<PAGE>   1
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-Q
 
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
   SECURITIES EXCHANGE ACT OF 1934
 
               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
 
                                       OR
 
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
 
        FOR THE TRANSITION PERIOD FROM                TO
 
<TABLE>
<S>                                            <C>
 
        COMMISSION FILE NUMBER: 1-6828                 COMMISSION FILE NUMBER: 1-7959
          STARWOOD HOTELS & RESORTS                           STARWOOD HOTELS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS                    & RESORTS
                    CHARTER)                                  WORLDWIDE, INC.
                                               (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS
                                                                  CHARTER)
 
                   MARYLAND                                       MARYLAND
         (STATE OR OTHER JURISDICTION                   (STATE OR OTHER JURISDICTION
      OF INCORPORATION OR ORGANIZATION)              OF INCORPORATION OR ORGANIZATION)
 
                  52-0901263                                     52-1193298
     (I.R.S. EMPLOYER IDENTIFICATION NO.)           (I.R.S. EMPLOYER IDENTIFICATION NO.)
 
            777 WESTCHESTER AVENUE                         777 WESTCHESTER AVENUE
            WHITE PLAINS, NY 10604                         WHITE PLAINS, NY 10604
       (ADDRESS OF PRINCIPAL EXECUTIVE                (ADDRESS OF PRINCIPAL EXECUTIVE
         OFFICES, INCLUDING ZIP CODE)                   OFFICES, INCLUDING ZIP CODE)
 
                (914) 640-8100                                 (914) 640-8100
       (REGISTRANT'S TELEPHONE NUMBER,                (REGISTRANT'S TELEPHONE NUMBER,
             INCLUDING AREA CODE)                           INCLUDING AREA CODE)
</TABLE>
 
     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 [ ]
 
     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
 
     175,521,662 common shares of beneficial interest, par value $0.01 per
share, of Starwood Hotels & Resorts paired with 175,521,662 shares of common
stock, par value $0.01 per share, of Starwood Hotels & Resorts Worldwide, Inc.,
outstanding as of November 5, 1998.
 
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--------------------------------------------------------------------------------
<PAGE>   2
 
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
ITEM                                                               PAGE
----                                                               ----
<S>  <C>                                                           <C>
PART I.  FINANCIAL INFORMATION
1.   Financial Statements
     Starwood Hotels & Resorts and Starwood Hotels & Resorts
          Worldwide, Inc.:
     Combined Consolidated Balance Sheets as of September 30,
          1998 and December 31, 1997.............................    3
     Combined Consolidated Statements of Income for the Three and
          Nine Months Ended September 30, 1998 and 1997..........    4
     Combined Consolidated Statements of Comprehensive Income for
          the Three and Nine Months Ended September 30, 1998 and
          1997...................................................    5
     Combined Consolidated Statements of Cash Flows for the Nine
          Months Ended September 30, 1998 and 1997...............    6
     Starwood Hotels & Resorts:
     Consolidated Balance Sheet as of September 30, 1998.........    7
     Consolidated Statements of Income for the Three Months Ended
          September 30, 1998 and for the Period from February 23,
          1998 to September 30, 1998.............................    8
     Consolidated Statement of Cash Flows for the Period from
          February 23, 1998 to September 30, 1998................    9
     Starwood Hotels & Resorts Worldwide, Inc.:
     Consolidated Balance Sheet as of September 30, 1998.........   10
     Consolidated Statements of Income for the Three and Nine
          Months Ended September 30, 1998........................   11
     Consolidated Statements of Comprehensive Income for the
          Three and Nine Months Ended September 30, 1998.........   12
     Consolidated Statement of Cash Flows for the Nine Months
          Ended September 30, 1998...............................   13
     Notes to Financial Statements...............................   14
     Unaudited Condensed Combined Consolidated Pro Forma
          Statements of Income for the Three and Nine Months
          Ended September 30, 1998...............................   27
     Notes to Unaudited Condensed Combined Consolidated Pro Forma
          Statements of Income...................................   29
     Unaudited Funds from Operations.............................   30
     Management's Discussion and Analysis of Financial Condition
2.        and Results of Operations..............................   31
 
PART II.  OTHER INFORMATION
1.   Legal Proceedings...........................................   46
2.   Changes in Securities and Use of Proceeds...................   46
6.   Exhibits and Reports on Form 8-K............................   46
</TABLE>
 
                                        1
<PAGE>   3
 
                         PART I.  FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS
 
     The following unaudited financial statements of Starwood Hotels & Resorts
(the "Trust") and Starwood Hotels & Resorts Worldwide, Inc. (the "Corporation"
and, together with the Trust, "Starwood Hotels" or the "Company") are provided
pursuant to the requirements of this Item. In the opinion of management, all
adjustments necessary for fair presentation, consisting of normal recurring
adjustments and the adjustment for restructuring and other special charges as
disclosed in Note 6, have been included. The financial statements presented
herein have been prepared in accordance with the accounting policies described
in the Trust's and the Corporation's Joint Annual Report on Form 10-K for the
year ended December 31, 1997 and the accounting policies described in the notes
to ITT Corporation's historical financial statements included in the Company's
Current Report on Form 8-K filed April 27, 1998 (see Note 3) and should be read
in conjunction therewith. See Note 1 in the Notes to Financial Statements for
the basis of presentation. The financial statements should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein. Results for the
three and nine months ended September 30, 1998 are not necessarily indicative of
results to be expected for the full fiscal year ending December 31, 1998.
 
                                        2
<PAGE>   4
 
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                      COMBINED CONSOLIDATED BALANCE SHEETS
                        (IN MILLIONS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,    DECEMBER 31,
                                                                  1998             1997
                                                              -------------    ------------
                                                                                (AUDITED)
<S>                                                           <C>              <C>
                                          ASSETS
Current assets:
  Cash and cash equivalents.................................     $   260          $  201
  Accounts receivable, net..................................         640             424
  Inventories...............................................          67              63
  Prepaid expenses and other................................         228             105
                                                                 -------          ------
         Total current assets...............................       1,195             793
Plant, property and equipment, net..........................       9,853           4,832
Investment in Madison Square Garden.........................          43              85
Other investments...........................................         317             368
Long-term receivables, net..................................         408             281
Other assets................................................         381             450
Goodwill, net...............................................       3,602           1,257
Net assets held for sale....................................         394             386
Net assets of discontinued operations.......................          34              73
                                                                 -------          ------
                                                                 $16,227          $8,525
                                                                 =======          ======
                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................     $   271          $  273
  Accrued expenses..........................................       1,112           1,078
  Notes payable and current maturities of long-term debt....         982             898
  Other current liabilities.................................         200             161
                                                                 -------          ------
         Total current liabilities..........................       2,565           2,410
Long-term debt..............................................       7,436           1,070
Deferred income taxes.......................................         585              97
Other liabilities...........................................         450             423
Net liabilities of discontinued operations..................          --           1,600
Minority interest...........................................         583             181
                                                                 -------          ------
                                                                  11,619           5,781
                                                                 -------          ------
Equity put options and forward equity contracts.............         430              --
                                                                 -------          ------
Class B exchangeable preferred shares, at redemption
  value.....................................................         153              --
                                                                 -------          ------
Commitments and contingencies
Stockholders' equity:
  Class A exchangeable preferred shares.....................           5              --
  Corporation common stock at September 30, 1998 and
    December 31, 1997; $0.01 par value; authorized
    1,050,000,000 and 308,600,000 shares; outstanding
    182,837,403 and 126,653,880 at September 30, 1998 and
    December 31, 1997, respectively.........................           2               1
  Trust common shares of beneficial interest at September
    30, 1998 and December 31, 1997; $0.01 par value;
    authorized 1,200,000,000 and 308,600,000 shares;
    outstanding 182,837,403 and 126,653,880 at September 30,
    1998 and December 31, 1997, respectively................           2               1
  Additional paid-in capital................................       2,500           2,934
  Cumulative translation and marketable securities
    adjustment..............................................        (103)           (135)
  Retained earnings (accumulated deficit)...................       1,619             (57)
                                                                 -------          ------
         Total stockholders' equity.........................       4,025           2,744
                                                                 -------          ------
                                                                 $16,227          $8,525
                                                                 =======          ======
</TABLE>
 
The accompanying notes to financial statements are an integral part of the above
                                  statements.
                                        3
<PAGE>   5
 
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                   COMBINED CONSOLIDATED STATEMENTS OF INCOME
                      (IN MILLIONS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                THREE MONTHS
                                                                   ENDED          NINE MONTHS ENDED
                                                               SEPTEMBER 30,        SEPTEMBER 30,
                                                              ----------------    ------------------
                                                               1998      1997      1998       1997
                                                              ------    ------    -------    -------
<S>                                                           <C>       <C>       <C>        <C>
Revenues....................................................  $2,286    $1,458    $6,296     $4,273
Costs and expenses:
  Salaries, benefits and other operating....................   1,657     1,110     4,614      3,242
  Selling, general and administrative.......................     231       151       676        485
  Restructuring and other special charges...................     310        --       310         58
  Depreciation and amortization.............................     143        64       414        198
                                                              ------    ------    ------     ------
                                                               2,341     1,325     6,014      3,983
                                                              ------    ------    ------     ------
                                                                 (55)      133       282        290
Interest expense, net of interest income of $5 and $4 for
  the three months ended September 30, 1998 and 1997,
  respectively, and $22 and $13 for the nine months ended
  September 30, 1998 and 1997, respectively.................    (156)      (27)     (399)       (70)
Gain on sale of Alcatel Alsthom shares......................      --        --        --        183
Gain on investment in Madison Square Garden.................      --        --        31        200
Miscellaneous income (expense), net.........................      (3)      (14)        6        (33)
                                                              ------    ------    ------     ------
                                                                (214)       92       (80)       570
Income tax (expense) benefit................................     109       (46)       79       (246)
Minority equity.............................................       4        (3)       (2)        (3)
                                                              ------    ------    ------     ------
Income (loss) from continuing operations....................    (101)       43        (3)       321
Discontinued operations:
  Net income (loss) from operations, net of taxes and
    minority interest of $1 and $27 for the three months
    ended September 30, 1998 and 1997, respectively, and $5
    and $39 for the nine months ended September 30, 1998 and
    1997, respectively......................................      --        15        (9)        14
  Gain on sale of Educational Services, Inc. shares, net of
    taxes and minority interest of $100.....................      --        --       153         --
  Gain on disposition of World Directories, net of taxes and
    minority interest of $15 and $543 for the three and nine
    months ended September 30, 1998, respectively...........      24        --       972         --
Cumulative effect of accounting change, net of tax
  benefit of $6.............................................      --        --        --        (11)
                                                              ------    ------    ------     ------
Net income (loss)...........................................  $  (77)   $   58    $1,113     $  324
                                                              ======    ======    ======     ======
Basic earnings per Paired Share:
  Income (loss) from continuing operations..................  $(0.56)   $ 0.34    $(0.10)    $ 2.55
  Income from discontinued operations.......................    0.13      0.12      5.97       0.11
  Cumulative effect of accounting change....................      --        --        --      (0.09)
                                                              ------    ------    ------     ------
Net income (loss)...........................................  $(0.43)   $ 0.46    $ 5.87     $ 2.57
                                                              ======    ======    ======     ======
Diluted earnings per Paired Share:
  Income (loss) from continuing operations..................  $(0.56)   $ 0.34    $(0.10)    $ 2.51
  Income from discontinued operations.......................    0.13      0.11      5.97       0.11
  Cumulative effect of accounting change....................      --        --        --      (0.09)
                                                              ------    ------    ------     ------
Net income (loss)...........................................  $(0.43)   $ 0.45    $ 5.87     $ 2.53
                                                              ======    ======    ======     ======
Weighted average number of Paired Shares....................     188       126       187        126
                                                              ======    ======    ======     ======
Weighted average number of equivalent Paired Shares.........     188       128       187        128
                                                              ======    ======    ======     ======
</TABLE>
 
The accompanying notes to financial statements are an integral part of the above
                                  statements.
                                        4
<PAGE>   6
 
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
            COMBINED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED         NINE MONTHS ENDED
                                                   SEPTEMBER 30,              SEPTEMBER 30,
                                                 ------------------        -------------------
                                                 1998         1997          1998         1997
                                                 -----        -----        ------        -----
<S>                                              <C>          <C>          <C>           <C>
Net income (loss)..............................  $(77)        $ 58         $1,113        $ 324
Other comprehensive income:
Foreign currency translation adjustments --
  Foreign currency translation arising during
     the period................................    46          (51)            --         (126)
  Reclassification adjustment for losses
     included in net income....................    --           --             33           --
Unrealized gains on securities --
  Unrealized holding gains (losses) arising
     during the period.........................    --           --             (1)         176
  Reclassification adjustment for gains
     included in net income....................    --           --             --         (114)
                                                 ----         ----         ------        -----
                                                   46          (51)            32          (64)
                                                 ----         ----         ------        -----
Comprehensive income (loss)....................  $(31)        $  7         $1,145        $ 260
                                                 ====         ====         ======        =====
</TABLE>
 
The accompanying notes to financial statements are an integral part of the above
                                  statements.
                                        5
<PAGE>   7
 
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                 COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                              NINE MONTHS ENDED
                                                                SEPTEMBER 30,
                                                              ------------------
                                                               1998       1997
                                                              -------    -------
<S>                                                           <C>        <C>
OPERATING ACTIVITIES
Net income..................................................  $ 1,113    $   324
Exclude:
Discontinued operations --
  Net (income) loss from operations.........................        9        (14)
  Gain on sale of World Directories and Educational
    Services, Inc...........................................   (1,125)        --
Cumulative effect of accounting change......................       --         11
                                                              -------    -------
Income (loss) from continuing operations....................       (3)       321
Adjustments to income (loss) from continuing operations:
  Depreciation and amortization.............................      414        198
  Amortization of deferred loan costs.......................       15         --
  Non-cash portion of restructuring and other special
    charges.................................................      150         --
  Provision for doubtful receivables........................       31         28
  Minority equity in net income.............................        2          3
  Equity income, net of dividends received..................      (17)        --
  Gain on sale of real estate and investments -- pretax.....      (58)      (410)
Changes in working capital:
  Accounts receivable.......................................      (93)       (30)
  Inventories...............................................        2         (2)
  Accounts payable..........................................       15        (30)
  Accrued expenses..........................................     (279)       119
Accrued and deferred income taxes...........................     (111)        10
Other, net..................................................      (40)       (24)
                                                              -------    -------
  Cash from continuing operations...........................       28        183
                                                              -------    -------
  Cash used for discontinued operations.....................       --        (10)
                                                              -------    -------
  Cash from operating activities............................       28        173
                                                              -------    -------
INVESTING ACTIVITIES
Additions to plant, property and equipment..................     (694)      (762)
Proceeds from sale of real estate and investments...........    2,811      1,618
Collection of Cablevision note receivable...................       --        169
Acquisitions, net of acquired cash..........................      (60)      (284)
Employee benefit trust......................................      146       (119)
Other, net..................................................     (286)       (20)
                                                              -------    -------
  Cash from investing activities............................    1,917        602
                                                              -------    -------
FINANCING ACTIVITIES
Short-term debt, net........................................      504       (154)
Long-term debt issued.......................................    2,454        665
Long-term debt repaid.......................................   (1,481)    (1,088)
Proceeds from equity offering...............................      245         --
Dividends paid..............................................   (3,249)        --
Stock repurchases...........................................     (343)        --
Other, net..................................................      (16)        25
                                                              -------    -------
  Cash used for financing activities........................   (1,886)      (552)
                                                              -------    -------
Exchange rate effect on cash and cash equivalents...........       --         (5)
                                                              -------    -------
Increase in cash and cash equivalents.......................       59        218
Cash and cash equivalents -- beginning of period............      201        205
                                                              -------    -------
Cash and cash equivalents -- end of period..................  $   260    $   423
                                                              =======    =======
Supplemental disclosures of cash flow information:
Cash paid during the period for --
  Interest..................................................  $   352    $    39
                                                              =======    =======
  Income taxes, net of refunds..............................  $    47    $   231
                                                              =======    =======
</TABLE>
 
The accompanying notes to financial statements are an integral part of the above
                                  statements.
                                        6
<PAGE>   8
 
                           STARWOOD HOTELS & RESORTS
 
                           CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 1998
                        (IN MILLIONS, EXCEPT SHARE DATA)
 
<TABLE>
<S>                                                           <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $    9
  Accounts receivable, net..................................      13
  Receivable, Corporation...................................     251
  Prepaid expenses and other................................      75
                                                              ------
          Total current assets..............................     348
Plant, property and equipment, net..........................   4,275
Other investments, Corporation..............................     849
Other investments...........................................      31
Long-term receivables, net..................................     159
Long-term receivables, Corporation..........................   2,477
Other assets................................................      10
Goodwill, net...............................................     177
Net assets held for sale....................................       7
                                                              ------
                                                              $8,333
                                                              ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $   15
  Accrued expenses..........................................     145
  Notes payable and current maturities of long-term debt....     288
                                                              ------
          Total current liabilities.........................     448
Long-term debt..............................................     316
Minority interest...........................................     426
                                                              ------
                                                               1,190
                                                              ------
Equity put options and forward equity contracts.............     301
                                                              ------
Class B exchangeable preferred shares, at redemption
  value.....................................................     153
                                                              ------
Commitments and contingencies
Stockholders' equity:
  Class A exchangeable preferred shares.....................       5
  Trust common shares of beneficial interest; $0.01 par
     value; authorized 1,200,000,000 shares; outstanding
     182,837,403............................................       2
  Additional paid-in capital................................   6,721
  Accumulated deficit.......................................     (39)
                                                              ------
          Total stockholders' equity........................   6,689
                                                              ------
                                                              $8,333
                                                              ======
</TABLE>
 
The accompanying notes to financial statements are an integral part of the above
                                   statement.
                                        7
<PAGE>   9
 
                           STARWOOD HOTELS & RESORTS
 
                       CONSOLIDATED STATEMENTS OF INCOME
                      (IN MILLIONS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                                     PERIOD FROM
                                                          THREE MONTHS ENDED      FEBRUARY 23, 1998
                                                          SEPTEMBER 30, 1998    TO SEPTEMBER 30, 1998
                                                          ------------------    ---------------------
<S>                                                       <C>                   <C>
Revenues................................................        $   1                   $   2
Rent and interest, Corporation..........................          180                     435
Costs and expenses:
  Selling, general and administrative...................            6                      12
  Depreciation and amortization.........................           34                     109
                                                                -----                   -----
                                                                   40                     121
                                                                -----                   -----
                                                                  141                     316
Interest expense, net of interest income of $4 and $7...           (4)                    (12)
                                                                -----                   -----
                                                                  137                     304
Income tax expense......................................           --                      (1)
Minority equity.........................................           (9)                    (18)
                                                                -----                   -----
Net income..............................................        $ 128                   $ 285
                                                                =====                   =====
Basic net income per share..............................        $0.65                   $1.44
                                                                =====                   =====
Diluted net income per share............................        $0.64                   $1.43
                                                                =====                   =====
Weighted average number of shares.......................          188                     187
                                                                =====                   =====
Weighted average number of equivalent shares............          199                     189
                                                                =====                   =====
</TABLE>
 
The accompanying notes to financial statements are an integral part of the above
                                  statements.
                                        8
<PAGE>   10
 
                           STARWOOD HOTELS & RESORTS
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                   PERIOD FROM
                                                                FEBRUARY 23, 1998
                                                              TO SEPTEMBER 30, 1998
                                                              ---------------------
<S>                                                           <C>
OPERATING ACTIVITIES
Net income..................................................          $ 285
Adjustments to net income:
  Depreciation and amortization.............................            109
  Minority equity in net income.............................             18
Changes in working capital:
  Accounts receivable.......................................             (8)
  Accounts payable..........................................             10
  Accrued expenses..........................................            (13)
  Other, net................................................              2
                                                                      -----
  Cash from operating activities............................            403
                                                                      -----
INVESTING ACTIVITIES
Additions to plant, property and equipment..................           (139)
Proceeds from divestments...................................            250
Acquisitions, net of acquired cash..........................            (13)
Notes receivable, Corporation...............................             45
Other, net..................................................           (275)
                                                                      -----
  Cash used for investing activities........................           (132)
                                                                      -----
FINANCING ACTIVITIES
Long-term debt issued, net..................................             12
Proceeds from equity offering...............................            171
Dividends paid..............................................           (213)
Stock repurchase............................................           (240)
Other, net..................................................              8
                                                                      -----
  Cash used in financing activities.........................           (262)
                                                                      -----
Increase in cash and cash equivalents.......................              9
Cash and cash equivalents -- beginning of period............             --
                                                                      -----
Cash and cash equivalents -- end of period..................          $   9
                                                                      =====
Supplemental disclosures of cash flow information:
Cash paid during the period for --
  Interest..................................................          $  15
                                                                      =====
  Income taxes..............................................          $   1
                                                                      =====
</TABLE>
 
The accompanying notes to financial statements are an integral part of the above
                                   statement.
                                        9
<PAGE>   11
 
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                           CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 1998
                        (IN MILLIONS, EXCEPT SHARE DATA)
 
<TABLE>
<S>                                                           <C>
                               ASSETS
Current assets:
  Cash and cash equivalents.................................  $   251
  Accounts receivable, net..................................      627
  Inventories...............................................       67
  Prepaid expenses and other................................      153
                                                              -------
          Total current assets..............................    1,098
Plant, property and equipment, net..........................    5,578
Investment in Madison Square Garden.........................       43
Other investments...........................................      286
Long-term receivables, net..................................      249
Other assets................................................      371
Goodwill, net...............................................    3,425
Net assets held for sale....................................      387
Net assets of discontinued operations.......................       34
                                                              -------
                                                              $11,471
                                                              =======
                LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Accounts payable..........................................  $   256
  Accrued expenses..........................................      967
  Notes payable and current maturities of long-term debt....      694
  Notes payable and current maturities of long-term debt,
     Trust..................................................      251
  Other current liabilities.................................      200
                                                              -------
          Total current liabilities.........................    2,368
Long-term debt..............................................    7,120
Long-term debt, Trust.......................................    2,477
Deferred income taxes.......................................      585
Other liabilities...........................................      450
Minority interest...........................................    1,006
                                                              -------
                                                               14,006
                                                              -------
Equity put options and forward equity contracts.............      129
                                                              -------
Commitments and contingencies
Stockholders' deficit:
  Corporation common stock; $0.01 par value; authorized
     1,050,000,000 shares; outstanding 182,837,403..........        2
  Additional paid-in capital................................   (4,221)
  Cumulative translation and marketable securities
     adjustment.............................................     (103)
  Retained earnings.........................................    1,658
                                                              -------
          Total stockholders' deficit.......................   (2,664)
                                                              -------
                                                              $11,471
                                                              =======
</TABLE>
 
The accompanying notes to financial statements are an integral part of the above
                                   statement.
                                       10
<PAGE>   12
 
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                       CONSOLIDATED STATEMENTS OF INCOME
                      (IN MILLIONS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED    NINE MONTHS ENDED
                                                           SEPTEMBER 30, 1998    SEPTEMBER 30, 1998
                                                           ------------------    ------------------
<S>                                                        <C>                   <C>
Revenues.................................................        $2,285                $6,294
Costs and expenses:
  Salaries, benefits and other operating.................         1,657                 4,614
  Selling, general and administrative....................           225                   664
  Rent and interest, Trust...............................           180                   435
  Restructuring and other special charges................           310                   310
  Depreciation and amortization..........................           109                   305
                                                                 ------                ------
                                                                  2,481                 6,328
                                                                 ------                ------
                                                                   (196)                  (34)
Interest expense, net of interest income of $1 and $15...          (152)                 (387)
Gain on sale of Madison Square Garden....................            --                    31
Miscellaneous income (expense)...........................            (3)                    6
                                                                 ------                ------
                                                                   (351)                 (384)
Income tax benefit.......................................           109                    80
Minority equity..........................................            13                    16
                                                                 ------                ------
Loss from continuing operations..........................          (229)                 (288)
Discontinued operations:
  Net loss from operations, net of taxes and minority
     interest of $1 and $5...............................            --                    (9)
  Gain on sale of Educational Services, Inc. shares, net
     of taxes and minority interest of $100..............            --                   153
  Gain on disposition of World Directories, net of taxes
     and minority interest of $15 and $543 for the three
     and nine months ended September 30, 1998,
     respectively........................................            24                   972
                                                                 ------                ------
Net income (loss)........................................        $ (205)               $  828
                                                                 ======                ======
Basic earnings per share:
  Loss from continuing operations........................        $(1.22)               $(1.54)
  Income from discontinued operations....................          0.13                  5.97
                                                                 ------                ------
Net income (loss)........................................        $(1.09)               $ 4.43
                                                                 ======                ======
Diluted earnings per share:
  Loss from continuing operations........................        $(1.22)               $(1.54)
  Income from discontinued operations....................          0.13                  5.97
                                                                 ------                ------
Net income (loss)........................................        $(1.09)               $ 4.43
                                                                 ======                ======
Weighted average number of shares........................           188                   187
                                                                 ======                ======
Weighted average number of equivalent shares.............           188                   187
                                                                 ======                ======
</TABLE>
 
The accompanying notes to financial statements are an integral part of the above
                                  statements.
                                       11
<PAGE>   13
 
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED    NINE MONTHS ENDED
                                                           SEPTEMBER 30, 1998    SEPTEMBER 30, 1998
                                                           ------------------    ------------------
<S>                                                        <C>                   <C>
Net income (loss)........................................        $(205)                 $828
Other comprehensive income:
Foreign currency translation adjustments --
  Foreign currency translation arising during the
     period..............................................           46                    --
  Reclassification adjustment of losses included in net
     income..............................................           --                    33
Unrealized gains on securities --
  Unrealized holding losses arising during the period....           --                    (1)
                                                                 -----                  ----
                                                                    46                    32
                                                                 -----                  ----
Comprehensive income (loss)..............................        $(159)                 $860
                                                                 =====                  ====
</TABLE>
 
The accompanying notes to financial statements are an integral part of the above
                                  statements.
                                       12
<PAGE>   14
 
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                              NINE MONTHS ENDED
                                                              SEPTEMBER 30, 1998
                                                              ------------------
<S>                                                           <C>
OPERATING ACTIVITIES
Net income..................................................       $   828
Exclude:
Discontinued operations --
  Net loss from operations..................................             9
  Gain on sale of World Directories and Educational
    Services, Inc...........................................        (1,125)
                                                                   -------
Loss from continuing operations.............................          (288)
Adjustments to loss from continuing operations:
  Depreciation and amortization.............................           305
  Amortization of deferred loan costs.......................            15
  Non-cash portion of restructuring and other special
    charges.................................................           150
  Provision for doubtful receivables........................            31
  Minority equity in net income.............................           (16)
  Equity income, net of dividends received..................           (17)
  Gain on divestments -- pretax.............................           (58)
Changes in working capital:
  Accounts receivable.......................................           (85)
  Inventories...............................................             2
  Accounts payable..........................................             5
  Accrued expenses..........................................          (266)
  Accrued and deferred taxes................................          (111)
  Other, net................................................           (42)
                                                                   -------
  Cash used for operating activities........................          (375)
                                                                   -------
INVESTING ACTIVITIES
Additions to plant, property and equipment..................          (555)
Proceeds from divestments...................................         2,561
Acquisitions, net of acquired cash..........................           (47)
Employee benefit trust......................................           146
Other, net..................................................           (11)
                                                                   -------
  Cash from investing activities............................         2,094
                                                                   -------
FINANCING ACTIVITIES
Short-term debt, net........................................           504
Long-term debt issued, net..................................         2,442
Long-term debt repaid.......................................        (1,481)
Notes payable, Trust........................................           (45)
Proceeds from equity offering...............................            74
Dividends paid..............................................        (3,036)
Stock repurchases...........................................          (103)
Other, net..................................................           (24)
                                                                   -------
  Cash used for financing activities........................        (1,669)
                                                                   -------
Increase in cash and cash equivalents.......................            50
Cash and cash equivalents -- beginning of period............           201
                                                                   -------
Cash and cash equivalents -- end of period..................       $   251
                                                                   =======
Supplemental disclosures of cash flow information:
Cash paid during the period for --
  Interest..................................................       $   337
                                                                   =======
  Income taxes, net of refunds..............................       $    46
                                                                   =======
</TABLE>
 
The accompanying notes to financial statements are an integral part of the above
                                   statement.
                                       13
<PAGE>   15
 
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
NOTE 1.  BASIS OF PRESENTATION
 
     The accompanying balance sheets as of September 30, 1998 and statements of
income and comprehensive income for the three months ended September 30, 1998
include the accounts of Starwood Hotels & Resorts and its subsidiaries (the
"Trust") and Starwood Hotels & Resorts Worldwide, Inc. and its subsidiaries (the
"Corporation" and, together with the Trust, "Starwood Hotels" or the "Company"),
inclusive of ITT Corporation and its subsidiaries ("ITT") (see Note 3). Because
the Company's acquisition of ITT (the "ITT Merger") is treated as a reverse
purchase for financial accounting purposes, the statements of income,
comprehensive income and cash flows for the nine months ended September 30, 1998
include the accounts of the Trust and the Corporation for the period from the
closing of the ITT Merger on February 23, 1998 through September 30, 1998 and
the accounts of ITT for the nine months ending September 30, 1998. Additionally,
the historical financial statements for the three and nine months ending
September 30, 1997 and as of December 31, 1997 represent the results of ITT.
 
     The Trust was formed in 1969 and elected to be taxed as a real estate
investment trust ("REIT") under the Internal Revenue Code. 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"). Trust Shares and Corporation
Shares are paired on a one-for-one basis and, pursuant to an agreement between
the Trust and the Corporation, may be held or transferred only in units ("Paired
Shares") consisting of one Trust Share and one Corporation Share.
 
     The Company is one of the largest hotel and gaming companies in the world
and the Trust is one of the largest REITs in the United States. The Company's
principal lines of business are hotels and gaming. The hotels segment is
comprised of a worldwide hospitality network of approximately 650 full-service
hotels primarily serving three markets: luxury, upscale and mid-price. The
Company's hotel operations are represented on every continent and in nearly
every major world market. The Company's gaming operations are located in several
key domestic jurisdictions. The Company also operates various hotel/casino
ventures outside the United States.
 
     Starwood Hotels is currently a "paired share REIT." Under provisions of the
Internal Revenue Code, a REIT and a non-REIT whose shares are paired are treated
as one entity for purposes of determining whether either entity qualifies as a
REIT. If these provisions applied to the Company, the Trust would not qualify as
a REIT. Starwood Hotels is not subject to these provisions since it is one of
the paired share REITs that were "grandfathered" when these provisions were
enacted. Recently, Congress enacted tax legislation that has the effect of
eliminating this grandfathering for certain interests in real property acquired
after March 26, 1998. With respect to certain interests in real property
acquired after March 26, 1998, this new legislation treats "grandfathered paired
share REITs" as one entity for REIT qualification purposes. In response to this
legislation, the Company has proposed a restructuring of the Trust and the
Corporation (the "Restructuring"). After completion of the proposed
Restructuring, the Company would no longer be a "grandfathered paired share
REIT." In the Restructuring, the Trust would become a subsidiary of the
Corporation, which would hold all outstanding shares of the new Class A shares
of beneficial interest in the Trust. Each outstanding Trust Share would be
converted into one share of the new non-voting Class B shares of beneficial
interest in the Trust. The Restructuring would be accounted for as a
reorganization of two companies under common control. As such, there would be no
revaluation of the assets and liabilities of the combining companies. If the
Restructuring occurs, the Company is expected to take a one-time charge of
approximately $1 billion at the time of the Restructuring, primarily related to
a deferred tax liability that will result from the Restructuring.
 
     The Corporation, through its subsidiaries, is the general partner of, and
holds an aggregate 95.2% partnership interest in, SLC Operating Limited
Partnership (the "Operating Partnership") as of Septem-
                                       14
<PAGE>   16
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
 
ber 30, 1998. The Trust, through its subsidiaries, is the general partner of,
and owns an aggregate 95.3% partnership interest in, SLT Realty Limited
Partnership (the "Realty Partnership" and, together with the Operating
Partnership, the "Partnerships") as of September 30, 1998. The Realty
Partnership principally owns, directly or indirectly, fee, ground lease and
mortgage loan interests in hotel properties. The Operating Partnership, directly
or indirectly, principally leases hotel properties from the Realty Partnership
and also owns fee interests in other hotel properties and manages hotels for
third parties.
 
NOTE 2.  SIGNIFICANT ACCOUNTING POLICIES
 
  Comprehensive Income
 
     In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income, which establishes standards for the reporting and display
of comprehensive income and its components. SFAS No. 130 requires a separate
statement to report the components of comprehensive income for each period
reported. The Company adopted SFAS No. 130 on January 1, 1998 and, as such, has
included the required statement of comprehensive income and the expanded
disclosure in the accompanying financial statements for the Company and the
Corporation.
 
     During the nine months ended September 30, 1997, the Company recorded
foreign currency translation adjustments of approximately $126 million. In
addition, during the nine months ended September 30, 1998 and 1997, the Company
held securities classified as available-for-sale which had unrealized net gains
(losses) during the period of approximately $(1) million and $176 million,
respectively. ITT sold certain securities during the nine months ended September
30, 1997 recognizing a gain of $114 million.
 
  Derivatives
 
     The Company enters into interest rate swap agreements to manage interest
rate exposure. The differential to be paid or received under these agreements is
accrued consistent with the terms of the agreements and market interest rates
and is recognized in interest expense over the term of the related debt using
the effective interest method (the accrual accounting method). The related
amounts payable to or receivable from counterparties are included in other
liabilities or assets. The fair value of the swap agreements and changes in the
fair value as a result of changes in market interest rates are not recognized in
the financial statements.
 
     The Company enters into foreign currency forward contracts and foreign
currency swaps as a means of hedging exposure to foreign currency. Foreign
currency forward contracts and foreign currency swaps are accounted for in
accordance with SFAS No. 52, Foreign Currency Translation. Changes in the value
of the derivative instruments designated as hedges of foreign currency
denominated assets and liabilities are classified in the same manner as the
classification of the changes in the underlying assets and liabilities.
 
     The Company does not enter into these derivative financial instruments for
speculative purposes and closely monitors the financial stability and credit
standing of its counterparties. When a derivative is deemed to no longer
effectively correlate with its underlying assets or liabilities, it is the
Company's policy to mark to market these derivatives.
 
NOTE 3.  ACQUISITIONS
 
  Hotel Acquisitions
 
     In July 1998, the Company acquired a 95% non-controlling interest in the
760-room Westin Maui in Maui, Hawaii for approximately $132 million.
 
     In May 1998, the Company acquired the 242-room Danbury Hilton Hotel in
Danbury, Connecticut for approximately $20 million.
 
                                       15
<PAGE>   17
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
     In January 1998, the Company completed the acquisition of four
full-service, luxury properties located in Aspen, Colorado; New York, New York;
Washington, D.C.; and Houston, Texas for a total consideration of approximately
$348 million, consisting of $164 million in cash and 3.7 million Paired Shares
valued for purposes of this transaction at approximately $184 million.
 
  Acquisition of ITT
 
     On February 23, 1998, pursuant to an Amended and Restated Agreement and
Plan of Merger, dated as of November 12, 1997 (the "ITT Merger Agreement"),
among the Corporation, Chess Acquisition Corp. ("Merger Sub"), the Trust and
ITT, the Company acquired ITT.
 
     Pursuant to the terms of the ITT Merger Agreement, Merger Sub, a newly
formed Nevada corporation, was merged with and into ITT (the "ITT Merger"),
whereupon the separate corporate existence of Merger Sub ceased and ITT
continued as the surviving corporation. As a result of the ITT Merger, ITT was
owned jointly by the Trust and the Corporation. Immediately after the effective
time of the ITT Merger, the Corporation purchased all of the common stock, no
par value, of ITT ("ITT Common Stock") owned by the Trust for a combination of
cash and notes. After such purchase, ITT became a wholly owned subsidiary of the
Corporation.
 
     Under the terms of the ITT Merger Agreement, each outstanding share of ITT
Common Stock, together with the associated right to purchase shares of Series A
Participating Cumulative Preferred Stock of ITT (the "Rights" and, together with
the ITT Common Stock, "ITT Shares"), other than those that were converted into
cash pursuant to a cash election by the holder (and other than ITT Shares owned
directly or indirectly by ITT or Starwood Hotels, which shares were canceled),
was converted into 1.543 Paired Shares. Pursuant to cash election procedures,
approximately 35 million ITT Shares, representing approximately 30% of the
outstanding ITT Shares, were converted into $85 in cash per share. In addition,
each ITT Share was converted into additional cash consideration in the amount of
$0.37493151, which amount represents the interest that would have accrued
(without compounding) on $85 at an annual rate of 7% during the period from and
including January 31, 1998 to but excluding the date of the closing of the ITT
Merger (February 23, 1998). The aggregate value of the ITT acquisition in cash,
Paired Shares and assumed debt was approximately $14.6 billion.
 
     On February 23, 1998, the Company obtained two credit facilities ($5.6
billion in total) with Lehman Commercial Paper Inc., Bankers Trust Company and
The Chase Manhattan Bank to fund the cash portion of the ITT Merger
consideration, to refinance a portion of the Company's existing indebtedness
(including indebtedness outstanding under the $2.2 Billion Facility, as defined
below) and to provide funds for general corporate purposes. These facilities are
comprised of a $3.1 billion senior secured credit facility (the "$3.1 Billion
Facility") and a $2.5 billion, five-year secured increasing rate notes facility
(the "IRN Facility").
 
     The $3.1 Billion Facility has three tranches: a $1.0 billion, one-year term
loan; a $1.0 billion, five-year term loan; and a $1.1 billion, five-year
revolving credit facility. The Corporation, the Trust and certain of their
respective direct and indirect subsidiaries may be designated as borrowers or
co-borrowers under all or a portion of the $3.1 Billion Facility. The interest
rate for the $3.1 Billion Facility was one-, two- or three-month LIBOR, at the
Company's option, plus a margin which was 187.5 basis points for the six months
ended August 24, 1998. The margin is determined pursuant to a pricing "grid"
with rates based on the Company's leverage and/or senior unsecured debt rating.
Quarterly amortization of the five-year term loan begins in the third year, with
total amortization of 10%, 20% and 70% of the principal amount over the third,
fourth and fifth year, respectively. Repayment of amounts borrowed under the
$3.1 Billion Facility is guaranteed by the Trust, the Corporation and
substantially all their respective significant subsidiaries (including the
Partnerships, as defined below) other than gaming and foreign subsidiaries and
joint venture entities (the "Guarantor Subsidiaries"), to the extent such
entities are not borrowers or co-borrowers, and is secured by a pledge of all
the capital stock, partnership interests and other equity interests of the
Guarantor Subsidiaries.
 
                                       16
<PAGE>   18
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
     The IRN Facility consists of a single drawdown, senior increasing rate,
non-amortizing five-year term loan for $2.5 billion. The Corporation is the
borrower under the IRN Facility; the Trust and all Guarantor Subsidiaries are
guarantors of the IRN Facility. The IRN Facility is secured equally and ratably
by all the collateral securing the $3.1 Billion Facility and is pari passu in
right of payment with all other senior indebtedness of the borrower and the
Guarantor Subsidiaries, including the $3.1 Billion Facility. Amounts borrowed
under the IRN Facility bore interest at one-, two- or three-month LIBOR plus 175
basis points for the three months ending May 24, 1998, with the interest rate
increasing by 50 basis points every three months thereafter, up to a maximum
rate of one-, two- or three-month LIBOR plus 375 basis points.
 
     The Company accounted for the ITT Merger as a reverse purchase in
accordance with Accounting Principles Board Opinion No. 16. Purchase accounting
for a combination is similar to the accounting treatment used in the acquisition
of any asset group. Although the Trust and the Corporation issued Paired Shares
to ITT stockholders and survived the ITT Merger, the Trust and the Corporation
are considered the acquired companies for accounting purposes since the prior
ITT stockholders held a majority of the outstanding Paired Shares immediately
after the ITT Merger was consummated. The fair market value of the Paired Shares
outstanding and available upon conversion of the Partnership units held by the
Starwood Hotels' stockholders prior to the ITT Merger and the Partnerships' unit
holders, respectively (using the stock price of $54.31 per Paired Share, based
on the average of the high and low prices per Paired Share of Starwood Hotels as
reported on the New York Stock Exchange (the "NYSE") on November 12, 1997), is
used as the valuation basis for the combination. The fair market value of the
Paired Shares outstanding on February 23, 1998 (the ITT Merger closing date)
immediately prior to giving effect to the ITT Merger in excess of the net book
value of the assets and liabilities of Starwood Hotels has been allocated on a
preliminary basis to plant, property and equipment and goodwill. The goodwill is
being amortized over a 40-year period. The allocation of the excess of fair
market value of the assets and liabilities will be finalized when the Company
completes its valuation of the assets acquired and liabilities assumed. The
calculation of the excess of the fair market value of the Paired Shares over the
book value of the Company's assets and liabilities at February 23, 1998 is as
follows (in millions):
 
<TABLE>
<S>                                                           <C>
Total Paired Shares and Partnership units outstanding prior
  to the ITT Merger.........................................       80
Fair market value of the Company's Paired Shares using the
  stock price of $54.31 (based on the average of the high
  and low prices per Paired Share of Starwood Hotels as
  reported on the NYSE on November 12, 1997)................  $ 4,350
Book value of the Company's combined consolidated equity....   (1,775)
Transaction-related fees and expenses.......................       37
Minority interest related to the Partnerships...............     (152)
                                                              -------
Excess of fair market value of Paired Shares over the book
  value of net assets.......................................  $ 2,460
                                                              =======
</TABLE>
 
     Because the acquisition of ITT is treated as a reverse purchase for
financial accounting purposes, the statements of income, comprehensive income
and cash flows for the nine months ended September 30, 1998 include the accounts
of the Trust and the Corporation for the period from the closing of the ITT
Merger on February 23, 1998 through September 30, 1998 and the accounts of ITT
for the nine months ending September 30, 1998. The financial statements for the
Company as of and for the three months ended September 30, 1998 include the
accounts of the Trust, the Corporation and ITT. Historical stockholders' equity
of the Company prior to the ITT Merger has been retroactively restated for the
equivalent number of shares received in the ITT Merger after giving effect to
the difference in par value between Starwood Hotels' and ITT's stock. Unless
otherwise indicated, all references herein to the number of Paired Shares and
per share amounts have been restated to reflect the impact of the reverse
acquisition at the conversion factor of 1.543 Paired Shares for each ITT Share
acquired. Certain reclassifications have been made to the Company's
 
                                       17
<PAGE>   19
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
balance sheet in the current year to conform to the presentation of the ITT
balance sheet as of December 31, 1997. See Note 14 and the Combined Consolidated
Pro Forma Statements of Unaudited Income included therein for the pro forma
information giving effect to the ITT Merger.
 
  Acquisition of Westin
 
     On January 2, 1998, pursuant to a Transaction Agreement dated as of
September 8, 1997 (the "Westin Transaction Agreement"), among WHWE L.L.C.
("WHWE"), Woodstar Investor Partnership ("Woodstar"), Nomura Asset Capital
Corporation ("Nomura"), Juergen Bartels (Mr. Bartels, together with WHWE,
Woodstar and Nomura, the "Members"), Westin Hotels & Resorts Worldwide, Inc.
("Westin Worldwide"), W&S Lauderdale Corp. ("Lauderdale"), W&S Seattle Corp.
("Seattle"), Westin St. John Hotel Company, Inc. ("St. John"), W&S Denver Corp.
("Denver"), W&S Atlanta Corp. ("Atlanta" and, together with Westin Worldwide,
Lauderdale, Seattle, St. John and Denver, "Westin"), W&S Hotel L.L.C. ("W&S LLC"
and, together with Westin, the "Westin Companies" or "Westin"), the Trust, the
Corporation and the Partnerships, Starwood Hotels acquired Westin.
 
     Pursuant to the terms of the Transaction Agreement,
 
          (i) Westin Worldwide merged into the Trust (the "Westin Merger"). In
     connection with the Westin Merger, all the issued and outstanding shares of
     capital stock of Westin Worldwide (other than shares held by Westin
     Worldwide and its subsidiaries or by the Company) were converted into an
     aggregate of 6,285,783 Class A Exchangeable Preferred Shares, par value
     $0.01 per share (the "Class A EPS"), of the Trust and 5,294,783 Class B
     Exchangeable Preferred Shares, liquidation value $38.50 per share (the
     "Class B EPS" and, together with the Class A EPS, the "EPS"), of the Trust
     and cash in the amount of $177.9 million;
 
          (ii) The stockholders of Lauderdale, Seattle and Denver contributed
     all the outstanding shares of such companies to the Realty Partnership. In
     exchange for such contribution and after giving effect to the deemed
     exchange of certain units, the Realty Partnership issued to such
     stockholders an aggregate of 470,309 limited partnership units of the
     Realty Partnership and the Trust issued to such stockholders an aggregate
     of 127,534 shares of Class B EPS. In addition, in connection with the
     foregoing share contribution, the Realty Partnership assumed, repaid or
     refinanced the indebtedness of Lauderdale, Seattle and Denver and assumed
     $84.2 million of indebtedness incurred by the Members prior to such
     contributions; and
 
          (iii) The stockholders of Atlanta and St. John contributed all the
     outstanding shares of such companies to the Operating Partnership. In
     exchange for such contribution and after giving effect to the deemed
     exchange of certain units, the Operating Partnership issued to such
     stockholders an aggregate of 312,741 limited partnership units of the
     Operating Partnership and the Trust issued to such stockholders an
     aggregate of 80,415 shares of Class B EPS. In addition, in connection with
     the foregoing share contributions, the Operating Partnership assumed,
     repaid or refinanced indebtedness of Atlanta and St. John and assumed $3.4
     million of indebtedness incurred by the Members prior to such
     contributions.
 
     The aggregate principal amount of debt assumed or incurred by the Company
pursuant to the Westin Transaction Agreement was approximately $1.0 billion.
 
     The shares of Class A EPS, the shares of Class B EPS and the limited
partnership interests issued in connection with the Westin Merger and the
contribution of Seattle, Lauderdale, Denver, St. John and Atlanta to the
Partnerships are directly or indirectly exchangeable on a one-for-one basis
(subject to certain adjustments) for Paired Shares (subject to the right of the
Company to elect to pay cash in lieu of issuing such shares). The limited
partnership interests also are exchangeable on a one-for-one basis for shares of
Class B EPS. The shares of Class B EPS have a liquidation preference of $38.50
per share and provide the
                                       18
<PAGE>   20
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
holders with the right, from and after the fifth anniversary of the closing date
of the Westin Merger, to require the Trust to redeem such shares at a price of
$38.50.
 
     On January 2, 1998, the Company obtained a $2.265 billion credit facility
(the "$2.2 Billion Facility") from a group of lenders led by Bankers Trust
Company and The Chase Manhattan Bank to fund the cash portion of the purchase of
Westin for approximately $178 million and to repay an aggregate of approximately
$1.0 billion of outstanding debt of Westin and of the Company under a $1.2
billion facility. The $2.2 Billion Facility was refinanced on February 23, 1998
with proceeds from the $3.1 Billion Facility and the IRN Facility.
 
NOTE 4.  DISPOSITIONS AND DISCONTINUED OPERATIONS
 
     In June 1998, the Company sold the 151-room Bay Valley Hotel and Resort in
Bay City, Michigan for approximately $5 million and its remaining interest in
the King 8 Hotel and Casino in Las Vegas, Nevada for approximately $3 million.
 
     In June 1998, the Company sold approximately 13 million shares of ITT
Educational Services, Inc. ("Educational Services") in a public offering for
total gross proceeds of approximately $315 million. The Company continues to
explore its options regarding the disposition of its remaining 35% ownership
interest in Educational Services. The assets and liabilities of Educational
Services are included in net assets of discontinued operations in the Company's
financial statements.
 
     The Company disposed of the following eight properties in May 1998 for a
total of approximately $245 million in cash: the 229-room Embassy Suites Phoenix
Airport in Phoenix, Arizona; the 224-room Tempe Embassy Suites in Tempe,
Arizona; the 198-room Palm Desert Embassy Suites in Palm Desert, California; the
233-room Embassy Suites Hotel in Atlanta, Georgia; the 297-room St. Louis
Embassy Suites in St. Louis, Missouri; the 308-room Doubletree Guest Suites in
Dallas-Ft. Worth International Airport, Texas; the 254-room Doubletree Guest
Suites Cypress Creek in Ft. Lauderdale, Florida; and the 155-room Doubletree
Guest Suites in Lexington, Kentucky.
 
     In May 1998, the Company sold a Gulfstream V corporate aircraft for
approximately $39 million in cash.
 
     In March 1998, ITT and Dow Jones & Company, Inc. sold WBIS+, Channel 31 in
New York City, to Paxson Communications Corporation ("Paxson") for a total cash
purchase price of approximately $258 million; approximately $128 million was
received by ITT.
 
     In February 1998, ITT disposed of ITT World Directories ("WD"), the
subsidiary through which ITT conducted its telephone directories publishing
business, to VNU, a leading international publishing and information company
based in the Netherlands, for gross consideration to ITT of $2.1 billion.
Company interest expense and debt related to the disposition of WD was allocated
to discontinued operations based upon the amount of debt repaid with the
proceeds from this disposition. The assets and liabilities of WD are included in
net liabilities of discontinued operations in the Company's financial
statements.
 
     In June 1997, ITT sold a 38.5% ownership interest in Madison Square Garden,
L.P. ("MSG") to Cablevision Systems Corporation ("Cablevision") for
approximately $493.5 million and recorded a pretax gain of approximately $200
million. ITT also had two "put" options each allowing ITT to require Cablevision
or MSG to purchase one-half of ITT's then continuing 7.81% interest in MSG for
$75 million. In addition, ITT contributed to MSG an ITT-owned aircraft which MSG
had used for the New York Knickerbockers basketball team and the New York
Rangers hockey team. In consideration of the aircraft contribution, Cablevision
agreed to increase the exercise price of each of ITT's "put" options by $19
million. ITT exercised one "put" option in April 1998 for total consideration of
approximately $94 million, and the remaining "put" option is exercisable in June
1999.
 
                                       19
<PAGE>   21
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
 
     During February and March 1997, ITT sold its interest in the capital stock
of Alcatel Alsthom. Total proceeds from these sales were approximately $830
million, resulting in an after-tax gain of $106 million ($183 million pretax).
In April 1997, ITT received the remaining balance of $533 million from these
sales.
 
NOTE 5.  CHANGES IN ACCOUNTING PRINCIPLES
 
     Effective January 1, 1997, ITT changed its method of accounting for
start-up costs on major hospitality and gaming projects to expense these costs
as incurred. Prior to 1997, ITT capitalized these costs and amortized them over
a three-year period. The 1997 results were restated to record a pretax charge of
$17 million ($11 million after taxes) as the cumulative effect of this
accounting change. In connection with the ITT Merger, the Company elected to
follow ITT's accounting treatment regarding start-up costs and, therefore, is
expensing start-up costs as incurred.
 
NOTE 6.  RESTRUCTURING AND OTHER SPECIAL CHARGES
 
     During the third quarter of 1998, the Company recorded pretax charges
totaling approximately $310 million relating to restructuring and other special
charges. The charges represent a portion of the approximate $1.2 billion
restructuring and other special charges that the Company announced in August
1998.
 
     The third quarter 1998 restructuring and other special charges consist of
the following:
 
<TABLE>
<CAPTION>
                                           NON-CASH        CASH        EXPENDITURES
                                           CHARGES     EXPENDITURES      ACCRUED       TOTAL
                                           --------    ------------    ------------    -----
<S>                                        <C>         <C>             <C>             <C>
Write-down of assets.....................    $115          $--             $ --        $115
ITT Merger-related costs.................      20           20               85         125
Other non-recurring costs................      15           40               15          70
                                             ----          ---             ----        ----
          Total..........................    $150          $60             $100        $310
                                             ====          ===             ====        ====
</TABLE>
 
  Write-Down of Assets
 
     The restructuring and special charges include the write-down of assets that
include investments in a hotel in Kuala Lampur, Malaysia; a mortgage note
receivable secured by a hotel in Paris, France; an investment in a shared
services center established by ITT in 1997 which was closed by the Company
following the ITT Merger; and certain receivable balances in the Company's
gaming division primarily related to Asian customers. These assets were
primarily ITT assets and were written down primarily as a result of certain
worldwide economic conditions indicating a reduced value for these assets.
 
  ITT Merger Related Costs
 
     The restructuring and special charges include costs related to the ITT
Merger consisting primarily of severance payments and relocation costs for ITT
employees and certain costs to integrate the companies, including costs to
integrate the Company's frequent guest programs and to close down duplicate
facilities.
 
  Other
 
     The restructuring and special charges include other non-recurring costs
consisting primarily of the costs associated with the settlement of certain
forward interest rate swap transactions (see Note 10) and the vesting, during
the quarter, of certain restricted stock granted earlier in the year to the
President and Chief Executive Officer of the Corporation.
 
                                       20
<PAGE>   22
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
     During the first quarter of 1997, ITT recorded pretax charges totaling $58
million to restructure and rationalize operations at its World Headquarters. Of
the total pretax charge, approximately $28 million represented severance and
other related employee termination costs associated with the elimination of
nearly 115 positions worldwide. The balance of the restructuring charge ($30
million pretax) related primarily to asset write-offs, lease commitments and
termination penalties. With the exception of the remaining lease commitments,
substantially all of these costs have been paid.
 
NOTE 7.  NET ASSETS HELD FOR SALE
 
     At September 30, 1998, the Company's hotel portfolio included two hotel
properties held for sale: the 155-room Tyee Hotel in Olympia, Washington and the
155-room Four Points Hotel in Wichita, Kansas. These properties were included in
net assets held for sale as of September 30, 1998.
 
     In April 1997, ITT announced its intention to sell one of its gaming
properties, the Desert Inn in Las Vegas, Nevada. For financial reporting
purposes, the assets and liabilities attributable to this property have been
included in net assets held for sale as of September 30, 1998.
 
     There can be no assurance that these sales will occur or, if they occur, as
to the timing of such sales. Management will evaluate its alternatives in the
event a decision is made to change its current intention to sell these
properties.
 
NOTE 8.  EARNINGS PER SHARE
 
     Earnings per share for the three and nine months ended September 30, 1997,
as previously reported by ITT, has been restated to give effect to the reverse
purchase accounting for the ITT Merger and to conform to the presentation
required by SFAS No. 128, Earnings Per Share. The following is a reconciliation
of basic earnings per Paired Share to diluted earnings per Paired Share for
income (loss) from continuing operations (in millions, except per share data):
 
<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED SEPTEMBER 30,
                                          -------------------------------------------------------------
                                                      1998                            1997
                                          -----------------------------   -----------------------------
                                          EARNINGS   SHARES   PER SHARE   EARNINGS   SHARES   PER SHARE
                                          --------   ------   ---------   --------   ------   ---------
<S>                                       <C>        <C>      <C>         <C>        <C>      <C>
Income (loss) from continuing
  operations............................   $(101)                           $43
Dividends on Class A and Class B EPS....      (4)                            --
                                           -----                            ---
Basic earnings (loss) per Paired
  Share.................................    (105)     188      $(0.56)       43       126       $0.34
Effect of dilutive securities:
  Paired Share options..................               --                               2
                                                      ---                             ---
Diluted earnings (loss) per Paired
  Share.................................   $(105)     188      $(0.56)      $43       128       $0.34
                                           =====      ===      ======       ===       ===       =====
</TABLE>
 
<TABLE>
<CAPTION>
                                                         NINE MONTHS ENDED SEPTEMBER 30,
                                          -------------------------------------------------------------
                                                      1998                            1997
                                          -----------------------------   -----------------------------
                                          EARNINGS   SHARES   PER SHARE   EARNINGS   SHARES   PER SHARE
                                          --------   ------   ---------   --------   ------   ---------
<S>                                       <C>        <C>      <C>         <C>        <C>      <C>
Income (loss) from continuing
  operations............................    $ (3)                           $321
Dividends on Class A and Class B EPS....     (15)                             --
                                            ----                            ----
Basic earnings (loss) per Paired
  Share.................................     (18)     187      $(0.10)       321      126       $2.55
Effect of dilutive securities:
  Paired Share options..................               --                               2
                                                      ---                             ---
Diluted earnings (loss) per Paired
  Share.................................    $(18)     187      $(0.10)      $321      128       $2.51
                                            ====      ===      ======       ====      ===       =====
</TABLE>
 
                                       21
<PAGE>   23
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
 
     Class A and Class B EPS, outstanding options to purchase Paired Shares,
equity put options and forward equity contract security settlements were not
included in the computation of diluted earnings per Paired Share for the three
and nine months ended September 30, 1998 as the effects were anti-dilutive.
 
NOTE 9.  STOCKHOLDERS' EQUITY
 
     During the nine months ended September 30, 1998, the Trust consented to the
conversion of 1,360,403 shares of Class B EPS by certain stockholders into an
equal number of shares of Class A EPS; stockholders thereafter converted
2,889,106 shares of Class A EPS into an equal number of Paired Shares.
 
     Pursuant to the Company's share repurchase program, the Company repurchased
approximately 7.143 million Paired Shares in the open market at an average
purchase price of $34.59 during the three months ended September 30, 1998.
During the nine months ended September 30, 1998, the Company had repurchased
approximately 9.124 million Paired Shares in the open market at an average
purchase price of $37.67 per Paired Share.
 
     As a part of its share repurchase program, the Company sold equity put
options during the third quarter of 1998 that entitle the holder, at the
expiration date, to sell Paired Shares to the Company at contractually specified
prices. The Company issued put options for the purchase of one million Paired
Shares for $1.8 million in premiums which was included in additional paid-in
capital. As of September 30, 1998, none of the equity put options had been
exercised and equity put options with an aggregate exercise price of
approximately $32 million for one million Paired Shares remained outstanding at
strike prices ranging from $31.11 to $32.85 with expiration dates ranging from
December 1998 through March 1999. In the event the options are exercised, the
Company is required to deliver the full stated amount of cash to the put holder
for the full stated number of Paired Shares. The Company may elect, under
certain circumstances, to pay the put holder in cash or shares equal to fair
market value of the difference between the strike price and the market price of
the Paired Shares.
 
NOTE 10.  DERIVATIVES
 
     The Company enters into interest rate swap agreements to manage interest
rate fluctuations on its variable rate debt. The Company currently has five
outstanding forward interest rate swap agreements under which the Company pays a
fixed rate and receives variable rates of interest. The aggregate notional
amount of these forward interest rate swaps was approximately $1.030 billion and
the estimated unrealized loss on these interest rate swaps was approximately $50
million at September 30, 1998. Four of these five forward interest rate swap
agreements, representing $1 billion of the total notional amount, are required
by the terms of the Company's existing credit facilities. The unrealized loss
represents the amount the Company would pay to terminate the swap agreements
based on current interest rates.
 
     The Company enters into forward foreign exchange contracts to hedge the
foreign currency exposure associated with the Company's foreign currency
denominated assets and liabilities. The Company currently has two forward
foreign exchange contracts outstanding with a dollar equivalent of the
contractual amounts of these hedges at September 30, 1998 of approximately $54.9
million. These contracts mature on January 8, 1999.
 
     A long-term debt offering that the Company was contemplating was delayed
due to market conditions and the Restructuring. As a result, certain of the
Company's interest rate swaps with a notional amount of $500 million no longer
correlated with this anticipated indebtedness. In accordance with the Company's
accounting policies, these interest rate swaps were marked to market by the
Company and, as such, the Company recognized a loss of $40 million, which is
included in the restructuring and other special charges in the third quarter of
1998 (see Note 6). These contracts were terminated by the Company.
 
                                       22
<PAGE>   24
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
 
NOTE 11.  COMMITMENTS AND CONTINGENCIES
 
     Pursuant to a Purchase Agreement dated October 10, 1997, the Company sold
to UBS Limited ("UBS Ltd.") 2.185 million Paired Shares ("UBS Shares") at a cash
price of $57.25 per share, and paid to Warburg Dillon Read LLC (formerly UBS
Securities LLC), an affiliate of UBS Ltd., a placement fee equal to 2.5% of the
gross proceeds to the Company from such sale of shares. Concurrently therewith,
the Company entered into a Forward Stock Contract dated October 13, 1997, with
Union Bank of Switzerland, London Branch ("UBS/LB") (the "UBS Price Adjustment
Agreement"). The UBS Price Adjustment Agreement provided for a settlement
payment to be made, in the form of Paired Shares or cash, by the Company to
UBS/LB, or by UBS/LB to the Company, based on the market price of the Paired
Shares over a specified unwind period, as compared to a "Forward Price" (as
defined, but essentially equal to $57.25 per Paired Share, plus an implicit
interest factor less dividends paid on the UBS Shares, in each case during the
term of the UBS Price Adjustment Agreement). If prior to final settlement the
market price of the Paired Shares fell below the Forward Price, the Company was
obligated to deliver, at quarterly intervals, additional Paired Shares to UBS/
LB. In the event the market price of the Paired Shares exceeded the Forward
Price on a quarterly settlement date, UBS/LB was obligated to deliver to the
Company a portion of the UBS Shares to account for the differential.
 
     The Company had the right at any time prior to October 10, 1998 to elect to
deliver or receive Paired Shares in settlement of the UBS Price Adjustment
Agreement. The Company had the further right, but not the obligation, to settle
the Company's obligations under the contract by repurchasing for cash at the
Forward Price a number of Paired Shares equal to the UBS Shares. The Company had
the obligation to settle the UBS Price Adjustment Agreement on October 10, 1998
unless UBS/LB agreed to extend such agreement's terms. The Company settled the
UBS Price Adjustment Agreement in September 1998 by repurchasing the UBS Shares
for approximately $130.3 million in cash. As a result of the settlement of the
UBS Price Adjustment Agreement, the Company has no further obligations under
this agreement and Paired Shares outstanding were reduced by 2.185 million.
 
     On February 24, 1998, the Trust and the Corporation sold an aggregate of
4.641 million Paired Shares to Merrill Lynch International, NMS Services, Inc.,
Lehman Brothers Inc. and certain affiliates (collectively, the "February
Purchasers" and together with UBS Ltd., the "Purchasers") for a cash purchase
price per Paired Share of $52.798, which price reflected a 2% discount from the
last reported sale price of the Paired Shares on the date of the purchase.
 
     Concurrently with these sales, the Trust and the Corporation entered into
three separate agreements (the "February Price Adjustment Agreements") with the
February Purchasers and/or certain of their affiliates pursuant to which each of
the February Purchasers or their respective affiliates agreed to sell, as
directed by the Trust and the Corporation and on or before February 24, 1999, in
an underwritten fixed price offering or another method specified in the February
Price Adjustment Agreements, a sufficient number of the purchased Paired Shares
to achieve net sales proceeds equal to the aggregate market value of the Paired
Shares purchased by such February Purchasers in February 1998, plus a forward
accretion component, minus an adjustment for dividends paid on the purchased
Paired Shares. In addition, each February Purchaser had the right to cause a
sale of all or a portion of the purchased Paired Shares in the event the market
prices of the Paired Shares declined below certain levels. The precise numbers
of Paired Shares that were required to be sold pursuant to the February Price
Adjustment Agreements would have depended primarily on the market prices of the
Paired Shares at the time of settlement. If the number of Paired Shares required
to be sold was greater than the number of Paired Shares purchased by the
February Purchasers as a result of a decrease in the market prices of the Paired
Shares, the Trust and the Corporation were required to issue additional Paired
Shares to the February Purchasers at a cash price of $0.01 per share. If the
number of Paired Shares required to be sold was less than the number of Paired
Shares purchased by the February Purchasers on February 24,
 
                                       23
<PAGE>   25
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
 
1998 as a result of an increase in the market prices of the Paired Shares, the
February Purchasers were required to deliver to the Trust and the Corporation a
specified number of Paired Shares. The effect of the February Price Adjustment
Agreements was to cause the February Purchasers to receive and retain an amount
equal to the purchase price paid by the February Purchasers for the Paired
Shares plus an annual rate of return on that purchase price equal to the
three-month LIBOR for a specified period plus 1.75%, subject to adjustment under
certain circumstances.
 
     In the event that the cash purchase price of the aggregate Paired Shares
purchased by the February Purchasers less $5 million was in excess of the
aggregate closing price of those Paired Shares on certain dates during the term
of the February Price Adjustment Agreements, the Company was obligated to
deliver additional Paired Shares to the February Purchasers as security for the
Company's settlement obligations. As of September 30, 1998, the Company had
delivered approximately 2.738 million Paired Shares in accordance with this
security requirement.
 
     In October 1998, the Company settled the February Price Adjustment
Agreements by repurchasing all of the Paired Shares issued to the February
Purchasers for an aggregate of approximately $255 million in cash. As a result
of this settlement, the Company has no further obligations under these
agreements and Paired Shares outstanding were reduced by approximately 7.379
million (4.641 million original shares issued and 2.738 million shares
previously issued as security).
 
NOTE 12.  GAMING OPERATIONS
 
     Casino revenues represent the net win from gaming wins and losses. Revenues
exclude the retail value of rooms, food, beverage, entertainment and other
promotional allowances provided on a complimentary basis to customers. The
estimated retail value of such promotional allowances was $52 million and $40
million for the three months ended September 30, 1998 and 1997, respectively,
and $148 million and $115 million for the nine months ended September 30, 1998
and 1997, respectively. The estimated cost of such promotional allowances was
$37 million and $31 million for the three months ended September 30, 1998 and
1997, respectively, and $104 million and $90 million for the nine months ended
September 30, 1998 and 1997, respectively, and has been included in costs and
expenses.
 
     Revenues and costs and expenses of the gaming operations, excluding the
King 8 Hotel & Casino, which was sold in June 1998, are comprised of the
following (in millions):
 
<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED SEPTEMBER 30,
                                              ----------------------------------------------
                                                      1998                     1997
                                              ---------------------    ---------------------
                                                          COSTS AND                COSTS AND
                                              REVENUES    EXPENSES     REVENUES    EXPENSES
                                              --------    ---------    --------    ---------
<S>                                           <C>         <C>          <C>         <C>
Gaming......................................   $  285       $159         $242        $149
Rooms.......................................       32         10           17           7
Food and beverage...........................       27         26           19          18
Other operations............................       47         26           30          15
Selling, general and administrative.........       --         60           --          44
Preopening costs............................       --          9           --           5
Restructuring and other special charges.....       --         55           --          --
Depreciation and amortization...............       --         39           --          18
Provision for doubtful accounts.............       --          5           --           8
                                               ------       ----         ----        ----
          Total.............................   $  391       $389         $308        $264
                                               ======       ====         ====        ====
</TABLE>
 
                                       24
<PAGE>   26
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
 
<TABLE>
<CAPTION>
                                                     NINE MONTHS ENDED SEPTEMBER 30,
                                              ----------------------------------------------
                                                      1998                     1997
                                              ---------------------    ---------------------
                                                          COSTS AND                COSTS AND
                                              REVENUES    EXPENSES     REVENUES    EXPENSES
                                              --------    ---------    --------    ---------
<S>                                           <C>         <C>          <C>         <C>
Gaming......................................   $  753       $437         $715        $445
Rooms.......................................       94         31           50          19
Food and beverage...........................       84         76           55          52
Other operations............................      108         57           83          43
Selling, general and administrative.........       --        165           --         135
Preopening costs............................       --         35           --           8
Restructuring and other special charges.....       --         55           --          --
Depreciation and amortization...............       --        106           --          59
Provision for doubtful accounts.............       --         26           --          22
                                               ------       ----         ----        ----
          Total.............................   $1,039       $988         $903        $783
                                               ======       ====         ====        ====
</TABLE>
 
NOTE 13.  IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
 
  SFAS No. 133
 
     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the fair value of the derivative be
recognized currently in earnings unless specific hedge accounting criteria are
met. If specific hedge accounting criteria are met, changes in the fair value of
derivatives will either be offset against the change in the fair value of the
hedged assets, liabilities, or firm commitments through earnings, or recognized
in other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. The Company expects to adopt SFAS No. 133
effective January 1, 2000. Management has not yet quantified the impact of
adopting SFAS No. 133 on the Company's financial statements.
 
  EITF 98-9
 
     In May 1998, the Emerging Issues Task Force ("EITF") of the FASB reached a
consensus on EITF 98-9, Accounting for Contingent Rent in Interim Financial
Periods. EITF 98-9 provides that a lessor shall defer recognition of contingent
rental income in interim periods until specified targets that trigger the
contingent income are met. EITF 98-9 provides that a lessee shall accrue
contingent rental expense when it is probable that the targets will be achieved.
Management has reviewed the terms of its leases and has determined that the
provisions of EITF 98-9 will have an immaterial impact on the Company's rental
revenue and expense recognition on an interim and annual basis. The Company has
adopted the provisions of EITF 98-9 effective May 1998 and elected to apply the
provisions of the new pronouncement on a prospective basis.
 
  EITF 97-2
 
     In November 1997, the EITF reached a consensus on EITF 97-2, Application of
SFAS No. 94 and APB Opinion No. 16 to Physician Practice Management Entities and
Certain Other Entities with Contractual Management Arrangements. EITF 97-2
addresses the circumstances in which a management entity may include the
revenues and expenses of a managed entity in its financial statements. As a
result of EITF 97-2,
 
                                       25
<PAGE>   27
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
 
the Company intends to change its accounting policy for its managed hotels
beginning in the fourth quarter of 1998. Application of EITF 97-2 for the nine
months ended September 30, 1998 and 1997 would have reduced each of revenues and
operating expenses by approximately $2.8 billion and $2.2 billion, respectively.
There would be no impact on operating income, net income, working capital,
earnings per Paired Share or stockholders' equity as a result of this change in
accounting policy.
 
  SFAS No. 131
 
     In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, which establishes standards for the way
public business enterprises report information about operating segments in
annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. This statement is effective for financial statements for fiscal
years beginning after December 15, 1997. The expanded disclosures required by
this statement will be included in the Company's 1998 annual financial
statements.
 
NOTE 14.  PRO FORMA RESULTS
 
     Due to the impact of the ITT Merger and the acquisition of Westin during
the nine months ended September 30, 1998, the unaudited condensed combined
consolidated pro forma statements of income of Starwood Hotels & Resorts and
Starwood Hotels & Resorts Worldwide, Inc. for the three and nine months ended
September 30, 1998 are included herein and the following pro forma data is
presented to supplement the historical statements of income. This information
reflects the ITT Merger, the acquisition of Westin and certain asset sales (see
the unaudited condensed combined consolidated pro forma statements of income and
the notes thereto for the three and nine months ended September 30, 1998
beginning on page 27) as if they occurred on January 1, 1997 and does not
purport to present what actual results would have been had such transactions, in
fact, occurred at January 1, 1997, or to project results for any future period
(in millions, except per share data):
 
<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED    NINE MONTHS ENDED
                                                    SEPTEMBER 30,         SEPTEMBER 30,
                                                  ------------------    ------------------
                                                   1998       1997       1998       1997
                                                  -------    -------    -------    -------
<S>                                               <C>        <C>        <C>        <C>
Revenues........................................  $2,259     $2,048     $6,646     $5,953
Income (loss) from continuing operations........  $  (75)    $   93     $   43     $  344
Net income (loss)...............................  $  (51)    $  108     $1,159     $  347
Basic income (loss) from continuing operations
  per Paired Share..............................  $(0.38)    $ 0.52     $ 0.15     $ 1.97
Diluted income (loss) from continuing operations
  per Paired Share..............................  $(0.38)    $ 0.49     $ 0.14     $ 1.83
</TABLE>
 
NOTE 15.  SUBSEQUENT EVENT
 
     Subsequent to September 30, 1998, the Company repurchased in the open
market approximately 985,000 of its Paired Shares at an average purchase price
of $27.77 and, as of the date of this filing, the Company had repurchased a
total of 10.109 million Paired Shares during 1998 in the open market at an
average purchase price of $36.70.
 
                                       26
<PAGE>   28
 
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                   UNAUDITED CONDENSED COMBINED CONSOLIDATED
                         PRO FORMA STATEMENT OF INCOME
                 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
 
     The following unaudited condensed combined consolidated pro forma statement
of income for the three months ended September 30, 1998 gives effect as of
January 1, 1998 to the ITT Merger, the acquisition of Westin and certain asset
sales. The pro forma information is based upon historical information as
described in Note 1 of the Notes to Financial Statements and does not purport to
present what actual results would have been had such transactions, in fact,
occurred at January 1, 1998, or to project results for any future period.
Historical results are for the three months ended September 30, 1998.
 
<TABLE>
<CAPTION>
                                                                  PRO FORMA ADJUSTMENTS
                                                                 -----------------------
                                                                    DESERT                     PRO
                                                   HISTORICAL       INN(B)        OTHERS      FORMA
                                                   ----------       ------        ------      -----
                                                         (IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                                <C>           <C>              <C>         <C>
Revenues.........................................    $2,286          $(27)        $  --       $2,259
Costs and expenses:
  Salaries, benefits and other operating.........     1,657           (28)           --        1,629
  Selling, general and administrative............       231            --           (22)(i)      209
  Restructuring and other special charges........       310            --            --          310
  Depreciation and amortization..................       143            (5)           --          138
                                                     ------          ----         -----       ------
                                                      2,341           (33)          (22)       2,286
                                                     ------          ----         -----       ------
                                                        (55)            6            22          (27)
Interest expense, net............................      (156)           --            13(d)      (138)
                                                                                      5(f)
Miscellaneous expense, net.......................        (3)           --            --           (3)
                                                     ------          ----         -----       ------
                                                       (214)            6            40         (168)
Income tax benefit (expense).....................       109            (2)          (18)          89
Minority equity..................................         4            --            --            4
                                                     ------          ----         -----       ------
Income (loss) from continuing operations.........    $ (101)         $  4         $  22       $  (75)
                                                     ======          ====         =====       ======
Basic earnings per Paired Share:
  Loss from continuing operations................    $(0.56)                                  $(0.38)
                                                     ======                                   ======
Diluted earnings per Paired Share:
  Loss from continuing operations................    $(0.56)                                  $(0.38)
                                                     ======                                   ======
Weighted average number of Paired Shares.........       188                                      188
                                                     ======                                   ======
Weighted average number of equivalent Paired
  Shares.........................................       188                                      188
                                                     ======                                   ======
</TABLE>
 
The accompanying notes to financial statements are an integral part of the above
                              pro forma statement.
                                       27
<PAGE>   29
 
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                   UNAUDITED CONDENSED COMBINED CONSOLIDATED
                         PRO FORMA STATEMENT OF INCOME
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
 
     The following unaudited condensed combined consolidated pro forma statement
of income for the nine months ended September 30, 1998 gives effect as of
January 1, 1998 to the ITT Merger, the acquisition of Westin and certain asset
sales. The pro forma information is based upon historical information as
described in Note 1 of the Notes to Financial Statements and does not purport to
present what actual results would have been had such transactions, in fact,
occurred at January 1, 1998, or to project results for any future period.
Historical results are for the nine months ended September 30, 1998.
 
<TABLE>
<CAPTION>
                                                             PRO FORMA ADJUSTMENTS
                                                         -----------------------------
                                                         STARWOOD     DESERT
                                           HISTORICAL    HOTELS(A)    INN(B)    OTHERS      PRO FORMA
                                           ----------    ---------    ------    ------      ---------
                                                      (IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                        <C>           <C>          <C>       <C>         <C>
Revenues.................................    $6,296        $437       $ (87)     $ --        $6,646
Costs and expenses:
  Salaries, benefits and other
     operating...........................     4,614         325         (92)       --         4,847
  Selling, general and administrative....       676          42          --       (31)(h)(i)     687
  Restructuring and other special
     charges.............................       310          --          --        --           310
  Depreciation and amortization..........       414          43         (12)       13(g)        458
                                             ------        ----       -----      ----        ------
                                              6,014         410        (104)      (18)        6,302
                                             ------        ----       -----      ----        ------
                                                282          27          17        18           344
Interest expense, net....................      (399)        (25)         --       (39)(c)      (394)
                                                                                   57(d)
                                                                                    3(e)
                                                                                    9(f)
Gain on investment in Madison Square
  Garden.................................        31          --          --        --            31
Miscellaneous income, net................         6           4           2        --            12
                                             ------        ----       -----      ----        ------
                                                (80)          6          19        48            (7)
Income tax benefit (expense).............        79          (2)         (6)      (20)           51
Minority equity..........................        (2)          1          --        --            (1)
                                             ------        ----       -----      ----        ------
Income (loss) from continuing
  operations.............................    $   (3)       $  5       $  13      $ 28        $   43
                                             ======        ====       =====      ====        ======
Basic earnings per Paired Share:
  Income (loss) from continuing
     operations..........................    $(0.10)                                         $ 0.15
                                             ======                                          ======
Diluted earnings per Paired Share:
  Income (loss) from continuing
     operations..........................    $(0.10)                                         $ 0.15
                                             ======                                          ======
Weighted average number of Paired
  Shares.................................       187                                             187
                                             ======                                          ======
Weighted average number of equivalent
  Paired Shares..........................       187                                             189
                                             ======                                          ======
</TABLE>
 
The accompanying notes to financial statements are an integral part of the above
                              pro forma statement.
                                       28
<PAGE>   30
 
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
               NOTES TO UNAUDITED CONDENSED COMBINED CONSOLIDATED
                         PRO FORMA STATEMENTS OF INCOME
 
(a) Represents the historical results of Starwood Hotels & Resorts and Starwood
    Hotels & Resorts Worldwide, Inc., including Westin, for the period from
    January 1, 1998 through the closing of the ITT Merger on February 23, 1998.
 
(b) Represents the elimination of Desert Inn from continuing operations. The
    Company has announced its intention to sell the Desert Inn and, as a result,
    has excluded its results from continuing operations.
 
(c) Represents interest expense as if the ITT Merger had occurred on January 1,
    1998, using an average rate of 7.5%, on the additional debt incurred to
    finance (i) the $2.991 billion cash portion of the purchase price of the ITT
    Shares acquired from the ITT stockholders; (ii) the $312 million in cash
    used to retire ITT stock options; and (iii) the $102 million of fees and
    expenses incurred in connection with the ITT Merger including amounts paid
    as commitment fees for advisory services and finders fees.
 
(d) Represents reduction of interest expense, using an average rate of 7.5%, for
    the paydown of the term loans with proceeds from actual or planned asset
    dispositions as if the dispositions had occurred on January 1, 1998. The
    actual dispositions include the disposition of WD for gross proceeds of $2.1
    billion to VNU in February 1998; the sale of ITT's interest in WBIS+,
    Channel 31 in New York City, to Paxson for gross proceeds of $128 million in
    March 1998; the exercise of one of the two "put" options in April 1998
    pursuant to which Cablevision purchased one-half of ITT's 7.81% interest in
    MSG for gross proceeds of $94 million; the sale of an aircraft for gross
    proceeds of $39 million in April 1998; and the sale of approximately 13
    million shares of Educational Services for gross proceeds of $315 million in
    June 1998. The planned asset dispositions include the exercise of the
    remaining "put" option with Cablevision or MSG, the sale of the Company's
    remaining 35% interest in Educational Services and the sale of the Desert
    Inn. The pro forma net proceeds of the planned dispositions, after certain
    costs and income taxes, would reduce debt by approximately $735 million.
 
(e) Represents the reduction of interest expense, using an average rate of 7.5%,
    for the paydown of term loans with the proceeds of $245 million, net of
    costs of $6 million, from the sale of 4.6 million Paired Shares on February
    24, 1998 as if such offering had taken place on January 1, 1998 (see Note 11
    to the unaudited combined consolidated financial statements on page 23).
 
(f) Represents a reduction of the amortization recognized on the deferred loan
    fees which were incurred in connection with the one-year $1.0 billion term
    loan facility (see Note 3) as if the asset dispositions had occurred on
    January 1, 1998. This reduction is net of the increased amortization on
    deferred loan fees recognized for the period of January 1, 1998 through the
    closing of the ITT Merger on February 23, 1998 for the costs incurred in
    connection with the additional debt (see Note (c) above).
 
(g) Represents the depreciation and amortization expense related to the excess
    value recorded as a result of the purchase consideration exceeding the fair
    market value of the combined net assets of Starwood Hotels and Westin as if
    the transactions had taken place on January 1, 1998.
 
(h) Represents effects of termination of certain executives under contractual
    severance agreements, net of additional costs for new executives under
    employment contracts, removal of duplicate third-party consulting fees and
    termination of certain advertising contracts and rental agreements, less
    related termination fees.
 
(i) Represents the effects of the combination of certain identified benefit
    plans as a result of the ITT Merger as if the new combined plans had been in
    place as of January 1, 1998.
 
                                       29
<PAGE>   31
 
                         STARWOOD HOTELS & RESORTS AND
                   STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
 
                        UNAUDITED FUNDS FROM OPERATIONS
 
     Management believes that funds from operations ("FFO") (as defined by the
National Association of Real Estate Investment Trusts)(1) is one measure of
financial performance of an equity REIT such as the Trust. Because ITT was never
an equity REIT, it did not calculate FFO. Accordingly, set forth below is a
comparison of pro forma FFO for the three- and nine-month periods ended
September 30, 1998 (see the unaudited condensed combined consolidated pro forma
statements of income and the notes thereto beginning on page 28 for an
explanation of the pro forma adjustments) and the combined historical FFO of
Starwood Hotels for the same periods in 1997.
 
     Combined pro forma FFO for the three months ended September 30, 1998 grew
by 502% to $295 million, compared to combined historical FFO of $49 million as
reported by Starwood Hotels for the corresponding period in 1997. Combined pro
forma FFO for the nine months ended September 30, 1998 grew by 422% to $700
million compared to combined historical FFO of $134 million as reported by
Starwood Hotels for the corresponding period of 1997. The following table shows
the calculation of pro forma combined FFO for the three and nine months ended
September 30, 1998 and historical combined FFO as reported by Starwood Hotels
for the three and nine months ended September 30, 1997 (in millions):
 
<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED          NINE MONTHS ENDED
                                                SEPTEMBER 30,              SEPTEMBER 30,
                                           -----------------------    -----------------------
                                             1998          1997         1998          1997
                                           ---------    ----------    ---------    ----------
                                           PRO FORMA    HISTORICAL    PRO FORMA    HISTORICAL
                                           ---------    ----------    ---------    ----------
<S>                                        <C>          <C>           <C>          <C>
Income (loss) from continuing operations
  before minority interest...............    $(79)         $ 3          $ 44          $ 39
Minority interest in consolidated joint
  ventures...............................      (3)          (4)           (7)           (6)
Depreciation and amortization............     138           50           458           101
Depreciation and amortization for
  unconsolidated joint ventures..........       2           --            --            --
Deferred taxes...........................     (78)          --           (77)           --
Gain on sale of real estate and
  investments............................      (1)          --           (50)           --
Preopening costs.........................       9           --            35            --
Restructuring and other special
  charges................................     310           --           310            --
Other non-recurring items, net...........      (3)          --           (13)           --
                                             ----          ---          ----          ----
Funds from Operations....................    $295          $49          $700          $134
                                             ====          ===          ====          ====
</TABLE>
 
---------------
(1) Management and industry analysts generally consider FFO to be one measure of
    the financial performance of an equity REIT that provides a relevant basis
    for comparison among REITs, and FFO is presented to assist investors in
    analyzing the performance of the Company. FFO is defined as income (computed
    in accordance with generally accepted accounting principles), excluding
    gains (losses) from debt restructuring and sales of property, real estate
    related depreciation and amortization (excluding amortization of financing
    costs) and other non-recurring items. FFO does not represent cash generated
    from operating activities in accordance with generally accepted accounting
    principles and is not necessarily indicative of cash available to fund cash
    needs. FFO should not be considered an alternative to net income as an
    indication of the Company's financial performance or as an alternative to
    cash flows from operating activities as a measure of liquidity.
                                       30
<PAGE>   32
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
FORWARD-LOOKING STATEMENTS
 
     This report contains certain statements that may be deemed "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
contained herein include, but are not limited to, statements relating to the
Company's objectives, strategies and plans, and all statements (other than
statements of historical fact) that address actions, events or circumstances
that the Company or its management expects, believes or intends will occur in
the future. Forward-looking statements are not guarantees of future performance
and involve risks and uncertainties that could cause actual results to differ
materially from historical results or those anticipated at the time the
forward-looking statements are made, including, without limitation, risks and
uncertainties associated with the following: the Restructuring; the Trust's
continued ability to qualify for taxation as a REIT; the Company's integration
of the assets and operations of ITT and Westin; completion of future
acquisitions and dispositions; the availability of capital for acquisitions and
for renovations; execution of hotel and casino renovation and expansion
programs; the ability to maintain existing management, franchise or
representation agreements and to obtain new agreements on current terms;
competition within the lodging industry and the gaming industry; the cyclicality
of the real estate business, the hotel business and the gaming business; foreign
exchange fluctuations; general real estate and national and international
economic conditions; political, financial and economic conditions and
uncertainties in countries in which the Company owns property or operates; the
ability of the Company, owners of properties it manages or franchises and others
with which it does business to address the Year 2000 issue, and the costs
associated therewith; the adoption by several European countries of the euro as
their national currency; and the other risks and uncertainties set forth in the
annual, quarterly and current reports and proxy statements of the Trust and the
Corporation. The Company undertakes no obligation to publicly update or revise
any forward-looking statement, whether as a result of new information, future
events or otherwise.
 
          THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH
                 THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
 
     To facilitate a meaningful comparison between periods, this Management's
Discussion and Analysis focuses on pro forma information for the periods
covered, which management believes provides the most meaningful comparison among
periods presented. The pro forma information reflects the ITT Merger, the Westin
acquisition and certain asset dispositions as if they had occurred on January 1,
1997. In addition, the following pro forma data for the periods ended September
30, 1997 reflects the 44 hotel properties acquired by Starwood Hotels in 1997
and two hotel properties acquired by Westin in 1997 (the "1997 Acquisitions")
and the sale, by ITT, of five hotel properties during 1997 (the "1997
Dispositions"), as if all such transactions had occurred on January 1, 1997.
Period-to-period comparisons of the Company's historical information are, in
management's view, less relevant to an understanding of the Company due to the
significance of the ITT Merger and the acquisition of Westin.
 
     The following combined, consolidated, comparative operating data for the
Company is presented on a historical reporting basis for the three and nine
months ended September 30, 1998 and 1997 excluding preopening costs,
non-recurring items and the operations of the Desert Inn in Las Vegas, which was
held for sale at September 30, 1998. The pro forma data includes the historical
results of Starwood Hotels and Westin prior to the ITT Merger and certain pro
forma adjustments as more fully described in the notes to the unaudited combined
consolidated pro forma statements of income (see page 30). The pro forma data is
not necessarily indicative of the results that would have been achieved had such
transactions actually occurred on January 1, 1997, nor are they necessarily
indicative of the Company's future results.
 
                                       31
<PAGE>   33
 
<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED SEPTEMBER 30,
                                                   --------------------------------------------------
                                                   HISTORICAL    PRO FORMA    HISTORICAL    PRO FORMA
                                                      1998         1998          1997         1997
                                                   ----------    ---------    ----------    ---------
                                                                     (IN MILLIONS)
<S>                                                <C>           <C>          <C>           <C>
REVENUES
Hotel
  Owned..........................................    $  757       $  757         $337        $  706
  Managed........................................     1,042        1,042          736         1,021
  Other..........................................        48           48           36            38
Gaming...........................................       365          365          283           283
Other............................................        20           20           --            14
COSTS AND EXPENSES
Salaries, benefits and other operating:
Hotel
  Owned..........................................    $  425       $  425         $188        $  401
  Managed........................................       988          988          697           979
  Other..........................................        (6)          (6)          (7)           (7)
Gaming...........................................       204          204          173           173
Other............................................        --           --           --             4
Selling, general and administrative:
Hotel
  Owned..........................................    $  101       $  101         $ 54        $   97
  Managed........................................        --           --           --            --
  Other..........................................        39           39           40            40
Gaming...........................................        56           56           39            39
Other............................................        20           (2)          11            23
EBITDA(1)
Hotel
  Owned..........................................    $  231       $  231         $ 95        $  208
  Managed........................................        54           54           39            42
  Other..........................................         6            6            3             5
Gaming...........................................       105          105           71            71
Other............................................         9           31          (11)          (13)
</TABLE>
 
---------------
(1) EBITDA is defined as income before minority interest, interest expense,
    taxes and depreciation and amortization. Non-recurring items and gains and
    losses from sales of property 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 among real
    estate companies, and EBITDA is presented to assist investors in analyzing
    the performance of the Company. This information should not be considered as
    an alternative to any measure of performance as promulgated under generally
    accepted accounting principles, 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.
 
                                       32
<PAGE>   34
 
<TABLE>
<CAPTION>
                                                            NINE MONTHS ENDED SEPTEMBER 30,
                                                   --------------------------------------------------
                                                   HISTORICAL    PRO FORMA    HISTORICAL    PRO FORMA
                                                      1998         1998          1997         1997
                                                   ----------    ---------    ----------    ---------
                                                                     (IN MILLIONS)
<S>                                                <C>           <C>          <C>           <C>
REVENUES
Hotel
  Owned..........................................    $2,056       $2,270        $  987       $2,082
  Managed........................................     2,950        3,137         2,153        2,990
  Other..........................................       123          125           100          106
Gaming...........................................       957          952           839          839
Other............................................        38           48            --           40
COSTS AND EXPENSES
Salaries, benefits and other operating:
Hotel
  Owned..........................................    $1,124       $1,253        $  543       $1,185
  Managed........................................     2,807        2,988         2,043        2,868
  Other..........................................       (41)         (41)          (22)         (22)
Gaming...........................................       555          549           509          509
Other............................................        (8)          (8)           --           10
Selling, general and administrative:
Hotel
  Owned..........................................    $  282       $  312        $  163       $  296
  Managed........................................        --           --            --           --
  Other..........................................       145          145           132          132
Gaming...........................................       152          152           121          121
Other............................................        75           54            51           86
EBITDA
Hotel
  Owned..........................................    $  650       $  705        $  281       $  601
  Managed........................................       143          149           110          122
  Other..........................................        19           21           (10)          (4)
Gaming...........................................       250          251           209          209
Other............................................       (29)           2           (51)         (56)
</TABLE>
 
                                       33
<PAGE>   35
 
                             RESULTS OF OPERATIONS
 
CONTINUING OPERATIONS
 
  Revenues
 
     Pro Forma:
 
     Revenues for properties owned, leased or managed by the Company increased
4.2% and 6.6% to $1.8 billion and $5.4 billion for the three and nine months
ended September 30, 1998, respectively, when compared to the corresponding
periods of 1997. The increase in revenues was primarily due to an increase in
revenues for owned, leased and consolidated joint venture hotels of 7.2% and
9.0% to $757 million and $2.3 billion in the three and nine months ended
September 30, 1998, respectively, when compared to the 1997 periods. The
increase in hotel revenues at the Company's 172 owned, leased and consolidated
joint venture hotels resulted from an increase in revenue per available room
("REVPAR") of 5.6% and 7.1% to $99 and $99 for the three and nine months ended
September 30, 1998, respectively, when compared to the same periods of 1997; an
increase in average daily rate ("ADR") of 7.6% and 8.1% to $139 and $141 for the
three and nine months ended September 30, 1998, respectively, when compared to
the corresponding 1997 periods; and a decrease of 1.3 percentage points in
occupancy rates to 71% for the three months ended September 30, 1998 and a
decrease of less than one percentage point to 70% for the nine months ended
September 30, 1998 when compared to the same periods of 1997. REVPAR at the
Company's international owned, leased and consolidated joint venture hotels
increased 7.6% and 9.2% for the three and nine months ended September 30, 1998,
respectively, when compared to the same periods of 1997. REVPAR at owned, leased
and consolidated joint venture properties in North America increased 4.6% and
6.1% for the three and nine months ended September 30, 1998, respectively, when
compared to the same periods of 1997.
 
     Hotel revenues for properties managed by the Company for third-party owners
increased 2.1% and 4.9% to $1.0 billion and $3.1 billion for the three and nine
months ended September 30, 1998, respectively, when compared to the same periods
of 1997. Management fees and equity earnings from these hotels increased 28.6%
and 22.1% to $54 million and $149 million for the three and nine months ended
September 30, 1998, respectively, when compared to the same periods of 1997.
 
     Gaming revenues, excluding the results of the Desert Inn in Las Vegas,
Nevada (which is held for disposition), increased 29.0% and 13.5% to $365
million and $952 million for the three and nine months ended September 30, 1998,
respectively, when compared to the same periods of 1997. The increase in
revenues from the additional 1,130 rooms and 110,000 square feet of convention
space at Caesars Palace in Las Vegas, Nevada was partially offset by the adverse
impact on high-end baccarat play of the declines in the Asian financial markets.
 
     Historical:
 
     On an historical basis, revenues for properties owned, leased or managed by
the Company increased 67.7% and 59.4% to $1.8 billion and $5.0 billion for the
three and nine months ended September 30, 1998, respectively, when compared to
the corresponding periods of 1997. Since the ITT Merger is accounted for as a
reverse purchase and the reflected amounts accordingly are those of ITT, the
increase in hotel revenues was due primarily to the inclusion beginning February
23, 1998 of the results of approximately 160 hotels owned, leased or managed by
Starwood Hotels, including those acquired as a result of the Westin acquisition.
 
     For discussion of gaming revenues, see the pro forma discussion above.
 
  Costs and Expenses
 
     Pro Forma:
 
     Pro forma salaries, benefits and other operating costs increased 3.9% and
4.2% in the three and nine months ended September 30, 1998, respectively, to
$1.6 billion and $4.7 billion when compared to the same periods of 1997. The
increase in costs is due primarily to the reopening of hotel properties in 1998
which were
 
                                       34
<PAGE>   36
 
closed for renovations in 1997, the inclusion of new managed hotel properties
and the inclusion of the operating costs associated with the tower at Caesars
Palace, which was opened at the end of 1997.
 
     Pro forma selling, general and administrative expenses decreased 2.5% and
increased 4.4% in the three and nine months ended September 30, 1998,
respectively, to $194 million and $663 million when compared to the same periods
of 1997. The decrease in selling, general and administrative expenses for the
quarter was primarily related to the $22 million pro forma adjustment to reflect
the identified savings from the combination of certain benefit plans (see note
(i) to the notes to the unaudited condensed combined pro forma statement of
income on page 29).
 
     Historical:
 
     Historical salaries, benefits and other operating costs increased 53.3% and
44.4% to $1.6 billion and $4.4 billion for the three and nine months ended
September 30, 1998, respectively, when compared to the same periods in 1997.
Historical selling, general and administrative expenses increased 50.0% and
40.0% to $216 million and $654 million for the three and nine months ended
September 30, 1998, respectively, when compared to the same periods in 1997. The
increase in salaries, benefits and other operating costs and the increase in
selling, general and administrative expenses for the three and nine months ended
September 30, 1998, when compared to the same periods of 1997, was due primarily
to the reverse purchase accounting treatment and the inclusion beginning
February 23, 1998 of the results of approximately 160 hotels owned, leased or
managed by Starwood Hotels.
 
  EBITDA
 
     Pro Forma:
 
     On a pro forma basis, the Company's EBITDA, excluding the Desert Inn in Las
Vegas, Nevada (which is held for disposition), hotels sold during 1998 and 1997
and discontinued operations, increased 36.4% and 29.4% to $427 million and $1.1
billion in the three and nine months ended September 30, 1998, respectively,
when compared to the same periods of 1997. The increase was primarily due to the
improved results at the Company's owned, leased and consolidated joint venture
hotels. These hotels benefited from an increase in EBITDA of $23 million and
$104 million to $231 million and $705 million in the three and nine months ended
September 30, 1998, respectively, when compared to the same periods of 1997. The
EBITDA improvement at these hotels of 11.1% and 17.3% in the three and nine
months ended September 30, 1998, respectively, was due primarily to an increase
in ADR discussed above. EBITDA margins for these hotels increased 1.6 and 2.4
percentage points to 30.8% and 31.2% in the three and nine months ended
September 30, 1998, respectively, when compared to the same periods of 1997. The
Company believes that the improvement to EBITDA margin is attributable in part
to the continued implementation of cost containment steps and its ability to
realize purchasing synergies as a result of the ITT Merger.
 
     Excluding the Desert Inn in Las Vegas, Nevada (which is held for
disposition) and preopening costs, gaming EBITDA for the three and nine months
ended September 30, 1998 was $105 million and $251 million, respectively,
compared to $71 million and $209 million in the same periods of 1997. The
increase in gaming EBITDA resulted from positive results at Caesars Palace and
Caesars Atlantic City. EBITDA at Caesars Palace was $43 million and $99 million
in the three and nine months ended September 30, 1998, respectively, compared to
$21 million and $80 million in the same periods of 1997, as the addition of
1,130 rooms and 110,000 square feet of meeting space had a positive effect on
all areas of the casino and hotel operations. EBITDA at Caesars Atlantic City
was $40 million and $104 million in the three and nine months ended September
30, 1998, respectively, compared to $31 million and $84 million in the same
periods of 1997, as the addition of 620 new rooms and 30,000 square feet of
casino space had a positive effect on all areas of the casino and hotel
operations.
 
     Historical:
 
     On an historical basis, the Company's EBITDA increased 105.6% and 91.7% to
$405 million and $1.0 billion in the three and nine months ended September 30,
1998, respectively, when compared to the same
 
                                       35
<PAGE>   37
 
periods of 1997, due primarily to the reverse purchase accounting treatment and
the inclusion beginning February 23, 1998 of the results of the hotels owned and
managed by Starwood Hotels.
 
     For the discussion of gaming EBITDA, see the pro forma discussion above.
 
  Depreciation and Amortization
 
     On an historical basis, depreciation and amortization expense increased to
$143 million and $414 million in the three and nine months ended September 30,
1998, respectively, when compared to $63 million and $198 million in the same
periods of 1997. The increase was primarily due to depreciation expense on
approximately 160 hotels owned, leased or managed by Starwood Hotels beginning
February 23, 1998, the amortization of goodwill related to the ITT Merger and
the commencement of depreciation on certain newly completed hotel and gaming
projects.
 
  Net Interest Expense
 
     Net interest expense for the three and nine months ended September 30, 1998
increased to $156 million and $399 million, respectively, when compared to $27
million and $70 million in the same periods of 1997. The increase relates
primarily to the debt incurred to finance the ITT Merger. See "Liquidity and
Capital Resources."
 
RESTRUCTURING AND OTHER SPECIAL CHARGES
 
     During the third quarter of 1998, the Company recorded pretax charges of
approximately $310 million relating to restructuring and other special charges.
The charges consist of costs relating to the write-down of assets, the ITT
Merger and other non-recurring costs (see Note 6 to unaudited combined
consolidated financial statements on page 20).
 
DISPOSITIONS
 
     The Desert Inn in Las Vegas, Nevada, the gaming property held for
disposition, experienced a $683,000 and $4 million EBITDA loss in the three and
nine months ended September 30, 1998, respectively, compared to a $5 million
EBITDA loss and a $23 million EBITDA loss in the same periods of 1997. The
improved performance was due to a normalized hold percentage in baccarat and a
significantly higher ADR due to improvements made to the property in 1997. These
improvements were offset by the Asian economic crisis, which negatively impacted
results at the Desert Inn by significantly reducing the amount of high-end
baccarat volume.
 
DISCONTINUED OPERATIONS
 
     The net loss from discontinued operations for the three and nine months
ended September 30, 1998 was $-- and $9 million, respectively, compared to net
income of $15 million and $14 million in the same periods of 1997. The decrease
in net income results from the sale of the WD subsidiary in February 1998. Gains
from the disposition of WD and the sale of shares of Educational Services for
the three and nine months ended September 30, 1998 were $24 million and $1,125
million, respectively, net of $15 million and $643 million of taxes and minority
interest, respectively.
 
MADISON SQUARE GARDEN
 
     In April 1997, ITT entered into a Partnership Interest Transfer Agreement
with Cablevision. Pursuant to this agreement, Cablevision paid ITT $500 million
in cash on June 17, 1997 for a 38.5% ownership interest in MSG and ITT received
two "put" options to require Cablevision or MSG to purchase half of ITT's
continuing interest in MSG for $75 million on June 17, 1998 and the other half
of this continuing interest for an additional $75 million on June 17, 1999 (or,
if the first option were not exercised, the entire continuing interest for $150
million). In addition, ITT agreed to contribute to MSG an ITT-owned aircraft
which MSG had used for the New York Knickerbockers and the New York Rangers. In
consideration of the aircraft contribution, an
 
                                       36
<PAGE>   38
 
additional $19 million was added to the exercise price of each of ITT's "put"
options. In April 1998, the Company exercised its first "put" option on one-half
of its interest in MSG and received a payment of $94 million in June 1998.
 
EXTERNAL GROWTH
 
     During the first quarter of 1998, in addition to the ITT Merger and the
Westin acquisition, the Company acquired four full-service, luxury hotel
properties located in Aspen, Colorado; New York City, New York; Washington,
D.C.; and Houston, Texas for a total purchase price of approximately $348
million consisting of $164 million in cash and 3.7 million Paired Shares (which
shares were valued for purposes of the acquisition at approximately $184
million). Also in May 1998, the Company acquired the 242-room Danbury Hilton in
Danbury, Connecticut for approximately $20 million in cash. In August 1998, the
Company acquired a 95% non-controlling interest in the 760-room Westin Maui in
Maui, Hawaii for approximately $132 million.
 
INTERNAL GROWTH
 
     The following tables summarize average occupancy, ADR and REVPAR on a
year-to-year basis for the Company's comparable, owned hotel properties for the
three and nine months ended September 30, 1998. The results for the three months
represent results for 157 owned hotels (excluding two hotels held for sale at
September 30, 1998, seven hotels under significant renovation during the third
quarter of 1998 and six hotels under renovation during the third quarter of
1997). The results for the nine months represent results for 153 owned hotels
(excluding two hotels held for sale at September 30, 1998, 11 hotels under
significant renovation during the nine months ended September 30, 1998 and six
hotels under significant renovation during the nine months ended September 30,
1997).
 
              OWNED, LEASED AND CONSOLIDATED JOINT VENTURE HOTELS
 
<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                SEPTEMBER 30,
                                                              ------------------    PERCENTAGE
                                                               1998       1997       VARIANCE
                                                              -------    -------    ----------
<S>                                                           <C>        <C>        <C>
WORLDWIDE
ALL HOTELS
Number of hotels............................................      157        157
Number of rooms.............................................   51,103     51,103
REVPAR......................................................  $101.78    $ 95.50        6.6%
ADR.........................................................  $139.87    $130.36        7.3%
Occupancy...................................................     72.8%      73.3%      (0.5)%
 
SHERATON
Number of hotels............................................       87         87
Number of rooms.............................................   29,444     29,444
REVPAR......................................................  $111.07    $103.36        7.5%
ADR.........................................................  $153.22    $142.72        7.4%
Occupancy...................................................     72.5%      72.4%       0.1%
 
WESTIN
Number of hotels............................................       26         26
Number of rooms.............................................   10,543     10,543
REVPAR......................................................  $ 90.74    $ 85.65        5.9%
ADR.........................................................  $124.41    $116.20        7.1%
Occupancy...................................................     72.9%      73.7%      (0.8)%
</TABLE>
 
                                       37
<PAGE>   39
 
<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                SEPTEMBER 30,
                                                              ------------------    PERCENTAGE
                                                               1998       1997       VARIANCE
                                                              -------    -------    ----------
<S>                                                           <C>        <C>        <C>
OTHER(1)
Number of hotels............................................       44         44
Number of rooms.............................................   11,116     11,116
REVPAR......................................................  $ 87.19    $ 83.87        4.0%
ADR.........................................................  $118.86    $111.73        6.4%
Occupancy...................................................     73.4%      75.1%      (1.7)%
NORTH AMERICA
 
ALL HOTELS
Number of hotels............................................      110        110
Number of rooms.............................................   37,996     37,996
REVPAR......................................................  $ 95.98    $ 90.68        5.8%
ADR.........................................................  $130.78    $121.96        7.2%
Occupancy...................................................     73.4%      74.4%      (1.0)%
 
SHERATON
Number of hotels............................................       44         44
Number of rooms.............................................   17,377     17,377
REVPAR......................................................  $104.06    $ 97.85        6.3%
ADR.........................................................  $142.12    $132.62        7.2%
Occupancy...................................................     73.2%      73.8%      (0.6)%
 
WESTIN
Number of hotels............................................       22         22
Number of rooms.............................................    9,503      9,503
REVPAR......................................................  $ 91.11    $ 85.32        6.8%
ADR.........................................................  $123.52    $114.40        8.0%
Occupancy...................................................     73.8%      74.6%      (0.8)%
 
OTHER
Number of hotels............................................       44         44
Number of rooms.............................................   11,116     11,116
REVPAR......................................................  $ 87.19    $ 83.87        4.0%
ADR.........................................................  $118.86    $111.73        6.4%
Occupancy...................................................     73.4%      75.1%      (1.7)%
 
INTERNATIONAL
 
ALL HOTELS
Number of hotels............................................       47         47
Number of rooms.............................................   13,107     13,107
REVPAR......................................................  $118.50    $109.46        8.3%
ADR.........................................................  $166.97    $156.20        6.9%
Occupancy...................................................     71.0%      70.1%       0.9%
 
SHERATON
Number of hotels............................................       43         43
Number of rooms.............................................   12,067     12,067
REVPAR......................................................  $121.30    $111.40        8.9%
ADR.........................................................  $169.81    $158.18        7.4%
Occupancy...................................................     71.4%      70.4%       1.0%
 
WESTIN
Number of hotels............................................        4          4
Number of rooms.............................................    1,040      1,040
REVPAR......................................................  $ 87.59    $ 88.45       (1.0)%
ADR.........................................................  $132.95    $133.39       (0.3)%
Occupancy...................................................     65.9%      66.3%      (0.4)%
</TABLE>
 
---------------
 
<TABLE>
<S>                                                           <C>        <C>        <C>
(1) Represents owned, leased or consolidated joint venture hotels that are not flagged under
    one of the Company's proprietary brands.
</TABLE>
 
                                       38
<PAGE>   40
 
<TABLE>
<CAPTION>
                                                              NINE MONTHS ENDED
                                                                SEPTEMBER 30,
                                                              ------------------    PERCENTAGE
                                                               1998       1997       VARIANCE
                                                              -------    -------    ----------
<S>                                                           <C>        <C>        <C>
WORLDWIDE
ALL HOTELS
Number of hotels............................................      153        153
Number of rooms.............................................   49,253     49,253
REVPAR......................................................  $100.80    $ 93.29        8.1%
ADR.........................................................  $141.27    $131.40        7.5%
Occupancy...................................................     71.4%      71.0%       0.4%
 
SHERATON
Number of hotels............................................       85         85
Number of rooms.............................................   28,113     28,113
REVPAR......................................................  $108.56    $101.06        7.4%
ADR.........................................................  $153.49    $142.67        7.6%
Occupancy...................................................     70.7%      70.8%      (0.1)%
 
WESTIN
Number of hotels............................................       25         25
Number of rooms.............................................   10,173     10,173
REVPAR......................................................  $ 97.50    $ 89.16        9.4%
ADR.........................................................  $131.73    $122.75        7.3%
Occupancy...................................................     74.0%      72.6%       1.4%
 
OTHER
Number of hotels............................................       43         43
Number of rooms.............................................   10,967     10,967
REVPAR......................................................  $ 83.64    $ 77.35        8.1%
ADR.........................................................  $118.67    $110.68        7.2%
Occupancy...................................................     70.5%      69.9%       0.6%
 
NORTH AMERICA
 
ALL HOTELS
Number of hotels............................................      106        106
Number of rooms.............................................   36,146     36,146
REVPAR......................................................  $ 96.86    $ 89.62        8.1%
ADR.........................................................  $135.32    $125.12        8.2%
Occupancy...................................................     71.6%      71.6%        --
 
SHERATON
Number of hotels............................................       42         42
Number of rooms.............................................   16,046     16,046
REVPAR......................................................  $106.07    $ 99.14        7.0%
ADR.........................................................  $149.75    $137.62        8.8%
Occupancy...................................................     70.8%      72.0%      (1.2)%
 
WESTIN
Number of hotels............................................       21         21
Number of rooms.............................................    9,133      9,133
REVPAR......................................................  $ 96.11    $ 87.48        9.9%
ADR.........................................................  $129.49    $119.86       $8.0%
Occupancy...................................................     74.2%      73.0%       1.2%
 
OTHER
Number of hotels............................................       43         43
Number of rooms.............................................   10,967     10,967
REVPAR......................................................  $ 83.64    $ 77.35        8.1%
ADR.........................................................  $118.67    $110.68        7.2%
Occupancy...................................................     70.5%      69.9%       0.6%
</TABLE>
 
                                       39
<PAGE>   41
 
<TABLE>
<CAPTION>
                                                              NINE MONTHS ENDED
                                                                SEPTEMBER 30,
                                                              ------------------    PERCENTAGE
                                                               1998       1997       VARIANCE
                                                              -------    -------    ----------
<S>                                                           <C>        <C>        <C>
INTERNATIONAL
 
ALL HOTELS
Number of hotels............................................       47         47
Number of rooms.............................................   13,107     13,107
REVPAR......................................................  $111.63    $103.63        7.7%
ADR.........................................................  $157.81    $149.70        5.4%
Occupancy...................................................     70.7%      69.2%       1.5%
 
SHERATON
Number of hotels............................................       43         43
Number of rooms.............................................   12,067     12,067
REVPAR......................................................  $111.93    $103.71        7.9%
ADR.........................................................  $158.57    $149.93        5.8%
Occupancy...................................................     70.6%      69.2%       1.4%
WESTIN
Number of hotels............................................        4          4
Number of rooms.............................................    1,040      1,040
REVPAR......................................................  $108.47    $102.83        5.5%
ADR.........................................................  $149.92    $147.37        1.7%
Occupancy...................................................     72.4%      69.8%       2.6%
</TABLE>
 
SEASONALITY AND DIVERSIFICATION
 
     The hotel and gaming industries are seasonal in nature; however, the
periods during which the Company's properties experience higher hotel revenues
or gaming activities vary from property to property and depend principally upon
location. Although the Company's revenues historically have been lower in the
first quarter than in the second, third or fourth quarters, the acquisitions of
Westin and ITT are affecting, and future acquisitions may further affect,
seasonal fluctuations in revenues and cash flows.
 
                        LIQUIDITY AND CAPITAL RESOURCES
 
CASH FLOW PROVIDED BY OPERATING ACTIVITIES
 
     Cash flow from operating activities is the principal source of cash to be
used to fund the Company's operating expenses, interest expense, recurring
capital expenditures and distribution payments by the Trust. The Company
anticipates that cash flow provided by operating activities will be sufficient
to service short- and long-term indebtedness, fund maintenance requirements and
capital expenditures and meet operating cash requirements, including all
distributions to shareholders by the Trust.
 
     During the first quarter of 1998, the Trust paid a distribution of $0.48
per share for the fourth quarter of 1997. During each of the second, third and
fourth quarters of 1998, the Trust paid a distribution of $0.52 per share for
the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998. In
connection with the Restructuring, the Company has announced that, commencing
with the quarter ending December 31, 1998, it expects to reduce its dividend to
be paid by the Trust to $0.15 per Paired Share. The Corporation does not expect
to pay a dividend in the foreseeable future.
 
CASH FLOW FROM INVESTING AND FINANCING ACTIVITIES
 
     The Company intends to finance the acquisition of additional hotel
properties, hotel renovations and capital improvements and provide for general
corporate purposes through its credit facilities described below, through
dispositions of certain non-core assets, through additional lines of credit and,
when market conditions warrant, through the issuance of additional equity or
debt securities.
 
                                       40
<PAGE>   42
 
  Loans and Credit Facilities
 
     At December 31, 1997, ITT had total debt outstanding of approximately $2.0
billion comprised of bank loans and other short-term facilities of $258 million
and long-term facilities of approximately $3.0 billion, less net debt allocated
to discontinued operations of approximately $1.3 billion. The weighted average
interest rate for bank loans and other short-term borrowings was 6.71% at
December 31, 1997. The weighted average interest rate on the long-term
facilities was 6.98% at December 31, 1997.
 
     At December 31, 1997, Starwood Hotels had total debt outstanding of
approximately $1.6 billion comprised of revolving lines of credit and other
short-term notes and mortgages payable of approximately $1.5 billion and
long-term notes and mortgages payable of $97 million. The weighted average
interest rate for the revolving lines of credit and other short-term notes and
mortgages payable was 7.37% at December 31, 1997. The weighted average interest
rate for the long-term notes and mortgages payable was 7.46% at December 31,
1997.
 
     The weighted average interest rates are comprised of interest rates on both
U.S. dollar and non-U.S. dollar denominated indebtedness.
 
     On January 2, 1998, Starwood Hotels obtained the $2.2 Billion Facility from
a group of lenders led by Bankers Trust Company and The Chase Manhattan Bank to
fund the cash portion of the purchase of Westin for approximately $178 million
and to repay an aggregate of approximately $1.0 billion of outstanding debt of
Westin and of the Company under the $1.2 Billion Facility.
 
     On February 23, 1998, Starwood Hotels obtained two additional credit
facilities ($5.6 billion in total) with Lehman Brothers, Bankers Trust Company
and The Chase Manhattan Bank to fund the cash portion of the ITT Merger, to
refinance a portion of Starwood Hotels' existing indebtedness (including
indebtedness outstanding under the $2.2 Billion Facility) and to provide funds
for general corporate purposes. These facilities are comprised of the $3.1
Billion Facility and the IRN Facility.
 
     The $3.1 Billion Facility has three tranches: a $1.0 billion, one-year term
loan; a $1.0 billion, five-year term loan; and a $1.1 billion, five-year
revolving credit facility. The Corporation, the Trust and certain of their
respective direct and indirect subsidiaries may be designated as borrowers or
co-borrowers under all or a portion of the $3.1 Billion Facility. The interest
rate for the $3.1 Billion Facility was one-, two- or three-month LIBOR, at the
Company's option, plus 187.5 basis points for the six months ending August 24,
1998, and since that date has been determined pursuant to a pricing "grid" with
rates based on Starwood Hotels' leverage and/or senior unsecured debt rating.
Quarterly amortization of the five-year term loan begins in the third year, with
total amortization of 10%, 20% and 70% of the principal amount over the third,
fourth and fifth years, respectively. Repayment of amounts borrowed under the
$3.1 Billion Facility is guaranteed by the Trust and the Corporation and
substantially all of their respective significant subsidiaries (including the
Partnerships) other than gaming and foreign subsidiaries and joint venture
entities, to the extent such entities are not borrowers or co-borrowers, and is
secured by a pledge of all the capital stock, partnership interests and other
equity interests of the guarantor subsidiaries.
 
     The IRN Facility consists of a single drawdown, senior increasing rate,
non-amortizing five-year term loan for $2.5 billion. The Corporation is the
borrower under the IRN Facility; the Trust and all subsidiaries of the
Corporation and the Trust that are borrowers or guarantors of the $3.1 Billion
Facility are guarantors of the IRN Facility. The IRN Facility is secured equally
and ratably by all the collateral securing the $3.1 Billion Facility and is pari
passu in right of payment with all other senior indebtedness of the borrower and
the guarantors, including the $3.1 Billion Credit Facility. Amounts borrowed
under the IRN Facility bear interest at one-, two- or three-month LIBOR plus 175
basis points for the three months ending May 24, 1998, with the interest rate
increasing by 50 basis points every three months thereafter, up to a maximum
rate of one-, two- or three-month LIBOR plus 375 basis points.
 
     During the quarter ended September 30, 1998, the Company entered into a new
$1 billion, five-year term borrowing facility ("$1 Billion IRN Facility") with
Lehman Brothers to facilitate share repurchases and enhance its financial
flexibility. The new facility bears interest at one-, two- or three-month LIBOR
plus 275 basis points.
                                       41
<PAGE>   43
 
     Following is a summary of the Company's debt portfolio as of September 30,
1998.
 
Floating Rate Credit Facilities:
 
<TABLE>
<CAPTION>
                                AMOUNT OUTSTANDING
                               AT SEPTEMBER 30, 1998                       INTEREST RATE AT      AVERAGE
FACILITY                           (IN MILLIONS)        INTEREST TERMS    SEPTEMBER 30, 1998     MATURITY
--------                       ---------------------    --------------    ------------------    ----------
<S>                            <C>                      <C>               <C>                   <C>
$1.1 billion bank revolver...         $  878              LIBOR+1.25%            6.56%           4.3 years
Asset sale bridge............            542              LIBOR+1.25%            6.56%           0.3 years
Five-year term loan..........          1,000              LIBOR+1.25%            6.56%           4.3 years
                                      ------                                     ----           ----------
          Total/average......         $2,420                                     6.56%           3.4 years
                                      ======                                     ====           ==========
</TABLE>
 
Floating Rate Debt:
 
<TABLE>
<CAPTION>
                                AMOUNT OUTSTANDING
                               AT SEPTEMBER 30, 1998                       INTEREST RATE AT      AVERAGE
FACILITY/LENDER                    (IN MILLIONS)        INTEREST TERMS    SEPTEMBER 30, 1998     MATURITY
---------------                ---------------------    --------------    ------------------    ----------
<S>                            <C>                      <C>               <C>                   <C>
IRN Facility.................         $2,500              LIBOR+2.75%            8.06%           4.3 years
$1 billion IRN Facility......            250              LIBOR+2.75%            8.06%           4.3 years
Mortgage and other...........            804                 Various             6.78%           2.8 years
Starwood interest rate
  swaps......................         (1,000)                    N/A             6.56%                  --
                                      ------                                     ----           ----------
          Total/average......         $2,554                                     7.43%           3.8 years
                                      ======                                     ====           ==========
</TABLE>
 
Fixed Rate Debt:
 
<TABLE>
<CAPTION>
                                AMOUNT OUTSTANDING
                               AT SEPTEMBER 30, 1998                       INTEREST RATE AT      AVERAGE
FACILITY/LENDER                    (IN MILLIONS)        INTEREST TERMS    SEPTEMBER 30, 1998     MATURITY
---------------                ---------------------    --------------    ------------------    ----------
<S>                            <C>                      <C>               <C>                   <C>
ITT public debt..............         $2,000                     N/A             6.79%           8.6 years
Caesars public debt..........            150                     N/A             8.88%           3.8 years
Mortgage and other...........            294                     N/A             8.24%          17.8 years
Starwood interest rate
  swaps......................          1,000                     N/A             7.26%                  --
                                      ------                                     ----           ----------
          Total/average......         $3,444                                     7.14%           9.4 years
                                      ======                                     ====           ==========
 
Total Debt and Average
  Terms:.....................         $8,418                                     7.31%           5.4 years
                                      ======                                     ====           ==========
</TABLE>
 
  Stock Sales and Repurchases
 
     At December 31, 1997, ITT had 180 million shares outstanding.
 
     On February 23, 1998, Starwood Hotels completed the acquisition of ITT.
Each outstanding ITT Share, other than those that were converted into cash
pursuant to a cash election by the holder (and other than ITT Shares owned
directly or indirectly by ITT or Starwood Hotels, which shares were canceled),
was converted into 1.543 Paired Shares. Pursuant to cash election procedures,
approximately 35 million (pre-reverse acquisition) ITT Shares of ITT's common
stock, representing approximately 30% of the outstanding ITT Shares prior to the
ITT Merger, were converted into $85 in cash per share. In addition, each ITT
Share of ITT's common stock was converted into additional cash consideration in
the amount of $0.37493151, which amount represents the interest that would have
accrued (without compounding) on $85 at an annual rate of 7% during the period
from and including January 31, 1998 to but excluding the date of the closing
(February 23, 1998). For additional information with respect to the Company's
accounting for the ITT Merger, see Note 3 of the Notes to Financial Statements.
 
     Pursuant to a Purchase Agreement dated as of October 10, 1997, the Company
sold to UBS Ltd. 2.185 million UBS Shares at a cash price of $57.25 per share,
and paid to Warburg Dillon Read LLC, an affiliate of
 
                                       42
<PAGE>   44
 
UBS Ltd., a placement fee equal to 2.5% of the gross proceeds to the Company
from such sale of shares. Concurrently therewith, the Company entered into the
UBS Price Adjustment Agreement with UBS/LB. The UBS Price Adjustment Agreement
provided for a settlement payment to be made, in the form of Paired Shares or
cash, by the Company to UBS/LB, or by UBS/LB to the Company, based on the market
price of the Paired Shares over a specified unwind period, as compared to a
"Forward Price" (as defined, but essentially equal to $57.25 per Paired Share,
plus an implicit interest factor less dividends paid on the UBS Shares, in each
case during the term of the UBS Price Adjustment Agreement). If prior to final
settlement the market price of the Paired Shares fell below the Forward Price,
the Company was obligated to deliver, at quarterly intervals, additional Paired
Shares to UBS/LB. In the event the market price of the Paired Shares exceeded
the Forward Price on a quarterly settlement date, UBS/LB was obligated to
deliver to the Company a portion of the UBS Shares to provide for the
differential.
 
     The Company had the right at any time prior to October 10, 1998 to elect to
deliver or receive Paired Shares in settlement of the UBS Price Adjustment
Agreement. The Company had the further right, but not the obligation, to settle
the Company's obligations under the contract by repurchasing for cash at the
Forward Price a number of Paired Shares equal to the UBS Shares. The Company had
the obligation to settle the UBS Price Adjustment Agreement on October 10, 1998
unless UBS/LB agreed to extend such agreement's terms. The Company settled this
agreement in September 1998 by repurchasing the UBS Shares for approximately
$130.3 million in cash. As a result of the settlement of the UBS Price
Adjustment Agreement, Paired Shares outstanding were reduced by 2.185 million.
 
     On February 24, 1998, the Trust and the Corporation sold an aggregate of
4.641 million Paired Shares to Merrill Lynch International, NMS Services, Inc.,
Lehman Brothers Inc. and certain of their affiliates for a cash purchase price
per Paired Share of $52.798, which price reflected a 2% discount from the last
reported sale price of the Paired Shares on the date of the purchase.
 
     Concurrently with these sales, the Trust and the Corporation entered into
the February Price Adjustment Agreements with the February Purchasers and/or
certain of their affiliates pursuant to which each of the February Purchasers or
their respective affiliates agreed to sell, as directed by the Trust and the
Corporation and on or before February 24, 1999, in an underwritten fixed price
offering or another method specified in the February Price Adjustment
Agreements, a sufficient number of the purchased Paired Shares to achieve net
sales proceeds equal to the aggregate market value of the Paired Shares
purchased by such February Purchasers in February 1998, plus a forward accretion
component, minus an adjustment for dividends paid on the purchased Paired
Shares. In addition, each February Purchaser had the right to cause a sale of
all or a portion of the purchased Paired Shares in the event the market prices
of the Paired Shares declined below certain levels. The precise numbers of
Paired Shares that were required to be sold pursuant to the February Price
Adjustment Agreements would have depended primarily on the market prices of the
Paired Shares at the time of settlement. If the number of Paired Shares required
to be sold was greater than the number of Paired Shares purchased by the
February Purchasers as a result of a decrease in the market prices of the Paired
Shares, the Trust and the Corporation were required to issue additional Paired
Shares to the February Purchasers at a cash price of $0.01 per share. If the
number of Paired Shares required to be sold was less than the number of Paired
Shares purchased by the February Purchasers on February 24, 1998 as a result of
an increase in the market prices of the Paired Shares, the February Purchasers
were required to deliver to the Trust and the Corporation a specified number of
Paired Shares. The effect of the February Price Adjustment Agreements was to
cause the February Purchasers to receive and retain an amount equal to the
purchase price paid by the February Purchasers for the Paired Shares plus an
annual rate of return on that purchase price equal to the three-month LIBOR for
a specified period plus 1.75%, subject to adjustment under certain
circumstances.
 
     In the event that the cash purchase price of the aggregate Paired Shares
purchased by the February Purchasers less $5 million was in excess of the
aggregate closing price of those Paired Shares on certain dates during the term
of the February Price Adjustment Agreements, the Company was obligated to
deliver additional Paired Shares to the February Purchasers as security for the
Company's settlement obligations. As of September 30, 1998, the Company had
delivered approximately 2.738 million Paired Shares in accordance with this
security requirement.
                                       43
<PAGE>   45
 
     In October 1998, the Company settled the February Price Adjustment
Agreements by repurchasing all of the Paired Shares issued to the February
Purchasers for an aggregate of approximately $255 million in cash. As a result
of this settlement, the Company has no further obligations under these
agreements and Paired Shares outstanding were reduced by approximately 7.379
million (4.641 million original shares issued and 2.738 million shares
previously issued as security).
 
     Pursuant to the Company's share repurchase program, the Company repurchased
approximately 7.143 million Paired Shares in the open market at an average
purchase price of $34.59 during the three months ended September 30, 1998.
During the nine months ended September 30, 1998, the Company had repurchased
approximately 9.124 million Paired Shares in the open market at an average
purchase price of $37.67 per Paired Share.
 
                                 OTHER MATTERS
 
IMPACT OF RECENTLY ENACTED TAX LEGISLATION
 
     Section 269B(a)(3) of the Code treats, under certain circumstances, a REIT
and a paired non-REIT whose shares were not paired on or before June 30, 1983 as
one entity for purposes of determining whether either company qualifies as a
REIT. Section 269(a)(3) has not applied to the Company because the Trust Shares
and the Corporation Shares were paired prior to that date.
 
     The Internal Revenue Service Restructuring and Reform Act of 1998 (H.R.
2676) which was enacted on July 22, 1998 severely limits the ability of paired
share REITs, such as the Company, to acquire interests in real property and
continue to meet the tests under the code for qualification as a REIT. Under
H.R. 2676, for purposes of the gross income tests for qualification as a REIT,
the Corporation and the Trust generally would be treated as a single entity with
respect to interests in real property acquired directly or indirectly after
March 26, 1998 by the Trust or the Corporation, or a subsidiary or partnership
in which a 10% or greater interest is owned by the Trust or the Corporation
(collectively, the "REIT Group"). H.R. 2676 also provides that an interest in
real property held by the REIT Group that is not subject to the anti-pairing
rules of Section 269B(a)(3) of the Code would become subject to such rules in
the event an improvement to such interest in real property is placed in service
after December 31, 1999 that changes the use of the property and the cost of
which is greater than 200 percent of (x) the undepreciated cost of the property
(prior to the improvement) or (y) in the case of property acquired where there
is a substituted basis, the fair market value of the property on the day it was
acquired by the REIT Group. There is an exception for improvements placed in
service before January 1, 2004 pursuant to a binding contract in effect as of
December 31, 1999 and at all times thereafter.
 
     If the Restructuring occurs, the restrictions of H.R. 2676 will no longer
apply to Starwood Hotels, and thus will not prevent the Company from acquiring
additional interests in real property. Prior to the completion of the
Restructuring, the Company will monitor the acquisition of interests in real
property by the REIT Group to ensure that such acquisitions do not prevent the
Trust from qualifying for taxation as a REIT.
 
RISKS RELATING TO YEAR 2000
 
     Many computer systems were originally designed to recognize calendar years
by the last two digits in the date code field. Beginning in the year 2000, these
date code fields will need to accept four-digit entries to distinguish
twenty-first century dates from twentieth century dates. As a result, in less
than two years, the computerized systems, which include information and
non-information technology systems, and applications used by the Company will
need to be reviewed, evaluated and modified or replaced, if necessary, to ensure
all such financial, information and operational systems are Year 2000 compliant.
 
  State of Readiness
 
     The Company is addressing the Year 2000 compliance issue by separately
focusing on its central facilities, which include all of its non-operating
facilities, and on its gaming and hotel properties.
 
                                       44
<PAGE>   46
 
     The Company has identified the critical central facility business
applications that will be affected by the Year 2000, conducted the discovery and
assessment stages of the reservations and communication system applications and
assembled a team to implement modifications or upgrades, as necessary, and to
test results. The majority of the central facility applications passed the final
testing, which was performed by internal personnel and independent third parties
in the second quarter of 1998. The Company is in the process of communicating
with others with whom it does significant business to determine their readiness
of Year 2000 compliance and during the third quarter of 1998 successfully
completed a validation process with a third-party reservation information
service provider with which the Company has a material relationship. The Company
is in the phase of assessing its hardware components at its central facilities,
all of which are expected to be modified or upgraded, as necessary, to ensure
Year 2000 compliance by the second quarter of 1999.
 
     The Company has entered into a consulting agreement with an independent
third party to perform an inventory and assessment of all of its computerized
systems and applications for its gaming operations. This inventory and
assessment will determine the resources needed, necessary modifications or
upgrades, vendor Year 2000 compliance, remediation plan and the time frame for
the gaming operations to become Year 2000 compliant, and is expected to be
completed in 1998.
 
     The Company has completed the initial assessment of the applications and
hardware at its owned, leased, managed and joint venture hotel properties. In
the third quarter of 1998, validation tools and resources were deployed to the
hotel properties. Once the test statistics for the hotel property applications
and hardware are collected, the information will be sent to an independent third
party for Year 2000 compliance verification. Based on the results of the
compliance verification, the company expects to address remediation efforts by
the third quarter of 1999.
 
  Year 2000 Project Costs
 
     The Company estimates that total costs for the Year 2000 compliance review,
evaluation, assessment and remediation efforts for the central facilities and
owned hotel and gaming properties should not exceed $20 million, although there
can be no assurance that actual costs will not exceed this amount. Of this
amount, $1.5 million had been expended as of September 30, 1998, and an
additional $3.5 million is expected to be spent in the remainder of 1998.
 
  Starwood Year 2000 Risks
 
     Since all major computerized central facilities reservation systems and
applications have been tested and reservations for the year 2000 have been
accepted, the Company believes that it has addressed all material risks related
to its reservation function. The remaining risks relate to the non-critical
business applications, support hardware for the central facilities and embedded
systems at the properties owned or managed by the Company. A failure of certain
of these systems to become Year 2000 compliant could disrupt the timeliness or
the accuracy of management information provided by the central facilities.
 
     There can be no assurance that the efforts related to the gaming and hotel
properties will be sufficient to make these properties' computerized systems and
applications Year 2000 compliant in a timely manner or that the allocated
resources will be sufficient. A failure to become Year 2000 compliant could
affect the integrity of the gaming and hotel property guest check-in, billing
and accounting functions. Certain physical hotel property machinery and
equipment could also fail resulting in safety risks and customer
dissatisfaction. Additionally, failure of the gaming properties' systems to
become Year 2000 compliant could result in the inefficient processing of
operational gaming information and the malfunction of computerized gaming
machines.
 
     The Company has asked substantially all of its significant vendors and
service providers to provide reasonable assurances as to those parties' Year
2000 state of readiness. Risk assessments and contingency plans, where required,
will be finalized in the first six months of 1999. To the extent that vendors
and service providers do not provide satisfactory evidence that their products
and services are Year 2000 compliant, the Company will seek to obtain the
necessary products and services from alternative sources. There can be no
assurance, however, that Year 2000 remediation by vendors and service providers
will be completed timely or
                                       45
<PAGE>   47
 
that qualified replacement vendors and service providers will be available, and
any failure of such third parties' systems could have a material adverse impact
on the Company's computer systems and operations.
 
  Contingency Plan
 
     The Company is in the process of developing its contingency plan for the
central facilities and the gaming and hotel properties to provide for the most
reasonably likely worst case scenarios regarding Year 2000 compliance. This
contingency plan is expected to be completed in 1999.
 
EUROPEAN UNION CURRENCY CONVERSIONS
 
     On January 1, 1999, 11 of the 15 member countries of the European Union
(the "Participating Countries") are scheduled to establish fixed conversion
rates between their existing sovereign currencies and the euro. Following the
introduction of the euro, the legacy currencies of the Participating Countries
will remain legal tender during a transition period ending on January 1, 2002.
During the transition period, both the legacy currency and the euro will be
legal tender in the respective Participating Countries. During the transition
period, currency conversions will be computed by a triangulation with reference
to conversion rates between the respective currencies and the euro. The Company
currently operates in ten of the 11 Participating Countries. The effect on the
Company of the adoption of the euro by the Participating Countries in which it
operates is currently uncertain. However, it is possible that the euro adoption
will result in increased competition in the European market. In addition, a
number of the Company's information systems are not currently euro compliant.
The Company is currently evaluating and updating its information systems to make
them euro compliant; however, there is no assurance that the Company or
third-party vendors of applications utilized by the Company will successfully
bring all of its systems into compliance by the beginning of the transition
period. Failure of the Company to do so could result in disruptions in the
processing of transactions in euros or computed by reference to the euro.
 
                          PART II.  OTHER INFORMATION
 
ITEM 1.  LEGAL PROCEEDINGS
 
     The Company is involved in various claims and lawsuits arising in the
ordinary course of business, none of which, in the opinion of management, is
expected to have a material adverse effect on the Company's consolidated
financial position or results of operations.
 
ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS
 
     In the third quarter of 1998, the Company sold put options for an aggregate
of one million Paired Shares to BT Alex.Brown Incorporated for an aggregate cash
price of $1.8 million. Each such option entitles the holder to sell to the
Company, at the option's expiration date, a specified number of Paired Shares at
a specified strike price. The expiration dates of these options ranged from
December 1998 through March 1999; the strike prices ranged from $31.11 to
$32.85. No underwriter was involved in these transactions. The offer and sale of
these options was exempt from registration under the Securities Act of 1933
pursuant to Section 4(2) thereof.
 
     During the nine months ended September 30, 1998, the Trust consented to the
conversion of 1,360,403 shares of Class B EPS by certain stockholders into an
equal number of shares of Class A EPS; stockholders thereafter converted
2,889,106 shares of Class A EPS into an equal number of Paired Shares.
 
     In the third quarter of 1998, the Company converted approximately 412,000
units of the Partnerships held by third parties into Paired Shares on a
one-for-one basis.
 
                                       46
<PAGE>   48
 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
     (a) EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT
  NO.                             DESCRIPTION
-------                           -----------
<C>       <S>
  2.1     Agreement and Plan of Restructuring dated as of September
          16, 1998, among the Corporation, ST Acquisition Trust and
          the Trust.
  3.1     Declaration of Trust of the Trust, amended and restated as
          of June 6, 1988, as amended through February 23, 1998
          (incorporated by reference to Exhibit 3.1 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")).
  3.2     Articles of Incorporation of the Corporation, amended and
          restated as of February 1, 1995, as amended through March
          19, 1998 (incorporated by reference to Exhibit 3.2 to the
          1997 Form 10-K).
  3.3     Amended and Restated Trustees' Regulations of the Trust, as
          amended through June 25, 1998 (incorporated by reference to
          Exhibit 3.3 to the Trust's and the Corporation's Joint
          Quarterly Report on Form 10-Q for the quarter ended June 30,
          1998 (the "June 1998 Form 10-Q")).
  3.4     Amended and Restated Bylaws of the Corporation, as amended
          through June 25, 1998 (incorporated by reference to Exhibit
          3.4 to the June 1998 Form 10-Q).
  4.1     Pairing Agreement, dated June 25, 1986, between the Trust
          and the Corporation (incorporated by reference to Exhibit
          4.1 to the Trust's and the Corporation's Joint Annual Report
          on Form 10-K for the year ended December 31, 1994).
  4.2     Amendment No. 1 to the Pairing Agreement, dated as of
          February 1, 1995, between the Trust and the Corporation
          (incorporated by reference to Exhibit 4.2 to the Trust's and
          the Corporation's Joint Annual Report on Form 10-K for the
          year ended December 31, 1995).
  4.3     Amendment No. 2 to the Pairing Agreement, dated as of
          January 2, 1998, between the Trust and the Corporation
          (incorporated by reference to Exhibit 4.3 to the 1997 Form
          10-K).
 10.1     Indemnification Agreement dated as of August 24, 1998,
          between the Corporation and Thomas C. Janson, Jr., as
          amended by Amendment Nos. 1 and 2 thereto.
 10.2     Fifth Amendment to Credit Agreement dated as of August 26,
          1998, among the Trust, Realty Partnership, the Corporation,
          ITT, the lenders named therein, Bankers Trust Company and
          the Chase Manhattan Bank, as Administrative Agents, and
          Lehman Brothers and Bank of Montreal, as Syndication Agents.
 10.3     Amended and Restated Senior Secured Note Agreement dated
          August 27, 1998, among the Corporation, the Trust, the
          guarantors listed therein, the lenders listed therein and
          Lehman Commercial Paper Inc., as Arranger and Administrative
          Agent, BT Alex.Brown Incorporated and Chase Securities Inc.,
          as Syndication Agents.
 10.4     Aircraft Dry Lease Agreement entered into as of February 6,
          1998, between Star Flight, L.L.C. and ITT Flight Operation,
          Inc., as amended by First Amendment thereto, dated as of
          August 25, 1998.
 27.1     Financial Data Schedule, Starwood Hotels & Resorts
          Worldwide, Inc.
 27.2     Financial Data Schedule, Starwood Hotels & Resorts.
</TABLE>
 
     (b) REPORTS ON FORM 8-K
 
     During the third quarter of 1998, the Trust and the Corporation filed a
Joint Current Report on Form 8-K dated August 26, 1998, reporting under Item 5
the approval by the Board of Trustees of the Trust and the Board of Directors of
the Corporation of a proposal to restructure the Trust and the Corporation.
 
                                       47
<PAGE>   49
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
<TABLE>
<S>                                             <C>
 
STARWOOD HOTELS & RESORTS                       STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
/s/ BARRY STERNLICHT                            /s/ RONALD C. BROWN
--------------------------------------------    --------------------------------------------
Barry Sternlicht                                Ronald C. Brown
Chairman and Chief Executive Officer            Executive Vice President and
                                                Chief Financial Officer
</TABLE>
 
Date: November 6, 1998
 
                                       48
<PAGE>   50
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT
  NO.                             DESCRIPTION
-------                           -----------
<C>       <S>
  2.1     Agreement and Plan of Restructuring dated as of September
          16, 1998, among the Corporation, ST Acquisition Trust and
          the Trust.
  3.1     Declaration of Trust of the Trust, amended and restated as
          of June 6, 1988, as amended through February 23, 1998
          (incorporated by reference to Exhibit 3.1 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")).
  3.2     Articles of Incorporation of the Corporation, amended and
          restated as of February 1, 1995, as amended through March
          19, 1998 (incorporated by reference to Exhibit 3.2 to the
          1997 Form 10-K).
  3.3     Amended and Restated Trustees' Regulations of the Trust, as
          amended through June 25, 1998 (incorporated by reference to
          Exhibit 3.3 to the Trust's and the Corporation's Joint
          Quarterly Report on Form 10-Q for the quarter ended June 30,
          1998 (the "June 1998 Form 10-Q")).
  3.4     Amended and Restated Bylaws of the Corporation, as amended
          through June 25, 1998 (incorporated by reference to Exhibit
          3.4 to the June 1998 Form 10-Q).
  4.1     Pairing Agreement, dated June 25, 1986, between the Trust
          and the Corporation (incorporated by reference to Exhibit
          4.1 to the Trust's and the Corporation's Joint Annual Report
          on Form 10-K for the year ended December 31, 1994).
  4.2     Amendment No. 1 to the Pairing Agreement, dated as of
          February 1, 1995, between the Trust and the Corporation
          (incorporated by reference to Exhibit 4.2 to the Trust's and
          the Corporation's Joint Annual Report on Form 10-K for the
          year ended December 31, 1995).
  4.3     Amendment No. 2 to the Pairing Agreement, dated as of
          January 2, 1998, between the Trust and the Corporation
          (incorporated by reference to Exhibit 4.3 to the 1997 Form
          10-K).
 10.1     Indemnification Agreement dated as of August 24, 1998,
          between the Corporation and Thomas C. Janson, Jr., as
          amended by Amendment Nos. 1 and 2 thereto.
 10.2     Fifth Amendment to Credit Agreement dated as of August 26,
          1998, among the Trust, Realty Partnership, the Corporation,
          ITT, the lenders named therein, Bankers Trust Company and
          the Chase Manhattan Bank, as Administrative Agents, and
          Lehman Brothers and Bank of Montreal, as Syndication Agents.
 10.3     Amended and Restated Senior Secured Note Agreement dated
          August 27, 1998, among the Corporation, the Trust, the
          guarantors listed therein, the lenders listed therein and
          Lehman Commercial Paper Inc., as Arranger and Administrative
          Agent, BT Alex.Brown Incorporated and Chase Securities Inc.,
          as Syndication Agents.
 10.4     Aircraft Dry Lease Agreement entered into as of February 6,
          1998, between Star Flight, L.L.C. and ITT Flight Operation,
          Inc., as amended by First Amendment thereto, dated as of
          August 25, 1998.
 27.1     Financial Data Schedule, Starwood Hotels & Resorts
          Worldwide, Inc.
 27.2     Financial Data Schedule, Starwood Hotels & Resorts.
</TABLE>
 
                                       49