Starwood 2003 Annual Report Download

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STARWOOD HOTELS & RESORTS
2003 NEW ADDITIONS
From Left to Right:
The Westin Warsaw, Poland
Sheraton Porto Hotel & Spa
Portugal
Sheraton Dongguan, China
W Mexico City
From Left to Right:
The Westin City Center, Dallas
Four Points by Sheraton
Mississauga, Canada
Westin Casuarina
Hotel & Spa, Las Vegas
Sheraton Detroit Novi Hotel
From Left to Right:
The Westin Charlotte
The Westin Ka` Anapali
Ocean Resort, Hawaii
The Westin Detroit
Metropolitan Airport
Sheraton Barra Hotel & Suites
Brazil

Table of contents

  • Page 1
    ...: The Westin City Center, Dallas Four Points by Sheraton Mississauga, Canada Westin Casuarina Hotel & Spa, Las Vegas Sheraton Detroit Novi Hotel From Left to Right: The Westin Charlotte The Westin Ka` Anapali Ocean Resort, Hawaii The Westin Detroit Metropolitan Airport Sheraton Barra Hotel & Suites...

  • Page 2
    STARWOOD HOTELS & RESORTS 2003 ANNUAL REPORT DEAR SHAREHOLDER:

  • Page 3
    ... (cordless phones, duvets, great bars, and on and on), the Heavenly suite of products for Westin (the Heavenly Bed, Bath and Crib) and new in 2003, the Westin Workout, the Sheraton Sweet Sleeper, the Sheraton Service Promise and the just launched Lo Carb Lifestyle program are positively impacting...

  • Page 4
    ... entirely new superb resort product, the St. Regis Retreat.The first we acquired two sites to ensure consistent and increased growth. And while our Orlando, Palm Springs and Avon, Colorado projects continue to perform well, we are delighted with the success of our first St. Regis fractional product...

  • Page 5
    ..." some internal - such as Bliss, W Hotels, Condo Hotels, SVO, new hotels and some external - the cyclical rebound of our large urban hotels powered by our global footprint. In addition, we have a full suite of new product launches, services and programs which will carry on our tradition of brand...

  • Page 6
    CONTACT INFORMATION CORPORATE OFFICES FORM 10-K AND OTHER INVESTOR INFORMATION Starwood Hotels & Resorts Worldwide, Inc. 1111 Westchester Avenue White Plains, NewYork 10604 914 640 8100 starwood.com INDEPENDENT AUDITORS Ernst &Young LLP , NewYork, NewY ork STOCK REGISTRAR & TRANSFER AGENT A ...

  • Page 7
    STARWOOD HOTELS & RESORTS 2003 ANNUAL REPORT FORM 10-K:

  • Page 8

  • Page 9
    ... ""Corporation''), Class B shares of beneÃ'cial interest, par value $0.01 per share (""Class B Shares''), of Starwood Hotels & Resorts (the ""Trust''), and Preferred Stock Purchase Rights of the Corporation, all of which are attached and trade together as a Share New York Stock Exchange Securities...

  • Page 10
    ... Executive Compensation Security Ownership of Certain BeneÃ'cial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions Principal Accountant Fees and Services PART IV Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form...

  • Page 11
    ... Joint Annual Report is Ã'led by Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the ""Corporation''), and its subsidiary, Starwood Hotels & Resorts, a Maryland real estate investment trust (the ""Trust''). Unless the context otherwise requires, all references to the Corporation...

  • Page 12
    ...ed applicants for job openings in our facilities. Higher wages, related labor costs and the increasing cost trends in the insurance markets may negatively impact our results as wages, related labor costs and insurance premiums increase. We Must Compete for Customers. The hotel and vacation ownership...

  • Page 13
    ... to the cost and availability of funds. Real Estate Investments Are Subject to Numerous Risks. We are subject to the risks that generally relate to investments in real property because we own and lease hotels and resorts. The investment returns available from equity investments in real estate depend...

  • Page 14
    ...ability to develop, use, sell or rent our real property. International Operations Are Subject to Special Political and Monetary Risks. We have signiÃ'cant international operations which as of December 31, 2003 included 176 owned, managed or franchised properties in Europe, Africa and the Middle East...

  • Page 15
    ... 7, 2004, Moody's Investor Services and Standard & Poor's placed the Company's Ba1 and BB° corporate credit ratings on review/watch for a possible downgrade. The review/watch was prompted by the Company's announcement that it had invested $200 million in Le Meridien Hotels and Resorts Ltd. (""Le...

  • Page 16
    ... acquire, develop and operate vacation ownership resorts, and provide Ã'nancing to purchasers of VOIs. These activities are all subject to extensive regulation by the federal government and the states in which vacation ownership resorts are located and in which VOIs are marketed and sold including...

  • Page 17
    ... of, and may be deemed to control, Starwood Capital Group, L.L.C. (""Starwood Capital''), a real estate investment Ã'rm. Starwood Capital and the Company have entered into a non-compete agreement whereby Starwood Capital may not purchase a hotel property in the United States without the consent of...

  • Page 18
    ... in response to the Internal Revenue Service Restructuring and Reform Act of 1998 (""H.R. 2676''), which made it diÇcult for us to acquire and operate additional hotels while still maintaining our former status as a ""grandfathered paired share real estate investment trust.'' While we believe...

  • Page 19
    ... oÃ...er or exchange oÃ...er, the consummation of which would result in the acquiring person becoming the beneÃ'cial owner of 15% or more of our outstanding Corporation Shares. The preferred stock purchase rights would cause substantial dilution to a person or group that attempts to acquire us on terms...

  • Page 20
    ...brand names include St. Regis», The Luxury Collection», Sheraton», Westin», W» and Four Points» by Sheraton. Through these brands, Starwood is well represented in most major markets around the world. The Company's operations are grouped into two business segments, hotels and vacation ownership...

  • Page 21
    ... and vacation ownership markets, the Company's brands cater to a diverse group of sub-markets within this market. For example, the St. Regis hotels cater to high-end hotel and resort clientele while Four Points by Sheraton hotels deliver extensive amenities and services at more aÃ...ordable rates. 11

  • Page 22
    ...contracts and franchise agreements; acquiring and developing vacation ownership resorts and selling VOIs; and maximizing the value of its owned real estate properties, including selectively disposing of non-core hotels and ""trophy'' assets that may be sold at signiÃ'cant premiums. The Company plans...

  • Page 23
    ... Sweet SleeperSM Bed and the Sheraton Service PromiseSM; Renovating, upgrading and expanding the Company's branded hotels to further its strategy of strengthening brand identity; Developing additional vacation ownership resorts and leveraging our hotel real estate assets where possible through VOI...

  • Page 24
    ... and services, attractiveness of locations, availability of a global distribution system, price, the ability to earn and redeem loyalty program points and other factors. Management believes that Starwood competes favorably in these areas. Starwood's properties compete with other hotels and resorts...

  • Page 25
    ... generally not operating at full capacity and, as such, these renovations can negatively impact Starwood's revenues and operating income. Employees At December 31, 2003, Starwood employed approximately 110,000 employees at its corporate oÇces, owned and managed hotels and vacation ownership resorts...

  • Page 26
    ... stand alone Bliss Spas, two in New York, New York and one in London, England. The following table reÃ-ects the Company's hotel and vacation ownership properties, by brand: Hotels Properties Rooms VOI Properties Rooms St. Regis and Luxury Collection Sheraton Westin W Four Points Independent...

  • Page 27
    ...2002, these capital expenditures included continued development of the St. Regis Museum Tower in San Francisco, California and renovations of the Phoenician in Scottsdale, Arizona, the Westin Excelsior in Rome, Italy, the Westin Galleria and Oaks in Houston, Texas and the Sheraton New York Hotel and...

  • Page 28
    ... contract. During 2003, the Company signed management agreements for 27 hotels with approximately 10,000 rooms. Brand Franchising and Licensing. Starwood franchises its Sheraton, Westin, Four Points by Sheraton and Luxury Collection brand names and generally derives licensing and other fees...

  • Page 29
    ...Ka'anapali Ocean Resort and Villas in Maui, Hawaii. The Ã'rst phase of the resort (103 units) was sold out prior to opening. Also during 2003, the Company announced a brand extension and fractional product with the St. Regis Aspen Residence Club (25 units). During 2003 and 2002, the Company invested...

  • Page 30
    ... exchanged for an equal number of Shares during 2003. Through December 31, 2003, in accordance with the terms of the Class B EPS, which allow the shareholders to put these units back to the Company for cash at $38.50 for a one-year period beginning on the Ã'fth anniversary of the Westin acquisition...

  • Page 31
    ... not registered shares but could be sold in compliance with Rule 144 of the Securities Act. Item 6. Selected Financial Data. The following Ã'nancial and operating data should be read in conjunction with the information set forth under ""Management's Discussion and Analysis of Financial Condition and...

  • Page 32
    ... fees earned on hotels managed worldwide, usually under long-term contracts, and franchise fees received in connection with the franchise of the Company's Sheraton, Westin, Four Points by Sheraton and Luxury Collection brand names. Management fees are comprised of a base fee, which is generally...

  • Page 33
    ... managed and franchised properties. The cost of operating the program, including the estimated cost of award redemption, is charged to properties based on members' qualifying expenditures. Revenue is recognized by participating hotels and resorts when points are redeemed for hotel stays. The Company...

  • Page 34
    ... of Full Year 2003 and 2002 Owned North America Operating Income Metropolitan Area 2003 Operating Income 2002 Operating Income New York, NY San Diego, CA Boston, MA Phoenix, AZ Seattle, WA Atlanta, GA Maui, HI Los Angeles Ì Long Beach, CA Indianapolis, IN Toronto, Canada All Other Total...

  • Page 35
    ... as a result of sales at the Westin Ka'anapali Ocean Resort Villas in Maui, Hawaii, which sold out the Ã'rst phase prior to the opening, as well as strong demand reÃ-ected in our resorts in Scottsdale and Orlando in the latter part of the year. Management and franchise fees revenue also increased as...

  • Page 36
    ... of 18 domestic non-core hotels as held for sale, 16 of which were sold in 2003, oÃ...set in part by the $9 million gain on sale of undeveloped land in Sardinia, Italy in the second quarter of 2003. During 2002, the Company sold its investment in Interval International, for a gain of $6 million. This...

  • Page 37
    ... travel. The decrease in business transient demand, when compared to the same period of 2001, had an adverse impact on the Company's majority owned hotels, many of which are located in major urban markets. Revenues. Total revenues, including other revenues from managed and franchised properties...

  • Page 38
    ..., primarily as a result of sales at the Westin Mission Hills Resort Villas in Rancho Mirage, California and the Westin Ka'anapali Ocean Resort Villas in Maui, Hawaii. These increases were partially oÃ...set by lower management fees, primarily due to reduced incentive management fees as a result of the...

  • Page 39
    ... Company's owned, leased and consolidated joint venture hotels including the opening of the W Times Square in December 2001 and the Westin Dublin in September 2001, as well as costs to reposition the W Lakeshore and the W Midland hotels in Chicago and capital expenditures on technology development...

  • Page 40
    ...-party ownership of hotels that the Company manages or franchises. As of December 31, 2003, the Company was a guarantor for loans which could reach a maximum of $144 million relating to three projects: the St. Regis in Monarch Beach, California, which opened in mid-2001; the Westin Kierland Resort...

  • Page 41
    ... were required by state or local governments relating to our vacation ownership operations and by our insurers to secure large deductible insurance programs. To secure management contracts, the Company may provide performance guarantees to third-party owners. Most of these performance guarantees...

  • Page 42
    ...retail stores. The purchase price for the acquired interest was $23.8 million, and was funded from available cash. The Company intends to Ã'nance the acquisition of additional hotel properties (including equity investments), hotel renovations, VOI construction, capital improvements, technology spend...

  • Page 43
    ... at December 31, 2003 of fair value adjustments related to the Ã'xed-to-Ã-oating interest rate swaps for the Sheraton Holding Public Debt and the Senior Notes, respectively. Fiscal 2003 Developments. In May 2003, the Company sold an aggregate of $360 million 3.5% coupon convertible senior notes due...

  • Page 44
    ...). The downgrading of the Company's credit rating may result in higher borrowing costs on future Ã'nancings. On January 7, 2004, Moody's Investor Services and Standard & Poor's placed the Company's Ba1 (non-investment grade) and BB° corporate credit ratings on review/watch for a possible downgrade...

  • Page 45
    ...Program, Starwood repurchased 3.2 million Shares in the open market for an aggregate cost of $96 million during 2001. No shares were repurchased during 2002. The Company repurchased the following Shares during 2003: Total Number of Shares Purchased Average Price Paid for Share Total Number of Shares...

  • Page 46
    ... positions. Changes in the fair value of hedging instruments are classiÃ'ed in the same manner as changes in the underlying assets or liabilities due to Ã-uctuations in foreign currency exchange rates. At December 31, 2003, the notional amount of the Company's open foreign exchange hedging contracts...

  • Page 47
    ...1998. Mr. Ryder was President, American Express April 2001 Travel Related Services International, a division of American Express Company, which provides travel, Ã'nancial and network services, from October 1995 to April 1998. He is a director of Amazon.com, Inc. Barry S. Sternlicht (43 Chairman and...

  • Page 48
    ...Institutional Investors, Inc., a subsidiary of Equity Group Investments, Inc., a Chicago-based holding company controlled by Samuel Zell. Directors and Trustees Whose Terms Expire at the 2004 Annual Meeting Eric Hippeau (52 Managing Partner of Softbank Capital Partners, a technology venture capital...

  • Page 49
    ... and Business Experience Service Period Kneeland C. Youngblood (48) ÏÏ Managing partner of Pharos Capital Group, L.L.C., a Director and private equity fund focused on technology companies, Trustee since business service companies and health care April 2001 companies, since January 1998...

  • Page 50
    ... to our Investor Relations Department, 1111 Westchester Avenue, White Plains, New York 10604. The Company is in the process of updating our Worldwide Code of Conduct applicable to all of its directors, oÇcers and employees. This update will be completed prior to the Corporation's Annual Meeting of...

  • Page 51
    ...the Company's Employee Stock Purchase Plan, a stock purchase plan meeting the requirements of Section 423 of the Internal Revenue Code. The remaining information called for by Item 12 is incorporated by reference to the information under the caption ""Security Ownership of Certain BeneÃ'cial Owners...

  • Page 52
    ... August 2003, the Company acquired from an aÇliate of Starwood Capital, its beneÃ'cial ownership interest in 15 acres of land contiguous to the Westin Mission Hills Resort for a purchase price of $2.8 million. The Company's Governance Committee approved the transaction, which was at a discount from...

  • Page 53
    ... owned by Starwood Capital and Goldman, Sachs & Co. When the Company acquired Westin in January 1998, it acquired Westin's rights and obligations under the management and other related agreements. Under these agreements, the hotel manager was obligated to loan up to $12.5 million to the owner in the...

  • Page 54
    ...487 shares of restricted stock in 2001. In connection with his employment as general manager of the St. Regis and other positions, Mr. Cotter was provided with the use of a Company-owned apartment in New York City from September 1998 through August 2003, which the Company believes has a rental value...

  • Page 55
    Item 14. Principal Accountant Fees and Services The Audit Committee has adopted a policy requiring pre-approval by the committee of all services (audit and non-audit) to be provided to the Company by its independent auditors. In accordance with that policy, the Audit Committee has given its approval...

  • Page 56
    ... Partnership, Operating Partnership, WHWE L.L.C., Woodstar Investor Partnership (""Woodstar''), Nomura Asset Capital Corporation, Juergen Bartels, Westin Hotels & Resorts Worldwide, Inc., W&S Lauderdale Corp., W&S Seattle Corp., Westin St. John Hotel Company, Inc., W&S Denver Corp., W&S Atlanta Corp...

  • Page 57
    ... the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1992). Starwood Hotels & Resorts 1995 Long-Term Incentive Plan (Amended and Restated as of December 3, 1998) (incorporated by reference to Annex D to the 1998 Proxy Statement).(1) Starwood Hotels & Resorts Worldwide...

  • Page 58
    ... the Corporation, the Trust and each of its Directors/ Trustees and executive oÇcers.(1)(2) Form of Trademark License Agreement, dated as of December 10, 1997, between Starwood Capital and the Trust (incorporated by reference to Exhibit 10.22 to the 1997 Form 10-K). Exchange Rights Agreement, dated...

  • Page 59
    ... the 2000 Form 10-K).(1) Stock Purchase Agreement, dated as of April 27, 1999, among the Corporation, ITT Sheraton Corporation, Starwood Canada Corp., Caesars World, Inc., Sheraton Desert Inn Corporation, Sheraton Tunica Corporation and Park Place Entertainment Corporation (incorporated by reference...

  • Page 60
    ...Incentive Compensation Plan (the ""2002 LTIP'') (incorporated by reference to Annex B of the Corporation's 2002 Proxy Statement). Starwood Hotels & Resorts Amended and Restated Non-QualiÃ'ed Stock Option Agreement by and between the Trust and Barry S. Sternlicht, dated as of May 22, 2002 relating to...

  • Page 61
    ...the Corporation, the Guarantor and the Initial Purchasers (incorporated by reference to Exhibit 4.10 to the Form S-3). First Amendment to the Starwood Hotels & Resorts Worldwide, Inc. 1999 Annual Incentive Plan for Certain Executives, dated as of December 17, 2003.(1)(2) Amendment to Exchange Rights...

  • Page 62
    ... States Code ÃŒ Chief Financial and Accounting OÇcer ÃŒ Trust.(2) (1) Management contract or compensatory plan or arrangement required to be Ã'led as an exhibit pursuant to Item 14(c) of Form 10-K. (2) Filed herewith. (b) Reports on Form 8-K. During the fourth quarter of 2003, Starwood Ã'led...

  • Page 63
    ... 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By: /s/ BARRY S. STERNLICHT Barry S. Sternlicht Chairman, Chief Executive OÇcer...

  • Page 64
    ... Title Date /s/ STEPHEN R. QUAZZO Stephen R. Quazzo /s/ THOMAS O. RYDER Thomas O. Ryder /s/ DANIEL W. YIH Daniel W. Yih /s/ KNEELAND C. YOUNGBLOOD Kneeland C. Youngblood Director February 27, 2004 Director February 28, 2004 Director February 27, 2004 Director February 27, 2004 54

  • Page 65
    ...Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. STARWOOD HOTELS & RESORTS By: /s/ BARRY S. STERNLICHT Barry... President, Chief Financial OÇcer (Principal Financial and Accounting OÇcer) Trustee...

  • Page 66
    Signature Title Date /s/ STEPHEN R. QUAZZO Stephen R. Quazzo /s/ THOMAS O. RYDER Thomas O. Ryder /s/ DANIEL W. YIH Daniel W. Yih /s/ KNEELAND C. YOUNGBLOOD Kneeland C. Youngblood Trustee February 27, 2004 Trustee February 28, 2004 Trustee February 27, 2004 Trustee February 27, 2004 56

  • Page 67
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS INDEX TO FINANCIAL STATEMENTS AND SCHEDULES Page Report of Independent Auditors Starwood Hotels & Resorts Worldwide, Inc.: Consolidated Balance Sheets as of December 31, 2003 and 2002 Consolidated Statements of Income for the...

  • Page 68
    ..., Inc. (a Maryland corporation) and its subsidiaries (the ""Company'') and Starwood Hotels & Resorts (a Maryland real estate investment trust) and its subsidiaries (the ""Trust'') as of December 31, 2003 and 2002, and the related consolidated statements of income, comprehensive income, equity, and...

  • Page 69
    ...of long-term debt Accounts payable Accrued expenses Accrued salaries, wages and beneÃ'ts Accrued taxes and other Total current liabilities Long-term debt Deferred income taxes Other liabilities Minority interest Exchangeable units and Class B preferred shares, at redemption value of $38.50...

  • Page 70
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF INCOME (In millions, except per Share data) Year Ended December 31, 2003 2002 2001 Revenues Owned, leased and consolidated joint venture hotels Other hotel and leisure Other revenues from managed and franchised properties Costs...

  • Page 71
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Year Ended December 31, 2003 2002 2001 Net income Other ...on securities, net Ì Unrealized holding gains arising during the period Derivative instruments, net Ì Change in fair value of...

  • Page 72
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF EQUITY (In millions) Exchangeable units and Class B EPS Shares Amount Class A EPS Shares Amount Deferred Compensation Shares Shares Amount Additional Paid-in Capital Accumulated Other Comprehensive Income(a) Retained Earnings (...

  • Page 73
    ... accounts 34 27 20 Minority equity in net income (loss 3) 2 3 Distributions in excess of equity earnings 71 31 19 Gain on sale of VOI notes receivable 15) (16) (12) Loss (gain) on asset dispositions and impairments, net 183 (3) 57 Changes in working capital: Restricted cash 27 (58) 1 Accounts...

  • Page 74
    ... Accounts payable Accrued expenses Distributions payable, Corporation Distributions payable Total current liabilities Long-term debt Minority interest Exchangeable units and Class B preferred shares, at redemption value of $38.50 ÏÏÏÏÏ Commitments and contingencies Stockholders' equity...

  • Page 75
    STARWOOD HOTELS & RESORTS CONSOLIDATED STATEMENTS OF INCOME (In millions) Year Ended December 31, 2003 2002 2001 Revenues Rent and interest, Corporation Costs and Expenses Selling, general and administrative Depreciation Amortization $ 526 526 3 165 Ì 168 358 (2) (35) (186) (3) 1 $ 133 $587...

  • Page 76
    ...(loss Distributions in excess of equity earnings Loss on asset dispositions and impairments, net Receivable, Corporation Other, net Cash from operating activities Investing Activities Purchases of plant, property and equipment Proceeds from asset sales, net Acquisitions, net of acquired cash...

  • Page 77
    ...from the 1998 acquisition of Westin Hotels & Resorts Worldwide, Inc. and certain of its aÇliates (""Westin'') (the ""Westin Merger'') and the acquisition of ITT Corporation (the ""ITT Merger''). On October 1, 1999, the Company completed the acquisition of Starwood Vacation Ownership, Inc. (formerly...

  • Page 78
    .... AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS ÃŒ (Continued) Corporation). For all periods presented, the LP Units are assumed to have been converted to Shares for purposes of calculating basic and diluted weighted average Shares outstanding. Note 2. SigniÃ'cant Accounting Policies...

  • Page 79
    ...INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Company exercises control over the venture, the results of the joint venture are consolidated herein. All other investments are generally accounted for under the cost method. The fair market value of investments is based...

  • Page 80
    ..., INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS ÃŒ (Continued) SPG is provided as a marketing program to the Company's properties, including as incentives to Ã'rst time buyers of VOIs. The cost of operating the program, including the estimated cost of award redemption, is charged...

  • Page 81
    ..., INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS ÃŒ (Continued) intercompany receivables. Gains and losses from foreign currency transactions are reported currently in costs and expenses and were insigniÃ'cant for all periods presented. Income Taxes. The Company provides for income...

  • Page 82
    ... joint venture hotels and resorts operated primarily under the Company's proprietary brand names including St. Regis, The Luxury Collection, Sheraton, Westin, W and Four Points by Sheraton. Revenue is recognized when rooms are occupied and services have been rendered. Management and Franchise Fees...

  • Page 83
    ... TO FINANCIAL STATEMENTS Ì (Continued) and franchise fees are recognized in other hotel and leisure revenues in the consolidated statements of income. ¬ Vacation Ownership Ì The Company recognizes revenue from VOI sales in accordance with SFAS No. 66, ""Accounting for Sales of Real Estate.'' The...

  • Page 84
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS ÃŒ (Continued) for available-for-sale securities. The Company had BeneÃ'cial and Retained Interests of $50 million and $47 million at December 31, 2003 and 2002, respectively. Use of Estimates. The ...

  • Page 85
    ...typically expire within a few years of the hotels opening and (d) other types of contributions to ventures owning hotels to secure the management or franchise contract. The Company also reviewed its other management and franchise agreements related to hotels that the Company has no other investments...

  • Page 86
    ...of subsequent charges primarily related to post-closing adjustments to the sales prices. The Company sold 16 of these hotels for net proceeds of $404 million. The Company also recorded a $9 million gain on the sale of a 51% interest in undeveloped land in Costa Smeralda in Sardinia, Italy. This gain...

  • Page 87
    ...AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) operated together with one of the non-core domestic hotels and is now closed and under review for alternative use and a $2 million charge related to an impairment of an investment. During 2002, the Company sold two hotels for...

  • Page 88
    ...INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) ended December 31, 2002. As discussed above, in connection with the 2003 securitizations, the Company repurchased all of the existing receivables under the 2002 Note Sales. During 2001, the Company sold, without recourse...

  • Page 89
    ..., a golf club and a 51% interest in its undeveloped land in Costa Smeralda in Sardinia, Italy (""Sardinia Assets'') for 290 million Euro (approximately $340 million based on exchange rates at the time the sale closed) in gross cash proceeds. The Company continues to manage the four hotels subject to...

  • Page 90
    ... costs of this portfolio in 2003 and $11 million of subsequent charges, primarily related to post-closing adjustments to the sales prices. The Company sold 16 of these non-core domestic hotels for approximately $404 million during 2003, the majority of which were sold subject to franchise agreements...

  • Page 91
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) recorded a $25 million gain resulting from an adjustment to the Company's tax basis in ITT World Directories...2003 2002 Trademarks and trade names Management and franchise agreements...

  • Page 92
    ...STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS ÃŒ (Continued) March 5, 2004 to negotiate the recapitalization of Le Meridien which may be extended through early April 2004, which could require a signiÃ'cant cash outlay. Note 10. Restructuring and Other Special Charges (Credits) The Company...

  • Page 93
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) 2003 Restructuring and Other Special Charges (Credits). During the year ended December 31, 2003, the Company received $12 million in a favorable settlement of a litigation matter. ...

  • Page 94
    ... STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Note 12. Accrued Expenses Accrued expenses include accrued distributions of $172 million and $170 million at December 31, 2003 and 2002, respectively. Accrued expenses also include the current portion of insurance reserves and...

  • Page 95
    ... AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS ÃŒ (Continued) Deferred income taxes represent the tax eÃ...ect of the diÃ...erences between the book and tax bases of assets and liabilities. Deferred tax assets (liabilities) include the following (in millions): December 31, 2003 2002 Plant...

  • Page 96
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) A reconciliation of the tax provision of the Company at the U.S. statutory rate to the provision for income tax as reported is as follows (in millions): Year Ended December 31, 2003 ...

  • Page 97
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Note 14. Debt Long-term debt and short-term borrowings consisted of the following (in millions): December 31, 2003 2002 Senior Credit Facility: Term loan, interest at LIBOR°1.625% ...

  • Page 98
    ...INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS ÃŒ (Continued) of LIBOR ° 1.625%. The proceeds of the new Senior Credit Facility were used to pay oÃ... all amounts owed under the Company's previous senior credit facility, which was due to mature in February 2003. The Company incurred...

  • Page 99
    ... rate swap agreements. Note 15. Employee BeneÃ't Plans DeÃ'ned BeneÃ't and Postretirement BeneÃ't Plans. The Company and its subsidiaries sponsor or previously sponsored numerous funded and unfunded domestic and international pension plans, including the ITT Sheraton Corporation Ongoing Retirement...

  • Page 100
    ...beneÃ't payments Employer contribution Settlements Annuity purchase EÃ...ect of foreign exchange rates BeneÃ'ts paid Net asset reversion to Starwood Fair value of plan assets at end of year Funded status Unrecognized net actuarial (gain) loss Unrecognized prior service cost Reimbursement of...

  • Page 101
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS ÃŒ (Continued) At December 31, 2003 and 2002, the accumulated beneÃ't obligation for the Company's domestic pension plans was $20 million and $34 million, respectively, and the accumulated beneÃ't ...

  • Page 102
    ..., INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) historical rates of return and Company and investment expert expectations for investment performance over approximately a ten year period. The weighted average asset allocations at December 31, 2003 and 2002 for...

  • Page 103
    ...WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS ÃŒ (Continued) Note 16. Leases and Rentals The Corporation leases certain equipment for the hotels' operations under various lease agreements. The leases extend for varying periods through 2009 and generally are for a Ã'xed...

  • Page 104
    ... purchase of Shares by Directors, oÇcers, employees, consultants and advisors, pursuant to equity award grants. Although no additional awards will be granted under the 1999 LTIP, or the Company's 1995 Share Option Plan (the ""1995 LTIP''), the 1999 LTIP and 1995 LTIP will continue to govern awards...

  • Page 105
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) The following table summarizes stock option activity for the Company: Options Weighted Average Exercise Price Per Share Outstanding at December 31, 2000 Granted Exercised ...

  • Page 106
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) 2002 Employee Stock Purchase Plan In April 2002, the Board of Directors adopted (and in May 2002 the shareholders approved) the Company's 2002 Employee Stock Purchase Plan (the ""ESPP...

  • Page 107
    ...trademarks in connection with the acquisition, ownership, leasing, management, merchandising, operation and disposition of hotels worldwide, and to use the ""Starwood'' name in its corporate name worldwide, in perpetuity. Starwood Capital Noncompete. In connection with a restructuring of the Company...

  • Page 108
    ... August 2003, the Company acquired from an aÇliate of Starwood Capital, its beneÃ'cial ownership interest in 15 acres of land contiguous to the Westin Mission Hills Resort for a purchase price of $2.8 million. The Company's Governance Committee approved the transaction, which was at a discount from...

  • Page 109
    ... owned by Starwood Capital and Goldman, Sachs & Co. When the Company acquired Westin in January 1998, it acquired Westin's rights and obligations under the management and other related agreements. Under these agreements, the hotel manager was obligated to loan up to $12.5 million to the owner in the...

  • Page 110
    ...487 shares of restricted stock in 2001. In connection with his employment as general manager of the St. Regis and other positions, Mr. Cotter was provided with the use of a Company-owned apartment in New York City from September 1998 through August 2003 which the Company believes has a rental value...

  • Page 111
    ... these properties at values signiÃ'cantly below construction costs. Surety bonds issued on behalf of the Company as of December 31, 2003 totaled $46 million, the majority of which were required by state or local governments relating to our vacation ownership operations and by our insurers to secure...

  • Page 112
    ... STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS ÃŒ (Continued) does not believe that any payments under this guaranty will be signiÃ'cant. Lastly, the Company does not anticipate losing a signiÃ'cant number of management or franchise contracts in 2004. Litigation. The Sheraton Corporation...

  • Page 113
    ... Company Ã'led suit in New York City against Aoki Corporation (""Aoki'') and certain other related and unrelated entities regarding Starwood's management of nine hotels in the United States and Canada owned by Aoki and/or such other entities. Starwood is seeking to enforce the management agreements...

  • Page 114
    ... primarily under the Company's proprietary brand names including St. Regis, The Luxury Collection, Sheraton, Westin, W and Four Points by Sheraton as well as hotels and resorts which are managed or franchised under these brand names in exchange for fees. The vacation ownership segment includes the...

  • Page 115
    ... INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) The following table presents revenues, operating income, assets and capital expenditures for the Company's reportable segments (in millions): 2003 2002 2001 Revenues : Hotel Vacation ownership Total Operating income...

  • Page 116
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) The following table presents revenues (excluding other revenues from managed and franchised properties) and long-lived assets by geographical region: 2003 Revenues 2002 2001 (In ...

  • Page 117
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Balance Sheet December 31, 2003... Exchangeable units and Class B preferred shares, at redemption value of $38.50ÏÏÏÏ Commitments and contingencies Total stockholders' equity ...

  • Page 118
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued)... Minority interest Exchangeable units and Class B preferred shares, at redemption value of $38.50ÏÏÏÏ Commitments and contingencies Total stockholders' equity $ 5,193...

  • Page 119
    ... joint venture hotels Selling, general and administrative and other Restructuring and other special credits, netÏÏ Depreciation and amortization Other expenses from managed and franchised properties Operating income Gain on sale of VOI notes receivable Equity earning in consolidated...

  • Page 120
    ... hotel Selling, general and administrative and other Restructuring and other special credits, netÏÏ Depreciation and amortization Other expenses from managed and franchised properties Operating income Gain on sale of VOI notes receivable Equity earnings in consolidated subsidiaries Equity...

  • Page 121
    ... hotel Selling, general and administrative and other Restructuring and other special credits, netÏÏ Depreciation and amortization Other expenses from managed and franchised properties Operating income Gain on sale of VOI notes receivable Equity earnings in consolidated subsidiaries Equity...

  • Page 122
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Statement of Cash Flows Year Ended December 31, 2003 (In millions) NonGuarantor Guarantor Subsidiary Subsidiaries Eliminations Parent Consolidated Operating Activities Net income ...

  • Page 123
    ... net income and changes in working capital Cash from discontinued operations Cash from (used for) operating activities Investing Activities Purchases of plant, property and equipment Acquisitions and investments Other, net Cash from (used for) investing activities Financing Activities Revolving...

  • Page 124
    ... from continuing operations Adjustments to net income and changes in working capital Cash from discontinued operations Cash from (used for) operating activitiesÏÏ Investing Activities Purchases of plant, property and equipmentÏÏ Acquisitions and investments Other, net Cash from (used for...

  • Page 125
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Note 24. Quarterly Results (Unaudited) March 31 Three Months Ended June 30 September 30 December 31 (In millions, except per Share data) Year 2003 Revenues(a Costs and expenses(a ...

  • Page 126
    SCHEDULE II STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS VALUATION AND QUALIFYING ACCOUNTS (In millions) Additions (Deductions) Charged to/reversed Charged from to/from Other Payments/ Expenses Accounts(a) Other Balance January 1, Balance December 31, 2003 Trade ...

  • Page 127
    ... III STARWOOD HOTELS & RESORTS REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2003 (In millions) Initial Cost to Company (a) (a)(b) Costs Subsequent to Acquisition Gross Amount Book Value at December 31, 2003 Description City State Land Building and Improvements Land Land Building...

  • Page 128
    ...III (Continued) STARWOOD HOTELS & RESORTS REAL ESTATE AND ACCUMULATED DEPRECIATION (In millions) A reconciliation of the Trust's investment in real estate, furniture and Ã'xtures and related accumulated depreciation is as follows: Year Ended December 31, 2003 2002 2001 Real Estate and Furniture and...

  • Page 129
    ... $ Ì $ Intercompany Mortgage Loans First Mortgages: W New York Ì New York Westin Maui Ì Hawaii Other, all (5) less than 3% of total carrying value Sheraton Holding Corporation Mortgage Note Sheraton Holding Corporation Mortgage Note Starwood Hotels & Resorts 4 $ 4 No No $ 72 153 123...

  • Page 130
    SCHEDULE IV (Continued) STARWOOD HOTELS & RESORTS RECONCILIATION OF MORTGAGE LOANS (In millions) Year Ended December 31, 2003 2002 2001 Balance at beginning of period Additions: Accrued interest(a Deductions: Principal repayments Balance at end of period $2,669 179 Ì $2,848 $2,496 177 (4) ...

  • Page 131
    ... Partnership, Operating Partnership, WHWE L.L.C., Woodstar Investor Partnership (""Woodstar''), Nomura Asset Capital Corporation, Juergen Bartels, Westin Hotels & Resorts Worldwide, Inc., W&S Lauderdale Corp., W&S Seattle Corp., Westin St. John Hotel Company, Inc., W&S Denver Corp., W&S Atlanta Corp...

  • Page 132
    ... the Corporation's Joint Annual Report on Form 10-K for the year ended December 31, 1992). Starwood Hotels & Resorts 1995 Long-Term Incentive Plan (Amended and Restated as of December 3, 1998) (incorporated by reference to Annex D to the 1998 Proxy Statement).(1) Starwood Hotels & Resorts Worldwide...

  • Page 133
    ... Current Report on Form 8-K dated January 31, 1995 (the ""Formation Form 8-K'')). Registration Rights Agreement, dated as of January 1, 1995, among the Trust, the Corporation and Starwood Capital (incorporated by reference to Exhibit 2C to the Formation Form 8-K). Exchange Rights Agreement, dated...

  • Page 134
    ... the 2000 Form 10-K).(1) Stock Purchase Agreement, dated as of April 27, 1999, among the Corporation, ITT Sheraton Corporation, Starwood Canada Corp., Caesars World, Inc., Sheraton Desert Inn Corporation, Sheraton Tunica Corporation and Park Place Entertainment Corporation (incorporated by reference...

  • Page 135
    ...Incentive Compensation Plan (the ""2002 LTIP'') (incorporated by reference to Annex B of the Corporation's 2002 Proxy Statement). Starwood Hotels & Resorts Amended and Restated Non-QualiÃ'ed Stock Option Agreement by and between the Trust and Barry S. Sternlicht, dated as of May 22, 2002 relating to...

  • Page 136
    ...the Corporation, the Guarantor and the Initial Purchasers (incorporated by reference to Exhibit 4.10 to the Form S-3). First Amendment to the Starwood Hotels & Resorts Worldwide, Inc. 1999 Annual Incentive Plan for Certain Executives, dated as of December 17, 2003.(1)(2) Amendment to Exchange Rights...

  • Page 137
    ... programs; the ability to maintain existing management, franchise or representation agreements and to obtain new agreements on favorable terms; competition within the lodging industry and from emerging technologies, the cyclicality of the real estate business and the hotel business; foreign exchange...

  • Page 138
    STARWOOD HOTELS & RESORTS 2003 ANNUAL REPORT STARWOOD.COM