
|                                    |  |              | 437 |      |  |   | 426 |  
|Accumulated amortization            |  |              | (67 | )    |  |   | (67 | )
|                                    |  |              |     |      |  |   |     |  
|                                    |  | $            | 370 |      |  | $ | 359 |  
|                                    |  |              |     |      |  |   |     |  

During the first quarter of 2002, in connection
with the implementation of SFAS No. 142, the carrying
amount of certain intangible assets were reclassified to
goodwill, and the related deferred tax liabilities established
in 1999 of $223 million, were also reclassified to goodwill
resulting in a reduction of such amounts. As a result of changes
to IRS regulations, goodwill was further reduced by
$57 million due primarily to the

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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

reversal of $49 million of tax accruals set
up in conjunction with the acquisition of Westin Hotels &
Resorts Worldwide, Inc. in January 1998 and an $8 million
reduction in a deferred tax asset valuation allowance.

Amortization expense of $13 million,
$12 million and $7 million, respectively, related to
intangible assets with finite lives was recorded during the
years ended December 31, 2002, 2001 and 2000. Amortization
expense relating to these assets is expected to be
$13 million each of the fiscal years 2003 through 2008.

Note 8.     Restructuring
and Other Special Charges (Credits)

The Company had remaining accruals related to
restructuring charges of $86 million at December 31, 2002
and $98 million at December 31, 2001, of which $21
million is included in other liabilities in the accompanying
December 31, 2002 and 2001 consolidated balance sheets. The
following tables summarize restructuring and other special
charges activity during the years ended December 31, 2002
and 2001 (there was no restructuring or special charge activity
in 2000):

|                                      |                                                                   |         |   |              |  |              |    |              |  |   |     |     |   |   |    |     |  
|------------------------------------- | ----------------------------------------------------------------- | ------- | - | ------------ |  | ------------ | -- | ------------ |  | - | --- | --- | - | - | -- | --- | -
|                                      |                                                                   | Noncash |   | Cash         |  | Expenditures |    | Total Charge
|                                      |                                                                   | Charges |   | Expenditures |  | Accrued      |    | (Credit)    
|                                      |                                                                   |         |   |              |  |              |    |             
|Year Ended December 31, 2002          |                                                                   |         |   |              |  |              |    |              |  |   |     |     |   |   |    |    
|Restructuring credits                 |                                                                   | $       |  |              |  | $            | (1 | )            |  | $ |    |     |   | $ | (1 | )  
|                                      |                                                                   |         |   |              |  |              |    |              |  |   |     |     |   |   |    |    
|Other special credits:                |                                                                   |         |   |              |  |              |    |              |  |   |     |     |   |   |    |    
|                                      | Adjustments to receivables previously written down                |         | $ |             |  |              | $  |             |  |   | $   | (3  | ) |   | $  | (3  | )
|                                      | Adjustments to e-business investments previously
    written down |         |   |             |  |              |    |             |  |   |     | (3  | ) |   |    | (3  | )
|                                      |                                                                   |         |   |              |  |              |    |              |  |   |     |     |   |   |    |    
|Total other special credits           |                                                                   | $       |  |              |  | $            |   |              |  | $ | (6  | )   |   | $ | (6 | )  
|                                      |                                                                   |         |   |              |  |              |    |              |  |   |     |     |   |   |    |    
|Year Ended December 31, 2001          |                                                                   |         |   |              |  |              |    |              |  |   |     |     |   |   |    |    
|Restructuring charges (credits)       |                                                                   | $       |   |              |  | $            |    |              |  | $ |     |     |   | $ |    |    
|                                      | Adjustments to receivables previously written down                |         |   |             |  |              |    |             |  |   |     | (20 | ) |   |    | (20 | )
|                                      | Severance                                                         |         |   |             |  |              |    | 15           |  |   |     |    |   |   |    | 15  |  
|                                      |                                                                   |         |   |              |  |              |    |              |  |   |     |     |   |   |    |    
|Total restructuring charges (credits) |                                                                   | $       |  |              |  | $            | 15 |              |  | $ | (20 | )   |   | $ | (5 | )  
|                                      |                                                                   |         |   |              |  |              |    |              |  |   |     |     |   |   |    |    
|Other special charges:                |                                                                   |         |   |              |  |              |    |              |  |   |     |     |   |   |    |    
|                                      | Write-down of e-business investments                              |         | $ |             |  |              | $  |             |  |   | $   | 23  |   |   | $  | 23  |  
|                                      | Receivables write-offs                                            |         |   |             |  |              |    |             |  |   |     | 17  |   |   |    | 17  |  
|                                      | Employee retention costs                                          |         |   |             |  |              |    |             |  |   |     | 11  |   |   |    | 11  |  
|                                      | Write-off costs for abandoned development project                 |         |   |             |  |              |    |             |  |   |     | 3   |   |   |    | 3   |  
|                                      | Other                                                             |         |   |             |  |              |    |             |  |   |     | 1   |   |   |    | 1   |  
|                                      |                                                                   |         |   |              |  |              |    |              |  |   |     |     |   |   |    |    
|Total other special charges           |                                                                   | $       |  |              |  | $            |   |              |  | $ | 55  |     |   | $ | 55 |    
|                                      |                                                                   |         |   |              |  |              |    |              |  |   |     |     |   |   |    |    

2002 Restructuring and Other Special
Credits.During the year ended
December 31, 2002, the Company recorded reversals of
restructuring charges of $1 million and reversals of other
special charges of $6 million. The reversal of the
restructuring charge relates to an adjustment to the severance
liability established in connection with the cost containment
efforts following September 11 Attacks based on actual
costs incurred. The reversal of the other special charges
primarily related to sales of investments in certain e-business
ventures previously deemed impaired and the collections of
receivables which were previously deemed uncollectible.

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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

2001 Restructuring and Other Special
Charges (Credits).Due to the
September 11 Attacks and the weakening of the U.S. economy,
in the third and fourth quarter of 2001, the Company implemented
a cost reduction plan and conducted a comprehensive review of
the carrying value of certain assets for potential impairment,
resulting in 2001 restructuring charges of $15 million and
noncash other special charges aggregating approximately
$36 million. The restructuring charges were primarily for
severance costs incurred as part of the cost reduction plan. The
other special charges consisted primarily of employee retention
costs associated with the accelerated vesting of 50% of
restricted stock awards granted in February 2001 (approximately
$11 million); bad debt expense associated with receivables
no longer deemed collectible (approximately $17 million);
impairments of certain investments and other assets
(approximately $5 million); and abandoned pursuit projects
(approximately $3 million).

In addition, in early 2001, the Company wrote
down its investments in various e-business ventures by
approximately $19 million based on the market conditions
for the technology sector at the time and managements
assessment that impairment of these investments was
other-than-temporary. This special charge was offset by the
reversal of a $20 million bad debt restructuring charge
taken in 1998 relating to a note receivable, which is now fully
performing.

Note 9.     Plant,
Property and Equipment

Plant, property and equipment consisted of the
following (in millions):

|                                               |  |              |        |      |  |   |        |  
|---------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | -
|                                               |  |             
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2002         |        | 2001
|                                               |  |              |        |     
|Land and improvements                          |  | $            | 1,382  |      |  | $ | 1,354  |  
|Buildings and improvements                     |  |              | 6,585  |      |  |   | 6,434  |  
|Furniture, fixtures and equipment              |  |              | 1,918  |      |  |   | 1,727  |  
|Construction work in process                   |  |              | 162    |      |  |   | 160    |  
|                                               |  |              |        |      |  |   |        |  
|                                               |  |              | 10,047 |      |  |   | 9,675  |  
|Less accumulated depreciation and amortization |  |              | (2,297 | )    |  |   | (1,840 | )
|                                               |  |              |        |      |  |   |        |  
|                                               |  | $            | 7,750  |      |  | $ | 7,835  |  
|                                               |  |              |        |      |  |   |        |  

Note 10.     Accrued
Expenses

Accrued expenses include accrued distributions of
$170 million and $40 million at December 31, 2002
and 2001, respectively. Accrued expenses also include the
current portion of insurance reserves and SPG point liability
and other marketing accruals and other restructuring reserves as
discussed in Notes 2 and 8.

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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Note 11.     Income
Taxes

Income tax data from continuing operations of the
Company is as follows (in millions):

|                                       |                 |                         |     |      |   |      |     |     |   |   |     |    | 
|-------------------------------------- | --------------- | ----------------------- | --- | ---- | - | ---- | --- | --- | - | - | --- | -- | 
|                                       |                 |                        
|                                       |                 | Year Ended December 31,
|                                       |                 |                        
|                                       |                 | 2002                    |     | 2001 |   | 2000
|                                       |                 |                         |     |      |   |     
|Pretax income                          |                 |                         |     |      |   |      |     |     |   |   |     |   
|U.S.                                   |                 | $                       | 169 |      |   | $    | 66  |     |   | $ | 434 |   
|Foreign                                |                 |                         | 83  |      |   |      | 125 |     |   |   | 173 |   
|                                       |                 |                         |     |      |   |      |     |     |   |   |     |   
|                                       |                 | $                       | 252 |      |   | $    | 191 |     |   | $ | 607 |   
|                                       |                 |                         |     |      |   |      |     |     |   |   |     |   
|Provision (benefit) for income
    tax |                 |                         |     |      |   |      |     |     |   |   |     |   
|Current:                               |                 |                         |     |      |   |      |     |     |   |   |     |   
|                                       | U.S. federal    |                         | $   | (14  | ) |      | $   | 57  |   |   | $   | 71 | 
|                                       | State and local |                         |     | (3   | ) |      |     | 8   |   |   |     | 9  | 
|                                       | Foreign         |                         |     | 76   |   |      |     | 70  |   |   |     | 95 | 
|                                       |                 |                         |     |      |   |      |     |     |   |   |     |   
|                                       |                 | $                       | 59  |      |   | $    | 135 |     |   | $ | 175 |   
|                                       |                 |                         |     |      |   |      |     |     |   |   |     |   
|Deferred:                              |                 |                         |     |      |   |      |     |     |   |   |     |   
|                                       | U.S. federal    |                         | $   | (32  | ) |      | $   | (91 | ) |   | $   | 19 | 
|                                       | State and local |                         |     | (4   | ) |      |     |    |   |   |     |   | 
|                                       | Foreign         |                         |     | (19  | ) |      |     | (1  | ) |   |     | 7  | 
|                                       |                 |                         |     |      |   |      |     |     |   |   |     |   
|                                       |                 |                         | (55 | )    |   |      | (92 | )   |   |   | 26  |   
|                                       |                 |                         |     |      |   |      |     |     |   |   |     |   
|                                       |                 | $                       | 4   |      |   | $    | 43  |     |   | $ | 201 |   
|                                       |                 |                         |     |      |   |      |     |     |   |   |     |   

No provision has been made for U.S. taxes payable
on undistributed foreign earnings amounting to approximately
$142 million as of December 31, 2002, since these
amounts are permanently reinvested.

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):

|                                                        |  |              |      |      |  |   |        |  
|------------------------------------------------------- |  | ------------ | ---- | ---- |  | - | ------ | -
|                                                        |  |             
|                                                        |  | December 31,
|                                                        |  |             
|                                                        |  | 2002         |      | 2001
|                                                        |  |              |      |     
|Plant, property and equipment                           |  | $            | (605 | )    |  | $ | (665   | )
|Intangibles                                             |  |              | (155 | )    |  |   | (383   | )
|Allowances for doubtful accounts and other
    reserves |  |              | 180  |      |  |   | 212    |  
|Employee benefits                                       |  |              | 59   |      |  |   | 66     |  
|Deferred gain on ITT World Directories disposition      |  |              | (551 | )    |  |   | (576   | )
|Net operating loss and tax credit carryforwards         |  |              | 318  |      |  |   | 247    |  
|Deferred income                                         |  |              | (145 | )    |  |   | (125   | )
|Other                                                   |  |              | (58  | )    |  |   | (35    | )
|                                                        |  |              |      |      |  |   |        |  
|                                                        |  |              | (957 | )    |  |   | (1,259 | )
|Less valuation allowance                                |  |              | (29  | )    |  |   | (55    | )
|                                                        |  |              |      |      |  |   |        |  
|Deferred income taxes                                   |  | $            | (986 | )    |  | $ | (1,314 | )
|                                                        |  |              |      |      |  |   |        |  

F-27



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

At December 31, 2002, the Company had net
operating loss and tax credit carryforwards of approximately
$817 million and $20 million, respectively, for
federal income tax purposes. Substantially all operating loss
carryforwards, available to provide future tax benefits, expire
between 2018 and 2022.

The Company establishes valuation allowances in
accordance with the provisions of SFAS No. 109. During
2002, the Company reduced the valuation allowance applied
against its federal net operating loss carryforward by
approximately $26 million based on future taxable income
projections and certain tax planning strategies. As discussed
previously approximately $8 million of the adjustment to
the valuation allowance was recorded as a reduction to goodwill.

In February 1998, the Company disposed of ITT
World Directories. Through December 31, 2002, the Company
has recorded $551 million of income taxes relating to this
transaction, which are included in deferred income taxes in the
accompanying consolidated balance sheets. While the Company
strongly believes this transaction was completed on a
tax-deferred basis, this position is currently being challenged
by the IRS. The results of this challenge are unpredictable. If
this transaction were deemed fully taxable in 1998, then the
Companys federal tax liability would be approximately
$499 million, plus interest, and would be partially offset
by the Companys net operating loss discussed above. The
Company plans to vigorously defend its position in this matter.

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):

|                                        |  |                         |     |      |  |      |     |   |  |   |     |  
|--------------------------------------- |  | ----------------------- | --- | ---- |  | ---- | --- | - |  | - | --- | -
|                                        |  |                        
|                                        |  | Year Ended December 31,
|                                        |  |                        
|                                        |  | 2002                    |     | 2001 |  | 2000
|                                        |  |                         |     |      |  |     
|Tax provision at U.S. statutory rate    |  | $                       | 88  |      |  | $    | 67  |   |  | $ | 214 |  
|U.S. state and local income taxes       |  |                         | (5  | )    |  |      | 5   |   |  |   | 6   |  
|Exempt Trust income                     |  |                         | (60 | )    |  |      | (57 | ) |  |   | (49 | )
|Tax on repatriation of foreign earnings |  |                         | 15  |      |  |      | 13  |   |  |   | 21  |  
|Foreign tax rate differential           |  |                         | 13  |      |  |      | 10  |   |  |   | 14  |  
|Non-deductible goodwill                 |  |                         |    |      |  |      | 16  |   |  |   | 16  |  
|Settlement of audits                    |  |                         | (30 | )    |  |      |    |   |  |   |    |  
|Reduction of valuation allowance        |  |                         | (18 | )    |  |      | (10 | ) |  |   | (18 | )
|Other                                   |  |                         | 1   |      |  |      | (1  | ) |  |   | (3  | )
|                                        |  |                         |     |      |  |      |     |   |  |   |     |  
|Provision for income tax                |  | $                       | 4   |      |  | $    | 43  |   |  | $ | 201 |  
|                                        |  |                         |     |      |  |      |     |   |  |   |     |  

During 2002, the IRS completed its audits of
various tax returns of the Company for tax periods dating back
to 1993. As a result of the completion of these audits, the
Company recorded a tax benefit in the fourth quarter of 2002 of
approximately $30 million, which consists of
$17 million in expected refunds, offset by a
$5 million reduction to the Companys net operating
loss, and $18 million of reversals of accrued income tax
liabilities associated with these audit years, which are no
longer deemed necessary.

F-28



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Note
12.     Debt

Long-term debt and short-term borrowings
consisted of the following (in millions):

|                                                                                                    |                                                                                                                |              |       |      |  |   |       |     | 
|--------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | ------------ | ----- | ---- |  | - | ----- | --- | 
|                                                                                                    |                                                                                                                |             
|                                                                                                    |                                                                                                                | December 31,
|                                                                                                    |                                                                                                                |             
|                                                                                                    |                                                                                                                | 2002         |       | 2001
|                                                                                                    |                                                                                                                |              |       |     
|Senior Credit Facility:                                                                             |                                                                                                                |              |       |      |  |   |       |    
|                                                                                                    | Term loan, interest at LIBOR+1.625% (3.01% at
    December 31, 2002) maturing 2004 to 2006                     |              | $     | 300  |  |   | $     |    | 
|                                                                                                    | Revolving Credit Facility, interest rates ranging
    from 3.01% to 4.49%, at December 31, 2002, maturing 2006 |              |       | 325  |  |   |       |    | 
|Senior Credit Facility (fully repaid during 2002):                                                  |                                                                                                                |              |       |      |  |   |       |    
|                                                                                                    | Five-year term loan, interest at LIBOR+0.725%
    (2.60% at December 31, 2001)                                 |              |       |     |  |   |       | 800 | 
|                                                                                                    | Term Loan Add-on, interest at LIBOR+1.25% (3.12%
    at December 31, 2001)                                     |              |       |     |  |   |       | 423 | 
|                                                                                                    | Revolving Credit Facility, interest at
    LIBOR+0.725% (2.60% at December 31, 2001)                           |              |       |     |  |   |       | 664 | 
|Senior Notes interest ranging from 7.375% to
    7.875%, maturing 2007 and 2012                     |                                                                                                                |              | 1,542 |      |  |   |      |    
|Senior Secured Notes Facility (fully repaid
    during 2002):                                       |                                                                                                                |              |       |      |  |   |       |    
|                                                                                                    | Tranche II Loans, interest at LIBOR+2.75% (4.62%
    at December 31, 2001)                                     |              |       |     |  |   |       | 500 | 
|Sheraton Holding public debt, interest rates
    ranging from 6.75% to 7.75%, maturing through 2025 |                                                                                                                |              | 1,324 |      |  |   | 1,296 |    
|Convertible Senior Notes 
    Series A & B (Series A fully repaid during 2002)                     |                                                                                                                |              | 316   |      |  |   | 507   |    
|Euro loan, Euribor+1.95% (4.81% at
    December 31, 2002), maturing 2003                            |                                                                                                                |              | 473   |      |  |   | 240   |    
|Mortgages and other, interest rates ranging from
    2.88% to 9.21%, various maturities             |                                                                                                                |              | 1,039 |      |  |   | 1,129 |    
|                                                                                                    |                                                                                                                |              |       |      |  |   |       |    
|                                                                                                    |                                                                                                                |              | 5,319 |      |  |   | 5,559 |    
|Less current maturities                                                                             |                                                                                                                |              | (870  | )    |  |   | (310  | )  
|                                                                                                    |                                                                                                                |              |       |      |  |   |       |    
|Long-term debt                                                                                      |                                                                                                                | $            | 4,449 |      |  | $ | 5,249 |    
|                                                                                                    |                                                                                                                |              |       |      |  |   |       |    

Aggregate debt maturities for each of the years
ended December 31 are as follows (in millions):

|           |  |   |       | 
|---------- |  | - | ----- | 
|2003       |  | $ | 870   | 
|2004       |  |   | 410   | 
|2005       |  |   | 615   | 
|2006       |  |   | 554   | 
|2007       |  |   | 778   | 
|Thereafter |  |   | 2,092 | 
|           |  |   |       | 
|           |  | $ | 5,319 | 
|           |  |   |       | 

In October 2002, the Company refinanced its
Senior Credit Facility with a new four-year $1.3 billion
Senior Credit Facility. The new facility is comprised of a
$1.0 billion Revolving Credit Facility and a
$300 million Term Loan, each maturing in 2006, with a
one-year extension option, and an initial interest rate of
LIBOR + 1.625%. The proceeds of the new Senior Credit
Facility were used to pay off all amounts owed under the
Companys previous Senior Credit Facility, which was due to
mature in February 2003. The Company incurred approximately
$1 million in connection with this early extinguishment of
debt.

In April 2002, the Company sold $1.5 billion
of senior notes in two tranches  $700 million
principal amount of 7 3/8% senior notes due 2007 and
$800 million principal amount of 7 7/8% senior notes
due 2012 (the

F-29



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Senior Notes Offering). The Company
used the proceeds to repay all of its senior secured notes
facility and a portion of its previous Senior Credit Facility.
In connection with the repayment of debt, the Company incurred
charges of approximately $29 million including
approximately $23 million for the early termination of
interest rate swap agreements associated with the repaid debt,
and $6 million the write-off of deferred financing costs
and termination fees for the early extinguishment of debt.

In December 2001, the Company entered into an
18-month 450 million Euro loan that automatically extended
for six additional months until December 2003, as the
lender group elected not to exercise its put option. The loan
has an interest rate of Euribor plus 195 basis points. The
proceeds of the Euro loan were drawn down in two tranches; the
first 270 million Euros was drawn down in December 2001 and
used to repay the previously outstanding 270 million Euro
facility and the remaining 180 million Euros was drawn down
in January 2002 and the proceeds were used to pay down a portion
of the Companys previous Senior Credit Facility.

In May 2001, the Company sold an aggregate face
amount of $816 million zero coupon convertible senior notes
due 2021. The two series of notes had an initial blended yield
to maturity of 2.35%. The notes are convertible, subject to
certain conditions, into an aggregate 9,657,000 Shares. The
Company received gross proceeds from these sales of
approximately $500 million, which were used to repay a
portion of its senior secured notes facility that bore interest
at LIBOR plus 275 basis points. The Company incurred
approximately $9 million of charges in connection with this
early debt extinguishment. In May 2002, the Company repurchased
all of the outstanding Series A convertible notes for
$202 million in cash. Holders of Series B Notes may
first put these notes to the Company in May 2004 for a purchase
price of approximately $330 million.

The Company has the ability to draw down on its
Revolving Credit Facility in various currencies. Drawdowns in
currencies other than the U.S. dollar represent a natural
hedge of the Companys foreign denominated net assets and
operations. At December 31, 2002, the Company had
$21 million drawn in Canadian dollars, $219 million
drawn in Euros with the remaining $85 million drawn in
U.S. dollars.

The Senior Credit Facility, Senior Notes and the
Notes are guaranteed by the Sheraton Holding Corporation, a
wholly owned subsidiary of the Corporation. The Sheraton Holding
public debt is guaranteed by the Corporation. See Note 21
for consolidating financial information for Starwood Hotels
& Resorts Worldwide, Inc. (the Parent), Sheraton
Holding Corporation (the Guarantor Subsidiary) and
all other legal entities that are consolidated into the
Companys results including the Trust, but which are not
the Guarantor Subsidiary (the Non-Guarantor
Subsidiaries).

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
$667 million of available borrowing capacity under its
domestic and foreign lines of credit as of December 31,
2002.

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 debt service, capital
purchases, tax payments and insurance premiums, limitations on
capital expenditures and on the Companys right to incur
further debt and restrictions on transactions with affiliates
and related persons, among other restrictions. The Company was
in compliance with all of the short-term and long-term
obligation covenants, as amended or waived, at December 31,
2002.

The weighted average interest rate for short-term
borrowings was 6.13% and 4.85% at December 31, 2002 and
2001, respectively, and their fair values approximated carrying
value given their short-term nature. These average interest
rates are composed of interest rates on both U.S. dollar
and non-U.S. dollar denominated indebtedness.

F-30



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

For adjustable rate debt, fair value approximates
carrying value due to the variable nature of the interest rates.
For non-public 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 the length to maturity for the debt. The estimated fair
value of debt at December 31, 2002 and 2001 was
$5.2 billion and $5.3 billion, respectively, and was
determined based on quoted market prices and/or discounted cash
flows. See Note 17 for additional discussion regarding the
Companys interest rate swap agreements.

Note 13.     Employee
Benefit Plans

Defined Benefit and Postretirement Benefit
Plans.The Company and its
subsidiaries sponsor numerous domestic and international pension
plans, including the ITT Corporation Salaried Retirement Plan
(Salaried Plan), the ITT Sheraton Corporation
Ongoing Retirement Plan (Ongoing Plan), the ITT
Corporation Excess Pension Plan, the Westin Supplemental
Executive Retirement Plan, the Starwood Hotels & Resorts
Worldwide, Inc. Retirement Plan for Foreign Service Employees
and several other plans. All defined benefit plans covering
U.S. employees are frozen. Certain plans covering
non-U.S. employees remain active.

The Salaried Plan and Ongoing Plan were formed
through a merger, effective January 1, 2000, of the ITT
Corporation Salaried Retirement Plan and the ITT Sheraton
Corporation Pension Plan for Hourly Employees. The Salaried Plan
name was retained and immediately after the merger, an allocated
portion of assets and liabilities were spun off to form the
Ongoing Plan. The Company filed a request for an IRS
determination letter concerning the termination of the Salaried
Plan as of July 31, 2000, which was approved in April 2001.
Pursuant to the IRS determination letter, all Salaried Plan
liabilities have been settled as either lump sum distributions,
annuity purchases, transfers to the Ongoing Plan or transfers to
the Pension Benefit Guarantee Corporation for missing
participants. After all Salaried Plan liabilities were settled,
the remaining net assets of approximately $4 million were
reverted to the Company in 2002. As a result of annuity
purchases and lump sum distributions from the Salaried and
Ongoing Plans, the Company recorded net settlement gains of
approximately $3 million, $14 million and
$8 million during the years ended December 31, 2002,
2001 and 2000, respectively.

The Ongoing Plan is substantially funded and as
of December 31, 2002, the assets included approximately
174,000 of the Companys Shares. The ITT Corporation Excess
Pension Plan and the Westin Supplemental Executive Retirement
Plan are frozen, non-contributory, non-qualified plans that
provide benefits for certain executives. The plans are unfunded
apart from general assets of the Company. The Starwood Hotels
& Resorts Worldwide, Inc. Retirement Plan for Foreign
Service Employees is a partially funded, active plan that covers
foreign employees working outside of their home country.

The Company also sponsors the Starwood
Hotels & Resorts Worldwide, Inc. Retiree Welfare
Program. The plan provides 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 Company also funds
this program 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 defined benefit and postretirement benefit
plans, amounts recognized in the Companys

F-31



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

consolidated balance sheets at December 31,
2002 and 2001, and the principal weighted average assumptions
inherent in their determination (amounts are in millions):

|                                               |                                               |                  |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |    |   |   |    |    |  
|---------------------------------------------- | --------------------------------------------- | ---------------- | --- | ---------------- | - | -------------- | --- | ---- | - | ---- | --- | ---- | - | - | --- | --- | - | - | --- | -- | - | - | -- | -- | -
|                                               |                                               |                  |     |                  |   |                |     |     
|                                               |                                               |                  |     | Foreign          |   | Postretirement
|                                               |                                               | Pension Benefits |     | Pension Benefits |   | Benefits      
|                                               |                                               |                  |     |                  |   |               
|                                               |                                               | 2002             |     | 2001             |   | 2002           |     | 2001 |   | 2002 |     | 2001
|                                               |                                               |                  |     |                  |   |                |     |      |   |      |     |     
|Change in Benefit Obligation                   |                                               |                  |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |    |   |   |    |   
|Benefit obligation at beginning of year        |                                               | $                | 50  |                  |   | $              | 185 |      |   | $    | 97  |      |   | $ | 94  |     |   | $ | 28  |    |   | $ | 31 |   
|                                               | Service cost                                  |                  |     |                 |   |                |     |     |   |      |     | 3    |   |   |     | 2   |   |   |     |   |   |   |    |   |  
|                                               | Interest cost                                 |                  |     | 3                |   |                |     | 8    |   |      |     | 6    |   |   |     | 6   |   |   |     | 2  |   |   |    | 2  |  
|                                               | Actuarial (gain) loss                         |                  |     | (5               | ) |                |     | (21  | ) |      |     | 8    |   |   |     |    |   |   |     | 2  |   |   |    | (3 | )
|                                               | Additional liability for lump sum option      |                  |     | 2                |   |                |     |     |   |      |     |     |   |   |     |    |   |   |     |   |   |   |    |   |  
|                                               | Plan amendments                               |                  |     |                 |   |                |     |     |   |      |     | (4   | ) |   |     |    |   |   |     |   |   |   |    |   |  
|                                               | Settlements                                   |                  |     | (11              | ) |                |     | (95  | ) |      |     |     |   |   |     |    |   |   |     |   |   |   |    |   |  
|                                               | Annuity purchase                              |                  |     | (3               | ) |                |     | (24  | ) |      |     |     |   |   |     |    |   |   |     |   |   |   |    |   |  
|                                               | Effect of foreign exchange rates              |                  |     |                 |   |                |     |     |   |      |     | 6    |   |   |     |    |   |   |     |   |   |   |    |   |  
|                                               | Benefits paid                                 |                  |     | (2               | ) |                |     | (1   | ) |      |     | (4   | ) |   |     | (5  | ) |   |     | (3 | ) |   |    | (2 | )
|                                               | Premiums for missing participants             |                  |     |                 |   |                |     | (2   | ) |      |     |     |   |   |     |    |   |   |     |   |   |   |    |   |  
|                                               |                                               |                  |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |    |   |   |    |   
|Benefit obligation at end of year              |                                               | $                | 34  |                  |   | $              | 50  |      |   | $    | 112 |      |   | $ | 97  |     |   | $ | 29  |    |   | $ | 28 |   
|                                               |                                               |                  |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |    |   |   |    |   
|Change in Plan Assets                          |                                               |                  |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |    |   |   |    |   
|Fair value of plan assets at beginning of year |                                               | $                | 36  |                  |   | $              | 168 |      |   | $    | 88  |      |   | $ | 103 |     |   | $ | 21  |    |   | $ | 22 |   
|                                               | Actual return on plan assets, net of expenses |                  |     | (1               | ) |                |     | (11  | ) |      |     | (12  | ) |   |     | (12 | ) |   |     | (2 | ) |   |    | (1 | )
|                                               | Reimbursement of benefit payments             |                  |     |                 |   |                |     |     |   |      |     |     |   |   |     |    |   |   |     | (6 | ) |   |    |   |  
|                                               | Employer contribution                         |                  |     | 1                |   |                |     | 1    |   |      |     | 3    |   |   |     | 3   |   |   |     | 3  |   |   |    | 2  |  
|                                               | Settlements                                   |                  |     | (11              | ) |                |     | (95  | ) |      |     |     |   |   |     |    |   |   |     |   |   |   |    |   |  
|                                               | Annuity purchase                              |                  |     | (3               | ) |                |     | (24  | ) |      |     |     |   |   |     |    |   |   |     |   |   |   |    |   |  
|                                               | Effect of foreign exchange rates              |                  |     |                 |   |                |     |     |   |      |     | 5    |   |   |     | (1  | ) |   |     |   |   |   |    |   |  
|                                               | Benefits paid                                 |                  |     | (2               | ) |                |     | (1   | ) |      |     | (4   | ) |   |     | (5  | ) |   |     | (3 | ) |   |    | (2 | )
|                                               | Premiums for missing participants             |                  |     |                 |   |                |     | (2   | ) |      |     |     |   |   |     |    |   |   |     |   |   |   |    |   |  
|                                               | Net asset reversion to Starwood               |                  |     | (4               | ) |                |     |     |   |      |     |     |   |   |     |    |   |   |     |   |   |   |    |   |  
|                                               |                                               |                  |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |    |   |   |    |   
|Fair value of plan assets at end of year       |                                               | $                | 16  |                  |   | $              | 36  |      |   | $    | 80  |      |   | $ | 88  |     |   | $ | 13  |    |   | $ | 21 |   
|                                               |                                               |                  |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |    |   |   |    |   
|Funded status                                  |                                               | $                | (18 | )                |   | $              | (14 | )    |   | $    | (32 | )    |   | $ | (9  | )   |   | $ | (16 | )  |   | $ | (7 | ) 
|                                               | Unrecognized net actuarial (gain) loss        |                  |     | (4               | ) |                |     | (7   | ) |      |     | 46   |   |   |     | 17  |   |   |     | (1 | ) |   |    | (2 | )
|                                               | Unrecognized prior service cost               |                  |     |                 |   |                |     |     |   |      |     | (3   | ) |   |     |    |   |   |     |   |   |   |    |   |  
|                                               | Reimbursement of benefit payments             |                  |     |                 |   |                |     |     |   |      |     |     |   |   |     |    |   |   |     | (1 | ) |   |    |   |  
|                                               |                                               |                  |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |    |   |   |    |   
|Net amount recognized at end of year           |                                               | $                | (22 | )                |   | $              | (21 | )    |   | $    | 11  |      |   | $ | 8   |     |   | $ | (18 | )  |   | $ | (9 | ) 
|                                               |                                               |                  |     |                  |   |                |     |      |   |      |     |      |   |   |     |     |   |   |     |    |   |   |    |   

F-32



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                                      |                                        |                  |      |                  |   |                |      |      |   |      |      |      |   |   |      |    |   |   |      |     |   |   |      |    |  
|--------------------------------------------------------------------- | -------------------------------------- | ---------------- | ---- | ---------------- | - | -------------- | ---- | ---- | - | ---- | ---- | ---- | - | - | ---- | -- | - | - | ---- | --- | - | - | ---- | -- | -
|                                                                      |                                        |                  |      |                  |   |                |      |     
|                                                                      |                                        |                  |      | Foreign          |   | Postretirement
|                                                                      |                                        | Pension Benefits |      | Pension Benefits |   | Benefits      
|                                                                      |                                        |                  |      |                  |   |               
|                                                                      |                                        | 2002             |      | 2001             |   | 2002           |      | 2001 |   | 2002 |      | 2001
|                                                                      |                                        |                  |      |                  |   |                |      |      |   |      |      |     
|Amounts recognized in the consolidated balance
    sheets consist of: |                                        |                  |      |                  |   |                |      |      |   |      |      |      |   |   |      |    |   |   |      |     |   |   |      |   
|                                                                      | Prepaid benefit cost                   |                  | $    |                 |   |                | $    |     |   |      | $    |     |   |   | $    | 5  |   |   | $    |    |   |   | $    |   |  
|                                                                      | Accrued benefit cost                   |                  |      | (23              | ) |                |      | (21  | ) |      |      | (16  | ) |   |      | (4 | ) |   |      | (18 | ) |   |      | (9 | )
|                                                                      | Accumulated other comprehensive income |                  |      | 1                |   |                |      |     |   |      |      | 27   |   |   |      | 7  |   |   |      |    |   |   |      |   |  
|                                                                      |                                        |                  |      |                  |   |                |      |      |   |      |      |      |   |   |      |    |   |   |      |     |   |   |      |   
|Net amount recognized at end of year                                  |                                        | $                | (22  | )                |   | $              | (21  | )    |   | $    | 11   |      |   | $ | 8    |    |   | $ | (18  | )   |   | $ | (9   | ) 
|                                                                      |                                        |                  |      |                  |   |                |      |      |   |      |      |      |   |   |      |    |   |   |      |     |   |   |      |   
|Weighted Average Assumptions as of
    December 31,                   |                                        |                  |      |                  |   |                |      |      |   |      |      |      |   |   |      |    |   |   |      |     |   |   |      |   
|Discount rate                                                         |                                        |                  | 5.86 | %                |   |                | 6.00 | %    |   |      | 6.09 | %    |   |   | 6.44 | %  |   |   | 7.25 | %   |   |   | 7.25 | % 
|Expected return on plan assets                                        |                                        |                  | 6.00 | %                |   |                | 7.00 | %    |   |      | 7.94 | %    |   |   | 8.11 | %  |   |   | 8.00 | %   |   |   | 9.75 | % 
|Rate of compensation increase                                         |                                        |                  | N/A  |                  |   |                | N/A  |      |   |      | 3.96 | %    |   |   | 4.29 | %  |   |   | N/A  |     |   |   | N/A  |   

For measurement purposes, a 9.0% annual rate of
increase in the per capita cost of covered health care benefits
was assumed for 2002. The rate was assumed to increase to 10% in
2003 and then decrease gradually to 5.00% in 2008 and remain at
that level thereafter. Assumed health care cost trend rates can
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 not have a material effect on the total
of service and interest cost components or on the postretirement
benefit obligation.

|                                            |                       |                  |    |                  |  |                |     |      |   |      |     |      |   |      |    |      |  |      |    |   |  |   |    |   |  |   |    |    |   |   |    |    |   |   |    |    |  
|------------------------------------------- | --------------------- | ---------------- | -- | ---------------- |  | -------------- | --- | ---- | - | ---- | --- | ---- | - | ---- | -- | ---- |  | ---- | -- | - |  | - | -- | - |  | - | -- | -- | - | - | -- | -- | - | - | -- | -- | -
|                                            |                       |                  |    |                  |  |                |     |      |   |     
|                                            |                       |                  |    | Foreign          |  | Postretirement
|                                            |                       | Pension Benefits |    | Pension Benefits |  | Benefits      
|                                            |                       |                  |    |                  |  |               
|                                            |                       | 2002             |    | 2001             |  | 2000           |     | 2002 |   | 2001 |     | 2000 |   | 2002 |    | 2001 |  | 2000
|                                            |                       |                  |    |                  |  |                |     |      |   |      |     |      |   |      |    |      |  |     
|Components of Net Periodic Benefit
    Cost |                       |                  |    |                  |  |                |     |      |   |      |     |      |   |      |    |      |  |      |    |   |  |   |    |   |  |   |    |    |   |   |    |    |   |   |    |   
|Service cost                                |                       | $                |   |                  |  | $              |    |      |   | $    |    |      |   | $    | 3  |      |  | $    | 2  |   |  | $ | 1  |   |  | $ |   |    |   | $ |   |    |   | $ |   |   
|Interest cost                               |                       |                  | 3  |                  |  |                | 3   |      |   |      | 15  |      |   |      | 6  |      |  |      | 6  |   |  |   | 3  |   |  |   | 2  |    |   |   | 2  |    |   |   | 2  |   
|Expected return on plan assets              |                       |                  | (2 | )                |  |                | (3  | )    |   |      | (14 | )    |   |      | (8 | )    |  |      | (8 | ) |  |   | (5 | ) |  |   | (1 | )  |   |   | (2 | )  |   |   | (2 | ) 
|Amortization of:                            |                       |                  |    |                  |  |                |     |      |   |      |     |      |   |      |    |      |  |      |    |   |  |   |    |   |  |   |    |    |   |   |    |    |   |   |    |   
|                                            | Prior service cost    |                  |    |                 |  |                |     |     |   |      |     |     |   |      |    |     |  |      |    |  |  |   |    |  |  |   |    |   |   |   |    | (1 | ) |   |    | (1 | )
|                                            | Actuarial (gain) loss |                  |    |                 |  |                |     | (1   | ) |      |     | (1   | ) |      |    |     |  |      |    |  |  |   |    |  |  |   |    | (1 | ) |   |    |   |   |   |    |   |  
|                                            |                       |                  |    |                  |  |                |     |      |   |      |     |      |   |      |    |      |  |      |    |   |  |   |    |   |  |   |    |    |   |   |    |    |   |   |    |   
|SFAS 87 cost/ SFAS 106 cost                 |                       | $                | 1  |                  |  |                | (1  | )    |   |      |    |      |   | $    | 1  |      |  |      |   |   |  |   | (1 | ) |  |   |   |    |   |   | (1 | )  |   |   | (1 | ) 
|                                            |                       |                  |    |                  |  |                |     |      |   |      |     |      |   |      |    |      |  |      |    |   |  |   |    |   |  |   |    |    |   |   |    |    |   |   |    |   
|SFAS 88 settlement gain                     |                       |                  | (3 | )                |  |                | (14 | )    |   |      | (8  | )    |   |      |   |      |  |      |   |   |  |   |   |   |  |   |   |    |   |   |   |    |   |   |   |   
|                                            |                       |                  |    |                  |  |                |     |      |   |      |     |      |   |      |    |      |  |      |    |   |  |   |    |   |  |   |    |    |   |   |    |    |   |   |    |   
|Net periodic benefit cost (income)          |                       | $                | (2 | )                |  | $              | (15 | )    |   | $    | (8  | )    |   | $    | 1  |      |  | $    |   |   |  | $ | (1 | ) |  | $ |   |    |   | $ | (1 | )  |   | $ | (1 | ) 
|                                            |                       |                  |    |                  |  |                |     |      |   |      |     |      |   |      |    |      |  |      |    |   |  |   |    |   |  |   |    |    |   |   |    |    |   |   |    |   

|                                                |                           |                  |   |                  |  |      |   |      |  |  |   |    |  |  |   |    | 
|----------------------------------------------- | ------------------------- | ---------------- | - | ---------------- |  | ---- | - | ---- |  |  | - | -- |  |  | - | -- | 
|                                                |                           |                  |   |                  |  |     
|                                                |                           |                  |   | Foreign         
|                                                |                           | Pension Benefits |   | Pension Benefits
|                                                |                           |                  |   |                 
|                                                |                           | 2002             |   | 2001             |  | 2002 |   | 2001
|                                                |                           |                  |   |                  |  |      |   |     
|Plans with ABO exceeding assets at end of year: |                           |                  |   |                  |  |      |   |      |  |  |   |    |  |  |   |   
|                                                | ABO                       |                  | $ | 13               |  |      | $ | 12   |  |  | $ | 95 |  |  | $ | 32 | 
|                                                | Fair value of plan assets |                  | $ |                 |  |      | $ |     |  |  | $ | 80 |  |  | $ | 29 | 

Defined Contribution Plans.The Company and its subsidiaries
sponsor various defined contribution plans, including the
Starwood Hotels & Resorts Worldwide, Inc. Savings and
Retirement Plan (Retirement Plan), which is a
voluntary defined contribution plan allowing participation by
employees on U.S. payroll

F-33



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

who meet certain age and service requirements. On
July 1, 2001, the defined contribution plan maintained by
SVO was merged into the Retirement Plan. Each participant may
contribute on a pretax basis between 1% and 18% of his or her
compensation to the plan subject to certain maximum limits. The
plan also contains additional provisions for matching
contributions to be made by the Company, which are based on a
portion of a participants eligible compensation. The
amount of expense for matching contributions totaled
$17 million in 2002, $15 million in 2001 and
$17 million in 2000.

Note 14.     Leases
and Rentals

The Corporation leases certain equipment for the
hotels operations under various lease agreements. The
leases extend for varying periods through 2009 and generally are
for a fixed amount each month. In addition, several of the
Corporations hotels are subject to leases of land or
building facilities from third parties, which extend for varying
periods through 2069 and generally contain fixed and variable
components, including a 25-year building lease of the Westin
Dublin hotel in Dublin, Ireland with fixed annual payments of
$3 million and a building lease of the W Times Square hotel
in New York City which has a term of 25 years with fixed
annual lease payments of $16 million.

The Companys minimum future rents at
December 31, 2002 payable under non-cancelable operating
leases with third parties are as follows (in millions):

|           |  |   |     | 
|---------- |  | - | --- | 
|2003       |  | $ | 73  | 
|2004       |  | $ | 63  | 
|2005       |  | $ | 57  | 
|2006       |  | $ | 54  | 
|2007       |  | $ | 44  | 
|Thereafter |  | $ | 658 | 

Rent expense under non-cancelable operating
leases was $77 million, $75 million and
$64 million in 2002, 2001 and 2000, respectively.

The Trust owned equity interests in 92 hotels,
all of which were leased to the Corporation during the year
ended December 31, 2002. The leases between the Trust and
the Corporation are generally for five-year terms 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 generally responsible for any payments required
pursuant to underlying ground leases. Total rental expense
incurred by the Corporation under such leases with the Trust was
approximately $414 million for the year ended
December 31, 2002, of which approximately $116 million
related to percentage rent. The Trusts rents receivable
from the Corporation relating to leased hotel properties at
December 31, 2002 and 2001 was $41 million and
$35 million, respectively.

The Corporations minimum future rents at
December 31, 2002 payable under non-cancelable operating
leases with the Trust, are as follows (in millions):

|     |  |   |     | 
|---- |  | - | --- | 
|2003 |  | $ | 272 | 
|2004 |  | $ | 272 | 
|2005 |  | $ | 272 | 
|2006 |  | $ | 272 | 
|2007 |  | $ | 113 | 

F-34



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Note
15.     Stockholders
Equity

Share Repurchases.In 1998, the Board of Directors of
the Company approved the repurchase of up to $1 billion of
Shares under a Share repurchase program (the Share
Repurchase Program). On April 2, 2001, the
Companys Board of Directors authorized the repurchase of
up to an additional $500 million of Shares, subject to the
terms of the Senior Credit Facility. Pursuant to the Share
Repurchase Program, through December 31, 2002, Starwood has
repurchased 19.0 million Shares (including 500,000 Shares
under equity put option contracts) in the open market for an
aggregate cost of $618 million. As of December 31,
2002, approximately $633 million remains available under
the Share Repurchase Program.

Exchangeable Preferred Shares.During 1998, 6.3 million
shares of Class A EPS, 5.5 million shares of
Class B EPS and approximately 800,000 exchangeable units
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. Exchangeable units and 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 which began on
January 2, 2003, to require the Trust to redeem such shares
at a price of $38.50. Shares of exchangeable units and
Class B EPS are convertible on a one-for-one basis (subject
to certain adjustments) to Class A EPS. During 2002,
approximately 4,000 shares of Class B EPS were exchanged by
certain stockholders into an equal number of shares of
Class A EPS. Additionally, approximately 60,000 shares of
Class A EPS were exchanged into an equal number of Shares.
At December 31, 2002, the Trust had 150 million
preferred shares authorized and approximately 500,000 and
1.3 million of Class A EPS and exchangeable units and
Class B EPS outstanding, respectively. Through
January 31, 2003, in accordance with the terms of the
Class B EPS discussed above, 422,753 units of Class B
EPS were put back to the Company for approximately
$16 million. Mr. Sternlicht held, individually and
through various family trusts, an aggregate of 240,391
Class B EPS and limited partnership units of the Realty
Partnership and Operating Partnership convertible to
Class B EPS on a one-to-one basis. On January 2, 2003,
Mr. Sternlicht redeemed all of these Class B EPS for
$38.50 per share.

Note 16.     Stock
Incentive Plans

In 2002, the Company adopted the 2002 Long-Term
Incentive Compensation Plan (2002 LTIP), which
superseded the 1999 Long Term Incentive Compensation Plan (the
1999 LTIP) and provides for the purchase of Shares
by Directors, officers, employees, consultants and advisors,
pursuant to equity award grants. Although no additional awards
will be granted under the 1999 LTIP, or the Companys 1995
Share Option Plan (the 1995 LTIP), the 1999 LTIP and
1995 LTIP will continue to govern awards that have been granted
and remain outstanding under those plans. 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 2002 LTIP
at December 31, 2002 was approximately 7.8 million.

The Company applies APB 25; accordingly,
compensation cost is not recognized for grants of stock options
at market price. See Note 2. Significant Accounting
Policies, for further discussion of pro forma net income and
earnings per Share if stock-based compensation cost had been
determined as prescribed by SFAS No. 123.

F-35



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

The following table summarizes stock option
activity for the Company:

|                                 |           |         |            |                  |   |   |       |       | 
|-------------------------------- | --------- | ------- | ---------- | ---------------- | - | - | ----- | ----- | 
|                                 |           |         |            | Weighted Average
|                                 |           |         |            | Exercise        
|                                 |           | Options |            | Price Per Share 
|                                 |           |         |            |                 
|Outstanding at December 31, 1999 |           |         | 20,922,442 |                  |   | $ | 34.26 |      
|                                 | Granted   |         |            | 10,614,800       |   |   |       | 24.22 | 
|                                 | Exercised |         |            | (1,682,653       | ) |   |       | 21.10 | 
|                                 | Forfeited |         |            | (1,689,378       | ) |   |       | 33.96 | 
|                                 |           |         |            |                  |   |   |       |      
|Outstanding at December 31, 2000 |           |         | 28,165,211 |                  |   |   | 31.33 |      
|                                 | Granted   |         |            | 8,279,160        |   |   |       | 36.55 | 
|                                 | Exercised |         |            | (1,686,986       | ) |   |       | 23.03 | 
|                                 | Forfeited |         |            | (1,892,081       | ) |   |       | 30.17 | 
|                                 |           |         |            |                  |   |   |       |      
|Outstanding at December 31, 2001 |           |         | 32,865,304 |                  |   |   | 33.22 |      
|                                 | Granted   |         |            | 15,641,647       |   |   |       | 29.54 | 
|                                 | Exercised |         |            | (1,439,332       | ) |   |       | 24.30 | 
|                                 | Forfeited |         |            | (2,260,305       | ) |   |       | 33.48 | 
|                                 |           |         |            |                  |   |   |       |      
|Outstanding at December 31, 2002 |           |         | 44,807,314 |                  |   | $ | 32.22 |      
|                                 |           |         |            |                  |   |   |       |      
|Exercisable at December 31, 2001 |           |         | 16,298,472 |                  |   | $ | 35.88 |      
|                                 |           |         |            |                  |   |   |       |      
|Exercisable at December 31, 2002 |           |         | 20,693,514 |                  |   | $ | 34.70 |      
|                                 |           |         |            |                  |   |   |       |      

The following table summarizes information about
outstanding stock options at December 31, 2002:

|                |                 |                     |  |                     |            |                  |  |             |      |                  |  |   |       |  |  |  |            |  |  |   |       | 
|--------------- | --------------- | ------------------- |  | ------------------- | ---------- | ---------------- |  | ----------- | ---- | ---------------- |  | - | ----- |  |  |  | ---------- |  |  | - | ----- | 
|                |                 |                     |  |                    
|                |                 | Options Outstanding |  | Options Exercisable
|                |                 |                     |  |                    
|                |                 |                     |  | Weighted Average    |            |                  |  |            
|                |                 |                     |  | Remaining           |            | Weighted Average |  |             |      | Weighted Average
|Range of        |                 | Number              |  | Contractual Life    |            | Exercise         |  | Number      |      | Exercise        
|Exercise Prices |                 | Outstanding         |  | in Years            |            | Price/Share      |  | Exercisable |      | Price/Share     
|                |                 |                     |  |                     |            |                  |  |             |      |                 
|                | $12.86 - $24.00 |                     |  |                     | 12,961,927 |                  |  |             | 6.00 |                  |  | $ | 22.88 |  |  |  | 9,207,003  |  |  | $ | 22.49 | 
|                | $24.13 - $24.88 |                     |  |                     | 8,160,600  |                  |  |             | 7.89 |                  |  |   | 24.85 |  |  |  | 175,250    |  |  |   | 24.31 | 
|                | $25.04 - $34.52 |                     |  |                     | 2,430,982  |                  |  |             | 7.62 |                  |  |   | 29.29 |  |  |  | 1,506,133  |  |  |   | 29.25 | 
|                | $34.58 - $34.58 |                     |  |                     | 6,775,874  |                  |  |             | 9.13 |                  |  |   | 34.58 |  |  |  | 28,200     |  |  |   | 34.58 | 
|                | $34.90 - $37.83 |                     |  |                     | 1,895,699  |                  |  |             | 5.53 |                  |  |   | 36.41 |  |  |  | 1,356,012  |  |  |   | 36.44 | 
|                | $37.84 - $37.84 |                     |  |                     | 5,654,626  |                  |  |             | 8.10 |                  |  |   | 37.84 |  |  |  | 1,509,204  |  |  |   | 37.84 | 
|                | $38.00 - $54.63 |                     |  |                     | 5,884,224  |                  |  |             | 5.04 |                  |  |   | 50.72 |  |  |  | 5,868,330  |  |  |   | 50.76 | 
|                | $54.85 - $58.81 |                     |  |                     | 1,043,382  |                  |  |             | 5.03 |                  |  |   | 54.88 |  |  |  | 1,043,382  |  |  |   | 54.88 | 
|                |                 |                     |  |                     |            |                  |  |             |      |                  |  |   |       |  |  |  |            |  |  |   |       | 
|                | Total/average   |                     |  |                     | 44,807,314 |                  |  |             | 7.00 |                  |  | $ | 32.22 |  |  |  | 20,693,514 |  |  | $ | 34.70 | 
|                |                 |                     |  |                     |            |                  |  |             |      |                  |  |   |       |  |  |  |            |  |  |   |       | 

During 2002, the Company granted restricted stock
awards for approximately 340,000 Shares. Restricted stock awards
outstanding as of December 31, 2002 totaled approximately
940,000 Shares. Compensation expense of approximately
$9.9 million, $17.5 million and $3.8 million was
recorded during 2002, 2001 and 2000, respectively, related to
restricted stock awards. The 2001 compensation expense includes
an $11 million special charge related to the accelerated
amortization of 50% of restricted stock awards granted in
February 2001. The vesting was accelerated to enhance employee
retention efforts following the significant industry decline
resulting from the September 11 Attacks.

F-36



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

2002 Employee Stock Purchase Plan

In April 2002, the Board of Directors adopted
(and in May 2002 the shareholders approved) the Companys
2002 Employee Stock Purchase Plan (the ESPP) to
provide employees of the Company with an opportunity to purchase
common stock through payroll deductions, and reserved 10,000,000
Shares for issuance under the ESPP. The ESPP commenced in
October 2002.

All full-time regular employees who have
completed 30 days of continuous service and who are
employed by the Company on U.S. payrolls are eligible to
participate in the ESPP. Eligible employees may contribute up to
20% of their total cash compensation to the ESPP. Amounts
withheld are applied at the end of every three month
accumulation period to purchase Shares. The value of the Shares
(determined as of the beginning of the offering period) that may
be purchased by any participant in a calendar year is limited to
$25,000. Participants may withdraw their contributions at any
time before Shares are purchased.

The purchase price is equal to 85% of the lower
of (a) the fair market value of Shares on the day of the
beginning of the offering period or (b) the fair market
value of Shares on the date of purchase. Approximately 73,000
Shares were issued under the ESPP in fiscal 2002, at a purchase
price of $19.69 per Share.

Note
17.     Derivative Financial
Instruments

The Company enters into interest rate swap
agreements to manage interest rate risk. The Companys
objective is to manage the impact of interest rates on the
results of operations, cash flows and the market value of the
Companys debt. At December 31, 2002, the Company had
one outstanding interest rate swap agreement under which the
Company pays a fixed rate and receives a variable rate of
interest. This swap (the Interest Rate Swap
Agreement) is classified as a cash flow hedge and matures
in December 2003. The Company adjusts the Interest Rate Swap
Agreement to current market value through other comprehensive
income, as it is effective in hedging the exposure to
variability of expected future interest payments. The Company
anticipates that the Interest Rate Swap Agreement will continue
to be effective but will recognize any unrealized gain or loss
related to this contract immediately into the results of
operations if it is deemed to no longer be effective. The
notional amount of the Interest Rate Swap Agreement was
approximately $48 million and the estimated unrealized loss
on this interest rate swap was approximately $100,000 at
December 31, 2002.

At December 31, 2002, the Company also had
five outstanding interest rate swap agreements under which the
Company pays floating rates and receives fixed rates of interest
(the Fair Value Swaps). The aggregate notional
amount of the Fair Value Swaps was approximately
$1.050 billion. The Fair Value Swaps hedge the change in
fair value of certain fixed rate debt related to fluctuations in
interest rates and mature through 2007. The Fair Value Swaps
modify the Companys interest rate exposure by effectively
converting debt with a fixed rate to a floating rate. The fair
value of the Fair Value Swaps was an asset of approximately
$15 million at December 31, 2002.

In April 2002, in connection with the sale of
$1.5 billion of the Senior Notes, the Company terminated
four interest rate swap agreements (with a notional amount of
$850 million) and realized a net loss of approximately
$23 million associated with this early termination. As
discussed in Note 2, the Company early adopted SFAS
No. 145 and recorded this charge in interest expense.

In September 2002, the Company terminated certain
Fair Value Swaps, resulting in a $78 million cash payment
to the Company. These proceeds were used to pay down the
previous revolving credit facility and will result in a decrease
to the interest expense on the hedged debt through its maturity
in 2007. In order to retain its fixed versus floating rate debt
position, the Company immediately entered into five new Fair
Value Swaps on the same underlying debt as the terminated swaps.

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STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

The Company also enters into forward foreign
exchange contracts to hedge the potential volatility of earnings
and cash flow associated with changing foreign exchange rates
and the effects on the Companys foreign currency
denominated assets and liabilities. At December 31, 2002,
the Company had one forward foreign exchange contract
outstanding with a dollar equivalent of the contractual amount
of this hedge at December 31, 2002 of approximately
$2 million. The aggregate fair value of this contract
outstanding at December 31, 2002 was a liability of
approximately $50,000. This contract matures in the first
quarter of 2003.

The counterparties to the Companys
derivative financial instruments are major financial
institutions.

Note 18.     Related
Party Transactions

General.Barry S. Sternlicht, Chairman,
Chief Executive Officer and a Director of the Corporation, and
Chairman, Chief Executive Officer and a Trustee of the Trust,
controls and has been the President and Chief Executive Officer
of Starwood Capital Group, L.L.C. (Starwood Capital)
since its formation in 1991. Affiliates of Starwood Capital held
an approximate 50% vote and 35.16% interest in profits in the
Westin entities acquired by Starwood Lodging, a predecessor of
the Company, in 1997.

Trademark License.An affiliate of Starwood Capital
has granted to Starwood, subject to Starwood Capitals
unrestricted right to use such name, an exclusive,
non-transferable, royalty-free license to use the
Starwood name and trademarks in connection with the
acquisition, ownership, leasing, management, merchandising,
operation and disposition of hotels worldwide, and to use the
Starwood name in its corporate name worldwide, in
perpetuity.

Starwood Capital Noncompete.In connection with a restructuring
of the Company in 1995, Starwood Capital agreed that, with
certain exceptions, Starwood Capital would not compete directly
or indirectly with the Company within the United States and
would present to the Company all opportunities presented to
Starwood Capital to acquire fee interests in hotels in the
United States and debt interests in hotels in the United States
where it is anticipated that the equity will be acquired by the
debt holder within one year from the acquisition of such debt
(the Starwood Capital Noncompete). During the term
of the Starwood Capital Noncompete, neither Starwood Capital nor
any of its affiliates is permitted to acquire any such interest,
or any ground lease interest or other equity interest, in hotels
in the United States. In addition, the Companys Corporate
Opportunity Policy requires that each director and executive
officer submit to the Corporate Governance Committee any
opportunity that the director or executive officer reasonably
believes is within the Companys lines of business or in
which the Company has an interest. Therefore, as a matter of
practice, all opportunities to purchase hotel-related assets,
even those outside of the United States, that Starwood Capital
may pursue are first presented to the Company. The Starwood
Capital Noncompete continues until no officer, director, general
partner or employee of Starwood Capital is on either the Board
of Directors of the Corporation or the Board of Trustees of the
Trust (subject to exceptions for certain restructurings, mergers
or other combination transactions with unaffiliated parties).
Several properties owned or managed by the Company, including
the Westin Innisbrook Resort, the Westin Mission Hills Resort
and the Turnberry Hotel, where opportunities brought to the
Company or its predecessors by Starwood Capital or entities
related to Mr. Sternlicht. With the approval in each case
of the Corporate Governance Committee, of the Board of Directors
of the Corporation and the Board of Trustees of the Trust, from
time to time the Company has waived restrictions of the Starwood
Capital Noncompete, in whole or in part, (or passed on the
opportunity in the case of the Corporate Opportunity Policy for
non-U.S.-opportunities) with respect to particular acquisition
opportunities in which the Company had no interest. Since 1995,
a total of four such investments were made  the Radisson
Governors Inn Hotel in Research Triangle Park as part of a mixed
use property in Raleigh, North Carolina (deemed below the
quality of hotel the Company targets); the acquisition of Chevy
Chase Plaza, a mixed use property in Maryland that included a
Holiday Inn hotel leased on a long term basis to a third party
operator (no management or branding opportunity was available),
the acquisition of a small lower

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STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

end hotel located in Kobe, Japan operated by a
third party at the date of acquisition and deemed unsuitable for
any Starwood brand and a 16-hotel portfolio of lessor interests
under which the properties were subject to long-term operating
leases which were essentially long-term income investments and
not an opportunity to manage or brand the properties, and which
were not of interest to the Company.

Portfolio Investments.An affiliate of Starwood Capital
holds an approximately 25% non-controlling interest in Troon
Golf (Troon), a golf course management company that
currently manages over 120 high-end golf courses.
Mr. Sternlichts indirect interest in Troon held
through such affiliate is approximately 12%. Troon is one of the
largest third-party managers of golf courses in the United
States. In January 2002, after extensive review of alternatives
and with the unanimous approval of the Governance Committee, the
Company entered into a Master Agreement with Troon covering the
United States and Canada whereby the Company has agreed to have
Troon manage all golf courses in the United States and Canada
that are owned by the Company and to use reasonable efforts to
have Troon manage golf courses at resorts that the Company
manages and franchises. The Company believes that the terms of
the Troon agreement are at or better than market terms.
Mr. Sternlicht did not participate in the negotiations or
the approval of the Troon Master Agreement. During 2002, Troon
managed 17 golf courses at resorts owned or managed by the
Company. The Company paid Troon a total of $2,688,000 ($962,000
of which represents management fees and payments for other
services and $1,726,000 of which represents reimbursements of
third-party expenses), in 2002 for eight golf courses at resorts
owned or managed by the Company. During 2001 and 2000, the
Company paid a total of $479,000 ($432,000 of which represents
management fees and payments for other services and $47,000 of
which represents reimbursement of third-party expenses) and
$545,000 ($458,000 of which represents management fees and
payments for other services and $87,000 of which represents
reimbursement of third-party expenses), respectively for two
golf courses at resorts owned by the Company.

An entity in which Mr. Sternlicht has a 38%
interest owned the common area of the Sheraton Tamarron Resort,
which the Company managed until December 2001. Management fees
earned and paid were $197,000 and $219,000 relating to 2001 and
2000, respectively. The Company has outstanding receivables of
approximately $314,000, at December 31, 2002, which arose
as a result of the termination of the Tamarron management
agreement. These receivables are expected to be paid in
connection with any settlement of the Innisbrook matter
discussed below. The Company believes that the terms of the
Tamarron agreement were at or better than market terms.

In addition, a subsidiary of Starwood Capital is
a general partner of a limited partnership which owns
approximately 45% in an entity that manages over 40 health
clubs, including one health club and spa space in a hotel owned
by the Company. The Company paid approximately $84,000 annually
to the management company for such management services in 2002,
2001 and 2000. The Company believes that the terms of the
management agreement are at or better than market terms.

Other Management-Related Investments.Mr. Sternlicht has a 38%
indirect interest in entity (the Innisbrook Entity)
that owns the common area facilities and certain undeveloped
land (but not the hotel) at the Innisbrook Resort. In May 1997,
the Innisbrook Entity entered into a management agreement for
the Innisbrook Resort with Westin, which was then a privately
held company partly owned by Starwood Capital and Goldman, Sachs
& Co. When the Company acquired Westin in January 1998, it
acquired Westins rights and obligations under the
management and other related agreements. Under these agreements,
the hotel manager was obligated to loan up to $12.5 million
to the owner in the event certain performance levels were not
achieved. Management fees earned under these agreements were
$584,000, $716,000 and $885,000 in 2002, 2001 and 2000,
respectively. The operations of the Innisbrook Entity have not
generated sufficient cash flow to service the debt and remain
current in its payments to the Company. The Innisbrook Entity,
the Company and other lenders are currently in discussions
regarding the terms and timing of payments owed to the Company
and such other lenders. The discussions relate to approximately
$7 million in loans by the

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STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Company which funded resort operations and
approximately $5 million of deferred management fees and
reimbursable expenses as well as amounts owed by the Innisbrook
Entity to other parties. Based on available information and the
establishment of applicable reserves, the Company does not
believe any resolution of this matter will have a material
impact on the financial position, results of operation or cash
flows of the Company. Any settlement of this matter would be
subject to the approval of the Governance Committee.

In July 2002, the Company acquired a 49% interest
in the Westin Savannah Harbor Resort and Spa in connection with
the restructuring of the indebtedness of that property. An
unrelated party holds an additional 49% interest in the
property. The remaining 2% is held by Troon. As disclosed above,
Mr. Sternlicht owns an approximate 12% non-controlling
interest in Troon through an affiliate of Starwood Capital.
Troon invested in the project on a pari-passu basis and manages
the golf course at the Westin Savannah. The unrelated third
party negotiated the terms of the golf management agreement with
Troon and approved the terms of its equity interest, and
therefore, the Company believes the arrangements are on an
arms-length basis.

Aircraft Lease.In February 1998, the Company
leased a Gulfstream III Aircraft (GIII) from
Star Flight LLC, an affiliate of Starwood Capital. The term of
the lease was one year and automatically renews for one-year
terms until 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 at the
time (based on two estimates 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 with this amount increasing as additional
costs are incurred by the lessor), plus (ii) $300 for each
hour that the aircraft is in use. Payments to Star Flight LLC
were $2,052,000, $1,682,000 and $840,000 in 2002, 2001 and 2000,
respectively. Starwood Capital has used the GIII as well as the
Gulfstream IV Aircraft (GIV) operated by the
Company. For use of the GIII, Starwood Capital relieves the
Company of lease payments for the days the plane is used and
reimburses the Company for costs of operating the aircraft.
Lease relief and reimbursed operating costs were approximately
$296,000, $95,000 and $176,000 for fiscal 2002, 2001 and 2000,
respectively. For use of the GIV, Starwood Capital pays a
charter rate that the Company believes is no less favorable than
that which the Company could receive from an unaffiliated third
party.

Other.The
Company has on occasion made loans to employees, including
executive officers, principally in connection with home
purchases upon relocation. As of December 31, 2002,
approximately $11 million in loans to approximately 36
employees was outstanding of which approximately $7 million
were non-interest bearing home loans. Home loans are generally
due five years from the date of issuance or upon termination of
employment and are secured by a second mortgage on the
employees home. Officers receiving home loans in
connection with relocation were Robert F. Cotter, Chief
Operating Officer in June 2001 (original balance of $600,000),
Ronald C. Brown, Executive Vice President and Chief Financial
Officer in June 1999 (original balance of $600,000), David K.
Norton, Executive Vice President of Human Resources in July 2000
(original balance of $500,000), Theodore W. Darnall, President,
Real Estate Group, in 1996 and 1998 (original balance of
$750,000 ($150,000 bridge loan in 1996 of which $100,000 has
been repaid) and $600,000 home loan in 1998) and Steven M.
Hankin, President, Starwood Technology and Revenue Systems in
2000 (original balance of $300,000). The loans to
Messrs. Cotter, Norton, Darnall and Hankin are currently
outstanding. The loan made to Mr. Brown was repaid in 2001.
As a result of the acquisition of ITT Corporation in 1998,
restricted stock awarded to Messrs. Sternlicht, Brown and
Darnall in 1996 vested at a price for tax purposes of $53 per
Share. This amount was taxable at ordinary income rates. By late
1998, the value of the stock had fallen below the amount of
income tax owed. In order to avoid a situation in which the
executives could be required to sell all of the Shares acquired
by them to cover income taxes, in April 1999 the Company made
interest-bearing loans at 5.67% to Messrs. Sternlicht,
Brown and Darnall of $1,222,000, $218,000 and $416,000
respectively, to cover the taxes payable. Accrued interest on
these loans at December 31, 2002 is approximately $257,000,
$46,000 and $88,000, respectively. The notes and all associated
accumulated interest become due on their tenth anniversary.

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STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

Since July 2002, Richard Cotter has been the Vice
President, Operations, Mid Atlantic Region for the Company. From
January 2001 to July 2002 Mr. Cotter served as Vice
President, Operations, New York City and assisted in the
transition of a new General Manager for the St. Regis New York
and from July 1998 to January 2001, he served as Vice President,
the St. Regis Group, and Managing Director, St. Regis New York
(General Manager of the property). Mr. Cotters salary
and bonus were $272,571 and $181,335, respectively, for 2000,
$283,336 and $71,549, respectively, for 2001 and $292,160 and
$53,244 respectively, for 2002. In connection with the
Companys Long Term Incentive Plan, Mr. Cotter was
granted 31,000, 10,823 and 28,000 options to purchase Company
shares in 2000, 2001 and 2002, respectively, and was awarded
3,487 shares of restricted stock in 2001. In addition, in
connection with his employment as general manager of the St.
Regis and these other positions, Mr. Cotter was provided
with the use of a Company-owned apartment in New York City
adjacent to the St. Regis, which the Company believes has a
rental value of $10,000 per month. Mr. Cotter has had the
use of the apartment since September 1998. In light of his new
position with the Company, Mr. Cotter will no longer have
use of the apartment starting during the first quarter of 2003.
Richard Cotter is the brother of Robert Cotter, who has been the
Chief Operating Officer of the Company since February 2000.

See Note. 15 for discussions regarding
Mr. Sternlichts redemption of exchangeable preferred
shares.

Note
19.     Commitments and
Contingencies

The Company had the following contractual
obligations outstanding as of December 31, 2002 (in
millions):

|                                      |  |       |     |             |  |           |    |           |  |           |    |  |  |   |    |  |  |   |   | 
|------------------------------------- |  | ----- | --- | ----------- |  | --------- | -- | --------- |  | --------- | -- |  |  | - | -- |  |  | - | - | 
|                                      |  |       |     | Due in Less |  | Due in    |    | Due in    |  | Due After
|                                      |  | Total |     | Than 1 Year |  | 1-3 Years |    | 4-5 Years |  | 5 Years  
|                                      |  |       |     |             |  |           |    |           |  |          
|Unconditional purchase obligations(a) |  | $     | 165 |             |  | $         | 66 |           |  | $         | 78 |  |  | $ | 20 |  |  | $ | 1 | 
|Other long-term obligations           |  |       | 6   |             |  |           |   |           |  |           | 6  |  |  |   |   |  |  |   |  | 
|                                      |  |       |     |             |  |           |    |           |  |           |    |  |  |   |    |  |  |   |   | 
|Total contractual obligations         |  | $     | 171 |             |  | $         | 66 |           |  | $         | 84 |  |  | $ | 20 |  |  | $ | 1 | 
|                                      |  |       |     |             |  |           |    |           |  |           |    |  |  |   |    |  |  |   |   | 



---



|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(a) | Included in these balances are commitments that
    may be satisfied by the Companys managed and franchised
    properties.

The Company had the following commercial
commitments outstanding as of December 31, 2002 (in
millions):

|                             |  |       |     |                                            |  |           |     |           |  |         |    |  |  |   |   |  |  |   |    | 
|---------------------------- |  | ----- | --- | ------------------------------------------ |  | --------- | --- | --------- |  | ------- | -- |  |  | - | - |  |  | - | -- | 
|                             |  |       |     |                                           
|                             |  |       |     | Amount of Commitment Expiration Per Period
|                             |  |       |     |                                           
|                             |  |       |     | Less                                       |  |           |     | After    
|                             |  | Total |     | Than 1 Year                                |  | 1-3 Years |     | 4-5 Years |  | 5 Years
|                             |  |       |     |                                            |  |           |     |           |  |        
|Standby letters of credit    |  | $     | 125 |                                            |  | $         | 122 |           |  | $       |   |  |  | $ |  |  |  | $ | 3  | 
|Hotel loan guarantees        |  |       | 164 |                                            |  |           | 55  |           |  |         | 79 |  |  |   |  |  |  |   | 30 | 
|Other commercial commitments |  |       |    |                                            |  |           |    |           |  |         |   |  |  |   |  |  |  |   |   | 
|                             |  |       |     |                                            |  |           |     |           |  |         |    |  |  |   |   |  |  |   |    | 
|Total commercial commitments |  | $     | 289 |                                            |  | $         | 177 |           |  | $       | 79 |  |  | $ |  |  |  | $ | 33 | 
|                             |  |       |     |                                            |  |           |     |           |  |         |    |  |  |   |   |  |  |   |    | 

Guaranteed Loans and Commitments.In limited cases, the Company has
made loans to owners of or partners in hotel or resort ventures
for which the Company has a management or franchise agreement.
Loans outstanding under this program totaled $156 million
at December 31, 2002. Unfunded loan commitments aggregating
$33 million were outstanding at December 31, 2002, of
which $7 million are expected to be funded in 2003 and
$15 million are expected to be funded in total. These loans
typically are secured by pledges of project ownership interests
and/or mortgages on the projects.

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STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

The Company participates in programs with
unaffiliated lenders in which the Company may partially
guarantee loans made to facilitate third-party ownership of
hotels that the Company manages or franchises. At
December 31, 2002, the Company was a guarantor for loans
that could reach a maximum of $164 million relating to
three projects: the St. Regis in Monarch Beach, California,
which opened in mid-2001; the Westin Kierland Resort and Spa in
Scottsdale, Arizona, which opened in November 2002; and the
Westin in Charlotte, North Carolina, which is scheduled to open
in the first quarter of 2003. In connection with the loan
guarantee for the Westin Charlotte, the Company also entered
into a guarantee to fund working capital shortfalls for this
resort through 2005. No fundings are anticipated under this
working capital guarantee. With respect to the Westin Kierland,
the guarantee is joint and several with another equity partner.
The Company does not anticipate any significant funding under
these loan guarantees in 2003, as all projects are well
capitalized. Furthermore, since each of these properties was
funded with significant equity financing and subordinated debt
financing, if the Companys loan guarantees were to be
called, the Company could take an equity position in these
properties at values significantly below construction costs.

Surety bonds issued on our behalf as of
December 31, 2002 totaled $119 million, the majority
of which were required by state or local governments relating to
our vacation ownership operations and by our insurers to secure
large deductible insurance programs.

Furthermore, in order to secure management
contracts, the Company may provide performance guarantees to
third-party owners. Most of these performance guarantees allow
the Company to terminate the contract rather than fund
shortfalls if certain performance levels are not met. In limited
cases, the Company is obliged to fund shortfalls in performance
levels. As of December 31, 2002, the Company had eight
management contracts with performance guarantees with possible
cash outlays of up to $74 million, $50 million of
which, if required, would be funded over a period of
25 years and would be largely offset by management fees
received under these contracts. Many of the performance tests
are multi-year tests, are tied to the results of a competitive
set of hotels, and have exclusions for force majeure and acts of
war and terrorism. The Company does not anticipate any
significant funding under the performance guarantees in 2003. In
addition, the Company has agreed to guarantee certain
performance levels at a managed property that has authorized VOI
sales and marketing. The exact amount and nature of the guaranty
is currently under dispute. However, the Company does not
believe that any payments under this guaranty will be
significant. Lastly, the Company does not anticipate losing any
significant management or franchise contracts in 2003.

Litigation.The Sheraton Corporation
(Sheraton Corp.) (formerly ITT Sheraton
Corporation), a subsidiary of the Company, is a defendant in
certain litigation relating to Sheraton Corp.s management
of a hotel. The case is titled 2660 Woodley Road Joint
Venture v. ITT Sheraton Corporation, Civil Action
No. 97-450-JJF (U.S.D.C., D. Del.). In December 1999,
following trial, the jury returned a verdict finding that
Sheraton Corp. had violated its contractual obligations to the
hotel owner and awarded contractual damages totaling
$11 million. The jury also found for the plaintiff on
certain common law and other claims and awarded compensatory and
other damages of $2 million and punitive damages of
$38 million. These amounts were fully reserved for as of
December 31, 1999. The jury found for Sheraton Corp. and
rejected the plaintiffs additional claims that Sheraton
Corp. had violated the Racketeer Influenced and Corrupt
Organizations Act (RICO), and that Sheraton Corp.
had engaged in fraud. Sheraton Corp. believes that the
jurys determination against it on liability issues was
erroneous as a matter of law, and that the damage awards were
excessive and not supported by the evidence. Sheraton Corp.
sought to have the verdict set aside in the trial court. In
response to Sheraton Corp.s motion, the court, in January
2002, amended the judgment and reduced the punitive damages
award from $38 million to $17 million; the court also
trebled the jurys $750,000 award for Robinson-Patman Act
violations to $2.25 million on the basis of the
courts interpretation of that statute. The amount of the
judgment, as a result, will be $31.4 million. Sheraton has
filed a Notice of Appeal with the United States Court of Appeals
and plaintiffs have filed a Cross-Notice of Appeal. The appeal
was signed on February 13, 2003. There can be no assurance
that Sheraton Corp. will be successful in

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STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

having the verdict set aside, overturned or
reduced on appeal, or that other owners of properties managed by
Sheraton Corp. will not seek to assert similar claims.

The Corporation, Sheraton Corp. and Sheraton
Holding are defendants in certain litigations arising out of
purported contracts allegedly requiring the purchase of
telecommunication, video and power services from Intelnet
International Corp. (Intelnet). The first suit was
commenced in late 1997 by Intelnet in the Superior Court of New
Jersey Law Division: Camden County, alleging that Sheraton Corp.
violated what Intelnet claimed were Intelnets exclusive
rights to provide telecommunications and other services to
Sheraton Holding and its affiliates. The complaint sought
injunctive relief to enforce alleged exclusivity rights and
unquantified monetary damages. The complaint was subsequently
amended in November 1998 to seek specific monetary and
unspecified punitive damages. Sheraton Holding and Sheraton
Corp. served an answer denying Intelnets claims, and
asserting counterclaims seeking damages and a declaration that
the purported contracts at issue were unenforceable.

In June 1999, Intelnet commenced a second lawsuit
in the Superior Court of New Jersey Law Division: Camden County,
naming Boardwalk Regency Corp. (formerly a subsidiary of the
Corporation) and the Corporation. The claims in this case are
similar in nature to those made in the first suit, and relate to
an alleged breach of a purported exclusive contract to provide
certain services to the Caesars Atlantic City hotel and
casino. The two suits have been consolidated and were in
mediation until 2001. The mediation ended during the first half
of 2001 and the parties are now proceeding with discovery. The
Company believes that Intelnets claims are meritless and
will continue to contest them vigorously. The Company has
accrued for the expected legal cost associated with the dispute
and does not expect that the resolution will have a material
adverse effect on the consolidated results of operations,
financial position or cash flows.

In November 2001, the Corporation, Sheraton
Holding and Sheraton Corp. commenced a separate litigation in
the United States District Court for the District of New Jersey,
asserting claims arising under RICO as well as fraud claims
against the principals of Intelnet. The case was subsequently
dismissed by the court on the grounds that it was brought
subsequent to the running of the statute of limitations. An
appeal of this decision is pending.

The Company is involved in various other legal
matters that have arisen in the normal course of business, some
of which include claims for substantial sums. Accruals have been
recorded when the outcome is probable and can be reasonably
estimated. While the ultimate results of claims and litigation
cannot be determined, the Company does not expect that the
resolution of all legal matters will have a material adverse
effect on its consolidated results of operations, financial
position or cash flow.

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.Estimated insurance claims payable
at December 31, 2002 were $64 million. At
December 31, 2002, standby letters of credit amounting to
$45 million had been issued to provide collateral for the
estimated claims. The letters of credit are guaranteed by the
Companys captive insurance company.

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 Corporation, then a
wholly owned subsidiary of ITT Industries (the
Distribution). In connection with this Distribution,
ITT Corporation, which was then named ITT Destinations, Inc.,
changed its name to ITT Corporation.

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STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

For purposes of governing certain of the ongoing
relationships between the Company and ITT Industries after the
Distribution and spin-off of ITT Corporation 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. Based on
available information, management does not believe that these
matters would have a material impact on the consolidated results
of operations, financial position or cash flows.

For discussion of certain other matters, see
Note 11, Income Taxes.

Note 20.     Business
Segment and Geographical Information

The Company has two operating segments: hotels
and vacation ownership. The hotel 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 St. Regis, The Luxury
Collection, Sheraton, Westin, W and Four Points by Sheraton as
well as hotels and resorts which are managed or franchised under
these brand names in exchange for fees. Also included are
earnings and losses from the Companys interest in
unconsolidated joint ventures. The vacation ownership segment
includes the development, ownership and operation of vacation
ownership resorts, marketing and selling VOIs and providing
financing to customers who purchase such interests.

The performance of the hotels and vacation
ownership segments is evaluated primarily on operating profit
before corporate selling, general and administrative expense,
interest, gains on the sale of real estate, investments,
restructuring and other special charges and income taxes. The
Company does not allocate these items to its segments.

F-44



---



##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

The following table presents revenues, operating
income, assets and capital expenditures for the Companys
reportable segments (in millions):

|                               |                    |      |   |        |  |      |   |        |  |  |   |        | 
|------------------------------ | ------------------ | ---- | - | ------ |  | ---- | - | ------ |  |  | - | ------ | 
|                               |                    | 2002 |   | 2001   |  | 2000
|                               |                    |      |   |        |  |     
|Revenues(a):                   |                    |      |   |        |  |      |   |        |  |  |   |       
|                               | Hotel              |      | $ | 3,516  |  |      | $ | 3,627  |  |  | $ | 4,015  | 
|                               | Vacation Ownership |      |   | 363    |  |      |   | 340    |  |  |   | 330    | 
|                               |                    |      |   |        |  |      |   |        |  |  |   |       
|                               | Total              |      | $ | 3,879  |  |      | $ | 3,967  |  |  | $ | 4,345  | 
|                               |                    |      |   |        |  |      |   |        |  |  |   |       
|Operating income(b):           |                    |      |   |        |  |      |   |        |  |  |   |       
|                               | Hotel              |      | $ | 608    |  |      | $ | 690    |  |  | $ | 1,033  | 
|                               | Vacation Ownership |      |   | 79     |  |      |   | 51     |  |  |   | 85     | 
|                               |                    |      |   |        |  |      |   |        |  |  |   |       
|                               | Total              |      | $ | 687    |  |      | $ | 741    |  |  | $ | 1,118  | 
|                               |                    |      |   |        |  |      |   |        |  |  |   |       
|Depreciation and amortization: |                    |      |   |        |  |      |   |        |  |  |   |       
|                               | Hotel              |      | $ | 439    |  |      | $ | 479    |  |  | $ | 440    | 
|                               | Vacation Ownership |      |   | 10     |  |      |   | 15     |  |  |   | 13     | 
|                               | Corporate          |      |   | 47     |  |      |   | 32     |  |  |   | 28     | 
|                               |                    |      |   |        |  |      |   |        |  |  |   |       
|                               | Total              |      | $ | 496    |  |      | $ | 526    |  |  | $ | 481    | 
|                               |                    |      |   |        |  |      |   |        |  |  |   |       
|Assets:                        |                    |      |   |        |  |      |   |        |  |  |   |       
|                               | Hotel              |      | $ | 11,283 |  |      | $ | 11,646 |  |  | $ | 11,852 | 
|                               | Vacation Ownership |      |   | 852    |  |      |   | 706    |  |  |   | 714    | 
|                               | Corporate          |      |   | 124    |  |      |   | 109    |  |  |   | 131    | 
|                               |                    |      |   |        |  |      |   |        |  |  |   |       
|                               | Total              |      | $ | 12,259 |  |      | $ | 12,461 |  |  | $ | 12,697 | 
|                               |                    |      |   |        |  |      |   |        |  |  |   |       
|Capital expenditures:          |                    |      |   |        |  |      |   |        |  |  |   |       
|                               | Hotel              |      | $ | 227    |  |      | $ | 388    |  |  | $ | 446    | 
|                               | Vacation Ownership |      |   | 38     |  |      |   | 17     |  |  |   | 40     | 
|                               | Corporate          |      |   | 35     |  |      |   | 72     |  |  |   | 58     | 
|                               |                    |      |   |        |  |      |   |        |  |  |   |       
|                               | Total              |      | $ | 300    |  |      | $ | 477    |  |  | $ | 544    | 
|                               |                    |      |   |        |  |      |   |        |  |  |   |       



---



|    |                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Balance excludes other revenues from managed and
    franchised properties of $780 million, $740 million
    and $695 million for the years ended December 31,
    2002, 2001 and 2000 respectively.
|   
|(b) | The following costs are not allocated to the
    hotels and vacation ownership segments in evaluating operating
    income (in millions):                                                           

|                                                           |  |      |     |      |  |      |    |  |  |   |    | 
|---------------------------------------------------------- |  | ---- | --- | ---- |  | ---- | -- |  |  | - | -- | 
|                                                           |  | 2002 |     | 2001 |  | 2000
|                                                           |  |      |     |      |  |     
|Corporate selling, general and administrative              |  | $    | 107 |      |  | $    | 76 |  |  | $ | 90 | 
|Restructuring and other special charges
    (credits), net |  | $    | (7  | )    |  | $    | 50 |  |  | $ |   | 

F-45



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

The following table presents revenues and
long-lived assets by geographical region:

|                        |  |          |       |                   |  |               |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|----------------------- |  | -------- | ----- | ----------------- |  | ------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                        |  |          |       |                  
|                        |  | Revenues |       | Long-Lived Assets
|                        |  |          |       |                  
|                        |  | 2002     |       | 2001              |  | 2000          |       | 2002 |  | 2001
|                        |  |          |       |                   |  |               |       |      |  |     
|                        |  |          |       |                   |  |               |       |     
|                        |  |          |       |                   |  | (In millions) |       |     
|United States           |  | $        | 2,844 |                   |  | $             | 2,870 |      |  | $    | 3,271 |  |  | $ | 6,174 |  |  | $ | 6,324 | 
|Italy                   |  |          | 455   |                   |  |               | 451   |      |  |      | 424   |  |  |   | 891   |  |  |   | 767   | 
|All other international |  |          | 580   |                   |  |               | 646   |      |  |      | 650   |  |  |   | 1,119 |  |  |   | 1,144 | 
|                        |  |          |       |                   |  |               |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|Total                   |  | $        | 3,879 |                   |  | $             | 3,967 |      |  | $    | 4,345 |  |  | $ | 8,184 |  |  | $ | 8,235 | 
|                        |  |          |       |                   |  |               |       |      |  |      |       |  |  |   |       |  |  |   |       | 

Other than Italy, there were no individual
international countries, which comprised over 10% of the total
revenues of the Company for the years ended December 31,
2002, 2001 or 2000, or 10% of the total long-lived assets of the
Company as of December 31, 2002 or 2001.



|         |                     
|-------- | --------------------
|Note 21. | Guarantor Subsidiary

The Companys payment obligations under the
Senior Credit Facility, the Senior Notes and the Notes are fully
and unconditionally guaranteed by the Sheraton Holding
Corporation, a wholly-owned subsidiary. The obligation of the
Guarantor Subsidiary under its guarantee of the Senior Notes is
equal in right of payment to its obligations under the Sheraton
Holding public debt.

Presented below is condensed consolidating
financial information for the Parent, the Guarantor Subsidiary
and the Non-Guarantor Subsidiaries. Investments in subsidiaries
are accounted for by the Parent and the Guarantor Subsidiary on
the equity method of accounting. Earnings of subsidiaries are,
therefore, reflected in the Parents and Guarantor
Subsidiarys investments in subsidiaries accounts.
The elimination entries eliminate investments in subsidiaries
and intercompany balances and transactions.

F-46



---



##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |       |       | 
|---------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------------------------- | ------ | ---------- | --- | ------------ | ------ | ------------ | --- | ------------ | ------ | --- | ----- | - | ------- | - | - | - | ------ | ----- | ----- | 
|                                                                                   |                                                                    |                          
|                                                                                   |                                                                    | Balance Sheet            
|                                                                                   |                                                                    |                          
|                                                                                   |                                                                    | December 31, 2002        
|                                                                                   |                                                                    | (In millions)            
|                                                                                   |                                                                    |                          
|                                                                                   |                                                                    |                           |        | Non-       |     |             
|                                                                                   |                                                                    |                           |        | Guarantor  |     | Guarantor    |        |             
|                                                                                   |                                                                    | Parent                    |        | Subsidiary |     | Subsidiaries |        | Eliminations |     | Consolidated
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |             
|Assets                                                                             |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|Current assets:                                                                    |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   | Cash and cash equivalents                                          |                           | $      | 3          |     |              | $      | 1            |     |              | $      | 104 |       |   | $       |  |   |   | $      | 108   |      
|                                                                                   | Restricted cash                                                    |                           |        | 4          |     |              |        |             |     |              |        | 104 |       |   |         |  |   |   |        | 108   |      
|                                                                                   | Inventories                                                        |                           |        | 29         |     |              |        |             |     |              |        | 185 |       |   |         |  |   |   |        | 214   |      
|                                                                                   | Other current assets                                               |                           |        | 133        |     |              |        | 3            |     |              |        | 384 |       |   |         |  |   |   |        | 520   |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   |                                                                    | Total current assets      |        |            | 169 |              |        |              | 4   |              |        |     | 777   |   |         |   |  |   |        |       | 950   | 
|Intercompany                                                                       |                                                                    |                           | (5,315 | )          |     |              | (4,330 | )            |     |              | 9,645  |     |       |   |        |   |   |   |       |      
|Investments in consolidated subsidiaries                                           |                                                                    |                           | 11,153 |            |     |              | 9,304  |              |     |              |       |     |       |   | (20,457 | ) |   |   |       |      
|Plant, property and equipment, net                                                 |                                                                    |                           | 361    |            |     |              |       |              |     |              | 7,389  |     |       |   |        |   |   |   | 7,750  |      
|Goodwill and intangible assets, net                                                |                                                                    |                           | 1,726  |            |     |              | 2      |              |     |              | 842    |     |       |   |        |   |   |   | 2,570  |      
|Other assets                                                                       |                                                                    |                           | 163    |            |     |              | 60     |              |     |              | 766    |     |       |   |        |   |   |   | 989    |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   |                                                                    | $                         | 8,257  |            |     | $            | 5,040  |              |     | $            | 19,419 |     |       | $ | (20,457 | ) |   | $ | 12,259 |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|Liabilities and stockholders
    equity                                           |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|Current liabilities:                                                               |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   | Short-term borrowings and current maturities of
    long-term debt |                           | $      |           |     |              | $      | 250          |     |              | $      | 620 |       |   | $       |  |   |   | $      | 870   |      
|                                                                                   | Other current liabilities                                          |                           |        | 876        |     |              |        | 33           |     |              |        | 420 |       |   |         |  |   |   |        | 1,329 |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   |                                                                    | Total current liabilities |        |            | 876 |              |        |              | 283 |              |        |     | 1,040 |   |         |   |  |   |        |       | 2,199 | 
|Long-term debt                                                                     |                                                                    |                           | 2,462  |            |     |              | 1,074  |              |     |              | 913    |     |       |   |        |   |   |   | 4,449  |      
|Deferred income taxes                                                              |                                                                    |                           | 861    |            |     |              |       |              |     |              | 125    |     |       |   |        |   |   |   | 986    |      
|Other liabilities                                                                  |                                                                    |                           | 54     |            |     |              | 149    |              |     |              | 335    |     |       |   |        |   |   |   | 538    |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   |                                                                    |                           | 4,253  |            |     |              | 1,506  |              |     |              | 2,413  |     |       |   |        |   |   |   | 8,172  |      
|Minority interest                                                                  |                                                                    |                           | 3      |            |     |              |       |              |     |              | 36     |     |       |   |        |   |   |   | 39     |      
|Exchangeable units and Class B preferred
    shares, at redemption value of $38.50 |                                                                    |                           | 4      |            |     |              |       |              |     |              | 47     |     |       |   |        |   |   |   | 51     |      
|Commitments and contingencies                                                      |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|Total stockholders equity                                                         |                                                                    |                           | 3,997  |            |     |              | 3,534  |              |     |              | 16,923 |     |       |   | (20,457 | ) |   |   | 3,997  |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      
|                                                                                   |                                                                    | $                         | 8,257  |            |     | $            | 5,040  |              |     | $            | 19,419 |     |       | $ | (20,457 | ) |   | $ | 12,259 |      
|                                                                                   |                                                                    |                           |        |            |     |              |        |              |     |              |        |     |       |   |         |   |   |   |        |      

F-47



---



##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                                                   |                                                                    |                           |        |            |       |              |        |              |    |              |        |     |     |   |         |   |   |   |        |       |       | 
|---------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------------------------- | ------ | ---------- | ----- | ------------ | ------ | ------------ | -- | ------------ | ------ | --- | --- | - | ------- | - | - | - | ------ | ----- | ----- | 
|                                                                                   |                                                                    |                          
|                                                                                   |                                                                    | Balance Sheet            
|                                                                                   |                                                                    | December 31, 2001        
|                                                                                   |                                                                    | (In millions)            
|                                                                                   |                                                                    |                          
|                                                                                   |                                                                    |                           |        | Non-       |       |             
|                                                                                   |                                                                    |                           |        | Guarantor  |       | Guarantor    |        |             
|                                                                                   |                                                                    | Parent                    |        | Subsidiary |       | Subsidiaries |        | Eliminations |    | Consolidated
|                                                                                   |                                                                    |                           |        |            |       |              |        |              |    |             
|Assets                                                                             |                                                                    |                           |        |            |       |              |        |              |    |              |        |     |     |   |         |   |   |   |        |      
|Current assets:                                                                    |                                                                    |                           |        |            |       |              |        |              |    |              |        |     |     |   |         |   |   |   |        |      
|                                                                                   | Cash and cash equivalents                                          |                           | $      | 7          |       |              | $      |             |    |              | $      | 100 |     |   | $       |  |   |   | $      | 107   |      
|                                                                                   | Restricted cash                                                    |                           |        | 4          |       |              |        |             |    |              |        | 46  |     |   |         |  |   |   |        | 50    |      
|                                                                                   | Inventories                                                        |                           |        | 25         |       |              |        |             |    |              |        | 194 |     |   |         |  |   |   |        | 219   |      
|                                                                                   | Other current assets                                               |                           |        | 123        |       |              |        | 2            |    |              |        | 396 |     |   |         |  |   |   |        | 521   |      
|                                                                                   |                                                                    |                           |        |            |       |              |        |              |    |              |        |     |     |   |         |   |   |   |        |      
|                                                                                   |                                                                    | Total current assets      |        |            | 159   |              |        |              | 2  |              |        |     | 736 |   |         |   |  |   |        |       | 897   | 
|Intercompany                                                                       |                                                                    |                           | (4,676 | )          |       |              | (4,244 | )            |    |              | 8,920  |     |     |   |        |   |   |   |       |      
|Investments in consolidated subsidiaries                                           |                                                                    |                           | 10,797 |            |       |              | 9,066  |              |    |              |       |     |     |   | (19,863 | ) |   |   |       |      
|Plant, property and equipment, net                                                 |                                                                    |                           | 387    |            |       |              |       |              |    |              | 7,448  |     |     |   |        |   |   |   | 7,835  |      
|Goodwill and intangible assets, net                                                |                                                                    |                           | 2,002  |            |       |              | 1      |              |    |              | 822    |     |     |   |        |   |   |   | 2,825  |      
|Other assets                                                                       |                                                                    |                           | 151    |            |       |              | 49     |              |    |              | 704    |     |     |   |        |   |   |   | 904    |      
|                                                                                   |                                                                    |                           |        |            |       |              |        |              |    |              |        |     |     |   |         |   |   |   |        |      
|                                                                                   |                                                                    | $                         | 8,820  |            |       | $            | 4,874  |              |    | $            | 18,630 |     |     | $ | (19,863 | ) |   | $ | 12,461 |      
|                                                                                   |                                                                    |                           |        |            |       |              |        |              |    |              |        |     |     |   |         |   |   |   |        |      
|Liabilities and stockholders
    equity                                           |                                                                    |                           |        |            |       |              |        |              |    |              |        |     |     |   |         |   |   |   |        |      
|Current liabilities:                                                               |                                                                    |                           |        |            |       |              |        |              |    |              |        |     |     |   |         |   |   |   |        |      
|                                                                                   | Short-term borrowings and current maturities of
    long-term debt |                           | $      | 200        |       |              | $      |             |    |              | $      | 110 |     |   | $       |  |   |   | $      | 310   |      
|                                                                                   | Other current liabilities                                          |                           |        | 1,008      |       |              |        | 50           |    |              |        | 197 |     |   |         |  |   |   |        | 1,255 |      
|                                                                                   |                                                                    |                           |        |            |       |              |        |              |    |              |        |     |     |   |         |   |   |   |        |      
|                                                                                   |                                                                    | Total current liabilities |        |            | 1,208 |              |        |              | 50 |              |        |     | 307 |   |         |   |  |   |        |       | 1,565 | 
|Long-term debt                                                                     |                                                                    |                           | 2,651  |            |       |              | 1,297  |              |    |              | 1,301  |     |     |   |        |   |   |   | 5,249  |      
|Deferred income taxes                                                              |                                                                    |                           | 1,155  |            |       |              |       |              |    |              | 159    |     |     |   |        |   |   |   | 1,314  |      
|Other liabilities                                                                  |                                                                    |                           | 51     |            |       |              | 150    |              |    |              | 293    |     |     |   |        |   |   |   | 494    |      
|                                                                                   |                                                                    |                           |        |            |       |              |        |              |    |              |        |     |     |   |         |   |   |   |        |      
|                                                                                   |                                                                    |                           | 5,065  |            |       |              | 1,497  |              |    |              | 2,060  |     |     |   |        |   |   |   | 8,622  |      
|Minority interest                                                                  |                                                                    |                           | 5      |            |       |              |        |              |    |              | 36     |     |     |   |         |   |   |   | 41     |      
|Exchangeable units and Class B preferred
    shares, at redemption value of $38.50 |                                                                    |                           | 4      |            |       |              |       |              |    |              | 48     |     |     |   |        |   |   |   | 52     |      
|Commitments and contingencies                                                      |                                                                    |                           |        |            |       |              |        |              |    |              |        |     |     |   |         |   |   |   |        |      
|Total stockholders equity                                                         |                                                                    |                           | 3,746  |            |       |              | 3,377  |              |    |              | 16,486 |     |     |   | (19,863 | ) |   |   | 3,746  |      
|                                                                                   |                                                                    |                           |        |            |       |              |        |              |    |              |        |     |     |   |         |   |   |   |        |      
|                                                                                   |                                                                    | $                         | 8,820  |            |       | $            | 4,874  |              |    | $            | 18,630 |     |     | $ | (19,863 | ) |   | $ | 12,461 |      
|                                                                                   |                                                                    |                           |        |            |       |              |        |              |    |              |        |     |     |   |         |   |   |   |        |      

F-48



---



##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|--------------------------------------------------------- |  | ---------------------------- | ----- | ---------- |  | ------------ | ---- | ------------ |  | ------------ | ----- | - |  | - | ------ | - |  | - | ----- | -
|                                                          |  |                             
|                                                          |  | Statement of Income         
|                                                          |  | Year Ended December 31, 2002
|                                                          |  | (In millions)               
|                                                          |  |                             
|                                                          |  |                              |       | Non-       |  |             
|                                                          |  |                              |       | Guarantor  |  | Guarantor    |      |             
|                                                          |  | Parent                       |       | Subsidiary |  | Subsidiaries |      | Eliminations |  | Consolidated
|                                                          |  |                              |       |            |  |              |      |              |  |             
|Revenues                                                  |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|Owned, leased and consolidated joint venture
    hotels   |  | $                            | 1,187 |            |  | $            |     |              |  | $            | 2,045 |   |  | $ |       |   |  | $ | 3,232 |  
|Other hotel and leisure                                   |  |                              | 61    |            |  |              | 1    |              |  |              | 943   |   |  |   | (358   | ) |  |   | 647   |  
|Equity earnings in consolidated subsidiaries              |  |                              | 516   |            |  |              | 198  |              |  |              |      |   |  |   | (714   | ) |  |   |      |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|                                                          |  |                              | 1,764 |            |  |              | 199  |              |  |              | 2,988 |   |  |   | (1,072 | ) |  |   | 3,879 |  
|Other revenues from managed and franchised
    properties |  |                              | 703   |            |  |              |     |              |  |              | 77    |   |  |   |       |   |  |   | 780   |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|                                                          |  |                              | 2,467 |            |  |              | 199  |              |  |              | 3,065 |   |  |   | (1,072 | ) |  |   | 4,659 |  
|Costs and Expenses                                        |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|Owned, leased and consolidated joint venture hotel        |  |                              | 1,221 |            |  |              |     |              |  |              | 1,499 |   |  |   | (343   | ) |  |   | 2,377 |  
|Selling, general and administrative and other             |  |                              | 195   |            |  |              | (3   | )            |  |              | 249   |   |  |   | (15    | ) |  |   | 426   |  
|Restructuring and other special credits, net              |  |                              | (5    | )          |  |              |     |              |  |              | (2    | ) |  |   |       |   |  |   | (7    | )
|Depreciation and amortization                             |  |                              | 50    |            |  |              |     |              |  |              | 446   |   |  |   |       |   |  |   | 496   |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|                                                          |  |                              | 1,461 |            |  |              | (3   | )            |  |              | 2,192 |   |  |   | (358   | ) |  |   | 3,292 |  
|Other expenses from managed and franchised
    properties |  |                              | 703   |            |  |              |     |              |  |              | 77    |   |  |   |       |   |  |   | 780   |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|                                                          |  |                              | 2,164 |            |  |              | (3   | )            |  |              | 2,269 |   |  |   | (358   | ) |  |   | 4,072 |  
|Operating income                                          |  |                              | 303   |            |  |              | 202  |              |  |              | 796   |   |  |   | (714   | ) |  |   | 587   |  
|Interest expense, net of interest income                  |  |                              | (210  | )          |  |              | (305 | )            |  |              | 177   |   |  |   |       |   |  |   | (338  | )
|Gain (loss) on asset dispositions                         |  |                              |      |            |  |              |     |              |  |              | 3     |   |  |   |       |   |  |   | 3     |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|                                                          |  |                              | 93    |            |  |              | (103 | )            |  |              | 976   |   |  |   | (714   | ) |  |   | 252   |  
|Income tax expense                                        |  |                              | 152   |            |  |              | 136  |              |  |              | (292  | ) |  |   |       |   |  |   | (4    | )
|Minority equity in net income                             |  |                              | 1     |            |  |              |     |              |  |              | (3    | ) |  |   |       |   |  |   | (2    | )
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|Income from continuing operations                         |  |                              | 246   |            |  |              | 33   |              |  |              | 681   |   |  |   | (714   | ) |  |   | 246   |  
|Discontinued operations                                   |  |                              | 109   |            |  |              | 108  |              |  |              | 83    |   |  |   | (191   | ) |  |   | 109   |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|Net income                                                |  | $                            | 355   |            |  | $            | 141  |              |  | $            | 764   |   |  | $ | (905   | ) |  | $ | 355   |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  

F-49



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|--------------------------------------------------------- |  | ---------------------------- | ----- | ---------- |  | ------------ | ---- | ------------ |  | ------------ | ----- | - |  | - | ------ | - |  | - | ----- | -
|                                                          |  |                             
|                                                          |  | Statement of Income         
|                                                          |  | Year Ended December 31, 2001
|                                                          |  | (In millions)               
|                                                          |  |                             
|                                                          |  |                              |       | Non-       |  |             
|                                                          |  |                              |       | Guarantor  |  | Guarantor    |      |             
|                                                          |  | Parent                       |       | Subsidiary |  | Subsidiaries |      | Eliminations |  | Consolidated
|                                                          |  |                              |       |            |  |              |      |              |  |             
|Revenues                                                  |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|Owned, leased and consolidated joint venture
    hotels   |  | $                            | 1,208 |            |  | $            |     |              |  | $            | 2,135 |   |  | $ |       |   |  | $ | 3,343 |  
|Other hotel and leisure                                   |  |                              | 56    |            |  |              | 1    |              |  |              | 1,029 |   |  |   | (462   | ) |  |   | 624   |  
|Equity earnings in consolidated subsidiaries              |  |                              | 515   |            |  |              | 186  |              |  |              |      |   |  |   | (701   | ) |  |   |      |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|                                                          |  |                              | 1,779 |            |  |              | 187  |              |  |              | 3,164 |   |  |   | (1,163 | ) |  |   | 3,967 |  
|Other revenues from managed and franchised
    properties |  |                              | 677   |            |  |              |     |              |  |              | 63    |   |  |   |       |   |  |   | 740   |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|                                                          |  |                              | 2,456 |            |  |              | 187  |              |  |              | 3,227 |   |  |   | (1,163 | ) |  |   | 4,707 |  
|Costs and Expenses                                        |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|Owned, leased and consolidated joint venture hotel        |  |                              | 1,250 |            |  |              |     |              |  |              | 1,577 |   |  |   | (462   | ) |  |   | 2,365 |  
|Selling, general and administrative and other             |  |                              | 130   |            |  |              | (16  | )            |  |              | 297   |   |  |   |       |   |  |   | 411   |  
|Restructuring and other special credits, net              |  |                              | 43    |            |  |              |     |              |  |              | 7     |   |  |   |       |   |  |   | 50    |  
|Depreciation and amortization                             |  |                              | 73    |            |  |              |     |              |  |              | 453   |   |  |   |       |   |  |   | 526   |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|                                                          |  |                              | 1,496 |            |  |              | (16  | )            |  |              | 2,334 |   |  |   | (462   | ) |  |   | 3,352 |  
|Other expenses from managed and franchised
    properties |  |                              | 677   |            |  |              |     |              |  |              | 63    |   |  |   |       |   |  |   | 740   |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|                                                          |  |                              | 2,173 |            |  |              | (16  | )            |  |              | 2,397 |   |  |   | (462   | ) |  |   | 4,092 |  
|Operating income                                          |  |                              | 283   |            |  |              | 203  |              |  |              | 830   |   |  |   | (701   | ) |  |   | 615   |  
|Interest expense, net of interest income                  |  |                              | (296  | )          |  |              | (271 | )            |  |              | 200   |   |  |   |       |   |  |   | (367  | )
|Gain (loss) on asset dispositions                         |  |                              | (13   | )          |  |              |     |              |  |              | (44   | ) |  |   |       |   |  |   | (57   | )
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|                                                          |  |                              | (26   | )          |  |              | (68  | )            |  |              | 986   |   |  |   | (701   | ) |  |   | 191   |  
|Income tax expense                                        |  |                              | 172   |            |  |              | 89   |              |  |              | (304  | ) |  |   |       |   |  |   | (43   | )
|Minority equity in net income                             |  |                              | (1    | )          |  |              |     |              |  |              | (2    | ) |  |   |       |   |  |   | (3    | )
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|Net income                                                |  | $                            | 145   |            |  | $            | 21   |              |  | $            | 680   |   |  | $ | (701   | ) |  | $ | 145   |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  

F-50



---



##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|--------------------------------------------------------- |  | ---------------------------- | ----- | ---------- |  | ------------ | ---- | ------------ |  | ------------ | ----- | - |  | - | ------ | - |  | - | ----- | -
|                                                          |  |                             
|                                                          |  | Statement of Income         
|                                                          |  | Year Ended December 31, 2000
|                                                          |  | (In millions)               
|                                                          |  |                             
|                                                          |  |                              |       | Non-       |  |             
|                                                          |  |                              |       | Guarantor  |  | Guarantor    |      |             
|                                                          |  | Parent                       |       | Subsidiary |  | Subsidiaries |      | Eliminations |  | Consolidated
|                                                          |  |                              |       |            |  |              |      |              |  |             
|Revenues                                                  |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|Owned, leased and consolidated joint venture
    hotels   |  | $                            | 1,412 |            |  | $            |     |              |  | $            | 2,247 |   |  | $ |       |   |  | $ | 3,659 |  
|Other hotel and leisure                                   |  |                              | 41    |            |  |              |     |              |  |              | 1,248 |   |  |   | (603   | ) |  |   | 686   |  
|Equity earning in consolidated subsidiaries               |  |                              | 728   |            |  |              | 256  |              |  |              |      |   |  |   | (984   | ) |  |   |      |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|                                                          |  |                              | 2,181 |            |  |              | 256  |              |  |              | 3,495 |   |  |   | (1,587 | ) |  |   | 4,345 |  
|Other revenues from managed and franchised
    properties |  |                              | 633   |            |  |              |     |              |  |              | 62    |   |  |   |       |   |  |   | 695   |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|                                                          |  |                              | 2,814 |            |  |              | 256  |              |  |              | 3,557 |   |  |   | (1,587 | ) |  |   | 5,040 |  
|Costs and Expenses                                        |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|Owned, leased and consolidated joint venture
    hotels   |  |                              | 1,374 |            |  |              |     |              |  |              | 1,662 |   |  |   | (603   | ) |  |   | 2,433 |  
|Selling, general and administrative and other             |  |                              | 133   |            |  |              | 1    |              |  |              | 269   |   |  |   |       |   |  |   | 403   |  
|Depreciation and amortization                             |  |                              | 77    |            |  |              |     |              |  |              | 404   |   |  |   |       |   |  |   | 481   |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|                                                          |  |                              | 1,584 |            |  |              | 1    |              |  |              | 2,335 |   |  |   | (603   | ) |  |   | 3,317 |  
|Other expenses from managed and franchised
    properties |  |                              | 633   |            |  |              |     |              |  |              | 62    |   |  |   |       |   |  |   | 695   |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|                                                          |  |                              | 2,217 |            |  |              | 1    |              |  |              | 2,397 |   |  |   | (603   | ) |  |   | 4,012 |  
|Operating income                                          |  |                              | 597   |            |  |              | 255  |              |  |              | 1,160 |   |  |   | (984   | ) |  |   | 1,028 |  
|Interest expense, net of interest income                  |  |                              | (343  | )          |  |              | (315 | )            |  |              | 235   |   |  |   |       |   |  |   | (423  | )
|Gain (loss) on asset dispositions                         |  |                              | (3    | )          |  |              |     |              |  |              | 5     |   |  |   |       |   |  |   | 2     |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|                                                          |  |                              | 251   |            |  |              | (60  | )            |  |              | 1,400 |   |  |   | (984   | ) |  |   | 607   |  
|Income tax expense                                        |  |                              | 150   |            |  |              | 111  |              |  |              | (462  | ) |  |   |       |   |  |   | (201  | )
|Minority equity in net income                             |  |                              | (3    | )          |  |              |     |              |  |              | (5    | ) |  |   |       |   |  |   | (8    | )
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|Income from continuing operations                         |  |                              | 398   |            |  |              | 51   |              |  |              | 933   |   |  |   | (984   | ) |  |   | 398   |  
|Discontinued operations                                   |  |                              | 5     |            |  |              | 5    |              |  |              | 5     |   |  |   | (10    | ) |  |   | 5     |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  
|Net income                                                |  | $                            | 403   |            |  | $            | 56   |              |  | $            | 938   |   |  | $ | (994   | ) |  | $ | 403   |  
|                                                          |  |                              |       |            |  |              |      |              |  |              |       |   |  |   |        |   |  |   |       |  

F-51



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                             |                                                              |                              |        |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |        |      |  
|------------------------------------------------------------ | ------------------------------------------------------------ | ---------------------------- | ------ | ---------- | - | ------------- | --- | ------------ | - | ------------ | ---- | ---- | - | - | ---- | --- |  | - | ------ | ---- | -
|                                                             |                                                              |                             
|                                                             |                                                              | Statement of Cash Flows     
|                                                             |                                                              | Year Ended December 31, 2002
|                                                             |                                                              | (In millions)               
|                                                             |                                                              |                             
|                                                             |                                                              |                              |        | Guarantor  |   | Non-Guarantor |     |             
|                                                             |                                                              | Parent                       |        | Subsidiary |   | Subsidiaries  |     | Eliminations |   | Consolidated
|                                                             |                                                              |                              |        |            |   |               |     |              |   |             
|Operating Activities                                         |                                                              |                              |        |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |        |     
|Net income                                                   |                                                              | $                            | 355    |            |   | $             | 141 |              |   | $            | 764  |      |   | $ | (905 | )   |  | $ | 355    |     
|                                                             | Adjustments to net income and changes in working
    capital |                              |        | 82         |   |               |     | (157         | ) |              |      | (482 | ) |   |      | 905 |  |   |        | 348  |  
|                                                             | Cash from discontinued operations                            |                              |        | 3          |   |               |     |             |   |              |      |     |   |   |      |    |  |   |        | 3    |  
|                                                             |                                                              |                              |        |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |        |     
|                                                             | Cash from (used for) operating activities                    |                              |        | 440        |   |               |     | (16          | ) |              |      | 282  |   |   |      |    |  |   |        | 706  |  
|Investing Activities                                         |                                                              |                              |        |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |        |     
|Purchases of plant, property and equipment                   |                                                              |                              | (38    | )          |   |               |    |              |   |              | (262 | )    |   |   |     |     |  |   | (300   | )   
|Acquisitions and investments                                 |                                                              |                              | (3     | )          |   |               | (4  | )            |   |              | (41  | )    |   |   |     |     |  |   | (48    | )   
|Other, net                                                   |                                                              |                              | 10     |            |   |               |    |              |   |              | 52   |      |   |   |     |     |  |   | 62     |     
|                                                             |                                                              |                              |        |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |        |     
|                                                             | Cash from (used for) investing activities                    |                              |        | (31        | ) |               |     | (4           | ) |              |      | (251 | ) |   |      |    |  |   |        | (286 | )
|Financing Activities                                         |                                                              |                              |        |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |        |     
|Revolving credit facility and short-term
    borrowings, net |                                                              |                              | (333   | )          |   |               |    |              |   |              | (67  | )    |   |   |     |     |  |   | (400   | )   
|Long-term debt issued                                        |                                                              |                              | 1,800  |            |   |               |    |              |   |              | 164  |      |   |   |     |     |  |   | 1,964  |     
|Long-term debt repaid                                        |                                                              |                              | (1,926 | )          |   |               |    |              |   |              | (91  | )    |   |   |     |     |  |   | (2,017 | )   
|Distributions paid                                           |                                                              |                              |       |            |   |               |    |              |   |              | (40  | )    |   |   |     |     |  |   | (40    | )   
|Other, net                                                   |                                                              |                              | 46     |            |   |               | 21  |              |   |              | (1   | )    |   |   |     |     |  |   | 66     |     
|                                                             |                                                              |                              |        |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |        |     
|                                                             | Cash from (used for) financing activities                    |                              |        | (413       | ) |               |     | 21           |   |              |      | (35  | ) |   |      |    |  |   |        | (427 | )
|Exchange rate effect on cash and cash equivalents            |                                                              |                              |       |            |   |               |    |              |   |              | 8    |      |   |   |     |     |  |   | 8      |     
|                                                             |                                                              |                              |        |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |        |     
|Increase (decrease) in cash and cash equivalents             |                                                              |                              | (4     | )          |   |               | 1   |              |   |              | 4    |      |   |   |     |     |  |   | 1      |     
|Cash and cash equivalents  beginning
    of period          |                                                              |                              | 7      |            |   |               |    |              |   |              | 100  |      |   |   |     |     |  |   | 107    |     
|                                                             |                                                              |                              |        |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |        |     
|Cash and cash equivalents-end of period                      |                                                              | $                            | 3      |            |   | $             | 1   |              |   | $            | 104  |      |   | $ |     |     |  | $ | 108    |     
|                                                             |                                                              |                              |        |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |        |     

F-52



---



##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                        |                                                              |                              |      |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |       |      |  
|------------------------------------------------------- | ------------------------------------------------------------ | ---------------------------- | ---- | ---------- | - | ------------- | --- | ------------ | - | ------------ | ---- | ---- | - | - | ---- | --- |  | - | ----- | ---- | -
|                                                        |                                                              |                             
|                                                        |                                                              | Statement of Cash Flows     
|                                                        |                                                              | Year Ended December 31, 2001
|                                                        |                                                              | (In millions)               
|                                                        |                                                              |                             
|                                                        |                                                              |                              |      | Guarantor  |   | Non-Guarantor |     |             
|                                                        |                                                              | Parent                       |      | Subsidiary |   | Subsidiaries  |     | Eliminations |   | Consolidated
|                                                        |                                                              |                              |      |            |   |               |     |              |   |             
|Operating Activities                                    |                                                              |                              |      |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |       |     
|Net income                                              |                                                              | $                            | 145  |            |   | $             | 21  |              |   | $            | 680  |      |   | $ | (701 | )   |  | $ | 145   |     
|                                                        | Adjustments to net income and changes in working
    capital |                              |      | (109       | ) |               |     | (17          | ) |              |      | 35   |   |   |      | 701 |  |   |       | 610  |  
|                                                        |                                                              |                              |      |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |       |     
|                                                        | Cash from (used for) operating activities                    |                              |      | 36         |   |               |     | 4            |   |              |      | 715  |   |   |      |    |  |   |       | 755  |  
|Investing Activities                                    |                                                              |                              |      |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |       |     
|Purchases of plant, property and equipment              |                                                              |                              | (84  | )          |   |               |    |              |   |              | (393 | )    |   |   |     |     |  |   | (477  | )   
|Acquisitions and investments                            |                                                              |                              | (6   | )          |   |               | (15 | )            |   |              | (107 | )    |   |   |     |     |  |   | (128  | )   
|Other, net                                              |                                                              |                              | 1    |            |   |               | 11  |              |   |              | (28  | )    |   |   |     |     |  |   | (16   | )   
|                                                        |                                                              |                              |      |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |       |     
|                                                        | Cash from (used for) investing activities                    |                              |      | (89        | ) |               |     | (4           | ) |              |      | (528 | ) |   |      |    |  |   |       | (621 | )
|Financing Activities                                    |                                                              |                              |      |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |       |     
|Revolving credit facility and short-term
    borrowings |                                                              |                              | 1    |            |   |               |    |              |   |              | (245 | )    |   |   |     |     |  |   | (244  | )   
|Long-term debt issued                                   |                                                              |                              | 750  |            |   |               |    |              |   |              | 298  |      |   |   |     |     |  |   | 1,048 |     
|Long-term debt repaid                                   |                                                              |                              | (633 | )          |   |               |    |              |   |              | (110 | )    |   |   |     |     |  |   | (743  | )   
|Distributions paid                                      |                                                              |                              |     |            |   |               |    |              |   |              | (156 | )    |   |   |     |     |  |   | (156  | )   
|Other, net                                              |                                                              |                              | (62  | )          |   |               |    |              |   |              | (5   | )    |   |   |     |     |  |   | (67   | )   
|                                                        |                                                              |                              |      |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |       |     
|                                                        | Cash from (used for) financing activities                    |                              |      | 56         |   |               |     |             |   |              |      | (218 | ) |   |      |    |  |   |       | (162 | )
|Exchange rate effect on cash and cash equivalents       |                                                              |                              |     |            |   |               |    |              |   |              | (3   | )    |   |   |     |     |  |   | (3    | )   
|                                                        |                                                              |                              |      |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |       |     
|Increase (decrease) in cash and cash equivalents        |                                                              |                              | 3    |            |   |               |    |              |   |              | (34  | )    |   |   |     |     |  |   | (31   | )   
|Cash and cash equivalents  beginning
    of period     |                                                              |                              | 4    |            |   |               |    |              |   |              | 134  |      |   |   |     |     |  |   | 138   |     
|                                                        |                                                              |                              |      |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |       |     
|Cash and cash equivalents  end of
    period           |                                                              | $                            | 7    |            |   | $             |    |              |   | $            | 100  |      |   | $ |     |     |  | $ | 107   |     
|                                                        |                                                              |                              |      |            |   |               |     |              |   |              |      |      |   |   |      |     |  |   |       |     

F-53



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)

|                                                             |                                                              |                              |     |            |   |               |      |              |   |              |      |      |   |   |      |     |  |   |        |      |  
|------------------------------------------------------------ | ------------------------------------------------------------ | ---------------------------- | --- | ---------- | - | ------------- | ---- | ------------ | - | ------------ | ---- | ---- | - | - | ---- | --- |  | - | ------ | ---- | -
|                                                             |                                                              |                             
|                                                             |                                                              | Statement of Cash Flows     
|                                                             |                                                              | Year Ended December 31, 2000
|                                                             |                                                              | (In millions)               
|                                                             |                                                              |                             
|                                                             |                                                              |                              |     | Guarantor  |   | Non-Guarantor |      |             
|                                                             |                                                              | Parent                       |     | Subsidiary |   | Subsidiaries  |      | Eliminations |   | Consolidated
|                                                             |                                                              |                              |     |            |   |               |      |              |   |             
|Operating Activities                                         |                                                              |                              |     |            |   |               |      |              |   |              |      |      |   |   |      |     |  |   |        |     
|Net income                                                   |                                                              | $                            | 403 |            |   | $             | 56   |              |   | $            | 938  |      |   | $ | (994 | )   |  | $ | 403    |     
|                                                             | Adjustments to net income and changes in working
    capital |                              |     | (676       | ) |               |      | 644          |   |              |      | (554 | ) |   |      | 994 |  |   |        | 408  |  
|                                                             | Cash from discontinued operations                            |                              |     |           |   |               |      |             |   |              |      | 3    |   |   |      |    |  |   |        | 3    |  
|                                                             |                                                              |                              |     |            |   |               |      |              |   |              |      |      |   |   |      |     |  |   |        |     
|                                                             | Cash from (used for) operating activities                    |                              |     | (273       | ) |               |      | 700          |   |              |      | 387  |   |   |      |    |  |   |        | 814  |  
|Investing Activities                                         |                                                              |                              |     |            |   |               |      |              |   |              |      |      |   |   |      |     |  |   |        |     
|Purchases of plant, property and equipment                   |                                                              |                              | (62 | )          |   |               |     |              |   |              | (482 | )    |   |   |     |     |  |   | (544   | )   
|Acquisitions and investments                                 |                                                              |                              | (12 | )          |   |               |     |              |   |              | (317 | )    |   |   |     |     |  |   | (329   | )   
|Other, net                                                   |                                                              |                              | (4  | )          |   |               |     |              |   |              | 218  |      |   |   |     |     |  |   | 214    |     
|                                                             |                                                              |                              |     |            |   |               |      |              |   |              |      |      |   |   |      |     |  |   |        |     
|                                                             | Cash from (used for) investing activities                    |                              |     | (78        | ) |               |      |             |   |              |      | (581 | ) |   |      |    |  |   |        | (659 | )
|Financing Activities                                         |                                                              |                              |     |            |   |               |      |              |   |              |      |      |   |   |      |     |  |   |        |     
|Revolving credit facility and short-term
    borrowings, net |                                                              |                              | 285 |            |   |               |     |              |   |              | 262  |      |   |   |     |     |  |   | 547    |     
|Long-term debt issued                                        |                                                              |                              | 187 |            |   |               |     |              |   |              | 44   |      |   |   |     |     |  |   | 231    |     
|Long-term debt repaid                                        |                                                              |                              | (86 | )          |   |               | (700 | )            |   |              | (229 | )    |   |   |     |     |  |   | (1,015 | )   
|Distributions paid                                           |                                                              |                              |    |            |   |               |     |              |   |              | (134 | )    |   |   |     |     |  |   | (134   | )   
|Other, net                                                   |                                                              |                              | (39 | )          |   |               |     |              |   |              | (7   | )    |   |   |     |     |  |   | (46    | )   
|                                                             |                                                              |                              |     |            |   |               |      |              |   |              |      |      |   |   |      |     |  |   |        |     
|                                                             | Cash from (used for) financing activities                    |                              |     | 347        |   |               |      | (700         | ) |              |      | (64  | ) |   |      |    |  |   |        | (417 | )
|Exchange rate effect on cash and cash equivalents            |                                                              |                              |    |            |   |               |     |              |   |              | (23  | )    |   |   |     |     |  |   | (23    | )   
|                                                             |                                                              |                              |     |            |   |               |      |              |   |              |      |      |   |   |      |     |  |   |        |     
|Decrease in cash and cash equivalents                        |                                                              |                              | (4  | )          |   |               |     |              |   |              | (281 | )    |   |   |     |     |  |   | (285   | )   
|Cash and cash equivalents  beginning
    of period          |                                                              |                              | 8   |            |   |               |     |              |   |              | 415  |      |   |   |     |     |  |   | 423    |     
|                                                             |                                                              |                              |     |            |   |               |      |              |   |              |      |      |   |   |      |     |  |   |        |     
|Cash and cash equivalents  end of
    period                |                                                              | $                            | 4   |            |   | $             |     |              |   | $            | 134  |      |   | $ |     |     |  | $ | 138    |     
|                                                             |                                                              |                              |     |            |   |               |      |              |   |              |      |      |   |   |      |     |  |   |        |     

F-54



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##### Table of Contents



STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.


AND STARWOOD HOTELS & RESORTS


NOTES TO FINANCIAL
STATEMENTS  (Continued)



|         |                              
|-------- | -----------------------------
|Note 22. | Quarterly Results (Unaudited)

|                                         |                                          |                                      |       |         |  |              |       |             |  |      |     |      |  |   |     |       |   |   |       |      | 
|---------------------------------------- | ---------------------------------------- | ------------------------------------ | ----- | ------- |  | ------------ | ----- | ----------- |  | ---- | --- | ---- |  | - | --- | ----- | - | - | ----- | ---- | 
|                                         |                                          |                                      |       |        
|                                         |                                          | Three Months Ended                   |       |        
|                                         |                                          |                                      |       |        
|                                         |                                          | March 31                             |       | June 30 |  | September 30 |       | December 31 |  | Year
|                                         |                                          |                                      |       |         |  |              |       |             |  |     
|                                         |                                          |                                     
|                                         |                                          | (In millions, except per Share data)
|2002                                     |                                          |                                      |       |         |  |              |       |             |  |      |     |      |  |   |     |       |   |   |       |     
|Revenues(a)                              |                                          | $                                    | 894   |         |  | $            | 1,032 |             |  | $    | 970 |      |  | $ | 983 |       |   | $ | 3,879 |     
|Costs and expenses(a)                    |                                          | $                                    | 767   |         |  | $            | 833   |             |  | $    | 840 |      |  | $ | 852 |       |   | $ | 3,292 |     
|Income from continuing operations        |                                          | $                                    | 32    |         |  | $            | 76    |             |  | $    | 52  |      |  | $ | 86  |       |   | $ | 246   |     
|Discontinued operations                  |                                          | $                                    |      |         |  | $            | 104   |             |  | $    |    |      |  | $ | 5   |       |   | $ | 109   |     
|Net income                               |                                          | $                                    | 32    |         |  | $            | 180   |             |  | $    | 52  |      |  | $ | 91  |       |   | $ | 355   |     
|Earnings per Share:                      |                                          |                                      |       |         |  |              |       |             |  |      |     |      |  |   |     |       |   |   |       |     
|Basic                                   |                                          |                                      |       |         |  |              |       |             |  |      |     |      |  |   |     |       |   |   |       |     
|                                         | Income from continuing operations        |                                      | $     | 0.16    |  |              | $     | 0.38        |  |      | $   | 0.26 |  |   | $   | 0.42  |   |   | $     | 1.22 | 
|                                         | Discontinued operations                  |                                      | $     |        |  |              | $     | 0.51        |  |      | $   |     |  |   | $   | 0.03  |   |   | $     | 0.54 | 
|                                         | Net income                               |                                      | $     | 0.16    |  |              | $     | 0.89        |  |      | $   | 0.26 |  |   | $   | 0.45  |   |   | $     | 1.76 | 
|Diluted                                 |                                          |                                      |       |         |  |              |       |             |  |      |     |      |  |   |     |       |   |   |       |     
|                                         | Income from continuing operations        |                                      | $     | 0.16    |  |              | $     | 0.37        |  |      | $   | 0.26 |  |   | $   | 0.42  |   |   | $     | 1.20 | 
|                                         | Discontinued operations                  |                                      | $     |        |  |              | $     | 0.50        |  |      | $   |     |  |   | $   | 0.03  |   |   | $     | 0.53 | 
|                                         | Net income                               |                                      | $     | 0.16    |  |              | $     | 0.87        |  |      | $   | 0.26 |  |   | $   | 0.45  |   |   | $     | 1.73 | 
|2001                                     |                                          |                                      |       |         |  |              |       |             |  |      |     |      |  |   |     |       |   |   |       |     
|Revenues(a)                              |                                          | $                                    | 1,014 |         |  | $            | 1,110 |             |  | $    | 965 |      |  | $ | 878 |       |   | $ | 3,967 |     
|Costs and expenses(a)                    |                                          | $                                    | 821   |         |  | $            | 856   |             |  | $    | 830 |      |  | $ | 845 |       |   | $ | 3,352 |     
|Income (loss) from continuing operations |                                          | $                                    | 62    |         |  | $            | 107   |             |  | $    | 30  |      |  | $ | (54 | )     |   | $ | 145   |     
|Discontinued operations                  |                                          | $                                    |      |         |  | $            |      |             |  | $    |    |      |  | $ |    |       |   | $ |      |     
|Net income (loss)                        |                                          | $                                    | 62    |         |  | $            | 107   |             |  | $    | 30  |      |  | $ | (54 | )     |   | $ | 145   |     
|Earnings per Share:                      |                                          |                                      |       |         |  |              |       |             |  |      |     |      |  |   |     |       |   |   |       |     
|Basic                                   |                                          |                                      |       |         |  |              |       |             |  |      |     |      |  |   |     |       |   |   |       |     
|                                         | Income (loss) from continuing operations |                                      | $     | 0.31    |  |              | $     | 0.53        |  |      | $   | 0.15 |  |   | $   | (0.28 | ) |   | $     | 0.72 | 
|                                         | Discontinued operations                  |                                      | $     |        |  |              | $     |            |  |      | $   |     |  |   | $   |      |   |   | $     |     | 
|                                         | Net income (loss)                        |                                      | $     | 0.31    |  |              | $     | 0.53        |  |      | $   | 0.15 |  |   | $   | (0.28 | ) |   | $     | 0.72 | 
|Diluted                                 |                                          |                                      |       |         |  |              |       |             |  |      |     |      |  |   |     |       |   |   |       |     
|                                         | Income (loss) from continuing operations |                                      | $     | 0.30    |  |              | $     | 0.52        |  |      | $   | 0.14 |  |   | $   | (0.28 | ) |   | $     | 0.70 | 
|                                         | Discontinued operations                  |                                      | $     |        |  |              | $     |            |  |      | $   |     |  |   | $   |      |   |   | $     |     | 
|                                         | Net income (loss)                        |                                      | $     | 0.30    |  |              | $     | 0.52        |  |      | $   | 0.14 |  |   | $   | (0.28 | ) |   | $     | 0.70 | 



---



|    |                                                                                  
|--- | ---------------------------------------------------------------------------------
|(a) | Excluding other revenues and expenses from
    managed and franchised properties.

F-55



---



##### Table of Contents






SCHEDULE II

STARWOOD HOTELS & RESORTS WORLDWIDE,
INC.

AND STARWOOD HOTELS & RESORTS


VALUATION AND QUALIFYING ACCOUNTS


(In millions)


|                                                        |                                         |            |    |                        |  |               |    |           |   |              |    |     |   |   |     |     |   |   |    |     | 
|------------------------------------------------------- | --------------------------------------- | ---------- | -- | ---------------------- |  | ------------- | -- | --------- | - | ------------ | -- | --- | - | - | --- | --- | - | - | -- | --- | 
|                                                        |                                         |            |    |                        |  |              
|                                                        |                                         |            |    | Additions (Deductions) |  |              
|                                                        |                                         |            |    |                        |  |              
|                                                        |                                         |            |    | Charged                |  |               |    |          
|                                                        |                                         |            |    | to/reversed            |  | Charged       |    |           |   |             
|                                                        |                                         | Balance    |    | from                   |  | to/from Other |    | Payments/ |   | Balance     
|                                                        |                                         | January 1, |    | Expenses               |  | Accounts(a)   |    | Other     |   | December 31,
|                                                        |                                         |            |    |                        |  |               |    |           |   |             
|2002                                                    |                                         |            |    |                        |  |               |    |           |   |              |    |     |   |   |     |     |   |   |    |    
|Trade receivables  allowance for
    doubtful accounts |                                         | $          | 48 |                        |  | $             | 11 |           |   | $            | (8 | )   |   | $ | (6  | )   |   | $ | 45 |    
|Notes receivable  allowance for
    doubtful accounts  |                                         | $          | 41 |                        |  | $             | 16 |           |   | $            | 10 |     |   | $ | (21 | )   |   | $ | 46 |    
|Reserves included in accrued and other
    liabilities: |                                         |            |    |                        |  |               |    |           |   |              |    |     |   |   |     |     |   |   |    |    
|                                                        | Restructuring and other special charges |            | $  | 98                     |  |               | $  | (7        | ) |              | $  | 6   |   |   | $   | (11 | ) |   | $  | 86  | 
|2001                                                    |                                         |            |    |                        |  |               |    |           |   |              |    |     |   |   |     |     |   |   |    |    
|Trade receivables  allowance for
    doubtful accounts |                                         | $          | 45 |                        |  | $             | 3  |           |   | $            |   |     |   | $ |    |     |   | $ | 48 |    
|Notes receivable  allowance for
    doubtful accounts  |                                         | $          | 42 |                        |  | $             | 17 |           |   | $            |   |     |   | $ | (18 | )   |   | $ | 41 |    
|Reserves included in accrued and other
    liabilities: |                                         |            |    |                        |  |               |    |           |   |              |    |     |   |   |     |     |   |   |    |    
|                                                        | Restructuring and other special charges |            | $  | 100                    |  |               | $  | 50        |   |              | $  | (19 | ) |   | $   | (33 | ) |   | $  | 98  | 
|2000                                                    |                                         |            |    |                        |  |               |    |           |   |              |    |     |   |   |     |     |   |   |    |    
|Trade receivables  allowance for
    doubtful accounts |                                         | $          | 62 |                        |  | $             | 2  |           |   | $            | (8 | )   |   | $ | (11 | )   |   | $ | 45 |    
|Notes receivable  allowance for
    doubtful accounts  |                                         | $          | 43 |                        |  | $             | 17 |           |   | $            | 6  |     |   | $ | (24 | )   |   | $ | 42 |    
|Reserves included in accrued and other
    liabilities: |                                         |            |    |                        |  |               |    |           |   |              |    |     |   |   |     |     |   |   |    |    
|                                                        | Restructuring and other special charges |            | $  | 121                    |  |               | $  |          |   |              | $  | (13 | ) |   | $   | (8  | ) |   | $  | 100 | 



---



|    |                                
|--- | -------------------------------
|(a) | Charged to/from other accounts:

|                                     |  |                   |    |                 |  |   |     |  
|------------------------------------ |  | ----------------- | -- | --------------- |  | - | --- | -
|                                     |  | Trade and Notes   |    |                
|                                     |  | Receivable       |    | Restructuring  
|                                     |  | Allowance for     |    | and Other      
|                                     |  | Doubtful Accounts |    | Special Charges
|                                     |  |                   |    |                
|2002                                 |  |                   |    |                 |  |   |     |  
|Other assets                         |  | $                 |   |                 |  | $ | 6   |  
|Other liabilities                    |  |                   | 2  |                 |  |   |    |  
|                                     |  |                   |    |                 |  |   |     |  
|Total charged to/from other accounts |  | $                 | 2  |                 |  | $ | 6   |  
|                                     |  |                   |    |                 |  |   |     |  
|2001                                 |  |                   |    |                 |  |   |     |  
|Other assets                         |  | $                 |   |                 |  | $ | (19 | )
|Other liabilities                    |  |                   |   |                 |  |   |    |  
|                                     |  |                   |    |                 |  |   |     |  
|Total charged to/from other accounts |  | $                 |   |                 |  | $ | (19 | )
|                                     |  |                   |    |                 |  |   |     |  
|2000                                 |  |                   |    |                 |  |   |     |  
|Other assets                         |  | $                 | (2 | )               |  | $ |    |  
|Other liabilities                    |  |                   |   |                 |  |   | (13 | )
|                                     |  |                   |    |                 |  |   |     |  
|Total charged to/from other accounts |  | $                 | (2 | )               |  | $ | (13 | )
|                                     |  |                   |    |                 |  |   |     |  

S-1



---



##### Table of Contents






SCHEDULE III

STARWOOD HOTELS & RESORTS

REAL ESTATE AND ACCUMULATED
DEPRECIATION


December 31, 2002


(In millions)


|                                             |  |              |  |         |  |                 |     |                     |  |                      |       |                |  |         |    |              |  |              |     |              |  |          |     |      |  |   |       |  |  |   |     |  |  |  |         |  |  |         |  |        
|-------------------------------------------- |  | ------------ |  | ------- |  | --------------- | --- | ------------------- |  | -------------------- | ----- | -------------- |  | ------- | -- | ------------ |  | ------------ | --- | ------------ |  | -------- | --- | ---- |  | - | ----- |  |  | - | --- |  |  |  | ------- |  |  | ------- |  | -------
|                                             |  |              |  |         |  |                 |     |                     |  |                      |       |                |  |         |    |              |  |              |     |              |  |         
|                                             |  |              |  |         |  |                 |     |                     |  | Gross Amount         |       |                |  |         |    |              |  |             
|                                             |  |              |  |         |  | Initial Cost to |     | Costs Subsequent to |  | Book Value           |       |                |  |         |    |              |  |             
|                                             |  |              |  |         |  | Company         |     | Acquisition         |  | at December 31, 2002 |       |                |  |         |    |              |  |             
|                                             |  |              |  |         |  |                 |     |                     |  |                      |       |                |  |         |    |              |  |             
|                                             |  |              |  |         |  |                 |     |                     |  | (a)                  |       | (a)(b)         |  |         |    |              |  |              |     |             
|                                            
|                                             |  | Accumulated  |  |        
|                                             |  | Building and |  |         |  | Building and    |     |                     |  | Building and         |       | Depreciation & |  | Year of |    | Date         |  |             
|Description                                  |  | City         |  | State   |  | Land            |     | Improvements        |  | Land                 |       | Improvements   |  | Land    |    | Improvements |  | Amortization |     | Construction |  | Acquired |     | Life
|                                             |  |              |  |         |  |                 |     |                     |  |                      |       |                |  |         |    |              |  |              |     |              |  |          |     |     
|The St. Regis, New York                      |  | New York     |  | NY      |  | $               | 65  |                     |  | $                    | 150   |                |  | $       |   |              |  | $            | 8   |              |  | $        | 65  |      |  | $ | 157   |  |  | $ | 18  |  |  |  | 1904    |  |  | 6/98    |  | 40     
|Hotel properties, each less than 5% of total |  | Various      |  | Various |  |                 | 388 |                     |  |                      | 3,272 |                |  |         | (3 | )            |  |              | 456 |              |  |          | 385 |      |  |   | 3,728 |  |  |   | 512 |  |  |  | Various |  |  | Various |  | Various
|                                             |  |              |  |         |  |                 |     |                     |  |                      |       |                |  |         |    |              |  |              |     |              |  |          |     |      |  |   |       |  |  |   |     |  |  |  |         |  |  |         |  |        
|                                             |  |              |  |         |  | $               | 453 |                     |  | $                    | 3,422 |                |  | $       | (3 | )            |  | $            | 464 |              |  | $        | 450 |      |  | $ | 3,885 |  |  | $ | 530 |  |  |  |         |  |  |         |  |        
|                                             |  |              |  |         |  |                 |     |                     |  |                      |       |                |  |         |    |              |  |              |     |              |  |          |     |      |  |   |       |  |  |   |     |  |  |  |         |  |  |         |  |        
|Land                                         |  |              |  |         |  |                 |     |                     |  |                      |       |                |  |         |    |              |  |              |     |              |  |          |     |      |  |   | 450   |  |  |   |    |  |  |  |         |  |  |         |  |        
|Furniture, fixtures and equipment            |  |              |  |         |  |                 |     |                     |  |                      |       |                |  |         |    |              |  |              |     |              |  |          |     |      |  |   | 551   |  |  |   | 362 |  |  |  |         |  |  |         |  |        
|Construction in progress                     |  |              |  |         |  |                 |     |                     |  |                      |       |                |  |         |    |              |  |              |     |              |  |          |     |      |  |   | 16    |  |  |   |    |  |  |  |         |  |  |         |  |        
|                                             |  |              |  |         |  |                 |     |                     |  |                      |       |                |  |         |    |              |  |              |     |              |  |          |     |      |  |   |       |  |  |   |     |  |  |  |         |  |  |         |  |        
|                                             |  |              |  |         |  |                 |     |                     |  |                      |       |                |  |         |    |              |  |              |     |              |  |          |     |      |  | $ | 4,902 |  |  | $ | 892 |  |  |  |         |  |  |         |  |        
|                                             |  |              |  |         |  |                 |     |                     |  |                      |       |                |  |         |    |              |  |              |     |              |  |          |     |      |  |   |       |  |  |   |     |  |  |  |         |  |  |         |  |        



---



|    |                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | As of December 31, 2002, land, building,
    furniture, fixtures and equipment and construction in progress
    have a cost basis of $393 million, $2,187 million,
    $141 million and $16 million, respectively, for
    federal income tax purposes.
|   
|(b) | Building and improvements include amounts
    allocated for leasehold interest in land.                                                                                                                                                                

S-2



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##### Table of Contents



SCHEDULE III (Continued)


STARWOOD HOTELS & RESORTS

REAL ESTATE AND ACCUMULATED
DEPRECIATION


(In millions)


A reconciliation of the Trusts investment
in real estate, furniture and fixtures and related accumulated
depreciation is as follows:

|                                           |                       |                         |       |      |   |      |       |      |   |   |       |      |  
|------------------------------------------ | --------------------- | ----------------------- | ----- | ---- | - | ---- | ----- | ---- | - | - | ----- | ---- | -
|                                           |                       |                        
|                                           |                       | Year Ended December 31,
|                                           |                       |                        
|                                           |                       | 2002                    |       | 2001 |   | 2000
|                                           |                       |                         |       |      |   |     
|Real Estate and Furniture and
    Fixtures |                       |                         |       |      |   |      |       |      |   |   |       |     
|Balance at beginning of period             |                       | $                       | 4,892 |      |   | $    | 4,749 |      |   | $ | 4,599 |     
|Additions during period:                   |                       |                         |       |      |   |      |       |      |   |   |       |     
|                                           | Acquisitions          |                         |       |     |   |      |       |     |   |   |       |     |  
|                                           | Improvements          |                         |       | 86   |   |      |       | 169  |   |   |       | 204  |  
|                                           | Other                 |                         |       |     |   |      |       |     |   |   |       | 34   |  
|Deductions during period:                  |                       |                         |       |      |   |      |       |      |   |   |       |     
|                                           | Sale of properties    |                         |       | (76  | ) |      |       | (26  | ) |   |       | (88  | )
|                                           |                       |                         |       |      |   |      |       |      |   |   |       |     
|Balance at end of period                   |                       | $                       | 4,902 |      |   | $    | 4,892 |      |   | $ | 4,749 |     
|                                           |                       |                         |       |      |   |      |       |      |   |   |       |     
|Accumulated Depreciation                   |                       |                         |       |      |   |      |       |      |   |   |       |     
|Balance at beginning of period             |                       | $                       | (691  | )    |   | $    | (489  | )    |   | $ | (306  | )   
|Additions during period:                   |                       |                         |       |      |   |      |       |      |   |   |       |     
|                                           | Depreciations expense |                         |       | (222 | ) |      |       | (206 | ) |   |       | (183 | )
|                                           | Other                 |                         |       |     |   |      |       |     |   |   |       | (5   | )
|Deductions during period:                  |                       |                         |       |      |   |      |       |      |   |   |       |     
|                                           | Sale of properties    |                         |       | 21   |   |      |       | 2    |   |   |       | 5    |  
|                                           | Other                 |                         |       |     |   |      |       | 2    |   |   |       |     |  
|                                           |                       |                         |       |      |   |      |       |      |   |   |       |     
|Balance at end of period                   |                       | $                       | (892  | )    |   | $    | (691  | )    |   | $ | (489  | )   
|                                           |                       |                         |       |      |   |      |       |      |   |   |       |     

S-3



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##### Table of Contents






SCHEDULE IV

STARWOOD HOTELS & RESORTS

MORTGAGE LOANS ON REAL ESTATE


December 31, 2002


(In millions)


|                            |                                                   |               |  |              |   |               |  |             |  |              |  |              |  |                       |  |    |  |   |       |       |  |   |       |       |  |   |   |   | 
|--------------------------- | ------------------------------------------------- | ------------- |  | ------------ | - | ------------- |  | ----------- |  | ------------ |  | ------------ |  | --------------------- |  | -- |  | - | ----- | ----- |  | - | ----- | ----- |  | - | - | - | 
|                            |                                                   |               |  |              |   |               |  |             |  |              |  |              |  | Principal Amount of  
|                            |                                                   |               |  |              |   |               |  |             |  | Original     |  | Carrying     |  | Loans Subject to     
|                            |                                                   |               |  | Final        |   | Periodic      |  |             |  | Face Amount  |  | Amount of    |  | Delinquent           
|Description                 |                                                   | Interest Rate |  | Maturity     |   | Payment Terms |  | Prior Liens |  | of Mortgages |  | Mortgages(a) |  | Principal or Interest
|                            |                                                   |               |  |              |   |               |  |             |  |              |  |              |  |                      
|First Mortgage:             |                                                   |               |  |              |   |               |  |             |  |              |  |              |  |                       |  |    |  |   |       |       |  |   |       |       |  |   |   |  
|                            | Ramada Inn  Tucker, GA                           |               |  | 9.00%        |   |               |  | 2002        |  |              |  | (b)          |  |                       |  | No |  |   | $     | 2     |  |   | $     | 2     |  |   | $ | 2 | 
|                            |                                                   |               |  |              |   |               |  |             |  |              |  |              |  |                       |  |    |  |   |       |       |  |   |       |       |  |   |   |  
|Intercompany Mortgage Loans |                                                   |               |  |              |   |               |  |             |  |              |  |              |  |                       |  |    |  |   |       |       |  |   |       |       |  |   |   |  
|First Mortgages:            |                                                   |               |  |              |   |               |  |             |  |              |  |              |  |                       |  |    |  |   |       |       |  |   |       |       |  |   |   |  
|                            | Westin Maui  Maui, HI                            |               |  | 10.00%       |   |               |  | 2006        |  |              |  | (c)          |  |                       |  | No |  |   | $     | 105   |  |   | $     | 142   |  |   |   |  | 
|                            | Sheraton Holding Corporation Mortgage Note        |               |  | 10.00%       |   |               |  | 2005        |  |              |  | (d)          |  |                       |  | No |  |   |       | 2,489 |  |   |       | 1,289 |  |   |   |  | 
|                            | Sheraton Holding Corporation Mortgage Note        |               |  | 8.50%        |   |               |  | 2014        |  |              |  | (e)          |  |                       |  | No |  |   |       | 210   |  |   |       | 210   |  |   |   |  | 
|                            | Starwood Hotels & Resorts Worldwide, Inc.         |               |  | 8.50%        |   |               |  | 2005        |  |              |  | (d)          |  |                       |  | No |  |   |       | 150   |  |   |       | 150   |  |   |   |  | 
|                            | Other, each less than 3% of total carrying amount |               |  | 9.00% - 9.50 | % |               |  | 2004-2006   |  |              |  | (f)          |  |                       |  | No |  |   |       | 186   |  |   |       | 162   |  |   |   |  | 
|                            |                                                   |               |  |              |   |               |  |             |  |              |  |              |  |                       |  |    |  |   |       |       |  |   |       |       |  |   |   |  
|                            |                                                   |               |  |              |   |               |  |             |  |              |  |              |  |                       |  |    |  | $ | 3,140 |       |  | $ | 1,953 |       |  | $ |  |  
|                            |                                                   |               |  |              |   |               |  |             |  |              |  |              |  |                       |  |    |  |   |       |       |  |   |       |       |  |   |   |  



---



|    |                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | As of December 31, 2002, the aggregate cost
    (before allowance for loan losses) for federal income tax
    purposes is not significantly different from that used for book
    purposes.                                                                                          
|   
|(b) | Payment of principal and interest due monthly and
    based upon an 18-year amortization schedule. Loan is currently
    in default and paying interest only based upon bankruptcy
    proceedings rulings.                                                                          
|   
|(c) | Interest only payable monthly; interest based on
    current principal balance. 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 2006.
|   
|(d) | Interest only payable monthly; principal and all
    accrued and unpaid interest are due February 2005.                                                                                                                                                                              
|   
|(e) | Interest only payable monthly; principal and all
    accrued and unpaid interest are due February 2014.                                                                                                                                                                              



|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(f) | Interest only payable monthly; principal and all
    accrued and unpaid interest are due December 2004 and October
    2006.

S-4



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##### Table of Contents



SCHEDULE IV (Continued)

STARWOOD HOTELS & RESORTS

RECONCILIATION OF MORTGAGE LOANS


(In millions)


|                               |                      |                         |       |      |   |      |       |    |   |   |       |    |  
|------------------------------ | -------------------- | ----------------------- | ----- | ---- | - | ---- | ----- | -- | - | - | ----- | -- | -
|                               |                      |                        
|                               |                      | Year Ended December 31,
|                               |                      |                        
|                               |                      | 2002                    |       | 2001 |   | 2000
|                               |                      |                         |       |      |   |     
|Balance at beginning of period |                      | $                       | 1,945 |      |   | $    | 1,935 |    |   | $ | 1,925 |   
|Additions:                     |                      |                         |       |      |   |      |       |    |   |   |       |   
|                               | Accrued interest(a)  |                         |       | 14   |   |      |       | 13 |   |   |       | 12 |  
|Deductions:                    |                      |                         |       |      |   |      |       |    |   |   |       |   
|                               | Principal repayments |                         |       | (4   | ) |      |       | (3 | ) |   |       | (2 | )
|                               |                      |                         |       |      |   |      |       |    |   |   |       |   
|Balance at end of period       |                      | $                       | 1,955 |      |   | $    | 1,945 |    |   | $ | 1,935 |   
|                               |                      |                         |       |      |   |      |       |    |   |   |       |   



---



|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Per the mortgage loan agreements, several of the
    loans do not require monthly interest payments if cash flows are
    insufficient. Thus, the Trust has accrued interest on such loans.

S-5



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##### Table of Contents



EXHIBIT INDEX

|        |   |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | - | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                       
|Number  |   | Description of Exhibit
|        |   |                       
|        | 2 | .1                     |  | Formation Agreement, dated as of
    November 11, 1994, among the Trust, the Corporation,
    Starwood Capital and the Starwood Partners (incorporated by
    reference to Exhibit 2 to the Trusts and the
    Corporations Joint Current Report on Form 8-K dated
    November 16, 1994). (The SEC file numbers of all filings
    made by the Corporation and the Trust pursuant to the Securities
    Exchange Act of 1934, as amended, and referenced herein are:
    1-7959 (the Corporation) and 1-6828 (the Trust)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 2 | .2                     |  | Form of Amendment No. 1 to Formation
    Agreement, dated as of July 1995, among the Trust, the
    Corporation and the Starwood Partners (incorporated by reference
    to Exhibit 10.23 to the Trusts and the
    Corporations Joint Registration Statement on Form S-2
    filed with the SEC on June 29, 1995 (Registration
    Nos. 33-59155 and 33-59155-01)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 2 | .3                     |  | Transaction Agreement, dated as of
    September 8, 1997, by and among the Trust, the Corporation,
    Realty Partnership, Operating Partnership, WHWE L.L.C., Woodstar
    Investor Partnership (Woodstar), Nomura Asset
    Capital Corporation, Juergen Bartels, Westin Hotels &
    Resorts Worldwide, Inc., W&S Lauderdale Corp., W&S
    Seattle Corp., Westin St. John Hotel Company, Inc., W&S
    Denver Corp., W&S Atlanta Corp. and W&S Hotel L.L.C.
    (incorporated by reference to Exhibit 2 to the Trusts
    and the Corporations Joint Current Report on Form 8-K
    dated September 9, 1997, as amended by the Form 8-K/ A
    dated December 18, 1997).                                                                                                                                                                                                                                                                                                                   
|        | 2 | .4                     |  | Amended and Restated Agreement and Plan of
    Merger, dated as of November 12, 1997, by and among the
    Corporation, the Trust, Chess Acquisition Corp.
    (Chess) and ITT Corporation (incorporated by
    reference to Exhibit 2.1 to the Trusts and the
    Corporations Joint Current Report on Form 8-K dated
    November 13, 1997).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 2 | .5                     |  | Agreement and Plan of Restructuring, dated as of
    September 16, 1998, and amended as of November 30,
    1998, among the Corporation, ST Acquisition Trust (ST
    Trust) and the Trust (incorporated by reference to
    Annex A to the Trusts and the Corporations
    Joint Proxy Statement dated December 3, 1998 (the
    1998 Proxy Statement)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 2 | .6                     |  | Form of Stock Purchase Agreement, dated as of
    February 23, 1998, between the Trust and the Corporation
    (incorporated by reference to Exhibit 10.4 to the
    Trusts and the Corporations Joint Annual Report on
    Form 10-K for the year ended December 31, 1997 (the
    1997 Form 10-K)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 3 | .1                     |  | Amended and Restated Declaration of Trust of the
    Trust, amended and restated as of January 6, 1999
    (incorporated by reference to Exhibit 1 to the Trusts
    Registration Statement on Form 8-A filed on
    December 21, 1998 (the Trust Form 8-A),
    except that the following changes were made on January 6,
    1999, upon the filing by the Trust and ST Trust of the Articles
    of Merger of ST Trust into the Trust (the Articles of
    Merger) with, and the acceptance thereof for record by,
    the State Department of Assessments and Taxation of the State of
    Maryland (the SDAT): Section 6.14 specifies
    January 6, 1999 as the date of the Intercompany Agreement;
    Section 6.19.1 specifies January 6, 1999 as the date
    of the acceptance for record by the SDAT of the Articles of
    Merger; and the definition of Intercompany Agreement
    in Section 6.19.2 specifies January 6, 1999 as the
    date of the Intercompany Agreement).
|        | 3 | .2                     |  | Charter of the Corporation, amended and restated
    as of February 1, 1995, as amended through March 26,
    1999 (incorporated by reference to Exhibit 3.2 to the
    Trusts and the Corporations Joint Annual Report on
    Form 10-K for the year ended December 31, 1998, as
    amended by the Form 10-K/ A filed May 17, 1999 (as so
    amended, the 1998 Form 10-K)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 3 | .3                     |  | Bylaws of the Trust, as amended through
    April 16, 1999 (incorporated by reference to
    Exhibit 3.3 to the Corporations and the Trusts
    Joint Quarterly Report on Form 10-Q for the quarterly
    period ended March 31, 1999 (the 1999
    Form 10-Q1)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 3 | .4                     |  | Bylaws of the Corporation, as amended through
    March 15, 1999 (incorporated by reference to Exhibit 3
    to the Corporations and the Trusts Joint Current
    Report on Form 8-K dated March 15, 1999 (the
    March 15 Form 8-K)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



---



##### Table of Contents



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | -- | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 4  | .1                     |  | Amended and Restated Intercompany Agreement,
    dated as of January 6, 1999, between the Corporation and
    the Trust (incorporated by reference to Exhibit 3 to the
    Trust Form 8-A, except that on January 6, 1999, the
    Intercompany Agreement was executed and dated as of
    January 6, 1999).                                                                                                          
|        | 4  | .2                     |  | Rights Agreement, dated as of March 15,
    1999, between the Corporation and Chase Mellon Shareholder
    Services, L.L.C., as Rights Agent (incorporated by reference to
    Exhibit 4 to the March 15 Form 8-K).                                                                                                                                                                                                   
|        | 4  | .3                     |  | Amended and Restated Indenture, dated as of
    November 15, 1995, as Amended and Restated as of
    December 15, 1995 between ITT Corporation (formerly known
    as ITT Destinations, Inc.) and the First National Bank of
    Chicago, as trustee (incorporated by reference to
    Exhibit 4.A.IV to the First Amendment to ITT
    Corporations Registration Statement on Form S-3 filed
    November 13, 1996).
|        | 4  | .4                     |  | First Indenture Supplement, dated as of
    December 31, 1998, among ITT Corporation, the Corporation
    and The Bank of New York (incorporated by reference to
    Exhibit 4.1 to the Trusts and the Corporations
    Joint Current Report on Form 8-K filed January 8,
    1999).                                                                                                                                
|        | 4  | .5                     |  | The Registrants hereby agree to file with the
    Commission a copy of any instrument, including indentures,
    defining the rights of long-term debt holders of the Registrants
    and their consolidated subsidiaries upon the request of the
    Commission.                                                                                                                                                     
|        | 10 | .1                     |  | Third Amended and Restated Limited Partnership
    Agreement for Realty Partnership, dated January 6, 1999,
    among the Trust and the limited partners of Realty Partnership
    (incorporated by reference to Exhibit 10.1 to the 1998
    Form 10-K).                                                                                                                                                             
|        | 10 | .2                     |  | Third Amended and Restated Limited Partnership
    Agreement for Operating Partnership, dated January 6, 1999,
    among the Corporation and the limited partners of Operating
    Partnership (incorporated by reference to Exhibit 10.2 to
    the 1998 Form 10-K).                                                                                                                                                 
|        | 10 | .3                     |  | Form of Amended and Restated Lease Agreement,
    entered into as of January 1, 1993, between the Trust as
    Lessor and the Corporation (or a subsidiary) as Lessee
    (incorporated by reference to Exhibit 10.19 to the
    Trusts and the Corporations Joint Annual Report on
    Form 10-K for the year ended December 31, 1992).                                                                            
|        | 10 | .4                     |  | Employment Agreement, dated May 24, 1999,
    between the Corporation and Ronald C. Brown. (incorporated
    by reference to Exhibit 10.4 to the Corporations and
    the Trusts Joint Annual Report on Form 10-K for the
    year ended December 31, 1999 (the 1999
    Form 10-K)).(1)                                                                                                                          
|        | 10 | .5                     |  | Starwood Hotels & Resorts 1995 Long-Term
    Incentive Plan (Amended and Restated as of December 3,
    1998) (incorporated by reference to Annex D to the 1998
    Proxy Statement).(1)                                                                                                                                                                                                                              
|        | 10 | .6                     |  | Starwood Hotels & Resorts Worldwide,
    Inc. 1995 Long-Term Incentive Plan (Amended and Restated as of
    December 3, 1998) (incorporated by reference to
    Annex E to the 1998 Proxy Statement).(1)                                                                                                                                                                                                              
|        | 10 | .7                     |  | Incentive and Non-Qualified Share Option Plan
    (1986) of the Trust (incorporated by reference to
    Exhibit 10.8 to the Trusts and the Corporations
    Joint Annual Report on Form 10-K for the year ended
    August 31, 1986 (the 1986
    Form 10-K)).(1)                                                                                                                                                 
|        | 10 | .8                     |  | Corporation Stock Non-Qualified Stock Option Plan
    (1986) of the Trust (incorporated by reference to
    Exhibit 10.9 to the 1986 Form 10-K).(1)                                                                                                                                                                                                                                                                   
|        | 10 | .9                     |  | Stock Option Plan (1986) of the Corporation
    (incorporated by reference to Exhibit 10.10 to the 1986
    Form 10-K).(1)                                                                                                                                                                                                                                                                                            
|        | 10 | .10                    |  | Trust Shares Option Plan (1986) of the
    Corporation (incorporated by reference to Exhibit 10.11 to
    the 1986 Form 10-K).(1)                                                                                                                                                                                                                                                                                     
|        | 10 | .11                    |  | Form of Indemnification Agreement and Amendment
    No. 1 to Indemnification Agreement between the Trust and
    each of its Trustees and executive officers (incorporated by
    reference to Exhibit 10.7 to the Trusts and the
    Corporations Joint Annual Report on Form 10-K for the
    year ended December 31, 1995 (the 1995
    Form 10-K)).(1)                                                        



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##### Table of Contents



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | -- | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .12                    |  | Form of Indemnification Agreement and Amendment
    No. 1 to Indemnification Agreement between the Corporation
    and each of its Directors and executive officers (incorporated
    by reference to Exhibit 10.8 to the 1995
    Form 10-K).(1)                                                                                                                                                                                     
|        | 10 | .13                    |  | Form of Amendment No. 2 to Indemnification
    Agreement, dated June 26, 1997, between the Trust and each
    of its Trustees and executive officers (incorporated by
    reference to Exhibit 10.1 to the Trusts and the
    Corporations Joint Quarterly Report on Form 10-Q for
    the quarterly period ended June 30, 1997 (the 1997
    Form 10-Q2)).(1)                                                                    
|        | 10 | .14                    |  | Form of Amendment No. 2 to Indemnification
    Agreement, dated June 26, 1997, between the Corporation and
    each of its Directors and executive officers (incorporated by
    reference to Exhibit 10.2 to the 1997
    Form 10-Q2).(1)                                                                                                                                                                                            
|        | 10 | .15                    |  | Form of Trademark License Agreement, dated as of
    December 10, 1997, between Starwood Capital and the Trust
    (incorporated by reference to Exhibit 10.22 to the 1997
    Form 10-K).                                                                                                                                                                                                                                            
|        | 10 | .16                    |  | Exchange Rights Agreement, dated as of
    January 1, 1995, among the Trust, the Corporation, Realty
    Partnership, Operating Partnership and the Starwood Partners
    (incorporated by reference to Exhibit 2B to the
    Trusts and the Corporations Joint Current Report on
    Form 8-K dated January 31, 1995 (the Formation
    Form 8-K)).                                                                              
|        | 10 | .17                    |  | Registration Rights Agreement, dated as of
    January 1, 1995, among the Trust, the Corporation and
    Starwood Capital (incorporated by reference to Exhibit 2C
    to the Formation Form 8-K).                                                                                                                                                                                                                                    
|        | 10 | .18                    |  | Exchange Rights Agreement, dated as of
    June 3, 1996, among the Trust, the Corporation, Realty
    Partnership, Operating Partnership, Philadelphia HIR Limited
    Partnership and Philadelphia HSR Limited Partnership
    (incorporated by reference to Exhibit 10.1 to the
    Trusts and the Corporations Joint Quarterly Report
    on Form 10-Q for the quarterly period ended June 30,
    1996 (the 1996 Form 10-Q2)).
|        | 10 | .19                    |  | Registration Rights Agreement, dated as of
    June 3, 1996, among the Trust, the Corporation and
    Philadelphia HSR Limited Partnership (incorporated by reference
    to Exhibit 10.2 to the 1996 Form 10-Q2).                                                                                                                                                                                                                    
|        | 10 | .20                    |  | Units Exchange Rights Agreement, dated as of
    February 14, 1997, by and among, inter alia, the
    Trust, the Corporation, Realty Partnership, Operating
    Partnership and the Starwood Partners (incorporated by reference
    to Exhibit 10.34 to the 1997 Form 10-K).                                                                                                                                                         
|        | 10 | .21                    |  | Class A Exchange Rights Agreement, dated as
    of February 14, 1997, by and among, inter alia, the
    Trust, the Corporation, Operating Partnership and the Starwood
    Partners (incorporated by reference to Exhibit 10.35 to the
    1997 Form 10-K).                                                                                                                                                                           
|        | 10 | .22                    |  | Exchange Rights Agreement, dated as of
    January 2, 1998, among, inter alia, the Trust,
    Realty Partnership and Woodstar (incorporated by reference to
    Exhibit 10.50 to the 1997 Form 10-K).                                                                                                                                                                                                                                 
|        | 10 | .23                    |  | Exchange Rights Agreement, dated as of
    January 2, 1998, among, inter alia, the Corporation,
    Operating Partnership and Woodstar (incorporated by reference to
    Exhibit 10.51 to the 1997 Form 10-K).                                                                                                                                                                                                                        
|        | 10 | .24                    |  | Registration Rights Agreement, dated as of
    January 2, 1998, among, inter alia, the Trust, the
    Corporation, and Woodstar (incorporated by reference to
    Exhibit 10.52 to the 1997 Form 10-K).                                                                                                                                                                                                                               
|        | 10 | .25                    |  | Pledge and Security Agreement, dated as of
    February 23, 1998, executed and delivered by the Trust, the
    Corporation and the other Pledgors party thereto, in favor of
    Bankers Trust Company as Collateral Agent (incorporated by
    reference to Exhibit 10.63 to the 1997 Form 10-K).                                                                                                                                    
|        | 10 | .26                    |  | Second Amended and Restated Senior Secured Note
    Agreement, dated December 30, 1999, among the Corporation,
    the Trust, the guarantors listed therein, the lenders listed
    therein, Lehman Commercial Paper Inc., as Arranger and
    Administrative Agent, and Alex Brown and Chase Securities Inc.,
    as Syndication Agents (incorporated by reference to
    Exhibit 10.46 to the 1999 Form 10-K).                      



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##### Table of Contents



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                 
|------- | -- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .27                    |  | Loan Agreement, dated as of February 23,
    1998, between the Trust and the Corporation, together with
    Promissory Note executed in connection therewith, by the
    Corporation to the order of the Trust, in the principal amount
    of $3,282,000,000 (incorporated by reference to
    Exhibit 10.65 to the 1997 Form 10-K).           
|        | 10 | .28                    |  | Loan Agreement, dated as of February 23,
    1998, between the Trust and the Corporation, together with
    Promissory Note executed in connection therewith, by the
    Corporation to the order of the Trust, in the principal amount
    of $100,000,000 (incorporated by reference to Exhibit 10.66
    to the 1997 Form 10-K).             
|        | 10 | .29                    |  | Loan Agreement, dated as of February 23,
    1998, between the Trust and the Corporation, together with
    Promissory Note executed in connection therewith, by the
    Corporation to the order of the Trust, in the principal amount
    of $50,000,000 (incorporated by reference to Exhibit 10.67
    to the 1997 Form 10-K).              
|        | 10 | .30                    |  | Loan Agreement, dated as of January 27,
    1999, among the Borrowers named therein, as Borrowers, Starwood
    Operator I LLC, as Operator, and Lehman Brothers Holding
    Inc., d/b/a Lehman Capital, a division of Lehman Brothers
    Holdings Inc. (incorporated by reference to Exhibit 10.58
    to the 1998 Form 10-K).                
|        | 10 | .31                    |  | Form of Severance Agreement, dated December 1999,
    between the Corporation and each of Barry S. Sternlicht,
    Ronald C. Brown and Steve R. Goldman (incorporated by
    reference to Exhibit 10.52 to the 1999
    Form 10-K).(1)                                                                                                          
|        | 10 | .32                    |  | Amended and Restated Employment Agreement,
    effective as of January 1, 2000, between Barry S.
    Sternlicht and the Company (incorporated by reference to
    Exhibit 10.1 to the Corporations and the Trusts
    Joint Quarterly Report on Form 10-Q for the quarterly
    period ended March 31, 2000). (1)                             
|        | 10 | .33                    |  | Employment Agreement, dated as of April 7,
    2000, between the Corporation and David K. Norton
    (incorporated by reference to Exhibit 10.1 to the
    Corporations and the Trusts Joint Quarterly Report
    on Form 10-Q for the quarterly period ended June 30,
    2000).(1)                                                          
|        | 10 | .34                    |  | Employment Agreement, dated as of June 27,
    2000, between the Corporation and Robert F. Cotter
    (incorporated by reference to Exhibit 10.1 to the
    Corporations and the Trusts Joint Quarterly Report
    on Form 10-Q for the quarterly period ended
    September 30, 2000).(1)                                                    
|        | 10 | .35                    |  | Form of Severance Agreement, dated as of
    August 14, 2000, between the Corporation and Robert F.
    Cotter (incorporated by reference to Exhibit 10.56 to the
    2000 Form 10-K).(1)                                                                                                                                                       
|        | 10 | .36                    |  | Employment Agreement, dated as of
    September 25, 2000, between the Corporation and
    Kenneth S. Siegel (incorporated by reference to
    Exhibit 10.57 to the 2000 Form 10-K).(1)                                                                                                                                                          
|        | 10 | .37                    |  | Form of Severance Agreement, dated as of
    September 26, 2000, between the Corporation and
    Kenneth S. Siegel (incorporated by reference to
    Exhibit 10.58 to the 2000 Form 10-K).(1)                                                                                                                                                   
|        | 10 | .38                    |  | Form of Severance Agreement, dated as of
    June 9, 2000, between the Corporation and David K.
    Norton (incorporated by reference to Exhibit 10.59 to the
    2000 Form 10-K).(1)                                                                                                                                                           
|        | 10 | .39                    |  | Stock Purchase Agreement, dated as of
    April 27, 1999, among the Corporation, ITT Sheraton
    Corporation, Starwood Canada Corp., Caesars World, Inc.,
    Sheraton Desert Inn Corporation, Sheraton Tunica Corporation and
    Park Place Entertainment Corporation (incorporated by reference
    to Exhibit 10.5 to the 1999 Form 10-Q1).
|        | 10 | .40                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    1999 Long-Term Incentive Compensation Plan (incorporated by
    reference to Exhibit 10.4 to the Corporations and the
    Trusts Joint Quarterly Report on Form 10-Q for the
    quarterly period ended June 30, 1999 (the 1999 Form
    10-Q2)).(1)                                          
|        | 10 | .41                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    1999 Annual Incentive Plan for Certain Executives (incorporated
    by reference to Exhibit 10.5 to the 1999
    Form 10-Q2).(1)                                                                                                                                                                  
|        | 10 | .42                    |  | First Amendment to the Starwood Hotels &
    Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation
    Plan, dated as of August 1, 2001 (incorporated by reference
    to Exhibit 10.1 to the Corporations and the
    Trusts Joint Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2001).(1)          



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##### Table of Contents



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .43                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    Deferred Compensation Plan, effective as of January 1, 2001
    (incorporated by reference to Exhibit 10.1 to the
    Corporations and the Trusts Joint Quarterly Report
    on Form 10-Q for the quarterly period ended June 30,
    2001 (the 2001 Form 10-Q2)).(1)                                                                                                                                                                                                                                                                                
|        | 10 | .44                    |  | Indenture, dated as of May 25, 2001, by and
    among the Corporation, as Issuer, the guarantors named herein
    and Firstar Bank, N.A., as Trustee (incorporated by reference to
    Exhibit 10.2 to the 2001 Form 10-Q2).                                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .45                    |  | Registration Rights Agreement, dated as of
    May 25, 2001, among the Corporation, the Trust, the
    guarantors named herein and Salomon Smith Barney Inc.
    (incorporated by reference to Exhibit 10.3 to the 2001
    Form 10-Q2).                                                                                                                                                                                                                                                                                                                                                               
|        | 10 | .46                    |  | Addendum to Robert F. Cotter Offer Letter,
    effective as of February 16, 2002 (incorporated by
    reference to Exhibit 10.1 to the Corporations and
    Trusts Joint Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2002).                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .47                    |  | Starwood Hotels & Resorts Worldwide, Inc.
    2002 Long-Term Incentive Compensation Plan (the 2002
    LTIP) (incorporated by reference to Annex B of the
    Corporations 2002 Proxy Statement).                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10 | .48                    |  | Starwood Hotels & Resorts Amended and
    Restated Non-Qualified Stock Option Agreement by and between the
    Trust and Barry S. Sternlicht, dated as of May 22, 2002
    relating to a grant made on June 29, 1995 (incorporated by
    reference to Exhibit 10.3 to the 2002 Form 10-Q2).                                                                                                                                                                                                                                                                                                           
|        | 10 | .49                    |  | Form of Non-Qualified Stock Option Agreement
    pursuant to the 2002 LTIP.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .50                    |  | Starwood Hotels & Resorts Amended and
    Restated Non-Qualified Stock Option Agreement by and between the
    Trust and Barry S. Sternlicht, dated as of May 22, 2002
    relating to a grant made on August 12, 1996 (incorporated
    by reference to Exhibit 10.4 to the 2002 Form 10-Q2).                                                                                                                                                                                                                                                                                                         
|        | 10 | .51                    |  | Starwood Hotels & Resorts Amended and
    Restated Non-Qualified Stock Option Agreement by and between the
    Trust and Barry S. Sternlicht, dated as of May 22,
    2002 relating to a grant made on August 12, 1996
    (incorporated by reference to Exhibit 10.5 to the 2002
    Form 10-Q2).                                                                                                                                                                                                                                                                                                     
|        | 10 | .52                    |  | Letter to holders of the Corporations,
    Series B Zero Coupon Convertible Senior Notes due 2021
    (incorporated by reference to Exhibit 99.5 to the 2002
    Form 10-Q2).                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .53                    |  | Amendment to Exchange Rights Agreement
    (Class A Realty Partnership Units), dated as of
    October 10, 2002, among the Trust, Realty Partnership and
    certain limited partners of the Realty Partnership.(2)                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10 | .54                    |  | Amendment to Exchange Rights Agreement
    (Class B Operating Partnership Units), dated as of
    October 10, 2002, among the Corporation, Operating
    Partnership and certain limited partners of the Operating
    Partnership.(2)                                                                                                                                                                                                                                                                                                                                                                 
|        | 10 | .55                    |  | Severance Agreement, dated December 1999, between
    the Corporation and Theodore Darnall.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10 | .56                    |  | Employment Agreement, dated September 2,
    1999, between Steven M. Hankin and the
    Corporation.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10 | .57                    |  | Severance Agreement, dated October 2000, between
    Starwood Hotels & Resorts Worldwide, Inc., and Steve
    Hankin.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10 | .58                    |  | Credit Agreement, dated October 9, 2002,
    among the Corporation, certain additional alternative currency
    revolving loan borrowers and various lenders, Deutsche Bank, AG,
    New York Branch, as Administrative Agent, JP Morgan Chase
    Bank, as Syndication Agent, Bank of America, N.A., Fleet
    National Bank and Societe Generale, as Co-Documentation Agents,
    and Deutsche Bank Securities Inc. and JP Morgan Securities Inc.
    as Co-Lead Arrangers and joint Book Running Managers
    (incorporated by reference to Exhibit 10.1 of Form 8-K
    filed on October 11, 2002).
|        | 10 | .59                    |  | Indenture, dated as of April 19, 2002, among
    the Corporation, the guarantor parties named herein and U.S.
    Bank National Association, as trustee (incorporated by reference
    to Exhibit 4.1 to the Corporations and Sheraton
    Holding Corporations Joint Registration Statement on
    Form S-4 filed on November 19, 2002 the 2002
    Forms S4)).                                                                                                                                                                                                                                   



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##### Table of Contents



|        |    |                        |  |                                                                                                                                                                                                                              
|------- | -- | ---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 10 | .60                    |  | Registration Rights Agreement, dated as of
    April 19, 2002, among the Corporation, the guarantor
    parties named therein and Lehman Brothers, Inc., (incorporated
    by reference to Exhibit 4.4 to the 2002 Form S-4).
|        | 10 | .61                    |  | Employment Agreement, dated March 25, 1998,
    between Theodore Darnall and Starwood Hotels & Resorts
    Worldwide, Inc.(2)                                                                                                
|        | 12 | .1                     |  | Calculation of Ratio of Earnings to Total Fixed
    Charges. (2)                                                                                                                                                             
|        | 21 | .1                     |  | Subsidiaries of the Registrants.(2)                                                                                                                                                                                          
|        | 23 | .1                     |  | Consent of Ernst & Young LLP.(2)                                                                                                                                                                                             
|        | 99 | .1                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Executive Officer 
    Corporation.(2)                                                                           
|        | 99 | .2                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Financial Officer 
    Corporation.(2)                                                                           
|        | 99 | .3                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Executive Officer 
    Trust.(2)                                                                                 
|        | 99 | .4                     |  | Certification Pursuant to Section 1350 of
    Chapter 63 of Title 18 of the United States
    Code  Chief Financial and Accounting
    Officer  Trust.(2)                                                                  



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|    |                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------
|(1) | Management contract or compensatory plan or
    arrangement required to be filed as an exhibit pursuant to
    Item 14(c) of Form 10-K.
|   
|(2) | Filed herewith.                                                                                                                        



|    |                     
|--- | --------------------
|(b) | Reports on Form 8-K.

During the fourth quarter of 2002, Starwood filed
a Current Report on Form 8-K dated October 9, 2002,
reporting under Items 5 and 7 the execution of its
five-year $1.3 billion Senior Credit Facility.