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Starwood Hotels & Resorts Worldwide, Inc.
2004 Annual Report

Table of contents

  • Page 1
    Starwood Hotels & Resorts Worldwide, Inc. 2004 Annual Report

  • Page 2
    ... The Atlantic, a Luxury Collection Hotel Ft. Lauderdale, Florida The Westin Kierland Villas Arizona Four Points by Sheraton Manhattan Chelsea, New York Hacienda Puerta Campeche, Mexico U.S. Grant Hotel, California Westin Hotels The Westin Mission Hills Resort & Villas, California W Hotels W Montreal

  • Page 3
    ... fair share of upside in the recovery. Clearly the fact that we are long owned assets in New York, Washington DC, Boston, Los Angeles and San Francisco was important to our success in 2004, but our success goes beyond simply well located assets. Our emphasis on productivity initiatives, powered by...

  • Page 4
    ... our key are improvement and hare price was up more e most robust in our history d franchise agreements) as n the world. W and St. Regis ntly under development, and Westin won 21 of the 43 est growing upper upscale roviding us the resources ast year's acquisition of ke in our Starwood Vacation nd...

  • Page 5
    Corporate Offices Starwood Hotels & Resorts Worldwide, Inc. 1111 Westchester Avenue White Plains, NewYork 10604 914 640 8100 Independent Registered Public Accounting Firm Ernst & Y oung LLP NewYork, NewYork Stock Registrar & Transfer Agent Shareholders with questions concerning stock certificates,...

  • Page 6

  • Page 7
    ...640-8100 (Registrant's telephone number, including area code) Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, par value $0.01 per share (""Corporation Share''), of Starwood Hotels & Resorts Worldwide, Inc. (the...

  • Page 8
    ...16 19 19 19 PART II Market for Registrants' Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ÏÏ Item 7A. Quantitative and Qualitative...

  • Page 9
    ... of our public filings at the New York Stock Exchange, you should call (212) 656-5060. You may also obtain a copy of our filings free of charge by calling Alisa Rosenberg, Vice President, Investor Relations at (914) 640-5214. Risks Relating to Hotel, Resort and Vacation Ownership Operations We Are...

  • Page 10
    ... 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 industries are highly competitive. Our properties compete for customers with other hotel and resort properties, and...

  • Page 11
    ... technology and systems including technology utilized for property management, procurement, reservation systems, operation of our customer loyalty program, distribution and guest amenities. These technologies can be expected to require reÃ'nements and there is the risk that advanced new technologies...

  • Page 12
    ... laws, ordinances and regulations, particularly those governing the management or preservation of wetlands, coastal zones and threatened or endangered species, could limit our ability to develop, use, sell or rent our real property. International Operations Are Subject to Special Political and...

  • Page 13
    ... and leased properties and we make available insurance programs for owners of properties we manage and franchise. These policies oÃ...er coverage features and insured limits that we believe are customary for similar type properties. Generally, our ""all-risk'' property policies provide that coverage...

  • Page 14
    ... 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 15
    ... opportunities to purchase such properties are also Ã'rst presented to the Company in accordance with the Company's Corporate Opportunity Policy. In each case, to the extent that management of the Company recommends not to pursue an opportunity, the Governance and Nominating Committee of the Board...

  • Page 16
    ... us to have to pay taxes that we currently do not collect or pay or increase the costs of our services or increase our costs of operations. Our current business practice with our internet reservation channels is that the intermediary collects hotel occupancy tax from its customer based on the price...

  • Page 17
    ... The preferred stock purchase rights are triggered by the earlier to occur of (i) ten days after the date of a public announcement that a person or group acting in concert has acquired, or obtained the right to acquire, beneÃ'cial ownership of 15% or more of our outstanding Corporation Shares or (ii...

  • Page 18
    ... a minority equity interest) and 310 hotels for which we receive franchise fees. Our revenues and earnings are also derived from the development, ownership and operation of vacation ownership resorts, marketing and selling VOIs in the resorts and providing Ã'nancing to customers who purchase such...

  • Page 19
    ... SPG yields repeat guest business due to rewarding frequent stays and purchasers of VOIs with points towards free hotel stays and other rewards, or airline miles with any of the participating 32 airline programs. SigniÃ'cant Presence in Top Markets. Our luxury and upscale hotel and resort assets are...

  • Page 20
    ... cash Ã-ow by increasing the proÃ'tability of our existing portfolio; selectively acquiring interests in additional assets; increasing the number of our hotel management contracts and franchise agreements; acquiring and developing vacation ownership resorts and selling VOIs; and maximizing the value...

  • Page 21
    ... strengthening brand identity; Developing additional vacation ownership resorts and leveraging our hotel real estate assets where possible through VOI construction and residential or condominium sales; Leveraging the Bliss product line and distribution channels; and Increasing operating eÇciencies...

  • Page 22
    ... as a hotel, resort and vacation ownership operator and developer. While some of our competitors are private management Ã'rms, several are large national and international chains that own and operate their own hotels, as well as manage hotels for third-party owners and develop and sell VOIs, under...

  • Page 23
    ...owned and managed hotels and vacation ownership resorts, of whom approximately 44% were employed in the United States. At December 31, 2004, approximately 35% of the U.S.-based employees were covered by various collective bargaining agreements providing, generally, for basic pay rates, working hours...

  • Page 24
    ..., we are opening a Bliss Spa at the W New York and a Remede Ï€ Spa at the St. Regis Aspen. The following table reÃ-ects our 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 25
    ... York Hotel and Towers in New York, New York. Managed and Franchised Hotels. Hotel and resort properties in the United States are often owned by entities that do not manage hotels or own a brand name. Hotel owners typically enter into management contracts with hotel management companies to operate...

  • Page 26
    ... at other Starwood vacation ownership resorts, for intervals at certain vacation ownership resorts not otherwise sponsored by Starwood through an exchange company, or for hotel stays at Starwood properties. From time to time, we securitize or sell the receivables generated from our sale of VOIs. At...

  • Page 27
    ... for Registrants' Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information The Shares are traded on the New York Stock Exchange (the ""NYSE'') under the symbol ""HOT.'' The Class A Shares are all indirectly held by the Corporation and have never been...

  • Page 28
    ... in cash in 2004. As of December 31, 2004 approximately 53,000 Class B EPS remained outstanding. Issuer Purchases of Equity Securities Pursuant to the Share Repurchase Program, Starwood repurchased 7.0 million Shares in the open market for an aggregate cost of $310 million during 2004. The Company...

  • Page 29
    ..., including those relating to revenue recognition, bad debts, inventories, investments, plant, property and equipment, goodwill and intangible assets, income taxes, Ã'nancing operations, frequent guest program liability, self-insurance claims payable, restructuring costs, retirement beneÃ'ts and...

  • Page 30
    ... luxury resorts, resulting in cross-selling opportunities and an audience of higher-end purchasers, yielding both higher revenues and reduced risks associated with Ã'nancing these VOI sales. Frequent Guest Program. SPG is our frequent guest incentive marketing program. SPG members earn points based...

  • Page 31
    ... based upon discounted cash Ã-ows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals and, if appropriate, current estimated net sales proceeds from pending oÃ...ers. We evaluate the carrying value of our long-lived assets based on our plans, at...

  • Page 32
    ... Ten Metropolitan Areas as a % of Owned North America Revenues for the Year Ended December 31, 2004 with Comparable Data for 2003 Metropolitan Area 2004 Revenues 2003 Revenues New York, NY Boston, MA San Diego, CA Phoenix, AZ Los Angeles-Long Beach, CA Atlanta, GA Toronto, Canada Seattle, WA...

  • Page 33
    ... Villages in Orlando, Florida, and the Westin Mission Hills Resort in Rancho Mirage, California. Contract sales of VOI inventory, which represents vacation ownership revenues before adjustments for percentage of completion accounting and rescissions and excluding fractional sales at the St. Regis...

  • Page 34
    ... our owned, leased and consolidated joint venture hotels more than oÃ...set the absence of operating income from the hotels sold in 2003 as discussed above, as well as the increased energy and health insurance costs. Operating income for the vacation ownership and residential segment was $142 million...

  • Page 35
    ... of various tax matters. Year Ended December 31, 2003 Compared with Year Ended December 31, 2002 Continuing Operations Revenues. Total revenues, including other revenues from managed and franchised properties, were $4.630 billion, remaining virtually Ã-at compared to 2002 levels. Revenues reÃ-ect...

  • Page 36
    ... million in 2002. Contract sales of VOI inventory increased 23.2% in the year ended December 31, 2003 when compared to the same period in 2002, primarily 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...

  • Page 37
    ..., we recorded an after tax gain of $109 million from discontinued operations primarily related to the issuance of new Internal Revenue Service (""IRS'') regulations in early 2002, which allowed us to recognize a $79 million tax beneÃ't from a tax loss on the 1999 sale of the former gaming business...

  • Page 38
    .... Once aggregate hotel operations meet the speciÃ'ed levels over the required time period, the additional cash reserves, plus accrued interest, will be released to us. In addition, state and local regulations governing sales of VOIs allow the purchaser of such a VOI to rescind the sale subsequent to...

  • Page 39
    ... which 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, we may provide performance guarantees to third-party owners. Most of these performance guarantees allow...

  • Page 40
    ... site and catalogue as well as through third party retail stores. The purchase price for the acquired interest was approximately $25 million, and was funded from available cash. We intend to Ã'nance the acquisition of additional hotel properties (including equity investments), hotel renovations, VOI...

  • Page 41
    ... underlying debt (Sheraton Holding Public Debt and the Senior Notes) through 2007, the Ã'nal scheduled maturity date of the terminated Fair Value Swaps. In order to adjust our Ã'xed versus Ã-oating rate debt position, we immediately entered into two new Fair Value Swaps with an aggregate notional...

  • Page 42
    ... cash Ã-ow at or above historical levels or that currently anticipated results will be achieved. We maintain non-U.S.-dollar-denominated debt, which provides a hedge of our international net assets and operations but also exposes our debt balance to Ã-uctuations in foreign currency exchange rates...

  • Page 43
    ... fair market value of current Fair Value Swap assets. At December 31, 2003 our debt included an increase of approximately $57 million related to fair value swap liabilities. If we are unable to generate suÇcient cash Ã-ow from operations in the future to service our debt, we may be required to sell...

  • Page 44
    ...rate swap agreements under which we pay a Ã'xed rate and receive a variable rate. The following table sets forth the scheduled maturities and the total fair value of our debt portfolio: Expected Maturity or Transaction Date... exchange rates would not have a material impact on future net income or cash...

  • Page 45
    .... Management of Starwood Hotels & Resorts Worldwide Inc. and its subsidiaries and Starwood Hotels & Resorts and its subsidiaries (""the Company'') is responsible for establishing and maintaining adequate internal control over Ã'nancial reporting, as such term is deÃ'ned in Exchange Act Rule 13a...

  • Page 46
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING To the Board of Directors, Board of Trustees and Shareholders of Starwood Hotels & Resorts Worldwide, Inc. and Starwood Hotels & Resorts We have audited management's assessment, included in the ...

  • Page 47
    ...OÇcer of Starwood Capital (and its predecessor entities) since its formation in 1991. Mr. Sternlicht was Chief Executive OÇcer of iStar Financial, Inc. ("iStar''), a publicly-held real estate investment Ã'rm, from September 1996 to November 1997 and served as the Chairman of the Board of Directors...

  • Page 48
    ... equity fund focused on Trustee since technology companies, business service companies April 2001 and health care companies, since January 1998. He is Chairman of the Board of the American Beacon Funds, a mutual fund company managed by AMR Investments, an investment aÇliate of American Airlines...

  • Page 49
    ... provider of research and analysis on information technology industries, from January 2000 to November 2000. Prior to that time, he served as Senior Vice President, General Counsel and Corporate Secretary of IMS Health Incorporated, an information services company, and its predecessors from February...

  • Page 50
    ... that require disclosure under applicable SEC rules on our web site. You may obtain a free copy of this code in print by writing to our Investor Relations Department, 1111 Westchester Avenue, White Plains, New York 10604. The Company has adopted a Worldwide Code of Conduct applicable to all of its...

  • Page 51
    ...under our 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 and...

  • Page 52
    ... the acquisition was not consistent with our strategic priorities. In August 2003, we 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. Our Governance Committee...

  • Page 53
    .... Starwood Capital has also agreed to grant us a right of Ã'rst oÃ...er for an appropriate management, franchise, and/or services agreement with respect to any time share, residential or similar development opportunity at certain of the properties, to fully comply with all applicable brand standards...

  • Page 54
    ... Resort with Westin, which was then a privately held company partly owned by Starwood Capital and Goldman, Sachs & Co. When we acquired Westin in January 1998, we acquired Westin's rights and obligations under the management and other related agreements. Under these agreements, the hotel manager...

  • Page 55
    ...2003). As a result of the acquisition of ITT Corporation in 1998, restricted stock awarded to Messrs. Sternlicht and Darnall in 1996 vested at a price for tax purposes of $53 per Share. This amount was taxable at ordinary income rates. By late 1998, the value of the stock had fallen below the amount...

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

  • Page 57
    ...Bank of Chicago, as trustee (incorporated by reference to Exhibit 4.A.IV to the First Amendment to ITT Corporation's Registration Statement on Form S-3 Ã'led November 13, 1996). First Indenture Supplement, dated as of December 31, 1998, among ITT Corporation, the Corporation and The Bank of New York...

  • Page 58
    ... ITT Corporation, Realty Partnership, Sheraton Phoenician Corporation, and Starwood Phoenician CMBS I LLC.(2) Second ModiÃ'cation, dated as of December 30, 1999, to Loan Agreement, dated as of February 23, 1998, among ITT Corporation, Realty Partnership, the Trust and Starwood Hotels and Resorts...

  • Page 59
    ... Stock Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit 99.1 to the Corporation and the Trust's Joint Current Report on Form 8-K Ã'led with the SEC on February 16, 2005 (the ""February 2005 8-K'')).(1) Starwood Hotels & Resorts Worldwide, Inc. 1999 Annual Incentive Plan...

  • Page 60
    ... the Corporation and Barry S. Sternlicht (incorporated by reference to Exhibit 10.52 to the 1999 Form 10-K).(1) 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 a grant made...

  • Page 61
    ....(2) CertiÃ'cation Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 ÃŒ Chief Financial and Accounting OÇcer ÃŒ Trust.(2) CertiÃ'cation Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code ÃŒ Chief Executive OÇcer ÃŒ Corporation.(2) CertiÃ'cation Pursuant to...

  • Page 62
    ... OÇcer ÃŒ Trust.(2) CertiÃ'cation Pursuant to Section 1350 of Chapter 63 of Title 18 of the United 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...

  • Page 63
    .... STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By: /s/ STEVEN J. HEYER Steven J. Heyer Chief Executive OÇcer and Director By: /s/ VASANT M. PRABHU Vasant M. Prabhu Executive Vice President and Chief Financial OÇcer Date: March 2, 2005 Pursuant to the requirements of the Securities Exchange Act...

  • Page 64
    Signature Title Date /s/ THOMAS O. RYDER Thomas O. Ryder /s/ DANIEL W. YIH Daniel W. Yih /s/ KNEELAND C. YOUNGBLOOD Kneeland C. Youngblood Director March 3, 2005 Director March 3, 2005 Director March 3, 2005 56

  • Page 65
    ... authorized. STARWOOD HOTELS & RESORTS By: /s/ STEVEN J. HEYER Steven J. Heyer Chief Executive OÇcer and Trustee By: /s/ VASANT M. PRABHU Vasant M. Prabhu Vice President and Chief Financial and Accounting OÇcer Date: March 2, 2005 Pursuant to the requirements of the Securities Exchange Act of...

  • Page 66
    Signature Title Date /s/ THOMAS O. RYDER Thomas O. Ryder /s/ DANIEL W. YIH Daniel W. Yih /s/ KNEELAND C. YOUNGBLOOD Kneeland C. Youngblood Trustee March 3, 2005 Trustee March 3, 2005 Trustee March 3, 2005 58

  • Page 67
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS INDEX TO FINANCIAL STATEMENTS AND SCHEDULES Page Report of Independent Registered Public Accounting Firm Starwood Hotels & Resorts Worldwide, Inc.: Consolidated Balance Sheets as of December 31, 2004 and 2003 Consolidated ...

  • Page 68
    ... of Starwood Hotels & Resorts Worldwide, Inc. (a Maryland corporation) (the ""Company'') and Starwood Hotels & Resorts (a Maryland real estate investment trust) (the ""Trust'') as of December 31, 2004 and 2003, and the related consolidated statements of income, comprehensive income, equity, and cash...

  • 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...

  • Page 70
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF INCOME (In millions, except per Share data) Year Ended December 31, 2004 2003 2002 Revenues Owned, leased and consolidated joint venture hotels Vacation ownership and residential sales and services Management fees, franchise ...

  • Page 71
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Year Ended December 31, 2004 2003 2002 Net income Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments Minimum pension liability adjustments Unrealized ...

  • Page 72
    ... loss on derivative instruments Distributions declared Balance at December 31, 2003 Net income Stock option and restricted stock award transactions, netÏÏÏÏÏ ESPP stock issuances Share repurchases Conversion or redemption and cancellation of Class A EPS, Class B EPS and Partnership Units...

  • Page 73
    ... discontinued operations 1 11 18 Cash from operating activities 578 766 762 Investing Activities Purchases of plant, property and equipment 333) (302) (296) Proceeds from asset sales, net 74 1,042 65 Collection (issuance) of notes receivable, net 2) (2) 7 Acquisitions, net of acquired cash 65...

  • 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, 2004 2003 2002 Revenues Rent and interest, Corporation Costs and Expenses Selling, general and administrative Depreciation Operating income Equity losses from unconsolidated joint venture Interest...

  • Page 76
    ...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 Collection of notes...

  • Page 77
    ... markets: luxury and upscale. The principal operations of Starwood Vacation Ownership, Inc. (""SVO'') include the acquisition, development and operation of vacation ownership resorts; marketing and selling vacation ownership interests (""VOIs'') in the resorts; and providing Ã'nancing to customers...

  • Page 78
    .... Operating supplies are generally valued at the lower of cost (Ã'rst-in, Ã'rst-out) or market. Loan Loss Reserves. For the hotel segment, the Company measures loan impairment based on the present value of expected future cash Ã-ows discounted at the loan's original eÃ...ective interest rate or...

  • Page 79
    ...result in any impairment charges. Frequent Guest Program. Starwood Preferred Guest» (""SPG'') is the Company's frequent guest incentive marketing program. SPG members earn points based on their spending at the Company's properties, as incentives to Ã'rst-time buyers of VOIs, and, to a lesser degree...

  • Page 80
    ...The Company enters into interest rate swap agreements to manage interest rate exposure. The net settlements paid or received under these agreements are accrued consistent with the terms of the agreements and are recognized in interest expense over the term of the related debt. The related fair value...

  • Page 81
    ...-based employee long-term incentive plans, which are described in Note 17. Stock Incentive Plans. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board (""APB'') Opinion No. 25, ""Accounting for Stock Issued to Employees,'' and related...

  • Page 82
    ..., INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) recognition provisions of SFAS No. 123, ""Accounting for Stock-Based Compensation,'' to stock-based employee compensation: Year Ended December 31, 2004 2003 2002 (In millions, except per Share data) Net income...

  • Page 83
    ... the fees are earned and become due from the franchisee. ¬ Vacation Ownership and Residential Ì The Company recognizes revenue from VOI and residential sales in accordance with SFAS No. 66, ""Accounting for Sales of Real Estate.'' The Company recognizes sales when a minimum of 10% of the purchase...

  • Page 84
    ... a signiÃ'cant portion of which was reimbursed by managed and franchised hotels. Retained Interests. The Company periodically sells notes receivable originated by our vacation ownership business in connection with the sale of VOIs. The Company retains interests in the assets transferred to qualiÃ'ed...

  • Page 85
    ... Company's foreign pension plans, and incorporated the new disclosure requirements into Note 14. Employee BeneÃ't Plans. In May 2003, FASB issued SFAS No. 150, ""Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.'' This statement establishes standards...

  • Page 86
    ... Sheraton Kauai Resort on Poipu Beach in Kauai, Hawaii. The purchase price for the property was approximately $40 million and was funded from available cash. Prior to the acquisition, the Company managed the property for the former owner. Tender OÃ...er to Acquire Partnership Units of Westin Hotels...

  • Page 87
    ...based on exchange rates at the time the sale closed) in gross cash proceeds. The Company continues to manage the four hotels subject to long-term management contracts. Accordingly, the results related to the Sardinia Assets prior to the sale date are not classiÃ'ed as discontinued operations and the...

  • Page 88
    ... under the 2002 Note Sales. The Company can no longer sell VOI notes receivable under the agreements related to the 2002 Asset Sales. Key assumptions used in measuring the fair value of the Retained Interests at the time of the 2002 Note Sale were as follows: discount rate of 14%; annual prepayments...

  • Page 89
    ...aggregate servicing fees of $3 million annually related to these VOI notes receivable in 2004, 2003, and 2002. At the time of each receivable sale and at the end of each Ã'nancial reporting period, the Company estimates the fair value of its Retained Interests using a discounted cash Ã-ow model. All...

  • Page 90
    ... 2002, the Company recorded an after tax gain of $109 million from discontinued operations primarily related to the issuance of new Internal Revenue Service (""IRS'') regulations in early 2002, which allowed the Company to recognize a $79 million tax beneÃ't from a tax loss on the 1999 sale of its...

  • Page 91
    ... for the year ended December 31, 2004 are as follows (in millions): Hotel Segment Vacation Ownership Segment Total Balance at January 1, 2004 Acquisitions Settlement of tax contingency Purchase price adjustment Cumulative translation adjustment Asset dispositions Balance at December 31, 2004...

  • Page 92
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Note 9. Restructuring and Other Special Charges (Credits) The Company had remaining accruals related to restructuring charges of $23 million at December 31, 2004 and $24 million at ...

  • Page 93
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) 2002 Restructuring and Other Special Credits. During the year ended December 31, 2002, the Company recorded reversals of restructuring charges of $1 million and reversals of other ...

  • Page 94
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Note 12. Income Taxes Year Ended December 31, 2004 2003 2002 Income tax data from continuing operations of the Company is as follows (in millions): Pretax income (loss) U.S Foreign...

  • Page 95
    ... (in millions): December 31, 2004 2003 Plant, property and equipment Intangibles Allowances for doubtful accounts and other reserves Employee beneÃ'ts Deferred gain on ITT World Directories disposition Net operating loss and tax credit carryforwards Deferred income Other Less valuation...

  • 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, 2004 ...

  • Page 97
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Note 13. Debt Long-term debt and short-term borrowings consisted of the following (in millions): December 31, 2004 2003 Senior Credit Facility: Term loan, interest at LIBOR°1.25% ...

  • Page 98
    ... HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Company received gross proceeds from these sales of approximately $500 million, which were used to repay a portion of its senior secured notes facility that bore interest at LIBOR plus 275 basis points. In May 2003, the Company sold...

  • Page 99
    ... Company also sponsors the Starwood Hotels & Resorts Worldwide, Inc. Retiree Welfare Program. This plan provides health care and life insurance beneÃ'ts for certain eligible retired employees. The Company has prefunded a portion of the health care and life insurance obligations through trust funds...

  • Page 100
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS ÃŒ (Continued) The following table sets forth the projected beneÃ't obligation, fair value of plan assets, the funded status of the Company's deÃ'ned beneÃ't pension and postretirement beneÃ't plans...

  • Page 101
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS ÃŒ (Continued) beneÃ't obligation. At December 31, 2004 and 2003, the accumulated beneÃ't obligation for the foreign pension plans was $129 million and $112 million, respectively. At December 31, ...

  • Page 102
    ...Plans. The Company and its subsidiaries sponsor various deÃ'ned contribution plans, including the Starwood Hotels & Resorts Worldwide, Inc. Savings and Retirement Plan, which is a voluntary deÃ'ned contribution plan allowing participation by employees on U.S. payroll who meet certain age and service...

  • Page 103
    ... New York City which has a term of 25 years (22 years remaining under the lease) with Ã'xed annual lease payments of $16 million. In June 2004, the Company entered into an agreement to lease the W Barcelona hotel in Spain, which is in the process of being constructed with an anticipated opening date...

  • Page 104
    ... the purchase of Shares by Directors, oÇcers, employees, consultants and advisors, pursuant to equity award grants. Although no additional awards will be granted under the 2002 LTIP, the Company's 1999 Long Term Incentive Compensation Plan (the ""1999 LTIP'') or the Company's 1995 Share Option Plan...

  • 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, 2001 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
    ..., non-transferable, royalty-free license to use the ""Starwood'' name and trademarks in connection with the acquisition, ownership, leasing, management, merchandising, operation and disposition of hotels worldwide, and to use the ""Starwood'' name in its corporate name worldwide, in perpetuity...

  • Page 108
    ... 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 the...

  • Page 109
    .... Starwood Capital has also agreed to grant the Company a right of Ã'rst oÃ...er for an appropriate management, franchise, and/or services agreement with respect to any time share, residential or similar development opportunity at certain of the properties, to fully comply with all applicable brand...

  • Page 110
    ...-to-month agreement. The Company and the management company continued this arrangement until the Company closed the health club and spa in June 2004 for conversion to a Bliss spa. An entity in which Mr. Sternlicht has an indirect interest held 259 limited partnership units in Westin Hotels Limited...

  • Page 111
    ...2003). As a result of the acquisition of ITT Corporation in 1998, restricted stock awarded to Messrs. Sternlicht and Darnall in 1996 vested at a price for tax purposes of $53 per Share. This amount was taxable at ordinary income rates. By late 1998, the value of the stock had fallen below the amount...

  • Page 112
    ...-party ownership of hotels that the Company manages or franchises. As of December 31, 2004, the Company was a guarantor for a loan which could reach a maximum of $30 million related to the St. Regis in Monarch Beach, California, which opened in mid-2001. The Company does not anticipate any funding...

  • Page 113
    ... were required by state or local governments relating to our vacation ownership operations and by insurers to secure large deductible insurance programs. In order to secure management contracts, the Company may provide performance guarantees to thirdparty owners. Most of these performance guarantees...

  • Page 114
    ... the purchase of telecommunication, video and power services from Intelnet International Corp. (""Intelnet''). The Ã'rst suit was commenced in late 1997 by Intelnet in the Superior Court of New Jersey Law Division: Camden County, alleging that Sheraton Corp. violated what Intelnet claimed were...

  • Page 115
    ... 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 116
    ... Distribution and spin-oÃ... of ITT Corporation and to provide for an orderly transition, the Company and ITT Industries have entered into various agreements including a spin-oÃ... agreement, Employee BeneÃ'ts Services and Liability Agreement, Tax Allocation Agreement and Intellectual Property Transfer...

  • Page 117
    ...of vacation ownership resorts, marketing and selling VOIs, providing Ã'nancing to customers who purchase such interests and the sale of residential units. The performance of the hotels and vacation ownership and residential segments is evaluated primarily on operating proÃ't before corporate selling...

  • Page 118
    ...: Hotel Vacation ownership and residential Total Operating income: Hotel Vacation ownership and residential Total segment operating income Selling, general, administrative and other Restructuring and other special credits, net Operating income Gain on sale of VOI notes receivable Equity...

  • Page 119
    ..., INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) The following table presents revenues and long-lived assets by geographical region (in millions): 2004 Revenues 2003 2002 (In millions) Long-Lived Assets 2004 2003 United States Italy All other international Total...

  • Page 120
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Balance Sheet December 31, 2004 (In millions) NonGuarantor Subsidiaries Eliminations Parent Guarantor Subsidiary Consolidated Assets Current assets: Cash and cash equivalents ...

  • Page 121
    ... current liabilities Total current liabilities Long-term debt Deferred income taxes Other liabilities Minority interest Exchangeable units and Class B preferred shares, at redemption value of $38.50ÏÏÏÏ Commitments and contingencies Total stockholders' equity $ 2,178 $21,675 $(20,026...

  • Page 122
    ... hotels Vacation ownership and residential Selling, general and administrative and other Restructuring and other special credits, netÏÏ Depreciation and amortization Other expenses from managed and franchised properties Operating income (loss Gain on sale of VOI notes receivable Equity...

  • Page 123
    ... hotels Vacation ownership and residential Selling, general and administrative and other Restructuring and other special credits, netÏÏ Depreciation and amortization Other expenses from managed and franchised properties Operating income (loss Gain on sale of VOI notes receivable Equity...

  • Page 124
    ... hotels Vacation ownership and residential Selling, general and administrative and other Restructuring and other special credits, netÏÏ Depreciation and amortization Other expenses from managed and franchised properties Operating income (loss Gain on sale of VOI notes receivable Equity...

  • Page 125
    ... Long-term debt repaid 381) Distributions paid Proceeds from employee stock option exercises 379 Share repurchases 310) Other, net 10 Cash from (used for) Ã'nancing activities ÏÏ (1) Exchange rate eÃ...ect on cash and cash equivalents Increase (decrease) in cash and cash equivalents 102) Cash...

  • Page 126
    ... and changes in working capital Cash from continuing operations Cash from discontinued operations Cash from operating activities Investing Activities Purchases of plant, property and equipmentÏÏ Proceeds from asset sales Acquisitions and investments Acquisition of senior debt Other, net...

  • Page 127
    ... Activities Purchases of plant, property and equipment Acquisitions and investments Other, net Cash used for investing activities Financing Activities Revolving credit facility and short-term borrowings, net Long-term debt issued Long-term debt repaid Distributions paid Other, net Cash used...

  • Page 128
    ...AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Note 23. Quarterly Results (Unaudited) March 31 Three Months Ended June 30 September 30 December 31 (In millions, except per Share data) Year 2004 Revenues Costs and expenses Income from continuing operations Discontinued...

  • Page 129
    SCHEDULE II STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS VALUATION AND QUALIFYING ACCOUNTS (In millions) Additions (Deductions) Balance January 1, Charged to/reversed from Expenses Charged to/from Other Accounts(a) Payments/ Other Balance December 31, 2004 Trade ...

  • Page 130
    SCHEDULE III STARWOOD HOTELS & RESORTS REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2004 (In millions) Initial Cost to Company (a) (a)(b) Costs Subsequent to Acquisition Gross Amount Book Value at December 31, 2004 Description City State Land Building and Improvements Land Land ...

  • Page 131
    SCHEDULE III (Continued) STARWOOD HOTELS & RESORTS REAL ESTATE AND ACCUMULATED DEPRECIATION (In millions) A reconciliation of the Trust's investment in real estate, furniture and Ã'xtures and related... from assets held for sale Deductions during period: Sale of properties Balance at end of period...

  • Page 132
    SCHEDULE IV STARWOOD HOTELS & RESORTS MORTGAGE LOANS ON REAL ESTATE December 31, ... 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 ...

  • Page 133
    SCHEDULE IV (Continued) STARWOOD HOTELS & RESORTS RECONCILIATION OF MORTGAGE LOANS (In millions) Year ...$2,812 $2,468 173 (4) $2,637 (a) Per the mortgage loan agreements, several of the loans do not require monthly interest payments if cash Ã-ows are insuÇcient. Thus, the Trust has accrued interest...

  • Page 134
    ... the Trust, the Corporation, Realty Partnership, Operating Partnership, WHWE L.L.C., Woodstar Investor Partnership (""Woodstar''), Nomura Asset Capital Corporation, Juergen Bartels, Westin Hotels & Resorts Worldwide, Inc., W&S Lauderdale Corp., W&S Seattle Corp., Westin St. John Hotel Company, Inc...

  • Page 135
    ... to Exhibit 10.2 to the 2004 10-Q3). Pledge and Security Agreement, dated as of February 23, 1998, executed and delivered by the Trust, the Corporation and the other Pledgors party thereto, in favor of Bankers Trust Company as Collateral Agent (incorporated by reference to Exhibit 10.63 to the 1997...

  • Page 136
    ... ITT Corporation, Realty Partnership, Sheraton Phoenician Corporation, and Starwood Phoenician CMBS I LLC.(2) Second ModiÃ'cation, dated as of December 30, 1999, to Loan Agreement, dated as of February 23, 1998, among ITT Corporation, Realty Partnership, the Trust and Starwood Hotels and Resorts...

  • Page 137
    ... Stock Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit 99.1 to the Corporation and the Trust's Joint Current Report on Form 8-K Ã'led with the SEC on February 16, 2005 (the ""February 2005 8-K'')).(1) Starwood Hotels & Resorts Worldwide, Inc. 1999 Annual Incentive Plan...

  • Page 138
    ... the Corporation and Barry S. Sternlicht (incorporated by reference to Exhibit 10.52 to the 1999 Form 10-K).(1) 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 a grant made...

  • Page 139
    ....(2) CertiÃ'cation Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 ÃŒ Chief Financial and Accounting OÇcer ÃŒ Trust.(2) CertiÃ'cation Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code ÃŒ Chief Executive OÇcer ÃŒ Corporation.(2) CertiÃ'cation Pursuant to...