Starwood 2008 Annual Report Download

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2009 PROXY STATEMENT & 2008 ANNUAL REPORT

Table of contents

  • Page 1
    2009 PROXY STATEMENT & 2008 ANNUAL REPORT

  • Page 2

  • Page 3
    ... and design, and hotel opening teams to streamline the process from signing a contract to opening a property. In total, the AVA process to date has generated a 30% reduction in personnel costs across many of our corporate and divisional functions. At Starwood's Vacation Ownership business, we were...

  • Page 4
    ... Human Resources team is driving efforts to improve our ability to attract, retain, and develop talented people to operate our properties around the world. This is particularly important as we still plan to open 425 hotels over the coming years. Frits van Paasschen Chief Executive Officer Starwood...

  • Page 5
    Starwood Hotels & Resorts Worldwide, Inc. 2009 Proxy Statement & 2008 Annual Report

  • Page 6

  • Page 7
    ... year's Annual Meeting, you will be asked to (i) elect eleven Directors and (ii) ratify the appointment of Ernst & Young LLP as Starwood's independent registered public accounting firm for 2009. As owners of Starwood, your vote is important. Whether or not you are able to attend the Annual Meeting...

  • Page 8

  • Page 9
    ...ANNUAL MEETING OF STOCKHOLDERS OF STARWOOD HOTELS & RESORTS WORLDWIDE, INC. A Maryland Corporation DATE: TIME: PLACE: May 6, 2009 10:00 a.m., local time St. Regis Washington, D.C. 923 16th and K Streets, N.W. District of Columbia 20006 To elect eleven Directors to serve until the next Annual Meeting...

  • Page 10

  • Page 11
    ... WHO CAN HELP ANSWER YOUR QUESTIONS? ...THE ANNUAL MEETING AND VOTING - QUESTIONS AND ANSWERS ...CORPORATE GOVERNANCE ...ELECTION OF DIRECTORS ...RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ...SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED...

  • Page 12
    ... any 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...

  • Page 13
    ... Notice contains instructions on how to access the Company's proxy statement and 2008 Annual Report to Shareholders and vote online. By furnishing this Notice, the Company is lowering the costs and reducing the environmental impact of its Annual Meeting. The Company intends to start mailing a paper...

  • Page 14
    ... for each share of common stock of the Company ("Shares") you held at the close of business on the Record Date on each matter that is properly submitted to a vote at the Annual Meeting, including Shares: • Held directly in your name as the stockholder of record, • Held for you in an account with...

  • Page 15
    ... not receive a majority of the votes cast?" below for information concerning our director resignation policy. Ratification of the appointment of Ernst & Young as the Company's independent registered public accounting firm requires "FOR" votes from a majority of the votes cast at the Annual Meeting...

  • Page 16
    ... and change your vote at any time before the final vote at the Annual Meeting. You may submit a proxy again on a later date on the Internet or 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...

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

  • Page 18
    ... revenues for each of the past three years. In the case of American Express Company, with which the Company co-brands the American Express Starwood Preferred Guest credit card, the combined annual payments from the Company to American Express Company and from American Express Company to the Company...

  • Page 19
    ... through 2006, Mr. Aron served as Chairman and Chief Executive Officer of Vail Resorts, Inc., an owner and operator of ski resorts and hotels. Mr. Aron is a director of Norwegian Cruise Line Limited and Prestige Cruise Holdings, Inc. Mr. Aron has been a Director of the Company since August 2006. 7

  • Page 20
    ... Ryder was Chairman of the Board and Chief Executive Officer of that company from April 1998 through December 31, 2005. Mr. Ryder was President, American Express Travel Related Services International, a division of American Express Company, which provides travel, financial and network services, from...

  • Page 21
    ... salaries and other compensation to be paid 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 7 times during 2008...

  • Page 22
    ...senior management and an orientation meeting. In addition, all Directors are given written materials providing information on the Company's business. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires that the Company's Directors and executive officers...

  • Page 23
    ... January 31, 2009, plus, where applicable, the number of Shares that the indicated person had a right to acquire within 60 days of such date. The information in the tables is based upon information provided by each Director and executive officer and, in the case of the beneficial owners of more than...

  • Page 24
    ... information and limitations on its ability to effect a change in control of the Company. (3) Based on information contained in a Schedule 13G, dated February 13, 2009 (the "Harris 13G"), filed with respect to the Company, Harris Associates L.P. ("Harris") has been granted the power to vote Shares...

  • Page 25
    ... outstanding on January 31, 2009 and Shares issuable upon exercise of options exercisable within 60 days from January 31, 2009. (2) Amount includes the following number of "phantom" stock units received as a result of the following Directors' election to defer Directors' Annual Fees: 17,509 for Mr...

  • Page 26
    ... been amended to provide for a termination date of May 26, 2009 to comply with new NYSE requirements. In addition, 10,540,472 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. 14

  • Page 27
    ... 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 28
    ... to the Named Executive Officers (including the CEO) for the 2008 performance period. Pearl Meyer & Partners worked with management and the Compensation Committee in reviewing the compensation structure of the Company and of the companies in the peer group. Pearl Meyer & Partners does not provide...

  • Page 29
    ... 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. Incentive Compensation. Incentive compensation includes annual incentive awards under the Company's Annual Incentive Plan for Certain...

  • Page 30
    ... performance-based compensation under Section 162(m). For 2008, the EP Threshold was $637,500,000. Generally, a Named Executive Officer will receive payment of an award under the Executive Plan only if he remains employed by the Company on the award payment date. However, pro rata awards may be paid...

  • Page 31
    ..., 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 typically accounts for 80% of the strategic/operational performance evaluation, and achievement of leadership...

  • Page 32
    ... Element hotel openings in 2008, sustaining the Sheraton revitalization plan and increasing guest satisfaction scores across all brands • Achieved strong financial results despite the economic environment and re-evaluated and redeveloped the strategy for the Company's vacation ownership business...

  • Page 33
    ... various initiatives on revenue management, reducing overlap across functions and reducing costs in the operations area • Effectively developed succession planning and enhanced the group dynamic with direct reports In light of Mr. Avril's accomplishments in 2008, he received a "meets expectations...

  • Page 34
    ...based on management's report, the extent to which the Company's financial performance goals were achieved and whether the Company achieved the applicable minimum threshold(s) required to pay awards. The Chief Executive Officer also meets in executive session with the Board of Directors to inform the...

  • Page 35
    ... in value) in a limited number of termination circumstances (e.g., involuntary terminations or retirements). Mr. van Paasschen agreed not to sell any Company stock awards or shares received on exercise of options (except as may be withheld for taxes) for the first two years of his employment and...

  • Page 36
    ... spouses at one meeting of the Board each year. Retirement Benefits. The Company maintains a tax-qualified retirement savings plan pursuant to Code section 401(k) for a broadly-defined group of eligible employees that includes the Company's Named Executive Officers. Eligible employees may contribute...

  • Page 37
    ... and ample incentive to achieve Company goals, including facilitating a sale of the Company at the highest possible price per share, which would benefit both stockholders and executives. In addition, the Company acknowledges that seeking a new senior position is a long and time consuming process...

  • Page 38
    ...the Company's Named Executive Officers was compared to peer group data reported in 2008 proxy statements, as provided by compensation consulting firms and reflecting 2007 compensation. The Company's Named Executive Officer compensation data taken into account for this comparison included 2008 salary...

  • Page 39
    ..., the fair market value of our common stock on a particular date is determined as the average of the high and low 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...

  • Page 40
    ... executives focused on business results (including the Company's stock price), restoring financial motivation to succeed and retaining the Company's top performers. II. COMPENSATION COMMITTEE REPORT The Compensation and Option Committee of the Board of Directors (the "Board") of Starwood Hotels...

  • Page 41
    ... forfeitures related to service-based vesting conditions. For additional information, refer to Note 21 of the Company's financial statements filed with the SEC as part of the Form 10-K for the year ended December 31, 2008. These amounts reflect the Company's accounting expense for these awards...

  • Page 42
    ... the Company, Company contributions to the Company's tax-qualified 401(k) plan, dividends on restricted stock, life insurance premiums, legal fees paid by the Company, spousal accompaniment while on business travel, and tax and financial planning services. SEC rules require specification of the cost...

  • Page 43
    ... the grant date. For stock options, fair value is calculated in accordance with SFAS 123(R) using a lattice valuation model. For additional information, refer to Note 21 of the Company's financial statements filed with the SEC as part of the Form 10-K for the year ended December 31, 2008. There can...

  • Page 44
    ...share; • the 2008 PMP ratings assigned to such executives; and • the bonuses paid to executive officers performing comparable functions in peer companies. VI. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR -END The following table provides information on the current holdings of stock options and stock...

  • Page 45
    ... 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 shares was reduced to...

  • Page 46
    ..., for each Named Executive Officer, (i) shares of Company stock acquired pursuant to exercise of stock options during 2008, (ii) shares of restricted Company stock that vested in 2008, and (iii) shares of Company stock acquired in 2008 on account of vesting of restricted stock units. The table...

  • Page 47
    ... may elect to receive payment on February 1 of a calendar year while still employed or either 6 or 12 months following employment termination. Payment will be made immediately in the event a participant terminates employment on account of death, disability or on account of certain changes in control...

  • Page 48
    ... Executive Officers in the event of employment termination, both in connection with a change in control and otherwise. These benefits are in addition to benefits available generally to salaried employees, such as distributions under the Company's tax-qualified retirement savings plan, disability...

  • Page 49
    ... stock option or incentive plan maintained by the Company; outplacement services suitable to the executive's position for a period of two years or, if earlier, until the first acceptance by the executive of an offer of employment, the cost of which will not exceed 20% of the executive's base salary...

  • Page 50
    ... 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 the...

  • Page 51
    ... not provide for payments in the event of voluntary termination for good reason. (2) In addition, the Company would pay the reasonable costs of relocating Mr. McAveety to Europe if he decides to return to Europe within one year of his termination of employment. 2. Termination on Account of Death or...

  • 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
    ... at meetings. However, the Company reimburses Non-Employee Directors for expenses they incurred related to 2008 meeting attendance, including attendance by spouses at one meeting each year. C. Equity grant In 2008, each Non-Employee Director received an annual equity grant (made at the same time as...

  • Page 54
    ... financial statements filed with the SEC as part of the Form 10-K for the year ended December 31, 2008. These amounts reflect the Company's accounting expense for these awards and do not correspond to the actual value that will be recognized by the Directors. The grant date fair value of each stock...

  • Page 55
    ... forfeitures related to service-based vesting conditions. For additional information, refer to Note 21 of the Company's financial statements filed with the SEC as part of the Form 10-K for the year ended December 31, 2008. These amounts reflect the Company's accounting expense for these awards...

  • Page 56
    ...We reimburse Non-Employee 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 2008 Non-Employee Directors received 750,000 SPG Points valued at $11,250 (Mr. Youngblood's account was credited...

  • Page 57
    ...In the first quarter of 2009, the Audit Committee reviewed and discussed the audited financial statements for the year ended December 31, 2008 with management, the Company's internal auditors and the independent registered public accounting firm, Ernst & Young LLP. The Audit Committee also discussed...

  • Page 58
    ... with establishing and reviewing (on a periodic basis) the Company's Corporate Opportunity Policy pursuant to which each Director 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 59
    ... by addressing a request to Investor Relations, Starwood Hotels & Resorts Worldwide, Inc., 1111 Westchester Avenue, White Plains, NY 10604 or by calling (914) 640-8100. You may also obtain a copy of the proxy statement and annual report from the investor relations page on the Company's web site (www...

  • Page 60
    ... 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 Directors STARWOOD HOTELS & RESORTS WORLDWIDE, INC. Kenneth...

  • Page 61
    ... Take George Washington Parkway North to 395 N. • Cross bridge and stay in left lane which will become 14th Street. • Continue to I Street NW and turn left. • Follow to 16th Street. • Turn right on 16th Street - the hotel is located on the right. From 95 North (Baltimore-New York) • Take...

  • Page 62
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  • Page 63
    ...held by the Registrant's Directors and executive officers) was $7,447,019,328. As of February 20, 2009, the Corporation had outstanding 182,443,016 shares of common stock. For information concerning ownership of Shares, see the Proxy Statement for the Company's Annual Meeting of Stockholders that is...

  • Page 64

  • Page 65
    ...15. PART III Directors, 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...

  • Page 66
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  • Page 67
    ... hotels, resorts and residences) are for connoisseurs who desire the finest expressions of luxury. They provide flawless and bespoke service to high-end leisure and business travelers. St. Regis hotels are located in the ultimate locations within the world's most desired destinations, important...

  • Page 68
    ...in North America. The new Westin Superfoods» menu is the latest way we bring renewal to guests, with foods considered best for providing disease-fighting and health-enhancing benefits due to their high nutrient and antioxidant content. Le Méridien» (luxury and upscale full-service hotels, resorts...

  • Page 69
    ... Hotels & Resorts, Starwood's largest brands, 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...

  • Page 70
    ... and vacation ownership and residential properties by type of revenue source and geographical presence by major geographic area as of December 31, 2008: Number of Properties Rooms Managed and unconsolidated joint venture hotels ...Franchised hotels ...Owned hotels(a) ...Vacation ownership resorts...

  • Page 71
    ... 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 72
    ...assets that would otherwise not be available or realize cost reductions on operating the hotels by incorporating them into the Starwood system. We may also selectively choose to develop and construct desirable hotels and resorts to help us meet our strategic goals, such as the construction of a dual...

  • Page 73
    ... sale of such assets can significantly reduce our revenues and operating income. Regulation and Licensing of Gaming Facilities We have 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...

  • Page 74
    ...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 75
    ... reports, proxy statements and other information with the Securities & Exchange Commission ("SEC"). Our SEC filings are available to the public over the Internet at the SEC's web site at http://www.sec.gov. Our SEC filings are also available on our website at http://www.starwoodhotels.com/ corporate...

  • Page 76
    ..., 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 by our relationships with owners and franchisees. Our hotel...

  • Page 77
    ... resort properties, and, with respect to our vacation ownership resorts and residential projects, with owners reselling their VOIs, including fractional ownership, or apartments. Some of our competitors may have substantially greater marketing and financial resources than we do, and they may improve...

  • Page 78
    ...single ownership groups own significant numbers of hotels operated by us. While 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...

  • Page 79
    not generate revenue sufficient to meet operating expenses, including debt service and capital expenditures, our income will be adversely affected. Hotel and Resort Development Is Subject to Timing, Budgeting and Other Risks. We intend to develop hotel and resort properties, including VOIs and ...

  • Page 80
    ... for us to meet our debt service requirements and restrictive covenants and force us to sell assets and/or modify our operations. In order to fund new hotel investments, as well as refurbish and improve existing hotels, both we and current and potential hotel owners must have access to capital. The...

  • Page 81
    ... the timing and volume of the timeshare loans that we are able to sell. Market conditions over the past year and further volatility and deterioration during the last few months may delay or even prevent 2009 sales until the markets stabilize, or prevent us from selling our vacation ownership notes...

  • Page 82
    ... for a one-week period (or in 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 financing to purchasers of VOIs. These activities are all subject...

  • Page 83
    ... 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 intermediary paid us for the hotel room. We...

  • Page 84
    ...Liquidity and Capital Resources in this Annual Report. Our hotel business included 942 owned, managed or franchised hotels with approximately 285,000 rooms and our owned vacation ownership and residential business included 26 vacation ownership resorts and residential properties at December 31, 2008...

  • Page 85
    ...brand affiliation, the hotel owner often chooses to pay separate franchise fees to secure the benefits of brand marketing, centralized reservations and other centralized administrative functions, particularly in the sales and marketing area. Management believes that companies, such as Starwood, that...

  • Page 86
    ... and the location of, franchised hotels and review their design. At December 31, 2008, there were 437 franchised properties with approximately 111,000 rooms operating under the Sheraton, Westin, Four Points by Sheraton, Aloft, Element, Luxury Collection and Le Méridien brands. During the year ended...

  • Page 87
    ... Center W New York - The Court and Tuscany W New Orleans W New Orleans, French Quarter W Atlanta The Westin Maui Resort & Spa The Westin Peachtree Plaza, Atlanta The Westin Horton Plaza San Diego The Westin San Francisco Airport The Westin St. John Resort & Villas Sheraton Manhattan Hotel Sheraton...

  • Page 88
    Hotel Location Rooms Four Points by Sheraton Tucson University Plaza Four Points by Sheraton Minneapolis Gateway Hotel The Boston Park Plaza Hotel & Towers Tremont Hotel Clarion Hotel Cove Haven Resort Pocono Palace Resort Paradise Stream Resort Park Ridge Hotel & Conference Center International ...

  • Page 89
    ... at certain vacation ownership resorts not otherwise sponsored by Starwood through an exchange company, or for hotel stays at Starwood properties. From time to time, we securitize or sell the receivables generated from our sale of VOIs. We have also entered into arrangements with several owners for...

  • Page 90
    ... the Westin Lagunamar Ocean Resort in Cancun, as well as construction costs at the St. Regis Bal Harbour Resort in Miami Beach, FL. As a result of the current economic crisis and its impact on the timeshare industry, we evaluated all of our existing vacation ownership projects as well as our plans...

  • Page 91
    ... 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 per Corporation Share on the NYSE Composite Tape. High Low 2008 Fourth...

  • Page 92
    ... Issuer Purchases of Equity Securities Pursuant to the Share Repurchase Program, Starwood repurchased 13.6 million Corporation Shares in the open market for an aggregate cost of $593 million during 2008. We did not repurchase any Corporation Shares during the three months ended December 31, 2008. As...

  • Page 93
    ... stockholder return on the Corporation Shares (and Shares until April 7, 2006) against the cumulative total return on the S&P 500 and the S&P 500 Hotel Index (the "S&P 500 Hotel") for the five fiscal years beginning December 31, 2003 and ending December 31, 2008. The graph assumes that the value of...

  • Page 94
    ...with the information set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes thereto appearing elsewhere in this Annual Report and incorporated herein by reference. 2008 Year Ended December 31...

  • Page 95
    ... accounting policies: Revenue Recognition. Our revenues are primarily derived from the following sources: (1) hotel and resort revenues at our owned, leased and consolidated joint venture properties; (2) vacation ownership and residential revenues; (3) management and franchise revenues; (4) revenues...

  • Page 96
    ...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' qualifying expenditures. Revenue is recognized by participating hotels and resorts when points are...

  • Page 97
    ...48"). The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. Judgment...

  • Page 98
    ... Change Year Ended Year Ended (Decrease) December 31, December 31, from Prior from Prior Year Year 2008 2007 Owned, Leased and Consolidated Joint Venture Hotels ...Management Fees, Franchise Fees and Other Income ...Vacation Ownership and Residential ...Other Revenues from Managed and Franchise...

  • Page 99
    ... in the number of our managed and franchised hotels. These revenues represent reimbursements of costs incurred on behalf of managed hotel and vacation ownership properties and franchisees and relate primarily to payroll costs at managed properties where we are the employer. Since the reimbursements...

  • Page 100
    ...charge associated with changes in uncertain tax positions. Discontinued Operations, Net of Tax For the year ended December 31, 2008, the gain on dispositions includes a $124 million gain ($129 million pre tax) on the sale of three properties which were sold unencumbered by management or franchise 34

  • Page 101
    ... in vacation ownership and residential revenues to $1.025 billion for the year ended December 31, 2007 when compared to $1.005 billion in the corresponding period of 2006, and an increase of $276 million in other revenues from managed and franchised properties to $1.865 billion for the year ended...

  • Page 102
    ...589 billion for the year ended December 31, 2007 and 2006, respectively, primarily due to an increase in the number of our managed and franchised hotels. These revenues represent reimbursements of costs incurred on behalf of managed hotel and vacation ownership properties and franchisees and relate...

  • Page 103
    ... proceeds received for property damage caused by storms at two owned hotels in prior years. During 2006, we recorded a net loss of $3 million primarily related to several offsetting gains and losses, including the sale of ten wholly-owned hotels, which were sold unencumbered by management agreements...

  • Page 104
    ... Gross capital spending during the full year ended December 31, 2008 was as follows (in millions): Capital Expenditures: Owned, Leased and Consolidated Joint Venture Hotels ...Corporate and information technology ...Subtotal ...Vacation Ownership and Residential Capital Expenditures: Capital...

  • Page 105
    ... of the St. Regis Bal Harbour, hotel renovations, VOI and residential construction, capital improvements, technology spend and other core and ancillary business acquisitions and investments and provide for general corporate purposes (including dividend payments and share repurchases) through...

  • Page 106
    ... 31, 2008, we were in compliance with this covenant and expect to remain in compliance through the end of 2009. We have the ability to manage the business in order to reduce our leverage ratio by reducing operating costs, selling, general and administrative costs and postponing discretionary capital...

  • Page 107
    ... unfavorable rates. Our ability to make scheduled principal payments, to pay interest on or to refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the hotel and vacation ownership industries...

  • Page 108
    ... it meets the objectives described above, and we do not engage in such transactions for trading or speculative purposes. At year-end 2008, we were party to the following derivative instruments: • Forward contracts to hedge forecasted transactions for management and franchise fee revenues earned...

  • Page 109
    The following table sets forth the scheduled maturities and the total fair value of our debt portfolio and other financial instruments as of year-end 2008 (in millions, excluding interest rates): Expected Maturity or Transaction Date At December 31, 2009 2010 2011 2012 2013 Total at December 31, ...

  • Page 110
    ... believes that, as of December 31, 2008, 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 111
    ... and the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2008 of the Company and our report dated February 26, 2009, expressed an unqualified opinion thereon. /s/ New York, New York February 26, 2009...

  • Page 112
    ... Group. Chairman and Chief Executive Officer of World Leisure Partners, Inc., a leisure-related consultancy, since 2006. From 1996 through 2006, Mr. Aron served as Chairman and Chief Executive Officer of Vail Resorts, Inc., an owner and operator of ski resorts and hotels. Mr. Aron is a director...

  • Page 113
    ... served as a Managing Director then Chairman and CEO of The Galbreath Company, the predecessor entity of Galbreath & 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...

  • Page 114
    ... Travel Related Services International, a division of American Express Company, which provides travel, financial and network services, from October 1995 to April 1998. He is a director of Amazon.com, Inc. and Chairman of the Board of Virgin Mobile USA, Inc. A founding partner of Pharos Capital Group...

  • Page 115
    ... General Counsel of Gartner, Inc., a provider of research and analysis on information technology industries, from January 2000 to November 2000. Prior to that time, he served as Senior Vice President, General Counsel and Corporate Secretary of IMS Health Incorporated, an information services company...

  • Page 116
    ...12 is incorporated by reference to the information under the caption "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information-December 31, 2008" in the Proxy Statement. Item 13. Certain Relationships and Related Transactions and Director Independence...

  • Page 117
    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, 2008 and 2007 ...Consolidated Statements of Income for the Years Ended December 31, 2008, 2007 and 2006 ...

  • Page 118
    ...of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and...

  • Page 119
    ...contingencies Stockholders' equity: Corporation common stock; $0.01 par value; authorized 1,000,000,000 shares outstanding 182,827,483 and 190,998,585 shares at December 31, 2008 and 2007 respectively ...Additional paid-in capital ...Accumulated other comprehensive loss ...Retained earnings ...Total...

  • Page 120
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2008 2007 2006 (In millions, except per share data) Revenues Owned, leased and consolidated joint venture hotels ...Vacation ownership and residential sales and services ...Management fees, franchise...

  • Page 121
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2008 2007 2006 (In millions) Net income ...Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments...Recognition of accumulated foreign currency ...

  • Page 122
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF EQUITY Exchangeable Accumulated Units and Other Additional Class B EPS Class A EPS Shares Deferred Comprehensive Retained Paid-in Shares Amount Shares Amount Shares Amount Capital(b) Compensation Earnings Loss(a) (In millions) ...

  • Page 123
    ... ...Gain on sale of VOI notes receivable ...Loss on asset dispositions and impairments, net ...Non-cash portion of income tax expense (benefit) ...Changes in working capital: Restricted cash ...Accounts receivable ...Inventories ...Prepaid expenses and other ...Accounts payable and accrued expenses...

  • Page 124
    .... The Company's principal business is hotels and leisure, which is comprised of a worldwide hospitality network of almost 970 full-service hotels, vacation ownership resorts and residential developments primarily serving two markets: luxury and upscale. The principal operations of Starwood Vacation...

  • Page 125
    .... Bliss inventory is valued at lower of cost or market. Loan Loss Reserves. For the vacation ownership and residential segment, the Company records an estimate of expected uncollectibility on its VOI notes receivable as a reduction of revenue at the time it recognizes profit on a timeshare sale...

  • Page 126
    .... Frequent Guest Program. Starwood Preferred Guest» ("SPG") 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...

  • Page 127
    ... 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 gain of $5 million in 2008, net loss of $11 million in 2007 and a net gain of $8 million in 2006. Income Taxes. The Company...

  • Page 128
    ... shares upon exercise. Revenue Recognition. The Company's revenues are primarily derived from the following sources: (1) hotel and resort revenues at the Company's owned, leased and consolidated joint venture properties; (2) vacation ownership and residential revenues; (3) management and franchise...

  • Page 129
    ... with the American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") No. 93-7, "Reporting on Advertising Costs." If it becomes apparent that the media campaign will not take place, all costs are expensed at that time. During the years ended December 31, 2008, 2007 and...

  • Page 130
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) Retained Interests. The Company periodically sells notes receivable originated by its vacation ownership business in connection with the sale of VOIs. The Company retains interests in the assets transferred to ...

  • Page 131
    ... fiscal years. The Company adopted EITF 07-6 on January 1, 2008 and it did not have a material impact on the consolidated financial statements. In June 2007, the FASB ratified the consensus reached by the EITF on Issue No. 06-11 "Accounting for Income Tax Benefits of Dividends on Share-Based Payment...

  • Page 132
    ...to real estate time-sharing transactions. Among other things, the 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...

  • Page 133
    ... of 2006 when the closing sale price per Share was $60 or more for a specified length of time. On May 5, 2006, the Company gave notice of its intention to redeem the convertible debt on June 5, 2006. Under the terms of the convertible indenture, prior to this redemption date, the note holders had...

  • Page 134
    ... with the Host Transaction, Starwood's shareholders received 0.6122 Host shares and $0.503 in cash for each of their Class B Shares. Holders of Starwood employee stock options did not receive this consideration while the market price of the Company's publicly traded shares was reduced to reflect the...

  • Page 135
    ...rates (See Note 10.) The Company recorded an impairment charge of $22 million in the year ended December 31, 2008 related to these retained interests. These assets are reported in the Vacation Ownership and Residential operating segment. During the fourth quarter of 2008, the Company sold The Westin...

  • Page 136
    ... to build additional vacation ownership units. This impairment charge was offset by a $13 million gain as a result of insurance proceeds received primarily for the Sheraton Cancun and the Company's other owned hotel in Cancun, the Westin Cancun, as reimbursement for property damage caused by the...

  • Page 137
    ... $22 million for the years ended December 31, 2008, 2007 and 2006 respectively Note 8. Goodwill and Intangible Assets The changes in the carrying amount of goodwill for the year ended December 31, 2008 are as follows (in millions): Hotel Segment Vacation Ownership Segment Total Balance at January...

  • Page 138
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) Amortization expense relating to intangible assets with finite lives for each of the years ended December 31 is expected to be as follows (in millions): 2009 2010 2011 2012 2013 ...$28 $28 $27 $27 $27 In ...

  • Page 139
    ...at January 1, 2008 ...Provision for loan losses ...Write-offs of uncollectible receivables ...Balance at December 31, 2008 ...Note 10. Notes Receivable Securitizations $ 68 73 (50) $ 91 From time to time, the Company securitizes, without recourse, its fixed rate VOI notes receivable. To accomplish...

  • Page 140
    ...No. 152, the related gain of $17 million is included in vacation ownership and residential sales and services in the Company's consolidated statements of income. Key assumptions used in measuring the fair value of the Retained Interests at the time of the 2006 Securitization and at December 31, 2006...

  • Page 141
    ... the counter contracts that do not trade on a public exchange. The fair values of the contracts are based on inputs such as foreign currency spot rates and forward points that are readily available on public markets, and as such, are classified as Level 2. The Company considered both its credit risk...

  • Page 142
    ... Company's corporate offices. In addition, the Company recorded a $2 million restructuring charge related to further demolition costs at the Sheraton Bal Harbour Beach Resort ("Bal Harbour"), which is being redeveloped as a St. Regis hotel along with branded residences and fractional units. In 2008...

  • Page 143
    ...'s redevelopment of the Sheraton Bal Harbour Beach Resort. 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 the majority of employees were terminated. The...

  • Page 144
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) Note 14. Income Taxes Income tax data from continuing operations of the Company is as follows (in millions): Year Ended December 31, 2008 2007 2006 Pretax income U.S...Foreign... $195 135 $330 $ 517 216 $ 733 $...

  • Page 145
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) Company expects to realize future tax benefits from substantially all its federal and state net operating losses tax, which expire by 2027. The Company has established a valuation allowance against substantially ...

  • Page 146
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) During 2007, the Company completed an evaluation of its ability to claim U.S. foreign tax credits generated in prior years on its federal tax return. As a result of this analysis, the Company determined that it can...

  • Page 147
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) unrecognized tax benefits within 12 months of December 31, 2008. A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in millions): Balance at January 1, 2007...Additions...

  • Page 148
    ..., escrow account funding requirements for debt service, capital expenditures, tax payments and insurance premiums, among other restrictions. The Company was in compliance with all of the short-term and long-term debt covenants at December 31, 2008. For adjustable rate debt, fair value approximates...

  • Page 149
    ... at any time at the Company's option at a price equal to the greater of (1) 100% of the aggregate principal plus accrued and unpaid interest and (2) the sum of the present values of the remaining scheduled payments of principal and interest discounted at the redemption rate on a semi-annual basis at...

  • Page 150
    ... millions): Income Statement Data Gain (loss) on disposition, net of tax ... $75 $(1) $(2) For the year ended December 31, 2008, the gain on dispositions includes a $124 million gain ($129 million pre tax) on sale of three hotels which were sold unencumbered by management or franchise contracts...

  • Page 151
    ... settlement gains or losses recorded during the year ended December 31, 2008. 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 prefunded...

  • Page 152
    ...year ...Service cost ...Interest cost ...Actuarial loss (gain) ...Settlements and curtailments ...Effect of foreign exchange rates ...Benefits paid ...Plan amendments ...Benefit obligation at end of year ...Change in Plan Assets Fair value of plan assets at beginning of year ...Actual return on plan...

  • Page 153
    ... periodic benefit cost for the years ended December 31, 2008, 2007 and 2006 (in millions): Pension Benefits 2008 2007 2006 Foreign Pension Benefits 2008 2007 2006 Postretirement Benefits 2008 2007 2006 Service cost ...Interest cost ...Expected return on plan assets ...Amortization of actuarial loss...

  • Page 154
    ...Plans. The Company and its subsidiaries sponsor various defined contribution plans, including the Starwood Hotels & Resorts Worldwide, Inc. Savings and Retirement Plan, which is a voluntary defined contribution plan allowing participation by employees on U.S. payroll who meet certain age and service...

  • Page 155
    ... the W Times Square hotel in New York City which has a term of 25 years (18 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 156
    ... Limited Partnership (the "Operating Partnership") were issued by the Trust and Corporation in connection with the acquisition of Westin Hotels & Resorts Worldwide, Inc. and certain of its affiliates. On March 15, 2006, the Company completed the redemption of the remaining 25,000 outstanding shares...

  • Page 157
    ... HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) As previously discussed, the Company utilizes the Lattice model to calculate the fair value of option grants. Weighted average assumptions used to determine the fair value of option grants were as follows: Year Ended...

  • Page 158
    ...year is limited to $25,000. The purchase price to employees is equal to 95% of the fair market value of Shares on the date of purchase. Participants may withdraw their contributions at any time before Shares are purchased. Approximately 200,000 Shares were issued under the ESPP during the year ended...

  • Page 159
    ...for the years ended December 31, 2008 and 2007 respectively. These gains were offset by losses in the revaluation of cross-currency intercompany loans. From time to time, the Company enters into interest rate swap agreements to manage interest expense. The Company's objective is to manage the impact...

  • Page 160
    ...Loans and Commitments. 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 totaled $28 million at December 31, 2008. The Company evaluates these loans for...

  • Page 161
    .... Collective Bargaining Agreements. At December 31, 2008, approximately 37% of the Company's U.S.-based employees were covered by various collective bargaining agreements providing, generally, for basic pay rates, working hours, other conditions of employment and orderly settlement of labor disputes...

  • Page 162
    ... 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 163
    ... capital expenditures for the Company's reportable segments (in millions): 2008 2007 2006 Revenues: Hotel ...$5,013 Vacation ownership and residential ...894 Total ...$5,907 Operating income: Hotel ...$ 785 Vacation ownership and residential ...136 Total segment operating income ...Selling, general...

  • Page 164
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS - (Continued) Capital expenditures: Hotel ...$282 Vacation ownership and residential ...110 Corporate...84 Total ...$476 $211 96 77 $384 $245 78 48 $371 The following table presents revenues and long-lived assets by ...

  • Page 165
    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 2008 Revenues ...Costs and expenses ...Income from continuing ...

  • Page 166
    ... 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, 2008 Trade receivables - allowance for doubtful accounts...

  • Page 167
    ...Worldwide, Inc., Starwood Hotels & Resorts, Sheraton Holding Corporation and SLT Realty Limited Partnership (the "Merger Agreement") (incorporated by reference to Exhibit 10.1 to the Company's Current Report on From 8-K filed with the SEC on November 14, 2005). Amendment Agreement, dated as of March...

  • Page 168
    ... to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007). Fifth Amendment, dated as of April 11, 2008, to the Credit Agreement, dated as of February 10, 2006, (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on...

  • Page 169
    ...Plan, effective as of January 22, 2008 (incorporate by reference to Exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007).(1) Form of Indemnification Agreement between the Company and each of its Directors/Trustees and executive officers (incorporated...

  • Page 170
    ... 6, 2007, among Starwood Vacation Ownership, the Company and Raymond Gellein, Jr. (incorporated by reference to Exhibit 10.49 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007) Employment Agreement, dated as of September 21, 2006, between the Company and Matthew...

  • Page 171
    ... Title 18 of the United States Code - Chief Executive Officer.(2) Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code - Chief Financial Officer.(2) (1) Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item...

  • Page 172
    ..., the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. STARWOOD HOTELS & RESORTS WORLDWIDE, INC. By: /s/ FRITS VAN PAASSCHEN Frits van Paasschen Chief Executive Officer and Director Date: February 27, 2009 Pursuant to the requirements...

  • Page 173
    Signature Title Date /s/ STEPHEN R. QUAZZO Stephen R. Quazzo /s/ THOMAS O. RYDER Thomas O. Ryder /s/ KNEELAND C. YOUNGBLOOD Kneeland C. Youngblood Director February 27, 2009 Director February 27, 2009 Director February 27, 2009 57

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  • Page 175
    ... by Sheraton Tallahassee North Four Points by Sheraton Tempe Four Points by Sheraton Victoria Gateway element Las Vegas Summerlin element Lexington Le Meridien Bangkok Le Meridien Chiang Mai Le Meridien Chiang Rai Resort Le Meridien Shimei Bay Beach Resort & Spa Le Meridien Towers Makkah The Westin...

  • Page 176
    ... with questions concerning stock certificates, account information, dividend payments or stock transfers should contact our transfer agent at: American Stock Transfer & Trust Company 59 Maiden Lane, New York, New York 10038 800 350 6202, www.amstock.com Investor Relations Starwood Hotels & Resorts...

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