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Starwood Hotels & Resorts Worldwide, Inc.
2008 Proxy Statement & 2007 Annual Report

Table of contents

  • Page 1
    Starwood Hotels & Resorts Worldwide, Inc. 2008 Proxy Statement & 2007 Annual Report

  • Page 2
    Starwood Hotels & Resorts Worldwide, Inc.

  • Page 3
    ... we believe that Starwood is poised to gain market share over the coming years. Our development team has led the charge in building a great pipeline to increase our penetration in the US. More importantly, these are exciting times for the upper upscale and luxury segments thanks to the extraordinary...

  • Page 4
    ... continue to own as market conditions change. In today's market, for example, we see arbitrage opportunities between our underlying real estate value and our share price. This discipline in capital allocation also relates to our vacation ownership business. Over the past few years, we've grown this...

  • Page 5
    Starwood Hotels & Resorts Worldwide, Inc. 2008 Proxy Statement & 2007 Annual Report

  • Page 6

  • Page 7
    2008 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT

  • Page 8

  • Page 9
    ... with the information they need, while lowering the costs of delivery and reducing the environmental impact of our Annual Meeting. As owners of Starwood, your vote is important. Whether or not you are able to attend the Annual Meeting in person, it is important that your shares be represented...

  • Page 10
    ... charge, a copy of the Annual Report by contacting Investor Relations at the Company's headquarters. It is important that your shares be represented and voted at the meeting. You can authorize a proxy to vote your shares by completing and returning the proxy card sent to you. Most stockholders...

  • Page 11
    ...INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ...SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS...EXECUTIVE COMPENSATION ...COMPENSATION DISCUSSION & ANALYSIS ...COMPENSATION COMMITTEE REPORT ...SUMMARY COMPENSATION TABLE ...GRANTS OF PLAN-BASED AWARDS...

  • Page 12
    ... questions about the Annual Meeting, you should contact: Starwood Hotels & Resorts Worldwide, Inc. 1111 Westchester Avenue White Plains, New York 10604 Attention: Investor Relations Phone Number: 1-914-640-8100 If you would like additional copies of this Proxy Statement or the Annual Report, or if...

  • Page 13
    ... 30, 2008 at 10:00 a.m. (local time), at Westin Boston Waterfront Hotel, 425 Summer Street, Boston, MA 02210. If you plan to attend the Annual Meeting and have a disability or require special assistance, please contact the Company's Investor Relations department at (914) 640-8100. What proposals...

  • Page 14
    ..., and • Credited to your account in the Company's Savings and Retirement Plan (the "Savings Plan"). On the Record Date there were 187,029,468 Shares outstanding and entitled to vote at the Annual Meeting and there were 17,922 record holders of Shares. The Shares are the only outstanding class of...

  • Page 15
    ... date or if you sign and return your proxy card without instructions marked in the boxes, the trustee will vote your Shares in the same proportion as other Shares held in the Savings Plan for which the trustee received timely instructions unless contrary to ERISA (Employee Retirement Income Security...

  • Page 16
    ... by telephone (only your latest Internet or telephone proxy submitted prior to the meeting will be counted), or by signing and returning a new proxy card with a later date, or by attending the meeting and voting in person. However, your attendance at the Annual Meeting will not automatically revoke...

  • Page 17
    ... the Company's Investor Relations Department, 1111 Westchester Avenue, White Plains, New York 10604. Please note that the information on the Company's website is not incorporated by reference in this Proxy Statement. The Company has a Disclosure Committee, comprised of certain senior executives, to...

  • Page 18
    ...American Express and derives no personal benefit from these payments. These relationships are consistent with the NYSE independence standards. In addition, in the case of Mr. Quazzo, the Board considered that in January 2008 a fund managed by Transwestern Investment Company, LLC purchased the office...

  • Page 19
    ... recently as Corporate Vice President/General Manager, Europe, Middle East and Africa from 2000 to 2004. Mr. Van Paasschen was appointed to the Board of the Company in September 2007 in connection with his employment as Chief Executive Officer. Bruce W. Duncan, 56, has been a private investor since...

  • Page 20
    ...a managing partner of Pharos Capital Group, L.L.C., a private equity fund focused on technology companies, business service companies and health care companies, since January 1998. From July 1985 to December 1997, he was in private medical practice. He is Chairman of the Board of the American Beacon...

  • Page 21
    ... to the Company's executive officers and other members of senior management and administers the Company's employee benefits plans, including the Company's Long-Term Incentive Compensation Plans. The Compensation and Option Committee met 12 times during 2007. Capital Committee. The Capital Committee...

  • Page 22
    ...Company's Bylaws, stockholder nominations must be made in writing, delivered or mailed by first class United States mail, postage prepaid, to the Corporate Secretary, 1111 Westchester Avenue, White Plains, New York 10604, and be received by the Corporate Secretary no later than the close of business...

  • Page 23
    ... Ernst & Young as the Company's independent registered public accounting firm for 2008. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following tables show the number of Shares "beneficially owned" by (i) all persons known to the Company to be the...

  • Page 24
    ... with respect to 7,977,852 Shares, shared voting over 579 Shares and sole dispositive power over 11,871,555 Shares. Directors and Executive Officers of the Company Name of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class(1) Adam Aron ...Charlene Barshefsky ...Jean-Marc...

  • Page 25
    ...December 31, 2007 regarding Shares that may be issued under equity compensation plans maintained by the Company. Equity Compensation Plan Information - December 31, 2007 Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (a) Weighted-Average Exercise Price of...

  • Page 26
    ... to the Company's business results and stock performance. Moreover, we strive to keep the executive compensation program transparent, easily understood, in line with market practices and consistent with high standards of good corporate governance. What the Program Intends to Reward. Our executive...

  • Page 27
    ...Starwood' business strategy, including specific plan design features. Pearl Meyer worked directly with management. Management recommended the 2007 equity program to the Compensation Committee based on the work developed in conjunction with Pearl Meyer. Pearl Meyer does not provide any other services...

  • Page 28
    ... Information on the Executive Compensation Program - Use of Peer Data section beginning on page 24 below for a list of the peer companies used in this analysis. The Company generally seeks to position base salaries of our Named Executive Officers at or near the market median for similar positions...

  • Page 29
    ... under the Executive Plan consist of operating income and earnings per share targets, with each criteria accounting for half of the financial goal portion of the annual bonus. As the Company generally sets target incentive award opportunities above market median, the Company financial and strategic...

  • Page 30
    ..., growth, and customer experience. As part of a structured process that cascades down throughout the Company, these objectives are developed at the beginning of the year, and they integrate and align an executive with the Company's strategic and operational plan. Achievement of "Big 5" objectives...

  • Page 31
    ... year. Performance reviews and bonus awards for the prior operating year are made at that time. In determining the equity awards granted in 2007, the Compensation Committee considered and took into account the Company's performance and the individual performance of each Named Executive Officer...

  • Page 32
    .... As noted, for 2007 the portion of the AIP payouts based on PMP ratings could range from 0% to 175% of target. Where necessary to preserve the competitive position of the Company's compensation scale, the Chief Executive Officer may recommend a market adjustment to the base amount that is subjected...

  • Page 33
    ...Chief Executive Officer and the value of equity that he had built up at his previous employer. The Compensation Committee generally grants awards under the LTIP annually to all other Named Executive Officers that are a combination of stock options and restricted stock awards. In 2007 we used a grant...

  • Page 34
    ... value to an executive. Restricted stock units and restricted stock provide some measure of mitigation of business cyclicality while maintaining a direct tie to share price. The Company seeks to enhance the link to stockholder performance by building a strong retention incentive into the equity...

  • Page 35
    .... The Company also reimburses Named Executive Officers generally for travel expenses and other out-ofpocket costs incurred with respect to attendance by their spouses at one meeting of the Board each year. Retirement Benefits. The Company maintains a tax-qualified retirement savings plan pursuant to...

  • Page 36
    ... of his employment by the Company as disclosed in the Company's other filings with the Securities & Exchange Commission. C. Background Information on the Executive Compensation Program 1. Use of Peer Data In determining competitive compensation levels, the Compensation Committee reviews data from...

  • Page 37
    ... awards in prior years; and • direct total compensation consisting of salary, target and actual bonus awards, and the value of option and restricted stock/restricted stock unit awards. During 2007, compensation paid to the Company's Named Executive Officers was compared to peer group data reported...

  • Page 38
    ... trading prices of a share of the stock on the New York Stock Exchange on that date. Timing of Equity Grants. The Compensation Committee generally makes annual equity compensation grants to Named Executive Officers at its first regularly scheduled meeting that occurs after the release of the Company...

  • Page 39
    ... ...Chief Executive Officer ...until March 31, 2007 Salary ($) 270,833 Bonus ($) 1,500,000 Stock awards ($)(1) 568,350 Option awards ($)(2) 89,315 Non-equity incentive plan compensation ($)(3) 403,800 All other compensation ($)(4) 347,402 Total ($) 3,179,700 Year 2007 2007 2006 2007 2006 2007 2006...

  • Page 40
    ... into account to reduce the cost reported for personal use of the airplane as well as for the trips between New York and Atlanta for Mr. Heyer. Prior to his promotion to President - Global Development Group, Mr. Gellein was Chairman and Chief Executive Officer of Starwood Vacation Ownership, Inc...

  • Page 41
    ...Other Compensation not specified above other than perquisites and personal benefits that is valued in excess of $10,000. Rent & Utilities ($) (2007) Dividend Equivalents on Restricted Stock ($) (2007) Tax & Financial Services ($) (2007) Premiums Paid by Company for Life Insurance($) (2006) Tax Gross...

  • Page 42
    ...PLAN-BASED AWARDS Grant Date (or year with respect to non-equity incentive plan award) All Other Stock Awards: Number of Shares of Stock or Units (#) All Other Option Awards: Number of Securities Underlying Options (#) (2) Exercise or Base Price of Option Awards ($/Sh) Grant Date Fair Value of Stock...

  • Page 43
    ... Compensation Committee's determination of the 2007 AIP awards for these Named Executive Officers: • the Company's 2007 financial performance as measured by operating income and earnings per share; • the 2007 PMP ratings assigned to such executives; and • the bonuses paid to executive officers...

  • Page 44
    ... restricted stock and unvested restricted stock units. Each equity grant is shown separately for each Named Executive Officer. The market value of the stock awards is based on the closing price of Company stock on December 31, 2007, which was $44.03. Option Awards Number of Securities Underlying...

  • Page 45
    ...In connection with the Host Transaction, Starwood's stockholders received 0.6122 Host shares and $0.503 in cash for each of their Class B Shares. Holders of Starwood employee stock options and restricted stock did not receive this consideration while the market price of the Company's publicly traded...

  • Page 46
    ... deferrals under the Plan, but no other Named Executive Officer has made deferrals under the Plan. Following his departure from the Company, Mr. Heyer received a distribution in October 2007 in accordance with his elections at the time of deferral. The general terms of the Plan are described below...

  • Page 47
    ... Fund 1-Year Annualized Rate of Return (as of 1/31/08) Nationwide NVIT Money Market - Class V ...PIMCO VIT Total Return - Admin Shares ...Fidelity VIP High Income - Service Class ...Nationwide NVIT Inv Dest Moderate - Class 2 ...T. Rowe Price Equity Income - Class II...Dreyfus Stock Index - Initial...

  • Page 48
    ...'s employment is terminated without Cause (as defined in the agreement) or with Good Reason (as defined in the agreement), the executive would receive the following in addition to the items described in A. above two times the sum of his base salary plus the average of the annual bonuses earned by...

  • Page 49
    ...be entitled to the following benefits if his employment were terminated without cause or he resigned with good reason following a Change in Control: • • • two times the sum of his base salary plus the average of the annual bonuses earned in the three fiscal years ending immediately prior to...

  • Page 50
    ... 31, 2007 (valued at $4,796,241 based on the $64.85 per share closing price of the Company's common stock on March 30, 2007, the last trading day prior to March 31, 2007), (iii) payment of Mr. Heyer's account balance under the Starwood Hotels & Resorts Worldwide, Inc. Deferred Compensation Plan in...

  • Page 51
    ... accordance with its terms, with service as a director counting as continued employment for purposes of the awards. In addition, because he served as Chief Executive Officer on an interim basis, Mr. Duncan became entitled to receive at least a pro-rata target bonus for 2007 performance. $960,000 was...

  • Page 52
    ... ownership guidelines, each Director is required to acquire Shares (or deferred compensation stock equivalents) that have a market price equal to two times the annual director's fees paid to such director. New directors are given a period of three years to satisfy this requirement. Company employees...

  • Page 53
    ... eight years after the grant date. D. Starwood Preferred Guest Program Points and Rooms In 2007, each Director received an annual grant of 750,000 Starwood Preferred Guest ("SPG") Points to encourage our Directors to visit and personally evaluate our properties. E. Other Compensation The Company...

  • Page 54
    ..., 2007 with a grant date fair value of $86,270. (5) We reimburse directors for travel expenses, other out-of-pocket costs they incur when attending meetings and, for one meeting per year, attendance by spouses. In addition, in 2007 Directors received 750,000 SPG Points valued at $11,250 (the Company...

  • Page 55
    ... in the aggregate for 2007 but must be identified by type for each Named Executive Officer for whom such amounts were equal to or greater than $10,000 in the aggregate. SEC rules do not require specification of the value of any type of perquisite or personal benefit provided to the Directors because...

  • Page 56
    ... federal securities laws and the NYSE requirements. In the first quarter of 2008, the Audit Committee reviewed and discussed the audited financial statements for the year ended December 31, 2007 with management, the Company's internal auditors and the independent registered public accounting...

  • Page 57
    ... and reviewing (on a periodic basis) the Company's Corporate Opportunity Policy pursuant to which each director, trustee and executive officer is required to submit to the Committee any opportunity that such person reasonably believes (1) is within the Company's existing line of business or...

  • Page 58
    ... is the Chairman of the Board and Chief Executive Officer of Starwood Vacation Ownership and President of the Global Development Group. Mr. Gellein's salary and bonus were $133,857 for 2007 and $106,287 for 2006. On February 28, 2008, Mr. Gellein received a restricted stock award of 1,029 Shares. On...

  • Page 59
    ... should not be construed as a waiver by the Company of its right to do so at any time in the future. You should address your proposals or nominations to the Corporate Secretary, Starwood Hotels & Resorts Worldwide, Inc., 1111 Westchester Avenue, White Plains, New York 10604. By Order of the Board of...

  • Page 60
    General Directions To The Westin Boston Waterfront Hotel From East Follow signs out of Boston Logan International Airport to Interstate... onto Summer Street. The hotel is approximately 0.7 miles ahead on the right, just past the convention center. From South Take Interstate 93 North to Exit 20 (South ...

  • Page 61
    ...White Plains, NY 10604 (Address of principal executive offices, including zip code) (914) 640-8100 (Registrant's telephone number, including area code) Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, par value...

  • Page 62

  • Page 63
    ..., Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions and Director Independence ...Principal Accountant Fees and Services ...PART...

  • Page 64
    (This page intentionally left blank)

  • Page 65
    ... the New York Stock Exchange ("NYSE"). As of April 10, 2006, neither Shares nor Class B Shares are listed or traded on the NYSE. PART I Forward-Looking Statements This Annual Report contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation...

  • Page 66
    access at Whappenings, or our cutting edge music, lighting and scent programs, W hotels delivers an experience unmatched in the hotel segment. Westin» (luxury and upscale full-service hotels, resorts and residences) is a lifestyle brand competing in the upper upscale sector in nearly 30 countries ...

  • Page 67
    ... have been serving guests for more than 60 years. Starwood Vacation Ownership (and its predecessor, Vistana, Inc.) has been selling VOIs for more than 20 years. Our principal executive offices are located at 1111 Westchester Avenue, White Plains, New York 10604, and our telephone number is (914) 640...

  • Page 68
    ...-service market segment, and the Element brand will provide modern, upscale hotels for extended stay travel. We derive our cash flow from multiple sources within our hotel and vacation ownership and residential segments, including owned hotels' operations, management and franchise fees and the sale...

  • Page 69
    ... Expanding our internet presence and sales capabilities to increase revenue and improve customer service; • Continuing to grow our frequent guest program, thereby increasing occupancy rates while providing our customers with benefits based upon loyalty to our hotels, vacation ownership resorts and...

  • Page 70
    ... include other hotel operating companies, ownership companies (including hotel REITs) and national and international hotel brands. We encounter strong competition as a hotel, residential, resort and vacation ownership operator and developer. While some of our competitors are private management firms...

  • Page 71
    ... a minority interest in the gaming operations of the Planet Hollywood Hotel & Casino, a Sheraton Resort in Las Vegas, Nevada and we and certain of our affiliates and officers have obtained from the Nevada Gaming Authorities (herein defined) the various registrations, approvals, permits and licenses...

  • Page 72
    ...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 73
    ... information on obtaining copies of our public filings at the New York Stock Exchange, you should call (212) 656-5060. You may also obtain a copy of our filings free of charge by calling Investor Relations at (914) 640-8165. Item 1A. Risk Factors. Risks Relating to Hotel, Resort, Vacation Ownership...

  • Page 74
    ... and their ability to fund amounts required under development, management and franchise agreements and in most cases our recourse is limited to the equity value said party has in the property; and • the financial condition of the airline industry and the impact on air travel. We are also impacted...

  • Page 75
    ... the risks associated with such ownership are no different than exist generally (i.e., the financial position of the owner, the overall state of the relationship with the owner and their participation in optional programs and the impact on cost efficiencies if they choose not to participate), they...

  • Page 76
    ... that we will achieve the benefits that may have been anticipated from any new technology or system. Our Businesses Are Capital Intensive. For our owned, managed and franchised properties to remain attractive and competitive, the property owners and we have to spend money periodically to keep...

  • Page 77
    ... by federal, state, local and foreign laws. Certain laws, ordinances and regulations, particularly those governing the management or preservation of wetlands, coastal zones and threatened or endangered species, could limit our ability to develop, use, sell or rent our real property. International...

  • Page 78
    ... Losses are Not Covered by Insurance We carry insurance coverage for general liability, property, business interruption and other risks with respect to our owned and leased properties and we make available insurance programs for owners of properties we manage. These policies offer coverage terms...

  • Page 79
    ... an annual or an alternate-year basis. We also acquire, develop and operate vacation ownership resorts, and provide financing to purchasers of VOIs. These activities are all subject to extensive regulation by the federal government and the states in which vacation ownership resorts are located and...

  • Page 80
    ... condition. Risks Relating to Ownership of Our Shares Our Board of Directors May Issue Preferred Stock and Establish the Preferences and Rights of Such Preferred Stock. Our charter provides that the total number of shares of stock of all classes which the Corporation has authority to issue is...

  • Page 81
    ... and franchised Resorts expend substantial funds to renovate and maintain their facilities in order to remain competitive. For further information see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources in this Annual Report...

  • Page 82
    ... and incentive fees tied to profits as well as fees for other services, including centralized reservations, sales and marketing, public relations and national and international media advertising. In our experience, owners seek hotel managers that can provide attractively priced base, incentive and...

  • Page 83
    ... franchisees based on a fixed percentage of the franchised hotel's room revenue, as well as fees for other services, including centralized reservations, sales and marketing, public relations and national and international media advertising. In addition, a franchisee may also purchase hotel supplies...

  • Page 84
    ... Location Rooms U.S. Hotels: The St. Regis Hotel, New York St. Regis Resort, Aspen The Phoenician W New York - Times Square W Chicago Lakeshore W San Francisco W Los Angeles Westwood W Chicago City Center W New York - The Court and Tuscany W Atlanta at Perimeter Center The Westin Maui Resort & Spa...

  • Page 85
    ... Sheraton Montreal Hotel Sheraton Paris Airport Hotel & Conference Centre Sheraton Brussels Hotel and Towers Four Points by Sheraton Sydney Los Cabos, Mexico Puerto Vallarta, Mexico Florence, Italy Cancun, Mexico St John, Virgin Islands Toronto, Canada London, England Sydney, Australia Buenos Aires...

  • Page 86
    ... Business We develop, own and operate vacation ownership resorts, market and sell the VOIs in the resorts and, in many cases, provide financing to customers who purchase such ownership interests. Owners of VOIs can trade their interval for intervals at other Starwood vacation ownership resorts...

  • Page 87
    ... Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information The Corporation Shares are traded on the New York Stock Exchange (the "NYSE") under the symbol "HOT." The following table sets forth, for the fiscal periods indicated, the high and low sale prices...

  • Page 88
    ... the open market for an aggregate cost of $1.787 billion during 2007. The Company repurchased the following Corporation Shares during the three months ended December 31, 2007: Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value...

  • Page 89
    ... have been adjusted based on the value shareholders received for their Class B shares. The comparisons are provided in response to SEC disclosure requirements and are not intended to forecast or be indicative of future performance. 400 Starwood 350 300 S&P 500 S&P 500 Hotel DOLLARS 250 200 150...

  • Page 90
    ... intangible assets, income taxes, financing operations, frequent guest program liability, self-insurance claims payable, restructuring costs, retirement benefits and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that...

  • Page 91
    ... are generally based on the gross sales revenue of units sold. • Management and Franchise Revenues - Represents fees earned on hotels managed worldwide, usually under long-term contracts, franchise fees received in connection with the franchise of our Sheraton, Westin, Four Points by Sheraton, Le...

  • Page 92
    ... to airline miles. Properties are charged based on hotel guests' qualifying expenditures. Revenue is recognized by participating hotels and resorts when points are redeemed for hotel stays. We, through the services of third-party actuarial analysts, determine the fair value of the future redemption...

  • Page 93
    ... 2006. REVPAR at Same-Store Owned Hotels in North America increased 7.3% for the year ended December 31, 2007 when compared to the same period of 2006. REVPAR growth was particularly strong at our owned hotels in Kauai, Hawaii, New York, New York, San Francisco, California and New Orleans, Louisiana...

  • Page 94
    ... in San Francisco, which sold out in 2006, and at the St. Regis in New York, where only a few residential units remained available for sale in 2007. Additionally, during the year ended December 31, 2006, we recorded a gain of $17 million on the sale of $133 million of vacation ownership receivables...

  • Page 95
    ... 2006 tax benefit includes a one-time benefit of approximately $524 million realized in connection with the Host Transaction, a $59 million benefit due primarily to the completion of various state and federal income tax audits of prior years, a $34 million benefit associated with Company's election...

  • Page 96
    ...at a new project in New York City. In addition, we recorded a gain of $17 million on the sale of approximately $133 million of vacation ownership receivables in 2006. The gain on the sale of VOI notes receivable in 2005, prior to our adoption of SFAS No. 152, "Accounting for Real Estate Time-Sharing...

  • Page 97
    ...-based compensation, including stock option expense of $47 million. The remaining increase includes investments in our global development capability and costs associated with the launch of our new brands, aloft and Element, as well as the addition of the Le Méridien business. Operating Income. Our...

  • Page 98
    ... by a $1 million income tax benefit related to this business. LIQUIDITY AND CAPITAL RESOURCES Cash From Operating Activities Cash flow from operating activities is generated primarily from management and franchise revenues, operating income from our owned hotels and sales of VOIs and residential...

  • Page 99
    ...31, 2007 totaled $99 million, the majority of which were required by state or local governments relating to our vacation ownership operations and by our insurers to secure large deductible insurance programs. To secure management contracts, we may provide performance guarantees to third-party owners...

  • Page 100
    ...2007 and 2006, respectively. We do not anticipate losing a significant number of management or franchise contracts in 2008. In November 2005, we completed the Le Méridien Acquisition for a purchase price of approximately $252 million. The purchase price was funded from available cash and the return...

  • Page 101
    Cash Used for Financing Activities The following is a summary of our debt portfolio (including capital leases) as of December 31, 2007: Amount Outstanding at December 31, 2007(a) (Dollars in millions) Interest Rate at December 31, 2007 Average Maturity (In years) Floating Rate Debt Bank Debt ......

  • Page 102
    ... 2025. The stated redemption price for these notes was 103.186%. We borrowed under the 2006 Facility and used existing unrestricted cash balances to fund the cash portions of these transactions. Other. Based upon the current level of operations, management believes that our cash flow from operations...

  • Page 103
    ...exchange rates was a net increase in debt of approximately $5 million. Our debt balance is also affected by changes in interest rates as a result of our interest rate swap agreements under which we pay floating rates and receive fixed rates of interest (the "Fair Value Swaps"). The fair market value...

  • Page 104
    ... Board of Directors of Starwood further authorized the repurchase of up to an additional $1 billion of Corporation Shares under the Share Repurchase Authorization. During the year ended December 31, 2007, we repurchased 29.6 million Corporation Shares at a total cost of $1.8 billion. As of December...

  • Page 105
    ... 2007. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be included in the Company's SEC reports. Management's Report...

  • Page 106
    ... believes that, as of December 31, 2007, the Company's internal control over financial reporting is effective. Management has engaged Ernst & Young LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K, to attest to...

  • Page 107
    ...2006, and the related consolidated statements of income, comprehensive income, equity, and cash flows of the Company for each of the three years in the period ended December 31, 2007 and our report dated February 22, 2008, expressed an unqualified opinion thereon. /s/ New York, New York February 22...

  • Page 108
    ... date of this Annual Report, certain information regarding such Director. Name (Age) Principal Occupation and Business Experience Service Period Frits van Paasschen (46) Adam M. Aron (53) Charlene Barshefsky (57) Jean-Marc Chapus (48) Chief Executive Officer of the Company since September 2007...

  • Page 109
    ... & Company. Managing Partner of Softbank Capital Partners, a technology venture capital firm, since March 2000. Mr. Hippeau served as Chairman and Chief Executive Officer of Ziff-Davis Inc., an integrated media and marketing company, from 1993 to March 2000 and held various other positions with...

  • Page 110
    ... Managing partner of Pharos Capital Group, L.L.C., a private equity fund focused on technology companies, business service companies and health care companies, since January 1998. From July 1985 to December 1997, he was in private medical practice. He is Chairman of the Board of the American Beacon...

  • Page 111
    ... Avenue, White Plains, New York 10604. The Company's Corporate Governance Guidelines and the charters of its Audit Committee, Compensation and Options Committee, Governance and Nominating Committee are also available on its website at http://starwoodhotels.com/corporate/investor relations.html...

  • Page 112
    ... Beneficial Owners and Management and Related Stockholder Matters. (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) Equity Compensation Plan Information-December 31, 2007 (a) Number of Securities to...

  • Page 113
    ..., Inc., Starwood Hotels & Resorts, Sheraton Holding Corporation and SLT Realty Limited Partnership (the "Merger Agreement") (incorporated by reference to Exhibit 10.1 to the Corporation's and the Trust's Joint Current Report on From 8-K filed November 14, 2005). Amendment Agreement, dated as of...

  • Page 114
    ... Credit Agreement, dated as of June 29, 2007, among Starwood Hotels & Resorts Worldwide, Inc., Bank of America, N.A., as administrative agent and various lenders party thereto (incorporated by reference to Exhibit 10.01 to the Company's Current Report on Form 8-K, filed with the SEC on July 5, 2007...

  • Page 115
    ... 8-K).(1) Amendment to the Starwood Hotels & Resorts Worldwide, Inc. 2004 Long-Term Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on May 31, 2007).(1) Form of Non-Qualified Stock Option Agreement pursuant to the...

  • Page 116
    ..., dated August 14, 2007, between the Company and Kenneth S. Siegel (incorporated by reference to Exhibit 10.1 to the Corporation's Current Report on Form 8-K filed August 17, 2007 (the "August 17 Form 8-K")).(1) Employment Agreement, dated July 18, 1999, between Starwood Vacation Ownership and...

  • Page 117
    ...10.2 to the 2007 Form 10-Q1).(1) Employment Agreement, dated as of August 31, 2007, between the Company and Frits van Paasschen (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed September 4, 2007).(1) Form of Non-Qualified Stock Option Agreement between the...

  • Page 118
    ...duly authorized. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By: /s/ FRITS VAN PAASSCHEN Frits van Paasschen Chief Executive Officer and Director Date: February 22, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on...

  • Page 119
    Signature Title Date Director Stephen R. Quazzo /s/ THOMAS O. RYDER Thomas O. Ryder /s/ KNEELAND C. YOUNGBLOOD Kneeland C. Youngblood Director February , 2008 February 22, 2008 Director February 22, 2008 55

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  • Page 121
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. INDEX TO FINANCIAL STATEMENTS AND SCHEDULE Page Report of Independent Registered Public Accounting Firm...Consolidated Balance Sheets as of December 31, 2007 and 2006 ...Consolidated Statements of Income for the Years Ended December 31, 2007, 2006 and 2005 ...

  • Page 122
    ...1, 2007, Statement of Financial Accounting Standards ("SFAS") No. 152, Accounting for Real Estate Time-Sharing Transactions, and SFAS No. 123 (revised 2004), Share-based Payment, on January 1, 2006 and SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, on...

  • Page 123
    ...' equity: Corporation common stock; $0.01 par value; authorized 1,000,000,000 shares; outstanding 190,998,585 and 213,484,439 shares at December 31, 2007 and 2006, respectively ...Additional paid-in capital ...Accumulated other comprehensive loss ...Retained earnings ...Total stockholders' equity...

  • Page 124
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2007 2006 2005 (In millions, except per Share data) Revenues Owned, leased and consolidated joint venture hotels ...$2,429 Vacation ownership and residential sales and services (including note sale ...

  • Page 125
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2007... $1 million and amortization included in net periodic pension cost of $2 million for the year ended December 31, 2007. The accompanying notes to financial statements are an integral...

  • Page 126
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF EQUITY Exchangeable Retained Accumulated Units and Earnings Other Additional Class B EPS Class A EPS Shares Deferred Comprehensive (Accumulated Paid-in Deficit) Shares Amount Shares Amount Shares Amount Capital(b) Compensation Loss...

  • Page 127
    ...Proceeds from employee stock option exercises ...Excess stock-based compensation tax benefit ...Share repurchases ...Other, net ...Cash used for financing activities ...Exchange rate effect on cash and cash equivalents ...Increase (decrease) in cash and cash equivalents ...Cash and cash equivalents...

  • Page 128
    ... principal business is hotels and leisure, which is comprised of a worldwide hospitality network of almost 900 full-service hotels, vacation ownership resorts and residential developments primarily serving two markets: luxury and upscale. The principal operations of Starwood Vacation Ownership, Inc...

  • Page 129
    ... on a cash basis. For the vacation ownership and residential segment, the Company provides for estimated mortgages receivable cancellations and defaults at the time the VOI sales are recorded with a charge to vacation ownership and residential sales and services. The Company performs an analysis of...

  • Page 130
    ...") is the Company's frequent guest incentive marketing program. SPG members earn points based on spending at the Company's properties, as incentives to firsttime buyers of VOIs and residences, and through participation in affiliated partners' programs such as co-branded credit cards. Points can be...

  • Page 131
    ... 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 loss of $11 million in 2007 and...

  • Page 132
    ... are generally based on the gross sales revenue of the units sold. • Management and Franchise Revenues - 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...

  • Page 133
    ... a significant 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 qualified...

  • Page 134
    ... Company's prior year financial statements. SFAS No. 158's provisions regarding the change in the measurement date of Benefit Plans are not applicable as the Company currently uses a measurement date of December 31 for its benefit plans. In September 2006, the FASB issued SFAS No. 157, "Fair Value...

  • Page 135
    ... standard addresses the treatment of sales incentives provided by a seller to a buyer to consummate a transaction, the calculation of accounting for uncollectible notes receivable, the recognition of changes in inventory cost estimates, recovery or repossession of VOIs, selling and marketing costs...

  • Page 136
    ...B Shares. Holders of Starwood employee stock options did not receive this consideration while the market price of our publicly traded shares was reduced to reflect the payment of this consideration directly to the holders of the Class B Shares. In order to preserve the value of the Company's options...

  • Page 137
    ...ridien brand and the related management and franchise business for the portfolio of 122 hotels and resorts (the "Le Méridien Acquisition"). The purchase price of approximately $252 million was funded from available cash and the return of funds from the Company's original purchase of an interest in...

  • Page 138
    ... billion in the form of Host common stock valued at $2.68 billion and $119 million in cash for their Class B shares. Based on Host's closing price on April 7, 2006, this consideration had a per Class B share value of $13.07. Starwood directly received approximately $738 million of consideration in...

  • Page 139
    ... 2006, the Company closed on the sale of land near the Montreal Airport to a developer who is building two Starwood branded hotels on the site. The purchase agreement contains a provision that may allow, but not obligate, Starwood to repurchase the land for the purchase price it received less a non...

  • Page 140
    ... Note 8. Goodwill and Intangible Assets The changes in the carrying amount of goodwill for the year ended December 31, 2007 are as follows (in millions): Hotel Segment Vacation Ownership Segment Total Balance at January 1, 2007 ...Purchase price adjustments related to the Le Méridien Acquisition...

  • Page 141
    ... notes receivable are included in accounts receivable in the Company's balance sheets. The interest rates of the owned VOI notes receivable are as follows: December 31, 2007 2006 Range of stated interest rates ...Weighted average interest rate...The maturities of the gross VOI notes receivable are...

  • Page 142
    ... classified and accounted for as "available-for-sale" securities in accordance with SFAS No. 115 and SFAS No. 140. The Company's securitization and sale agreements provide the Company with the option, subject to certain limitations, to repurchase defaulted VOI notes receivable at their outstanding...

  • Page 143
    ... notes receivable in 2007, 2006, and 2005, respectively. At the time of each VOI notes receivable sale and at the end of each financial reporting period, the Company estimates the fair value of its Retained Interests using a discounted cash flow model. All assumptions used in the models are reviewed...

  • Page 144
    ...primarily related to the Company's redevelopment of the Sheraton Bal Harbour Beach Resort ("Bal Harbour"). The Company demolished the hotel in late 2007 and plans to rebuild a St. Regis hotel along with branded residences and fractional units. Bal Harbour was closed for business on July 1, 2007, and...

  • Page 145
    ... to severance costs primarily related to certain executives in connection with the continued corporate restructuring that began at the end of 2005, of which approximately $4 million related to compensation expense due to the accelerated vesting of previously granted stock-based awards. These charges...

  • Page 146
    ... issued FASB Staff Position No. 109-2, "Accounting and Disclosure Guidance for the Foreign Repatriation Provision within the American Jobs Creation Act of 2004," in response to the American Jobs Creation Act of 2004 (the "Act") which provided for a special one-time dividends received deduction of 85...

  • Page 147
    ... of this loss has been utilized to offset 2007 and prior years' capital gains. The remaining $1.1 billion of capital loss is available to offset federal capital gains through 2011. The Company also had state capital losses related to the Host Transaction of approximately $1.0 billion, substantially...

  • Page 148
    ... Company at the U.S. statutory rate to the provision for income tax as reported is as follows (in millions): Year Ended December 31, 2007 2006 2005 Tax provision at U.S. statutory rate ...$ 257 U.S. state and local income taxes ...13 Exempt Trust income ...- Tax on repatriation of foreign earnings...

  • Page 149
    ...positions related to the current year ...6 Additions for tax positions of prior years ...1 Settlements with tax authorities ...(2) Reductions for tax positions of prior years ...- Reductions due to the lapse of applicable statutes of limitation ...(1) Balance at December 31, 2007 ...$469 The Company...

  • Page 150
    ...million, which were used to reduce the outstanding borrowings under its Revolving Credit Facility. Interest on the 6.25% Notes is payable semi-annually on February 15 and August 15. At any time, we may redeem all or a portion of the 6.25% Notes at the Company's option at a price equal to the greater...

  • Page 151
    ...% and a maturity in 2025. The stated redemption price for these notes was 103.186%. We borrowed under the 2006 Facility and used existing unrestricted cash balances to fund the cash portions of these transactions. On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the...

  • Page 152
    ...of credit as of December 31, 2007. The Company is subject to certain restrictive debt covenants under its short-term borrowing and long-term debt obligations including defined financial covenants, limitations on incurring additional debt, escrow account funding requirements for debt service, capital...

  • Page 153
    ... and $0.3 million during the years ended December 31, 2006 and 2005, respectively. The Company also sponsors the Starwood Hotels & Resorts Worldwide, Inc. Retiree Welfare Program. This plan provides health care and life insurance benefits for certain eligible retired employees. The Company has F-33

  • Page 154
    ... at end of year ...Change in Plan Assets Fair value of plan assets at beginning of year ...Actual return on plan assets, net of expenses ...Employer contribution ...Effect of foreign exchange rates ...Asset transfer ...Benefits paid ...Fair value of plan assets at end of year ...Funded status...

  • Page 155
    ... strategy, 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, 2007 and 2006 for the Company's defined benefit pension and postretirement benefit plans...

  • Page 156
    ... the W Times Square hotel in New York City which has a term of 25 years (19 years remaining under the lease) with fixed annual lease payments of $16 million. The variable components of leases of land or building facilities are based on the operating profit or revenues of the related hotels. In June...

  • Page 157
    ... Authorization. During the year ended December 31, 2007, the Company repurchased 29.6 million Shares and Corporation Shares at a total cost of $1.8 billion. As of December 31, 2007, approximately $593 million remains available under the Share Repurchase Authorization. Exchangeable Preferred Shares...

  • Page 158
    ...from third parties. Year Ended December 31, 2007 2006 2005 (In millions, except per Share data) Net income, as reported ...Add: Stock-based employee compensation expense included in reported net income, net of related tax effects of $33, $36 and $12 ...Deduct: SFAS No. 123 compensation cost, net of...

  • Page 159
    ... based on market analysis. The historical share price volatility was measured over an 8-year period, which is equal to the contractual term of the options. The weighted average volatility for 2007 grants was 30.2%. The expected life represents the period that the Company's stock-based awards...

  • Page 160
    ... 31, 2007. The Company recognizes compensation expense equal to the fair market value of the stock on the date of issuance for restricted stock and restricted stock unit grants over the service period. The service period is typically four years except in the case of restricted shares or units...

  • Page 161
    ... debt (Sheraton Holding Public Debt and Senior Notes) through 2007, the scheduled maturity of the terminated Fair Value Swaps. In order to adjust its fixed versus floating rate debt position, the Company immediately entered into two new Fair Value Swaps. The new Fair Value Swaps hedge the change in...

  • Page 162
    ... In limited cases, the Company has made loans to owners of or partners in hotel or resort ventures for which the Company has a management or franchise agreement. Loans outstanding under this program, excluding the Westin Boston, Seaport Hotel discussed below, totaled $34 million at December 31, 2007...

  • Page 163
    ... of which were required by state or local governments relating to our vacation ownership operations and by our insurers to secure large deductible insurance programs. To secure management contracts, the Company may provide performance guarantees to third-party owners. Most of these performance...

  • Page 164
    ... hotels and resorts which are managed or franchised under these brand names in exchange for fees. The vacation ownership and residential segment includes the development, ownership and operation of vacation ownership resorts, marketing and selling VOIs, providing financing to customers who purchase...

  • Page 165
    ...for the Company's reportable segments (in millions): 2007 2006 2005 Revenues: Hotel ...$5,000 Vacation ownership and residential ...1,153 Total ...$6,153 Operating income: Hotel ...$ 878 Vacation ownership and residential ...246 Total segment operating income ...Selling, general, administrative and...

  • Page 166
    ...: Hotel ...$211 Vacation ownership and residential ...96 Corporate...77 Total ...$384 $245 78 48 $371 $318 95 51 $464 The following table presents revenues and long-lived assets by geographical region (in millions): 2007 Revenues 2006 Long-Lived Assets 2005 2007 2006 (In millions) United States...

  • Page 167
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) Note 25. Quarterly Results (Unaudited) March 31 Three Months Ended June 30 September 30 December 31 (In millions, except per Share data) Year 2007 Revenues ...Costs and expenses ...Income from continuing ...

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  • Page 169
    ... II STARWOOD HOTELS & RESORTS WORLDWIDE, INC. VALUATION AND QUALIFYING ACCOUNTS (In millions) Additions (Deductions) Charged Charged to/reversed to/from Other from Payments/ Accounts(a) Expenses Other Balance January 1, Balance December 31, 2007 Trade receivables - allowance for doubtful accounts...

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  • Page 171
    ... The Westin New Orleans Canal Place The Westin San Diego The Westin San Francisco Market Street The Westin Sohna Gurgaon, Resort & Spa The Westin Tysons Corner The Westin Virginia Beach Town Center The Westin Washington, DC City Center Sheraton Aleppo Hotel Sheraton Arlington Hotel Sheraton Atlanta...

  • Page 172
    ... Corporate Offices Starwood Hotels & Resorts Worldwide, Inc. 1111 Westchester Avenue, White Plains, New York 10604 914 640 8100, www.starwoodhotels.com Form 10-K and Other Investor Information A copy of the Annual Report of Starwood Hotels & Resorts Worldwide, Inc. ("Starwood") on Form 10-K filed...

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    Designed by Curran & Connors, Inc. / www.curran-connors.com Starwood Hotels & Resorts Worldwide, Inc.

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