Starwood 2011 Annual Report Download

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2012 PROXY STATEMENT & 2011 ANNUAL REPORT
A BETTER WAY
TO EXPERIENCE
THE WORLD.

Table of contents

  • Page 1
    A BETTER WAY TO EXPERIENCE THE WORLD. 2012 PROXY STATEMENT & 2011 ANNUAL REPORT

  • Page 2
    2011 NEW OPENINGS The St. Regis Bangkok The St. Regis Saadiyat Island Resort, Abu Dhabi The St. Regis Sanya Yalong Bay Resort The St. Regis Shenzhen The St. Regis Tianjin The Chatwal, New York City, a Luxury Collection Hotel The Liberty Hotel, Boston, a Luxury Collection Hotel Lugal, Ankara, a ...

  • Page 3
    ... College Station Four Points by Sheraton Downtown Seattle Center Four Points by Sheraton Hotel & Serviced Apartments, Pune Four Points by Sheraton Houston Hobby Airport Four Points by Sheraton Langkawi Resort Four Points by Sheraton Long Island City/Queensboro Bridge Four Points by Sheraton Memphis...

  • Page 4
    ... year, higher rates accounted for over half of our REVPAR gains. We are encouraged to see robust demand for business travel, which drives 75% of our total revenue. Corporate profits and cash on hand are at record levels, and companies are scouring the globe in search of growth opportunities. Against...

  • Page 5
    ...'ve doubled our number of elite members, and spending per elite member is up 60%. Today, the top 2% of our guests account for 30% of hotel profits. Our Platinum SPG members give us nearly 50 times the business of our average guest. Our first-mover advantage has enabled us to benefit from the rising...

  • Page 6
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. 2012 PROXY STATEMENT & 2011 ANNUAL REPORT

  • Page 7
    This page intentionally left blank.

  • Page 8
    ... registered public accounting firm for the fiscal year ending December 31, 2012 and (iv) act on any other matters that may be properly presented at the Annual Meeting or any adjournment or postponement thereof. We hope you will attend the Annual Meeting, but whether or not you are planning to attend...

  • Page 9
    .... One StarPoint Stamford, CT 06902 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS OF STARWOOD HOTELS & RESORTS WORLDWIDE, INC. DATE: TIME: PLACE: May 3, 2012 10:00 a.m. local time The St. Regis Bal Harbour Resort 9703 Collins Avenue Bal Harbour, Florida 33154 1. 2. 3. To elect ten directors to serve until...

  • Page 10
    ...GRANTS OF PLAN-BASED AWARDS SECTION ...OUTSTANDING EQUITY AWARDS AT 2011 FISCAL YEAR-END ...2011 OPTION EXERCISES AND STOCK VESTED ...2011 NONQUALIFIED DEFERRED COMPENSATION ...POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL ...DIRECTOR COMPENSATION ...AUDIT COMMITTEE REPORT ...COMPENSATION...

  • Page 11
    ...accordance with those rules, we have elected to provide access to our proxy materials, which include the Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K for the fiscal year ended December 31, 2011, over the Internet at www.starwoodhotels.com/corporate/investor_relations.html...

  • Page 12
    ... May 3, 2012 at 10:00 a.m., local time, at The St. Regis Bal Harbour Resort, 9703 Collins Avenue, Bal Harbour, Florida 33154. Seating will begin at 9:00 a.m. If you plan to attend the Annual Meeting and have a disability or require special assistance, please contact the Company's Investor Relations...

  • Page 13
    ... account. Please sign and return all proxy cards or voting instruction forms you receive to ensure that all of the shares you hold are voted. What if I hold shares through the Company's 401(k) savings plan or employee stock purchase plan? If you participate in the Company's Savings and Retirement...

  • Page 14
    ... registered public accounting firm for fiscal year 2012. What vote is needed to approve each proposal? The election of directors requires a plurality of votes cast in the election of directors at the Annual Meeting, either in person or by proxy. The ten nominees who receive the largest number of...

  • Page 15
    ...the appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2012 requires a majority of the votes cast at the Annual Meeting, either in person or by proxy. Brokers may vote uninstructed shares on this matter. Abstentions will have no effect on the result...

  • Page 16
    ... serve as a member of the Board, as the Chief Executive Officer and President of the Company has primary responsibility for managing the Company's day-to-day operations and, consequently, a unique understanding of the Company's operations, and the hotel and leisure industry generally. Board Role in...

  • Page 17
    ..., the Finance Code on its website, as required by applicable rules of the Securities and Exchange Commission (the "SEC"). The Company also has a Code of Business Conduct and Ethics (the "Code of Conduct"), applicable to all employees and directors, that addresses legal and ethical issues that may...

  • Page 18
    ... considered independent. Mr. van Paasschen, as Chief Executive Officer and President of the Company, is not an "independent" director under the NYSE rules. In making this determination, the Board of Directors took into account that three of the non-employee directors, Messrs. Aron and Daley and Ms...

  • Page 19
    ... in the ownership, management, acquisition, sale, development and redevelopment of industrial real estate properties, since January 2009. He was a private investor prior to that time and since January 2006. From April to September 2007, Mr. Duncan served as Chief Executive Officer of the Company on...

  • Page 20
    ...Company. Eric Hippeau, 60, has been a Partner with Lerer Ventures, a venture capital fund, since June 2011. From 2009 to 2011 he was the Chief Executive Officer of The Huffington Post, a news website. From 2000 to 2009, he was a Managing Partner of Softbank Capital, a technology venture capital firm...

  • Page 21
    ...of American Express Company, which provides travel, financial and network services, from October 1995 to April 1998. In addition, he has been a director of Amazon.com, Inc. since November 2002, Quad/Graphics, Inc. since September 2010, and RPX Corporation since December 2009. In the past 5 years, Mr...

  • Page 22
    ... to the Company's executive officers and other members of senior management, and administers the Company's employee benefits plans, including the Company's 2004 Long-Term Incentive Compensation Plan. The Compensation Committee met six times during 2011. Corporate Governance and Nominating Committee...

  • Page 23
    ... to the Company) certain reports relating to their ownership of shares. To the Company's knowledge, based solely on a review of the copies of these reports furnished to the Company for the fiscal year ended December 31, 2011, and written representations from our directors and executive officers, all...

  • Page 24
    ..., reward and retain the senior management talent required to achieve our corporate objectives and increase stockholder value. We believe that our compensation programs are centered on pay-for-performance principles and are strongly aligned with the long-term interests of our stockholders. See...

  • Page 25
    ... Financial Services, Inc. ("WRFSI"), Waddell & Reed, Inc. ("WRI"), Waddell & Reed Investment Management Company ("WRIMCO"), and Ivy Investment Management Company ("IICO") (collectively "Waddell & Reed") with the SEC, with respect to the Company reporting beneficial ownership as of December 31, 2011...

  • Page 26
    ...beneficial ownership of Company shares of (i) each director, (ii) each nominee for director, (iii) our Chief Executive Officer, our Chief Financial Officer and each of the other three most highly paid executive officers and (iv) all directors and executive officers as a group, as of January 31, 2012...

  • Page 27
    ... The Executive Plan, as it was approved by stockholders at the 2010 Annual Meeting, did not limit the number of deferred restricted stock units that may be issued. In addition, 10,048,154 shares remain available for issuance under our Employee Stock Purchase Plan, a stock purchase plan meeting the...

  • Page 28
    ... 8 of this proxy statement. Biographies for our other executive officers follow: Matthew E. Avril. Mr. Avril, 51, has been President, Hotel Group since September 2008. From May 2005 until August 2008, he was President and Managing Director of Operations for Starwood Vacation Ownership, Inc. ("SVO...

  • Page 29
    ..., General Counsel and Corporate Secretary of IMS Health Incorporated, an information services company, and its predecessors from February 1997 to December 1999. Prior to that time, Mr. Siegel was a Partner in the law firm of Baker & Botts, LLP. Mr. Siegel is also a Trustee of Cancer Hope Network...

  • Page 30
    ...stock ownership requirement was increased to a multiple of six times his base salary, up one multiple when compared to fiscal 2010, to keep in line with market practices. Pay Practices • Minimum Compensation Levels in our Executive Plan Removed to Better Align Executive Compensation to the Company...

  • Page 31
    ... and our executives by linking executive compensation to the Company's annual business results and stock performance. Moreover, we strive to keep the executive compensation program transparent, in line with market practices and consistent with the highest standards of corporate governance practices...

  • Page 32
    ...programs, including competitiveness, and alignment with the Company's objectives, (ii) recommending changes, if necessary, to ensure achievement of all program objectives and (iii) recommending pay levels, payout and/or awards for executive officers other than the Chief Executive Officer. Management...

  • Page 33
    ... first 90 days of any fiscal year a threshold level of EBITDA that the Company must achieve in order for any bonus to be paid to our Named Executive Officers or other Company employees eligible to receive an annual incentive for any given year. The Executive Plan also specifies a maximum incentive...

  • Page 34
    ... Company's long-term performance. These grants are also made annually, so executives always have unvested awards that could decrease significantly in value if our business is not managed for the long-term. • Share Ownership Guidelines: Our share ownership guidelines require our executive officers...

  • Page 35
    ...of business and individual performance objectives; and • it provides long-term incentives for Named Executive Officers to remain in the Company's employ. Annual Incentive Compensation. Annual cash bonuses are a key part of the Company's executive compensation program. The bonuses directly link the...

  • Page 36
    ...162(m). For 2011, the EP Threshold was $820,000,000. Generally, a Named Executive Officer will receive payment of a bonus award under the Executive Plan only if he remains employed by the Company on the award payment date. However, subject to attaining the EP Threshold in the relevant year, pro rata...

  • Page 37
    ... Company financial portion of the annual bonus for the 2011 fiscal year for the Named Executive Officers. Strategic/Operational Goals The strategic/operational performance goals for Named Executive Officers under the Executive Plan consists of "Big 5" and leadership competency objectives that link...

  • Page 38
    ...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 39
    ... with hotel owners, joint venture partners and our Company's personnel to drive revenue, strong owner relations, and retention of management talent throughout our hotels. In light of Mr. Avril's accomplishments in 2011, he received an "accomplished objectives" PMP performance rating and was awarded...

  • Page 40
    .... van Paasschen benefits greatly in the form of long-term incentive compensation that, for the 2011 fiscal year, would not be less than $5,000,000. The Compensation Committee generally grants awards under the LTIP to all other Named Executive Officers consisting of a combination of stock options and...

  • Page 41
    ...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 program. Consequently, for 2011 grants, 100% of restricted stock unit awards vest on the fiscal year end of...

  • Page 42
    .... The Company also reimburses Named Executive Officers generally for travel expenses and other out-of-pocket 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...

  • Page 43
    ... recover any annual incentive payment or long-term incentive award to any individual executive at the senior vice president level or above, including our Named Executive Officers, if the Board of Directors determines that (i) the Company is required to prepare an accounting financial restatement due...

  • Page 44
    ... performance with stronger consideration given to companies with financial results comparable to Starwood in terms of 1-year, 3-year and 5-year annualized revenue growth, operating income and total shareholder return; (v) direct competitors; (vi) related industries, e.g. cruise lines, entertainment...

  • Page 45
    ..., and the value of option and restricted stock/restricted stock unit awards; and • retirement benefits. When establishing target compensation levels for 2011, the Compensation Committee reviewed peer group data on payments to named executive officers as reported in proxy statements available as of...

  • Page 46
    ... Directors that the Compensation Discussion and Analysis be included in the Company's Proxy Statement for the 2012 Annual Meeting of Stockholders and incorporated by reference into the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011. COMPENSATION AND OPTION COMMITTEE...

  • Page 47
    ... Standards Board Accounting Standards Codification 718, or ASC 718. For additional information, refer to Note 22 of the Company's financial statements filed with the SEC as part of the Form 10-K for the year ended December 31, 2011. These amounts reflect the grant date fair value for these awards...

  • Page 48
    ... to the Named Executive Officers made during 2011: Grant date (or year with Compensation respect to Committee non-equity Approval incentive plan date award)(b)(1) (c)(1) All Other Stock Awards: Number of Shares of Stock or Units (#)(g) All Other Option Awards: Exercise Grant Date Number of or Base...

  • Page 49
    ...on the grant date. For stock options, fair value is calculated in accordance with ASC 718 using a lattice valuation model. For additional information, refer to Note 22 of the Company's financial statements filed with the SEC as part of the Form 10-K for the year ended December 31, 2011. There can be...

  • Page 50
    ... 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 a share on December 30, 2011, the last business day of the fiscal year, which was $47.97. Option awards Number...

  • Page 51
    ... on the earlier of: (a) the third fiscal year-end or (b) a termination of employment. Shares underlying the restricted stock units that vested as of December 31, 2011, but which shares will not be distributed to the Named Executive Officers until either December 31, 2012 or 2013, are non-forfeitable...

  • Page 52
    ... life insurance. Name of Investment Fund 1-Year Annualized Rate of Return (as of 2/28/11) NVIT Money Market - Class V ...PIMCO VIT Total Return - Admin Shares ...Fidelity VIP High Income - Service Class ...NVIT Inv Dest Moderate - Class 2 ...T. Rowe Price Equity Income - Class II ...Dreyfus Stock...

  • Page 53
    ... Named 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 Savings Plan, disability insurance benefits and...

  • Page 54
    ... retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the date of termination, the following: • two times the sum of his base salary plus the average of the annual bonuses earned by the executive in the three fiscal years ending...

  • Page 55
    ... incentive compensation then subject to performance conditions, payable at the maximum level of performance; • immediate vesting of stock options, restricted stock and restricted stock units held under any stock option or incentive plan maintained by the Company; • a lump sum payment of his...

  • Page 56
    ... stock units in accordance with the Executive Plan. (2) Excludes vested stock options. (3) Messrs. Siegel and Avril's employment agreements provide for payments in the event of involuntary termination other than for cause but do not provide for payments in the event of voluntary termination for good...

  • Page 57
    ...described below. For 2011, under the Company's director share ownership guidelines, each non-employee director ("NonEmployee Director") was required to own shares (or deferred compensation stock equivalents) that have a market price equal to four times the annual Non-Employee Director's fees paid to...

  • Page 58
    ... stock units awarded pursuant to the annual grant generally vest upon the earlier of (i) the third anniversary of the grant date and (ii) the date such person ceases to be a director of the Company. D. Starwood Preferred Guest Program Points and Rooms In 2011, each Non-Employee Director received...

  • Page 59
    ...and restricted stock unit awards granted during the year computed in accordance with ASC 718. For additional information, refer to Note 22 of the Company's financial statements filed with the SEC as part of the Form 10-K for the year ended December 31, 2011. These amounts reflect the grant date fair...

  • Page 60
    ... the aggregate grant date fair value for stock option awards granted during the year computed in accordance with ASC 718. For additional information, refer to Note 22 of the Company's financial statements filed with the SEC as part of the Form 10-K for the year ended December 31, 2011. These amounts...

  • Page 61
    ... federal securities laws and the NYSE requirements. In the first quarter of 2012, the Audit Committee reviewed and discussed the audited financial statements for the year ended December 31, 2011 with management, the Company's internal auditors and the independent registered public accounting firm...

  • Page 62
    ... public accounting firm and the approximate fees incurred by the Company for those services. All audit and permissible non-audit services provided by Ernst & Young to the Company for the fiscal years ended December 31, 2011 and 2010 were pre-approved by the Audit Committee or our Board of Directors...

  • Page 63
    ... using the services of a number of regular employees of the Company at nominal cost. The Company will reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for expenses incurred in sending proxy materials to beneficial owners of shares. The Company has engaged D.F. King...

  • Page 64
    ... to Investor Relations, Starwood Hotels & Resorts Worldwide, Inc., One StarPoint, Stamford, Connecticut 06902 or by calling (203) 351-3500. You may also obtain a copy of the proxy statement and annual report from the investor relations page on the Company's website (www.starwoodhotels.com/corporate...

  • Page 65
    ... If you want to make a proposal for consideration at next year's annual meeting and have it included in the Company's proxy materials, the Company must receive your proposal by November 22, 2012, and the proposal must comply with the rules of the SEC. If you want to make a proposal or nominate...

  • Page 66
    General Directions To The St. Regis Bal Harbour Resort From Miami International Airport (MIA) • Proceed east on State Road 836. • Exit onto Interstate 95 North towards Fort Lauderdale. • Take Exit 9 for Bal Harbour and turn right onto 125th Street (922). • Proceed east on 125th Street (922) ...

  • Page 67
    ...20549 FORM 10-K Í Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 2011 OR ' Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from to Commission File Number...

  • Page 68
    ...Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...PART III Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder...

  • Page 69
    ...: St. Regis® (luxury full-service hotels, resorts and residences) is 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...

  • Page 70
    ... the world. Our operations are reported in two business segments, hotels and vacation ownership and residential operations. Our revenue and earnings are derived primarily from hotel operations, which include management and other fees earned from hotels we manage pursuant to management contracts, the...

  • Page 71
    ... we receive franchise fees. Our revenues and earnings are also derived from the development, ownership and operation of vacation ownership resorts, marketing and selling vacation ownership interests ("VOIs") in the resorts and providing financing to customers who purchase such interests. Generally...

  • Page 72
    ... 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 One StarPoint, Stamford, Connecticut 06902, and our telephone number is (203) 964-6000. For a full discussion of our revenues, profits...

  • Page 73
    ... and managed hotels and vacation ownership resorts, of which approximately 31% were employed in the United States. At December 31, 2011, approximately 25% of the U.S.-based employees were covered by various collective bargaining agreements providing, generally, for basic pay rates, working hours...

  • Page 74
    ... management contracts are typically long-term arrangements, but most allow the hotel owner to replace us in certain circumstances, such as the bankruptcy of the hotel owner or franchisee, the failure to meet certain financial or performance criteria and in certain cases, upon a sale of the property...

  • Page 75
    ... present growth strategy for development of additional lodging facilities entails entering into and maintaining various management agreements, franchise agreements, and leases with property owners. We compete with other hotel companies for this business primarily on the basis of fees, contract terms...

  • Page 76
    ... to develop hotel and resort properties and residential components of hotel properties, as suitable opportunities arise, taking into consideration the general economic climate. In addition, the owners and developers of new-build properties that we have entered into management or franchise agreements...

  • Page 77
    ... Our Operations or Competitive Position. The hospitality industry continues to demand the use of sophisticated technology and systems including technology utilized for property management, brand assurance and compliance, procurement, reservation systems, operation of our customer loyalty program...

  • Page 78
    ... technology networks and systems to process, transmit and store proprietary and personal information, and to communicate among our various locations around the world, which may include our reservation systems, vacation exchange systems, hotel/property management systems, customer and employee...

  • Page 79
    ... certain business activities with the government of Syria, a country that the United States has identified as a state sponsor of terrorism. During fiscal 2011, a foreign subsidiary of Starwood generated approximately $300,000 of revenue from management and other fees from existing hotels located in...

  • Page 80
    ... and Capital Resources - Cash Used for Financing Activities in this Annual Report. Volatility in the Credit Markets Will Continue to Adversely Impact Our Ability to Sell the Loans That Our Vacation Ownership Business Generates. Our vacation ownership business provides financing to purchasers of...

  • Page 81
    ...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 and conditions that we believe are usual and customary for our industry...

  • Page 82
    ...partner's share of joint venture liabilities. Our Vacation Ownership Business is Subject to Extensive Regulation and Risk of Default We market and sell VOIs, which typically entitle the buyer to ownership of a fully-furnished resort unit for a one-week period on either an annual or an alternate-year...

  • Page 83
    ... of the largest hotel and leisure companies in the world, with operations in approximately 100 countries. We consider our hotels and resorts, including vacation ownership resorts (together "Resorts"), generally to be premier establishments with respect to desirability of location, size, facilities...

  • Page 84
    ... Capital Resources in this Annual Report. At December 31, 2011 our hotel business included 1,076 owned, managed or franchised hotels with approximately 315,300 rooms and our owned vacation ownership and residential business included 13 standalone vacation ownership resorts and residential properties...

  • Page 85
    ... supplies, including brand-specific products, from certain Starwood-approved vendors. We also review certain plans for, and the location of, franchised hotels and review their design. At December 31, 2011, there were 499 franchised properties with approximately 123,000 rooms. During the year ended...

  • Page 86
    management or franchise contracts. To date, where we have sold hotels, we have not provided seller financing or other financial assistance to buyers. Total revenues generated from our owned, leased and consolidated joint venture hotels worldwide for the years ending December 31, 2011, 2010 and 2009 ...

  • Page 87
    ... Hotel, New York St. Regis Hotel, San Francisco The Phoenician W New York - Times Square W Chicago Lakeshore W Los Angeles Westwood W New Orleans W New Orleans, French Quarter The Westin Maui Resort & Spa The Westin Peachtree Plaza, Atlanta The Westin San Francisco Airport The Westin St. John Resort...

  • Page 88
    ..., Florence The Westin Resort & Spa Cancun The Westin Denarau Island Resort The Westin Dublin Hotel Sheraton Centre Toronto Hotel Sheraton On The Park Sheraton Rio Hotel & Resort Sheraton Diana Majestic Hotel Sheraton Ambassador Hotel Sheraton Lima Hotel & Convention Center Sheraton Santa Maria...

  • Page 89
    ... purchase of the Hotel Goldener Hirsch in Salzburg, Austria. The following table summarizes REVPAR, ADR and average occupancy rates for our same-store owned, leased, managed and franchised hotels ("Same-Store Systemwide Hotels") on a year-to-year basis for the years ended December 31, 2011 and 2010...

  • Page 90
    ...intervals at other Starwood vacation ownership resorts, intervals at certain vacation ownership resorts not otherwise sponsored by Starwood through an exchange company, or for hotel stays at Starwood properties. From time to time, we securitize or sell the receivables generated from our sale of VOIs...

  • Page 91
    ... sale prices of the Corporation Shares for the fiscal periods indicated as reported on the NYSE Composite Tape: High Low 2011 Fourth quarter ...Third quarter ...Second quarter ...First quarter ...2010 Fourth quarter ...Third quarter ...Second quarter ...First quarter ...Approximate Number of Equity...

  • Page 92
    ... below is a line graph comparing the cumulative total stockholder return on the Corporation Shares 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 after December 31, 2006 and ending December 31, 2011. The graph...

  • Page 93
    ..., plant, property and equipment, goodwill and 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...

  • Page 94
    ... venture properties; (2) vacation ownership interests and residential unit revenues; (3) management and franchise revenues; (4) revenues from managed and franchised properties; and (5) other revenues which are ancillary to our operations. Generally, revenues are recognized when the services have...

  • Page 95
    ... guest incentive marketing program. SPG members earn points based on spending at our owned, managed and franchised hotels, as incentives to first-time buyers of VOIs and residences, and through participation in affiliated partners' programs such as co-branded credit cards. Points can be redeemed...

  • Page 96
    Loan Loss Reserves. For the vacation ownership and residential segment, we record an estimate of expected uncollectibility on our VOI notes receivable as a reduction of revenue at the time we recognize a timeshare sale. We hold large amounts of homogeneous VOI notes receivable and therefore assess ...

  • Page 97
    ... of ASU Nos. 2009-16 and 2009-17. While the years ended December 31, 2010 and 2011 have been accounted for under the new accounting standards, these years are not comparable to 2009 amounts, particularly with regards to vacation ownership and residential sales and services and interest expense...

  • Page 98
    ... around collection. Total vacation ownership and residential sales and services revenue increased 30.7% to $703 million, for the year ended December 31, 2011 when compared to $538 million in 2010, primarily driven by residential sales related to the St. Regis Bal Harbour project which received its...

  • Page 99
    ... $125 million for the year ended December 31, 2011 primarily due to residential sales related to the St. Regis Bal Harbour project as discussed above. Other revenues from managed and franchised properties increased primarily due to an increase in payroll costs commensurate with increased occupancy...

  • Page 100
    ...net addition of 49 managed and franchised hotels to our system since the beginning of 2011. Additionally, residential sales at the St. Regis Bal Harbour favorably impacted 2011 operating income by $27 million. Operating income for the year ended December 31, 2011, as compared to 2010, was negatively...

  • Page 101
    ... Ended (decrease) December 31, from prior 2009 year (in millions) Percentage change from prior year Owned, Leased and Consolidated Joint Venture Hotels ...Management Fees, Franchise Fees and Other Income ...Vacation Ownership and Residential ...Other Revenues from Managed and Franchised Properties...

  • Page 102
    ... sales centers in the latter part of 2009. Additionally, the average contract amount per vacation ownership unit sold decreased 6.0% to approximately $15,000, driven by price reductions and inventory mix. Residential revenue increased approximately $6 million in the year ended December 31, 2010...

  • Page 103
    ... in 1998 as the liability is no longer deemed necessary. During the year ended December 31, 2009, we completed a comprehensive review of our vacation ownership business. We decided not to develop certain vacation ownership sites and future phases of certain existing projects. As a result of these...

  • Page 104
    ...in vacation ownership mortgage receivables, a $13 million impairment of an investment in a hotel management contract that was cancelled, a $5 million impairment of certain technology-related fixed assets and a $4 million loss on the sale of a wholly-owned hotel. Year Ended December 31, 2010 Increase...

  • Page 105
    ...transaction. During the year ended December 31, 2009, we sold our Bliss spa business and other non-core assets for cash proceeds of $227 million. Revenues and expenses from the Bliss spa business, together with revenues and expenses from one hotel that was sold in 2010, were reported in discontinued...

  • Page 106
    ...Venture Hotels ...Corporate and information technology ...Subtotal ...Vacation Ownership and Residential Capital Expenditures (2): Net capital expenditures for inventory (excluding St. Regis Bal Harbour) ...Capital expenditures for inventory - St. Regis Bal Harbour ...Subtotal ...Development Capital...

  • Page 107
    ... $209 million of development capital. Investment spending on gross vacation ownership interest and residential inventory was $165 million, primarily related to the construction of our hotel and residential project in Bal Harbour, Florida. Our capital expenditure program includes both offensive and...

  • Page 108
    ... debt and securitized vacation ownership debt of $532 million, all of which is non-recourse. For specifics related to our financing transactions, issuances, and terms entered into for the years ended December 31, 2011 and 2010, see Note 15 of the consolidated financial statements. We have evaluated...

  • Page 109
    ... 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 and to general economic, political, financial, competitive, legislative...

  • Page 110
    ...it meets the objectives described above, and we do not engage in such transactions for trading or speculative purposes. At December 31, 2011, we were party to the following derivative instruments: • Forward contracts to hedge forecasted transactions for management and franchise fee revenues earned...

  • Page 111
    ..., and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as...

  • Page 112
    ... directors, executive officers and corporate governance will be included in our proxy statement for the 2012 Annual Meeting of Stockholders (the "Proxy Statement"). The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year ended...

  • Page 113
    ... 1994). (The SEC file number of all filings made by the Company pursuant to the Securities Exchange Act of 1934, as amended, and referenced herein is 1-7959). Form of Amendment No. 1 to Formation Agreement, dated as of July 1995, among the Company and the Starwood Partners (incorporated by reference...

  • Page 114
    ... Agreement, dated as of December 9, 2011. + Starwood Hotels & Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation Plan (the "1999 LTIP") (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999 (the "1999 Form...

  • Page 115
    ... the fiscal year ended December 31, 2007). * Form of Indemnification Agreement between the Company and each of its Directors and executive officers (incorporated by reference to Exhibit 10.10 to the Company's Current Report on Form 8-K filed with the SEC on November 25, 2009). * Employment Agreement...

  • Page 116
    ... 1350 of Chapter 63 of Title 18 of the United States Code - Chief Executive Officer. + Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code - Chief Financial Officer. + + Filed herewith. * Indicates management contract or compensatory plan or arrangement 48

  • Page 117
    ... undersigned, thereunto duly authorized. STARWOOD HOTELS & RESORTS WORLD WIDE, INC. By: /S/ FRITS VAN PAASSCHEN Frits van Paasschen Chief Executive Officer and Director Date: February 17, 2012 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by...

  • Page 118
    ... over Financial Reporting ...Report of Independent Registered Public Accounting Firm ...Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of December 31, 2011 and 2010 ...Consolidated Statements of Income for the Years Ended December 31, 2011, 2010 and 2009...

  • Page 119
    ... that, as of December 31, 2011, 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 the...

  • Page 120
    ... of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of Starwood Hotels & Resorts Worldwide, Inc. We have audited Starwood Hotels & Resorts Worldwide, Inc.'s (the "Company") internal control over financial reporting as of December 31, 2011, based on criteria...

  • Page 121
    ...'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 perform the...

  • Page 122
    ...$9,776 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current maturities of long-term debt ...Accounts payable ...Current maturities of long-term securitized vacation ownership debt ...Accrued expenses ...Accrued salaries, wages and benefits ...Accrued taxes and...

  • Page 123
    ... per share data) Year Ended December 31, 2011 2010 2009 Revenues Owned, leased and consolidated joint venture hotels ...Vacation ownership and residential sales and services ...Management fees, franchise fees and other income ...Other revenues from managed and franchised properties ...Costs and...

  • Page 124
    ... INCOME (In millions) Year Ended December 31, 2011 2010 2009 Net income ...$487 Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments ...(48) Reclassification of accumulated foreign currency translation adjustments on sold hotels ...- Defined benefit pension and...

  • Page 125
    ... Comprehensive Shares Paid-in (Loss) Retained Shares Amount Capital (1) Income (2) Earnings (in millions) Equity Attributable to Noncontrolling Interests Total Balance at December 31, 2008 ...Net income (loss) ...Stock option and restricted stock award transactions, net ...ESPP stock issuances...

  • Page 126
    ...equity earnings ...Gain on sale of VOI notes receivable ...Loss (gain) 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...

  • Page 127
    ... Company's principal business is hotels and leisure, which is comprised of a worldwide hospitality network of 1,089 full-service hotels, vacation ownership resorts and residential developments primarily serving two markets: luxury and upscale. The principal operations of Starwood Vacation Ownership...

  • Page 128
    ... discontinued operations unless the Company will have continuing involvement (such as through a management or franchise agreement) after the sale. Investments. Investments in joint ventures are generally accounted for under the equity method of accounting when the Company has a 20% to 50% ownership...

  • Page 129
    ... incentive marketing program. SPG members earn points based on spending at the Company's owned, managed and franchised hotels, as incentives to first-time buyers of VOIs and residences, and through participation in affiliated partners' programs such as co-branded credit cards. Points can be redeemed...

  • Page 130
    ... 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 $12 million in 2011...

  • Page 131
    ... vacation ownership and residential revenues; (3) management and franchise revenues; (4) revenues from managed and franchised properties; and (5) other revenues which are ancillary to the Company's operations. Generally, revenues are recognized when the services have been rendered. Taxes collected...

  • Page 132
    ... sheet. • Management and Franchise Fees - Represents fees earned on hotels managed worldwide, usually under long-term contracts, franchise fees received in connection with the franchise of the Company's Sheraton, Westin, Four Points by Sheraton, Le Méridien, St. Regis, W, Luxury Collection, Aloft...

  • Page 133
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS apparent that the media campaign will not take place, all costs are expensed at that time. During the years ended December 31, 2011, 2010 and 2009, the Company incurred approximately $149 million, $132 million and $118 million ...

  • Page 134
    ... Ended December 31, 2011 Earnings Shares Per Share Earnings 2010 Shares Per Share Earnings (Losses) 2009 Shares Per Share Basic earnings (losses) from continuing operations attributable to Starwood's common shareholders ...Effect of dilutive securities: Employee options and restricted stock awards...

  • Page 135
    ...26 million. The Company entered into a long-term management contract for the hotel in which it exchanged its minority ownership interest and recorded a deferred gain of approximately $30 million in connection with this exchange. During the year ended December 31, 2010, the Company paid approximately...

  • Page 136
    ... million, primarily related to impairments of hotel management contracts, certain technology-related fixed assets and an investment in which the Company holds a minority interest. During the years ended December 31, 2011, 2010 and 2009, the Company reviewed the recoverability of its carrying values...

  • Page 137
    ... of the Topic in 2011, the Company performed its annual goodwill impairment test as of October 31, 2010 for its hotel and vacation ownership reporting units and determined that there was no impairment of its goodwill. The fair value was calculated using a discounted cash flow model, in which the...

  • Page 138
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS Intangible assets consisted of the following (in millions): December 31, 2011 2010 Trademarks and trade names ...Management and franchise agreements ...Other ...Accumulated amortization ... $ 313 412 16 741 (164) $ 577 $ 309 ...

  • Page 139
    ... and associated deal costs, were approximately $177 million. During the year ended December 31, 2010, the Company completed the 2010 securitization of approximately $300 million of vacation ownership notes receivable. The securitization transaction did not qualify as a sale for accounting purposes...

  • Page 140
    ... its vacation ownership and residential sale and services line item in its consolidated statements of income. Interest income related to the Company's VOI notes receivable was as follows (in millions): Year Ended December 31, 2011 2010 2009 Vacation ownership loans-securitized ...Vacation ownership...

  • Page 141
    ... 12.58% $ $ $ 5 to 17% 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. The Company holds large amounts of homogeneous VOI...

  • Page 142
    ... are over 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...

  • Page 143
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS Note 12. Deferred Gains The Company defers gains realized in connection with the sale of a property for which the Company continues to manage the property through a long-term management agreement and recognizes the gains over ...

  • Page 144
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS The Company had remaining restructuring accruals of $89 million as of December 31, 2011, primarily recorded in accrued expenses. Note 14. Income Taxes Year Ended December 31, 2011 2010 2009 Income tax data from continuing ...

  • Page 145
    ... Company also had federal general business credits of approximately $21million, which have varying expiration dates extending through 2030. The Company expects to realize substantially all of the tax benefit associated with these attributes. At December 31, 2011, the Company had state net operating...

  • Page 146
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS A reconciliation of the tax provision of the Company at the U.S. statutory rate to the provision for income tax as reported is as follows (in millions): Year Ended December 31, 2011 2010 2009 Tax provision at U.S. statutory ...

  • Page 147
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS It is reasonably possible that approximately $25 million of the Company's unrecognized tax benefits as of December 31, 2011 will reverse within the next twelve months. The Company recognizes interest and penalties related to ...

  • 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, 2011. During the year ended December 31, 2011, the Company...

  • Page 149
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS Note 16. Securitized Vacation Ownership Debt Long-term and short-term securitized vacation ownership debt consisted of the following (in millions): December 31, 2011 2010 2003 securitization, interest rates ranging from 3.95% ...

  • Page 150
    ... from the Bliss spa business, and the revenues and expenses from one hotel, which was in the process of being sold and was later sold in 2010, are included in discontinued operations, resulting in a loss of $2 million, net of tax. Note 19. Employee Benefit Plan During the year ended December 31...

  • Page 151
    ... Benefits 2011 2010 Postretirement Benefits 2011 2010 Change in Benefit Obligation Benefit obligation at beginning of year ...Service cost ...Interest cost ...Actuarial loss ...Effect of foreign exchange rates ...Plan participant contributions ...Benefits paid ...Other ...Benefit obligation at end...

  • Page 152
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS The following table presents the components of net periodic benefit cost for the years ended December 31 (in millions): Domestic Pension Benefits 2011 2010 2009 2011 Foreign Pension Benefits 2010 2009 2011 Postretirement ...

  • Page 153
    ... market prices in active markets. The collective trusts, equity index funds and bond index funds are not publicly traded but are valued based on the underlying assets which are publicly traded. The following table represents the Company's expected pension and postretirement benefit plan payments...

  • Page 154
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS service. The amount of expense for matching contributions totaled $15 million in 2011, $13 million in 2010, and $15 million in 2009. The plan includes as an investment choice, the Company's publicly traded common stock. The ...

  • Page 155
    ... LTIP") and provides the terms of equity award grants to directors, officers, employees, consultants and advisors. Although no additional awards will be granted under the 2002 LTIP, the Company's 1999 Long-Term Incentive Compensation Plan or the Company's 1995 Share Option Plan, the provisions under...

  • Page 156
    ... 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 2011 grants was 39%. The expected life represents the period that the Company's stock-based awards are...

  • Page 157
    ... during the year ended December 31, 2010 at purchase prices ranging from $36.77 to $54.00. Note 23. Derivative Financial Instruments The Company, based on market conditions, enters into forward contracts to manage foreign exchange risk. The Company enters into forward contracts to hedge forecasted...

  • Page 158
    ...NOTES TO FINANCIAL STATEMENTS The Company enters into interest rate swap agreements to manage interest expense. The Company's objective is to manage the impact of interest rates on the results of operations, cash flows and the market value of the Company's debt. At December 31, 2011, the Company had...

  • Page 159
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS Consolidated Statements of Income and Comprehensive Income For the Years Ended December 31, 2011 and 2010 (in millions) Balance at December 31, 2009 ...Mark-to-market loss (gain) on forward exchange contracts ...Reclassification...

  • Page 160
    ... of other notes receivable is estimated based on terms of the instrument and current market conditions. These financial instrument assets are recorded in the other assets line item in the Company's consolidated balance sheet. The Company estimates the fair value of its publicly traded debt based on...

  • Page 161
    ...the Company has entered into management or franchise agreements with the hotel owners. The Company is paid a fee primarily based on financial metrics of the hotel. The hotels are financed by the owners, generally in the form of working capital, equity, and debt. At December 31, 2011, the Company has...

  • Page 162
    ... obligation to guarantee certain performance levels at one Le Méridien managed hotel for the periods 2007 through 2014. During the year ended December 31, 2010, the Company reached an agreement with the owner of this property to fully release the Company of its performance guarantee obligation in...

  • Page 163
    ... ownership and residential segment includes the development, ownership and operation of vacation ownership resorts, marketing and selling VOIs, providing financing to customers who purchase such interests, licensing fees from branded condominiums and residences and the sale of residential units...

  • Page 164
    ...operating income, assets and capital expenditures for the Company's reportable segments (in millions): 2011 2010 2009 Revenues: Hotel ...Vacation ownership and residential ...Total ...Operating income: Hotel ...Vacation ownership and residential ...Total segment operating income ...Selling, general...

  • Page 165
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS 2011 2010 2009 Capital expenditures: Hotel ...Vacation ownership and residential ...Corporate ...Total (a) ...Assets: Hotel (b) ...Vacation ownership and residential (c) ...Corporate ...Total ... $ 283 70 124 $ 477 $6,162 2,207...

  • Page 166
    STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS Note 27. Quarterly Results (Unaudited) March 31 Three Months Ended June 30 September 30 December 31 (In millions, except per share data) Year 2011 Revenues ...Costs and expenses ...Income from continuing operations ...Net (...

  • Page 167
    ... to/from other accounts ...2010 Accrued expenses ...Accrued salaries, wages and benefits ...Impact of ASU No. 2009-17 (see Note 2) ...Total charged to/from other accounts ...2009 Plant, property and equipment ...Goodwill ...Inventory ...Investments ...Accounts receivable ...Accrued expenses ...Total...

  • Page 168
    ... to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. ©2012 Starwood Hotels & Resorts Worldwide, Inc. All Rights Reserved. Aloft, Element, Four Points, Le Méridien, Sheraton, St. Regis, The Luxury Collection, W, Westin and...

  • Page 169
    ...FROM TOP LEFT THE ST. REGIS BANGKOK, THAILAND // THE CHATWAL, NEW YORK CITY, A LUXURY COLLECTION HOTEL, UNITED STATES // W RETREAT & SPA BALI - SEMINYAK, INDONESIA // LE MERIDIEN KOH SAMUI RESORT & SPA, THAILAND // THE WESTIN ABU DHABI GOLF RESORT & SPA, UNITED ARAB EMIRATES // SHERATON SEOUL D CUBE...