Starwood 2005 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    Starwood Hotels & Resorts ANNUAL REPORT 2005

  • Page 3
    ... 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 Registered Pursuant to Section 12...

  • Page 4
    ... Item 11. Executive Compensation Item 12. Security Ownership of Certain BeneÃ'cial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions Item 14. Principal Accountant Fees and Services PART IV Item 15. Exhibits, Financial Statements...

  • Page 5
    ... Collection (luxury full-service hotels and resorts) is a group of unique hotels and resorts oÃ...ering exceptional service to an elite clientele. From legendary palaces and remote retreats to timeless modern classics, these remarkable hotels and resorts enable the most discerning traveler to collect...

  • Page 6
    ... 337 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 vacation ownership interests (""VOIs'') in the resorts and providing Ã'nancing to customers who purchase such...

  • Page 7
    ...by consumers via the prestigious Freddie Awards. SPG has also received top honors for awards for Best Customer Service, Best Elite-Level Program, Best Award and Best Redemption. SPG, which was the Ã'rst loyalty program in the hotel industry with a policy of no blackout dates and no capacity controls...

  • Page 8
    ...currently existing brands in the select-service market segment. We derive our cash Ã-ow from multiple sources within our hotel and vacation ownership and residential segments, including owned hotels activity and management and franchise fees, and are geographically diverse with operations around the...

  • Page 9
    ... additional vacation ownership resorts and leveraging our hotel real estate assets where possible through VOI construction and residential sales; Leveraging the Bliss and Remede product lines and distribution channels; and Increasing operating eÇciencies through increased use of technology...

  • Page 10
    ... availability of a global distribution system, price, the ability to earn and redeem loyalty program points and other factors. Management believes that we compete favorably in these areas. Our properties compete with other hotels and resorts in their geographic markets, including facilities owned by...

  • Page 11
    ... would be required to be severed. In addition, the gaming authorities may require the Company to terminate the employment of any person who refuses to Ã'le the appropriate applications or disclosures. The ownership and/or operation of casino gaming facilities in the United States where permitted are...

  • Page 12
    ...if necessary, the immediate purchase of such securities for cash at fair market value. Regulations of the Nevada Commission provide that control of a registered publicly traded corporation cannot be changed through merger, consolidation, acquisition or assets, management or consulting agreements, or...

  • Page 13
    ...owned and managed hotels and vacation ownership resorts, of whom approximately 46% were employed in the United States. At December 31, 2005, approximately 31% of the U.S.-based employees were covered by various collective bargaining agreements providing, generally, for basic pay rates, working hours...

  • Page 14
    ...a result of general economic conditions; the impact of internet intermediaries on pricing and our increasing reliance on technology; cyclical over-building in the hotel and vacation ownership industries; restrictive changes in zoning and similar land use laws and regulations or in health, safety and...

  • Page 15
    ... of ownership of hotels operated under our brands by any single owner. Following the acquisition Ï€ ridien brand business and the consummation of the transaction with Host Marriott, single of the Le Me ownership groups will own signiÃ'cant numbers of hotels operated by us. While the risks associated...

  • Page 16
    ... of funds and the carrying cost of VOI and residential inventory. 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...

  • Page 17
    ...31, 2005, our international properties are geographically diversiÃ'ed and are not concentrated in any particular region. Risks Relating to Operations in Syria During Ã'scal 2005, Starwood subsidiaries generated approximately $1 million of revenue from management and other fees from hotels located in...

  • Page 18
    ... 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 usual and customary for our industry. Generally, our ""all-risk'' property policies provide that coverage...

  • Page 19
    ... the case of fractional ownership interests, generally for three or more weeks) on either an annual or an alternate-year basis. We also acquire, develop and operate vacation ownership resorts, and provide Ã'nancing to purchasers of VOIs as well as market and sell residential units. These activities...

  • Page 20
    ... to market our products, properties and services to our guests. In addition, non-compliance with applicable privacy regulations by us (or in some circumstances non-compliance by third parties engaged by us) may result in Ã'nes or restrictions on our use or transfer of data. Ability to Manage Growth...

  • Page 21
    ... 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 that the...

  • Page 22
    ... date to annual periods beginning after December 15, 2005. Under SFAS No. 123R, companies must measure compensation cost for all share-based payments, including employee stock options, using a fair value based method and these payments must be recognized as expenses in our statements of operations...

  • Page 23
    ... W Hotels. In addition, we have opened three Remede Ï€ Spas in St. Regis hotels. The following table reÃ-ects our hotel and vacation ownership properties, by brand: Hotels Properties Rooms VOI and Residential Properties Rooms St. Regis and Luxury Collection Sheraton Westin W Four Points Le Me...

  • Page 24
    ... well as fees for other services, including centralized reservations, sales and marketing, public relations and national and international media advertising. In our experience, owners seek hotel managers that can provide attractively priced base, incentive, marketing and franchise fees combined with...

  • Page 25
    ... capital expenditures, including VOI construction at Westin Ka'anapali Ocean Resort and Villas in Maui, Hawaii, Sheraton Vistana Villages in Orlando, Florida and Westin Kierland Villas in Scottsdale, Arizona. In December 2004, we completed the conversion of 98 guest rooms at the St. Regis in Aspen...

  • Page 26
    ..., the Trust is not permitted to pay a distribution on the Class A Shares (except in certain circumstances). In connection with the expected sale of 38 hotels to Host Marriott Corporation, on February 17, 2006, the Trust declared a dividend of $0.21 per Share to shareholders of record on February 28...

  • Page 27
    ... open market for an aggregate cost of $253 million during 2005. The Company repurchased the following Shares during the three months ended December 31, 2005: Total Number of Shares Purchased Average Price Paid for Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs...

  • Page 28
    ..., 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 29
    ...properties. Management and Franchise Fees Ì Represents fees earned on hotels managed worldwide, usually under long-term contracts, franchise fees received in connection with the franchise of the our Sheraton, Westin, Four Points by Sheraton, Le Me π ridien, St. Regis, W and Luxury Collection brand...

  • Page 30
    ... partners' programs. Points can be redeemed at most of our owned, leased, managed and franchised properties as well as through other redemption opportunities with third parties, such as conversion to airline miles. Properties are charged based on hotel guests' expenditures. Revenue is recognized...

  • Page 31
    ... as a % of Owned North America Revenues for the Year Ended December 31, 2005 with Comparable Data for 2004 Metropolitan Area 2005 Revenues 2004 Revenues New York, NY Boston, MA San Diego, CA Los Angeles-Long Beach, CA Phoenix, AZ Atlanta, GA Seattle, WA Toronto, Canada Maui, HI Houston, TX...

  • Page 32
    ... generally accepted accounting principles primarily at the Westin Ka'anapali Ocean Resort Villas in Maui, Hawaii, the Westin Kierland Resort and Spa in Scottsdale, Arizona, and the Sheraton Vistana Villages in Orlando, Florida, partially oÃ...set by reduced revenues at the Westin Mission Hills Resort...

  • Page 33
    ... During 2005, we recorded a net loss of $30 million primarily related to the impairment of a hotel and impairment charges associated with our owned Sheraton hotel in Cancun, Mexico that is being partially demolished to build vacation ownership units. These losses were oÃ...set by net gains recorded on...

  • Page 34
    ... to the deferred gain on the sale of the Hotel Danieli in Venice, Italy and an $8 million beneÃ't related to tax refunds for tax years prior to the 1995 split-up of ITT Corporation. Our eÃ...ective income tax rate is determined by the level and composition of pre-tax income subject to varying foreign...

  • Page 35
    ...the Westin Ka'anapali Ocean Resort Villas in Maui, Hawaii, The St. Regis in Aspen, Colorado, the Westin Kierland Resort and Spa in Scottsdale, Arizona, the Sheraton Vistana Villages in Orlando, Florida, and the Westin Mission Hills Resort in Rancho Mirage, California. Contract sales of VOI inventory...

  • Page 36
    ...in undeveloped land in Costa Smeralda in Sardinia, Italy. This gain was oÃ...set by a $9 million write down of the value of a hotel which was formerly 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...

  • Page 37
    ...was funded from available cash and the return of the original Le Me π ridien investment. In limited cases, we have made loans to owners of or partners in hotel or resort ventures for which we have a management or franchise agreement. Loans outstanding under this program, excluding the Westin Boston...

  • Page 38
    ... 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 us to terminate the contract rather than fund...

  • Page 39
    ...was funded from available cash. In 2005, we acquired the remaining 5% interest for approximately $1 million. We intend to Ã'nance the acquisition of additional hotel properties (including equity investments), hotel renovations, VOI and residential construction, capital improvements, technology spend...

  • Page 40
    ...approximately $470 million of debt secured in part by several hotels that are part of the transaction with Host Marriott Corporation. In order to accomplish this, we purchased Treasury securities suÇcient to make the monthly debt service payments and the balloon payment due under the loan agreement...

  • Page 41
    ..., we entered into a deÃ'nitive agreement to sell 38 properties to Host for approximately $4.1 billion (based on the closing price of Host's stock immediately prior to that date) including 133.5 million shares of Host stock and approximately $1,767 million in cash and debt assumption. As part of this...

  • Page 42
    ... market value of current Fair Value Swap liabilities. At December 31, 2004 our debt included an increase of approximately $29 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 43
    ... of the Company authorized the repurchase of up to an additional $1 billion of Shares under our existing Share repurchase program (the ""Share Repurchase Program''). Pursuant to the Share Repurchase Program, Starwood repurchased 4.0 million Shares in the open market for an aggregate cost of $253...

  • Page 44
    ...2005, we had no interest 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 At December 31, 2007 2008 2009 Total at December 31...

  • Page 45
    ... Financial Reporting Management of Starwood Hotels & Resorts Worldwide Inc. and its subsidiaries and Starwood Hotels & Resorts and its subsidiaries is responsible for establishing and maintaining adequate internal control over Ã'nancial reporting, as such term is deÃ'ned in Exchange Act Rule 13a-15...

  • Page 46
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING 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
    ... trade policy maker for the United States and a member of the President's Cabinet. Ambassador Barshefsky is a director of The Estee Lauder Companies, Inc., American Express Company and Intel Corporation. Ambassador Barshefsky also serves on the Board of Directors of the Council on Foreign Relations...

  • Page 48
    ... Express 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. Principal and Chief Operating OÇcer of GTCR Golder Rauner, LLC, a private equity Ã'rm...

  • Page 49
    ...private equity fund focused on technology companies, Trustee since business service companies and health care April 2001 companies, since January 1998. From July 1985 to December 1997, he was in private medical practice. He is Chairman of the Board of the American Beacon Funds, a mutual fund company...

  • Page 50
    ...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 directors, oÇcers and employees...

  • Page 51
    ... for a termination date of May 26, 2009 to comply with new NYSE requirements. In addition, 8,985,511 Shares remain available for issuance under our Employee Stock Purchase Plan, a stock purchase plan meeting the requirements of Section 423 of the Internal Revenue Code. The remaining information...

  • Page 52
    ... 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 53
    ... and Plan of Merger, dated as of November 14, 2005, among Host Marriott Corporation, Host Marriott, L.P., Horizon Supernova Merger Sub, L.L.C., Horizon SLT Merger Sub, L.P., Starwood Hotels & Resorts Worldwide, Inc., Starwood Hotels & Resorts, Sheraton Holding Corporation and SLT Realty Limited...

  • Page 54
    ... year ended December 31, 1998 (the ""1998 Form 10-K'')). Third Amended and Restated Limited Partnership Agreement for Operating Partnership, dated January 6, 1999, among the Corporation and the limited partners of Operating Partnership (incorporated by reference to Exhibit 10.2 to the 1998 Form 10...

  • Page 55
    ..., and Starwood Phoenician CMBS I LLC (incorporated by reference to Exhibit 10.13 to the 2004 Form 10-K). 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 Holdings...

  • Page 56
    ... 10-Q1).(1) Form of Non-QualiÃ'ed Stock Option Agreement pursuant to the Corporation 1995 LTIP (incorporated by reference to Exhibit 10.26 to the 2004 Form 10-K).(1) Starwood Hotels & Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation Plan (the ""1999 LTIP'') (incorporated by reference to...

  • Page 57
    ... Corporation and Starwood Capital (incorporated by reference to Exhibit 2C to the Formation Form 8-K). Exchange Rights Agreement, dated as of June 3, 1996, among the Trust, the Corporation, Realty Partnership, Operating Partnership, Philadelphia HIR Limited Partnership and Philadelphia HSR Limited...

  • Page 58
    ..., dated July 22, 2004 between the Corporation and Kenneth Siegel (incorporated by reference to Exhibit 10.73 to the 2004 Form 10-K).(1) Employment Agreement, dated December 27, 1996, between Starwood Vacation Ownership and Raymond Gellein (incorporated by reference to Exhibit 10.1 to Vistana Inc...

  • Page 59
    ...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-K. (2) Filed...

  • Page 60
    ... By: /s/ ALAN M. SCHNAID Alan M. Schnaid Senior Vice President, Corporate Controller and Principal Accounting OÇcer Date: March 2, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the...

  • Page 61
    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 Director March 3, 2006 Director March 3, 2006 Director March 3, 2006 Director March 3, 2006 57

  • Page 62
    .... STARWOOD HOTELS & RESORTS By: /s/ STEVEN J. HEYER Steven J. Heyer Chief Executive OÇcer and Trustee By: /s/ ALAN M. SCHNAID Alan M. Schnaid Senior Vice President, Corporate Controller and Principal Accounting OÇcer Date: March 2, 2006 Pursuant to the requirements of the Securities Exchange...

  • Page 63
    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, 2005 and 2004 Consolidated ...

  • Page 64
    ... 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, 2005 and 2004, and the related consolidated statements of income, comprehensive income, equity, and cash...

  • Page 65
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED BALANCE SHEETS (In millions, except share data) December 31, 2005 2004 ASSETS Current assets: Cash and cash equivalents Restricted cash Accounts receivable, net of allowance for doubtful accounts of $50 and $58 Inventories Prepaid expenses ...

  • Page 66
    ... venture hotels Vacation ownership and residential Selling, general, administrative and other Restructuring and other special charges (credits), net Depreciation Amortization Other expenses from managed and franchised properties Operating income Gain on sale of VOI notes receivable Equity...

  • Page 67
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Year Ended December 31, 2005 2004 2003 Net income Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments Minimum pension liability adjustments Unrealized ...

  • Page 68
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF EQUITY (In millions) Exchangeable units and Class B EPS Shares Amount Class A EPS Shares Amount Additional Paid-in Capital(b) $4,905 Ì 67 8 (28 4,952 Ì 456 12 (310) 11 5,121 Ì 542 12 (253 9) Ì (5 14) Ì (39) Ì Ì $(14) Ì ...

  • Page 69
    ... Accounts payable and accrued expenses Accrued and deferred income taxes Other, net Cash from operating activities Investing Activities Purchases of plant, property and equipment Proceeds from asset sales, net Collection (issuance) of notes receivable, net Acquisitions, net of acquired cash...

  • Page 70
    ... long-term debt Accounts payable Accrued expenses Distributions payable, Corporation Distributions payable Total current liabilities Long-term debt Minority interest Commitments and contingencies Stockholders' equity: Class A exchangeable preferred shares; $0.01 par value; authorized 30,000...

  • Page 71
    STARWOOD HOTELS & RESORTS CONSOLIDATED STATEMENTS OF INCOME (In millions) Year Ended December 31, 2005 2004 2003 Revenues Rent and interest, Corporation Costs and Expenses Selling, general and administrative Depreciation Operating income Equity losses from unconsolidated joint venture Interest...

  • Page 72
    ...Purchases of plant, property and equipment Proceeds from asset sales, net Other, net Cash from (used for) investing activities Financing Activities Long-term debt issued Long-term debt repaid Distributions paid Distributions paid to Corporation Share repurchases Proceeds from employee stock...

  • Page 73
    .... 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 who purchase such interests...

  • Page 74
    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 March 3, 2006 Trustee March 3, 2006 Trustee March 3, 2006 Trustee March 3, 2006 59

  • Page 75
    ... of the properties held for sale prior to the sale date are recorded in discontinued operations unless the Company will have continuing involvement (such as through a management or franchise agreement) after the sale. Investments. Investments in joint ventures are accounted for using the guidance...

  • Page 76
    ..., are recognized in operating results. 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 first-time buyers of VOIs and residences, and...

  • Page 77
    ...of a long-term investment nature are generally included in other comprehensive income. Gains and losses from foreign exchange rate changes related to intercompany receivables and payables that are not of a long-term investment nature are reported currently in costs and expenses and amounted to a net...

  • Page 78
    ... the Company accounted 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 interpretations. Through December 31, 2005, in general, no stock-based employee compensation cost...

  • Page 79
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Share if the Company had applied the fair value recognition provisions of SFAS No. 123, ""Accounting for Stock-Based Compensation,'' to stock-based employee compensation: Year Ended ...

  • Page 80
    .... Management and Franchise Fees Ì Represents fees earned on hotels managed worldwide, usually under long-term contracts, franchise fees received in connection with the franchise of the Company's Sheraton, Westin, Four Points by Sheraton, Le Me π ridien, St. Regis, W and Luxury Collection brand...

  • Page 81
    ... VOI and residential units are expensed as incurred. Advertising Costs. Starwood and its brand marketing co-ops enter into multi-media ad campaigns, including television, radio, internet and print advertisements. Costs associated with these campaigns, including communication and production costs...

  • Page 82
    ... No. 123, Accounting for StockBased Compensation.'' SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair value. Proforma disclosure is no longer an alternative. The new standard is...

  • Page 83
    ...typically related to loan guarantees on new construction projects that are well capitalized and which 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...

  • Page 84
    ... 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 85
    ...The hotels sold in 2005 were generally encumbered by long-term management or franchise contracts so their operations prior to the sale date are not classiÃ'ed as discontinued operations. The Company recorded an impairment charge of approximately $17 million in 2005 associated with the owned Sheraton...

  • Page 86
    ...domestic hotels and is now closed and under review for alternative use and a $2 million charge related to an impairment of an investment. Note 6. Notes Receivable Securitizations and Sales From time to time, the Company securitizes or sells, without recourse, its fixed rate VOI notes receivable. To...

  • Page 87
    ... aggregate servicing fees of $3 million annually related to these VOI notes receivable in 2005, 2004, and 2003. At the time of each receivable sale and at the end of each financial reporting period, the Company estimates the fair value of its Beneficial Interests using a discounted cash flow model...

  • Page 88
    ... Company entered into a deÃ'nitive agreement to sell 38 properties to Host Marriott Corporation (""Host'') for approximately $4.1 billion (based on the closing price of Host's stock immediately prior to that date) including 133.5 million shares of Host stock and approximately $1,767 million in cash...

  • Page 89
    ... of 2006. Note 8. Discontinued Operations In June 2003, the Company sold the Hotel Principe di Savoia in Milan, Italy (""Principe'') for 275 million euros (approximately $315 million based on exchange rates at the time the sale closed) in gross cash proceeds. The Company will have no continuing...

  • Page 90
    ...Ã'cant Acquisitions, the Company acquired the Le Me Ï€ ridien brand and the related management and franchise business for the portfolio of 122 hotels and resorts in November 2005. The Company preliminarily recorded approximately $186 million of goodwill, $107 million of trademarks and trade names...

  • Page 91
    ... Cash Receipts Expenditures Accrued Total Charge (Credit) Year Ended December 31, 2005 Restructuring charges: Severance costs associated with a corporate restructuring Le Me π ridien transition costs Total restructuring charges Other special credits: Adjustments to ITT merger related reserves...

  • Page 92
    ... costs associated with the acquisition of the Le Me Ï€ ridien brand and management business in November 2005. These charges were oÃ...set by the reversal of $3 million of reserves related to the Company's acquisition of Sheraton Holding Corporation and its subsidiaries (formerly ITT Corporation...

  • Page 93
    ..., INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Note 12. Plant, Property and Equipment Plant, property and equipment consisted of the following (in millions): December 31, 2005 2004 Land and improvements Buildings and improvements Furniture, fixtures and...

  • Page 94
    ... (in millions): December 31, 2005 2004 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 95
    ... interest had been approved by the IRS for payment to ITT Industries related to its 1993-1995 tax returns. In connection with its acquisition of Sheraton Holding, the Company is party to a tax sharing agreement between ITT Industries, Hartford Insurance and Sheraton Holding as a result of their 1995...

  • Page 96
    ... $470 million of debt secured in part by several hotels that are part of the transaction with Host Marriott Corporation. In order to accomplish this, the Company purchased Treasury securities suÇcient to make the monthly debt service payments and the balloon payment due under the loan agreement...

  • Page 97
    ... 2003, the Company sold an aggregate of $360 million 3.5% coupon convertible senior notes due 2023. The notes are convertible, subject to certain conditions, into 7.2 million Shares based on a conversion price of $50.00 per Share (the ""Convertible Debt''). Gross proceeds received were used to repay...

  • Page 98
    ... 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 99
    ... of beneÃ't payments Employer contribution Acquisitions Settlements Annuity purchase EÃ...ect of foreign exchange rates BeneÃ'ts paid Fair value of plan assets at end of year Funded status Unrecognized net actuarial loss (gain Unrecognized prior service cost Net amount recognized...

  • Page 100
    ...-percentage-point change in assumed health care cost trend rates would have approximately a $0.4 million eÃ...ect on the postretirement obligation and a nominal impact on the total of service and interest cost components of net periodic beneÃ't cost. The weighted average assumptions used to determine...

  • Page 101
    ...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 102
    ..., or percentage rents based on the gross revenues of the properties and are accounted for as operating leases. The leases are ""triple-net'' in that the lessee is generally responsible for paying all operating expenses of the properties, including maintenance, insurance and real property taxes. The...

  • Page 103
    ...(""Exchangeable Units'') were issued by the Trust in connection with the acquisition of Westin Hotels & Resorts Worldwide, Inc. and certain of its aÇliates (the ""Westin Merger''). Class A EPS have a par value of $0.01 per share and the Company may choose to settle Class A EPS redemptions in Shares...

  • Page 104
    ..., 2004 and 2003, respectively, related to restricted stock awards. 2002 Employee Stock Purchase Plan In April 2002, the Board of Directors adopted (and in May 2002 the shareholders approved) the Company's 2002 Employee Stock Purchase Plan (the ""ESPP'') to provide employees of the Company with F-41

  • Page 105
    ...of the beginning of the offering period or (b) the fair market value of Shares on the date of purchase. Effective June 1, 2005, the purchase price is equal to 95% of the fair market value of Shares on the date of purchase. Approximately 257,000 Shares were issued under the ESPP during the year ended...

  • Page 106
    ... acquired by him to cover income taxes, in April 1999 the Company made an interest-bearing loan at 5.67% to Mr. Darnall of approximately $416,000 to cover the taxes payable. Mr. Darnall's loan was repaid in 2004. Brett Gellein is Manager, Acquisitions and Purchases for Starwood Vacation Ownership...

  • Page 107
    ...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 allow...

  • Page 108
    ...Ã'cant number of management or franchise contracts in 2006. In connection with the purchase of the Le Me Ï€ ridien brand in November 2005, the Company was indemniÃ'ed for certain of Le Me Ï€ ridien's historical liabilities by the entity that bought Le Me Ï€ ridien's owned and leased hotel portfolio...

  • Page 109
    ... certain restrictions on Starwood's dealings as they related to the hotel. AHIL proved unsuccessful in its acquisition attempt and Starwood was contacted by the successful bidder to manage the hotel as a Westin and a management contract was signed. AHIL is alleging that the new owner of the majority...

  • Page 110
    ... 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, general...

  • Page 111
    ...: 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 112
    ... public debt issued by Sheraton Holding. Under the terms of the new 2006 Facility (see Note 15. Debt for further discussion), the Sheraton Holding Corporation guarantee will be released if Starwood no longer owns the majority of Sheraton Holding Corporation. Under the proposed sale to Host, Starwood...

  • Page 113
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Balance Sheet December 31, 2005 (In millions) NonGuarantor Guarantor Subsidiary Subsidiaries Eliminations Parent Consolidated Assets Current assets: Cash and cash equivalents ...

  • Page 114
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Balance Sheet December 31, 2004 (In millions) NonGuarantor Guarantor Subsidiary Subsidiaries Eliminations Parent Consolidated Assets Current assets: Cash and cash equivalents ...

  • Page 115
    ...hotels Vacation ownership and residential Selling, general and administrative and other Restructuring and other special charges (credits), net Depreciation and amortization Other expenses from managed and franchised properties Operating income (loss Gain on sale of VOI notes receivable Equity...

  • Page 116
    ... 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 117
    ... Vacation ownership and residential Selling, general and administrative and other Restructuring and other special credits, net Depreciation and amortization Other expenses from managed and franchised properties Operating income (loss Gain on sale of VOI notes receivable ÏÏÏÏÏ Equity...

  • Page 118
    ... operations: Gain on dispositions Other adjustments relating to discontinued operations Adjustments to net income, changes in working capital and other Cash from (used for) operating activities Investing Activities Purchases of plant, property and equipment Proceeds from asset sales Acquisitions...

  • Page 119
    ... relating to discontinued operations Adjustments to net income, changes in working capital and other Cash from (used for) operating activitiesÏÏ Investing Activities Purchases of plant, property and equipmentÏÏ Proceeds from asset sales Acquisitions and investments Other, net Cash used...

  • Page 120
    ...Other adjustments relating to discontinued operations Adjustments to net income, changes in working capital and other Cash from operating activities Investing Activities Purchases of plant, property and equipment ÏÏ Proceeds from asset sales Acquisitions and investments Acquisition of senior...

  • Page 121
    ...AND STARWOOD HOTELS & RESORTS NOTES TO FINANCIAL STATEMENTS Ì (Continued) Note 25. Quarterly Results (Unaudited) March 31 Three Months Ended June 30 September 30 December 31 (In millions, except per Share data) Year 2005 Revenues Costs and expenses Income from continuing operations Discontinued...

  • Page 122
    ... II STARWOOD HOTELS & RESORTS WORLDWIDE, INC. AND STARWOOD HOTELS & RESORTS VALUATION AND QUALIFYING ACCOUNTS (In millions) Additions (Deductions) Charged to/ Charged Reversed from to/from Other Payments/ Expenses Accounts(a) Other Balance January 1, Balance December 31, 2005 Trade receivables...

  • Page 123
    SCHEDULE III STARWOOD HOTELS & RESORTS REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2005 (In millions) Description City State Initial Cost to Company Building and Land Improvements Accumulated Depreciation & Amortization Costs Subsequent to Acquisition Building and Land Improvements ...

  • Page 124
    ... ÃŒ (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, 2005 2004 2003 Real Estate and Furniture and...

  • Page 125
    ... 2005 Description Intercompany Mortgage Loans First Mortgages: 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 Worldwide, Inc Prior Liens Carrying Amount...

  • Page 126
    ... and Plan of Merger, dated as of November 14, 2005, among Host Marriott Corporation, Host Marriott, L.P., Horizon Supernova Merger Sub, L.L.C., Horizon SLT Merger Sub, L.P., Starwood Hotels & Resorts Worldwide, Inc., Starwood Hotels & Resorts, Sheraton Holding Corporation and SLT Realty Limited...

  • Page 127
    ... year ended December 31, 1998 (the ""1998 Form 10-K'')). Third Amended and Restated Limited Partnership Agreement for Operating Partnership, dated January 6, 1999, among the Corporation and the limited partners of Operating Partnership (incorporated by reference to Exhibit 10.2 to the 1998 Form 10...

  • Page 128
    ..., and Starwood Phoenician CMBS I LLC (incorporated by reference to Exhibit 10.13 to the 2004 Form 10-K). 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 Holdings...

  • Page 129
    ...the Corporation, Harbor-Cal S.D., Starwood Sheraton San Diego CMBS I LLC and Realty Partnership (incorporated by reference to Exhibit 10.19 to the 2004 Form 10-K). Loan Agreement, dated as of January 27, 1999, among the Borrowers named therein, as Borrowers, Starwood Operator I LLC, as Operator, and...

  • Page 130
    ... Corporation and Starwood Capital (incorporated by reference to Exhibit 2C to the Formation Form 8-K). Exchange Rights Agreement, dated as of June 3, 1996, among the Trust, the Corporation, Realty Partnership, Operating Partnership, Philadelphia HIR Limited Partnership and Philadelphia HSR Limited...

  • Page 131
    ..., dated July 22, 2004 between the Corporation and Kenneth Siegel (incorporated by reference to Exhibit 10.73 to the 2004 Form 10-K).(1) Employment Agreement, dated December 27, 1996, between Starwood Vacation Ownership and Raymond Gellein (incorporated by reference to Exhibit 10.1 to Vistana Inc...

  • Page 132
    ... Employment Agreement between Starwood Vacation Ownership and Raymond Gellein (incorporated by reference to Exhibits 10.1(a) and 10.1(b) to Vistana Inc.'s Annual Report on Form 10-K for the Ã'scal year ended December 31, 1998).(1) Severance Agreement, dated October 1, 2003, between the Corporation...

  • Page 133