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STARWOOD HOTEL & RESORTS WORLDWIDE INC 10-K 2011 Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Commission File Number: 1-7959
STARWOOD HOTELS & RESORTS
WORLDWIDE, INC.
(Exact name of registrant as
specified in its charter)
Maryland
(State or other jurisdiction of incorporation or organization)
52-1193298
(I.R.S. employer identification no.)
1111 Westchester Avenue
White Plains, NY 10604 (Address of principal executive offices, including zip code)
(914)
640-8100
(Registrant’s telephone number, including area code)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Note: Checking the box above will not relieve
any registrant required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act from their
obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period than the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of June 30, 2010, the aggregate market value of the
registrant’s voting and non-voting common equity held by
non-affiliates (for purposes of this Annual Report only,
includes all Shares other than those held by the
registrant’s Directors and executive officers) computed by
reference to the closing sales price as quoted on the New York
Stock Exchange was $7,823,279,076.
As of February 11, 2011, the Corporation had outstanding
192,165,807 shares of common stock.
For information concerning ownership of Shares, see the
Company’s definitive Proxy Statement for the Company’s
Annual Meeting of Stockholders to be held on May 5, 2011,
which is incorporated by reference under various Items of this
Annual Report.
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This Annual Report is filed by Starwood Hotels &
Resorts Worldwide, Inc., a Maryland corporation (the
“Corporation”). Unless the context otherwise requires,
all references to the Corporation include those entities owned
or controlled by the Corporation, including SLC Operating
Limited Partnership, a Delaware limited partnership (the
“Operating Partnership”), which prior to
April 10, 2006 included Starwood Hotels &
Resorts, a Maryland real estate investment trust (the
“Trust”), which was sold in the Host Transaction
(defined below); all references to the Trust include the Trust
and those entities owned or controlled by the Trust, including
SLT Realty Limited Partnership, a Delaware limited partnership
(the “Realty Partnership”); and all references to
“we”, “us”, “our”,
“Starwood”, or the “Company” refer to the
Corporation, the Trust and its respective subsidiaries,
collectively through April 7, 2006. Until April 7,
2006, the shares of common stock, par value $0.01 per share, of
the Corporation (“Corporation Shares”) and the
Class B shares of beneficial interest, par value $0.01 per
share, of the Trust (“Class B Shares”) were
attached and traded together and were held or transferred only
in units consisting of one Corporation Share and one
Class B Share (a “Share”). On April 7, 2006,
in connection with a transaction (the “Host
Transaction”) with Host Hotels & Resorts, Inc.,
its subsidiary Host Marriot L.P. and certain other subsidiaries
of Host Hotels & Resorts, Inc. (collectively,
“Host”), the Shares were depaired and the Corporation
Shares became transferable separately from the Class B
Shares. As a result of the depairing, the Corporation Shares
trade alone under the symbol “HOT” on the New York
Stock Exchange (“NYSE”). As of April 10, 2006,
neither Shares nor Class B Shares are listed or traded on
the NYSE.
PART I
This Annual Report contains statements that constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements appear
in several places in this Annual Report, including, without
limitation, the section of Item 1. Business, captioned
“Business Strategy” and Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations. Such forward-looking statements may include
statements regarding the intent, belief or current expectations
of Starwood, its Directors or its officers with respect to the
matters discussed in this Annual Report. All forward-looking
statements involve risks and uncertainties that could cause
actual results to differ materially from those projected in the
forward-looking statements including, without limitation, the
risks and uncertainties set forth below. Starwood undertakes no
obligation to publicly update or revise any forward-looking
statements to reflect current or future events or circumstances.
We are one of the world’s largest hotel and leisure
companies. We conduct our hotel and leisure business both
directly and through our subsidiaries. Our brand names include
the following:
St.
Regis®
(luxury full-service 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 emerging
markets and yet to be discovered paradises, and they typically
have individual design characteristics to capture the
distinctive personality of each location.
The Luxury
Collection®
(luxury full-service hotels and resorts) is
a group of unique hotels and resorts offering exceptional
service to an elite clientele. From legendary palaces and remote
retreats to timeless modern classics, these remarkable hotels
and resorts enable the most discerning traveler to collect a
world of unique, authentic and enriching experiences indigenous
to each destination that capture the sense of both luxury and
place. They are distinguished by magnificent decor, spectacular
settings and impeccable service.
W®
(luxury and upscale full service hotels,
retreats and residences) feature world class design, world class
restaurants and “on trend” bars and lounges and its
signature
Whatever\Whenever®
service standard. It’s a sensory multiplex that not only
indulges the senses, it delivers an emotional experience.
Whether it’s “behind the scenes”
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access at W Happenings, or our cutting edge music, lighting and
scent programs, W hotels delivers an experience unmatched in the
hotel segment.
Westin®
(luxury and upscale full-service hotels,
resorts and residences) provides a thoughtfully designed
experience making the healthiest choices irresistibly appealing.
A welcoming oasis to the savvy traveler, every innovative
service aims to help guests thrive so they feel better than when
they arrived. Truly restorative sleep in the world-renowned
Heavenly®
Bed. Spa-like invigoration with the
Heavenly®
Bath. Healthful indulgence from
SuperFoodsRxtm
menus. Energizing exercise with
WestinWORKOUT®.
Fresh air from
BreatheWestinsm,
the industry’s first smoke-free policy. Whether an epic
city center location or refreshing resort destination, Westin
ensures guests are well rested, well nourished and well cared
for.
Le
Méridien®
(luxury and upscale full-service hotels,
resorts and residences) is a European-inspired brand with a
French accent. Each of its hotels, whether city, airport or
resort has a distinctive character driven by its individuality
and the Le Méridien brand values. With its underlying
passion for food, art and style and its classic yet stylish
design, Le Méridien offers a unique experience at some of
the world’s top travel destinations.
Sheraton®
(luxury and upscale full-service hotels,
resorts and residences) is our largest brand serving the needs
of upscale business and leisure travelers worldwide. For over
70 years this full-service, iconic brand has welcomed
guests, becoming a trusted friend to travelers and one of the
world’s most recognized hotel brands. From being the first
hotel brand to step into major international markets like China,
to completely captivating entire destinations like Waikiki,
Sheraton understands that travel is about bringing people
together. In Sheraton lobbies you’ll find the
Link@Sheratonsm
experienced with Microsoft, which fosters connections, whether
face-to-face
or
webcam-to-webcam.
The Sheraton Club is also a social space where guests indulge in
the upside of everything with likeminded travelers. Sheraton
transcends lifestyles, generations and geographies and will
continue to welcome generation after generation of world
traveler, because we believe, as strongly as ever, that life is
better when shared.
Four
Points®
(select-service hotels) delights the
self-sufficient traveler with what is needed for greater comfort
and productivity. Great Hotels. Great Rates. All at the
honest value our guests deserve. Our guests start their day
feeling energized and finish up relaxed, maybe even with one of
our Best Brews (local craft beer). It’s the little
indulgences that make their time away from home special.
Aloft®
(select-service hotels) first opened in
2008. It will already be opening its 50th property in 2011.
Aloft provides new heights: an oasis where you least expect it,
a spirited neighborhood outpost, a haven at the side of the
road. Bringing a cozy harmony of modern elements to the classic
on-the-road
tradition, Aloft offers a sassy, refreshing, ultra effortless
alternative for both the business and leisure traveler. Fresh,
fun, and fulfilling, Aloft is an experience to be discovered and
rediscovered, destination after destination, as you ease on down
the road. Style at a Steal.
Element(SM)
(extended stay hotels), a brand introduced in 2006 with the
first hotel opened in 2008, provides a modern, upscale and
intuitively designed hotel experience that allows guests to live
well and feel in control. Inspired by Westin, Element hotels
promote balance through a thoughtful, upscale environment.
Decidedly modern with an emphasis on nature, Element is
intuitively constructed with an efficient use of space that
encourages guests to stay connected, feel alive, and thrive
while they are away. Primarily all Element hotels are LEED
certified, depicting the importance of the environment in
today’s world. Space to live your life.
Through our brands, we are well represented in most major
markets around 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 receipt
of franchise and other fees and the operation of our owned
hotels.
Our hotel business emphasizes the global operation of hotels and
resorts primarily in the luxury and upscale segment of the
lodging industry. We seek to acquire interests in, or management
or franchise rights with respect to properties in this segment.
At December 31, 2010, our hotel portfolio included owned,
leased, managed and franchised hotels totaling 1,027 hotels with
approximately 302,000 rooms in approximately 100 countries, and
is comprised of 62 hotels that we own or lease or in which we
have a majority equity interest, 463 hotels managed by
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us on behalf of third-party owners (including entities in which
we have a minority equity interest) and 502 hotels for which we
receive franchise fees.
Our revenues and earnings are also derived from the development,
ownership and operation of vacation ownership resorts, marketing
and selling vacation ownership interests (“VOIs”) in
the resorts and providing financing to customers who purchase
such interests. Generally these resorts are marketed under the
brand names described above. Additionally, our revenue and
earnings are derived from the development, marketing and selling
of residential units at mixed use hotel projects owned by us as
well as fees earned from the marketing and selling of
residential units at mixed use hotel projects developed by
third-party owners of hotels operated under our brands. At
December 31, 2010, we had 23 owned vacation ownership
resorts and residential properties (including
14 stand-alone,
eight mixed-use and one unconsolidated joint venture) in the
United States, Mexico and the Bahamas.
Due to the global economic crisis and its impact on the
long-term growth outlook for the timeshare industry, in 2009 we
evaluated all of our existing vacation ownership projects, as
well as land held for future vacation ownership projects. We
have thereby decided that no new vacation ownership projects are
being initiated and we have decided not to develop certain
vacation ownership sites and future phases of certain existing
projects.
Our operations are in geographically diverse locations around
the world. The following tables reflect our hotel and vacation
ownership and residential properties by type of revenue source
and geographical presence by major geographic area as of
December 31, 2010:
We have implemented a strategy of reducing our investment in
owned real estate and increasing our focus on the management and
franchise business. In furtherance of this strategy, since 2006,
we have sold 62 hotels for approximately $5.3 billion. As a
result, our primary business objective is to maximize earnings
and cash flow by increasing the number of our hotel management
contracts and franchise agreements; selling VOIs; and investing
in real estate assets where there is a strategic rationale for
doing so, which may include selectively acquiring interests in
additional assets and disposing of non-core hotels (including
hotels where the return on invested capital is not adequate) and
“trophy” assets that may be sold at significant
premiums. We plan to meet these objectives by leveraging our
global assets, broad customer base and other resources and by
taking advantage of our scale to reduce costs. The
implementation of our strategy and financial planning is
impacted by the uncertainty relating to geopolitical and
economic environments around the world and its consequent impact
on travel.
The Corporation was incorporated in 1980 under the laws of
Maryland. Sheraton Hotels & Resorts and Westin
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.
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Our principal executive offices are located at
1111 Westchester Avenue, White Plains, New York 10604, and
our telephone number is
(914) 640-8100.
For discussion of our revenues, profits, assets and geographical
segments, see the notes to financial statements of this Annual
Report. For additional information concerning our business, see
Item 2 Properties, of this Annual Report.
The hotel and timeshare industry is highly competitive.
Competition is generally based on quality and consistency of
room, restaurant and meeting facilities and services,
attractiveness of locations, availability of a global
distribution system, price, the ability to earn and redeem
loyalty program points and other factors. Management believes
that we compete favorably in these areas. Our properties compete
with other hotels and resorts in their geographic markets,
including facilities owned by local interests and facilities
owned by national and international chains. Our principal
competitors include other hotel operating companies, national
and international hotel brands, and ownership companies
(including hotel REITs).
We encounter strong competition as a hotel, residential, resort
and vacation ownership operator. While some of our competitors
are private management firms, several are large national and
international chains that own and operate their own hotels, as
well as manage hotels for third-party owners and sell VOIs,
under a variety of brands that compete directly with our brands.
We are subject to certain requirements and potential liabilities
under various foreign and U.S. federal, state and local
environmental laws, ordinances and regulations
(“Environmental Laws”). Under such laws, we could be
held liable for the costs of removing or cleaning up hazardous
or toxic substances at, on, under, or in our currently or
formerly owned or operated properties. Such laws often impose
liability without regard to whether the owner or operator knew
of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of hazardous or toxic substances
may adversely affect the owner’s ability to sell or rent
such real property or to borrow using such real property as
collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic wastes may be liable for the costs of removal
or remediation of such wastes at the treatment, storage or
disposal facility, regardless of whether such facility is owned
or operated by such person. We use certain substances and
generate certain wastes that may be deemed hazardous or toxic
under applicable Environmental Laws, and we from time to time
have incurred, and in the future may incur, costs related to
cleaning up contamination resulting from historic uses of
certain of our current or former properties or our treatment,
storage or disposal of wastes at facilities owned by others.
Other Environmental Laws govern occupational exposure to
asbestos-containing materials (“ACMs”) and require
abatement or removal of certain ACMs (limited quantities of
which are present in various building materials such as spray-on
insulation, floor coverings, ceiling coverings, tiles,
decorative treatments and piping located at certain of our
hotels) in the event of damage or demolition, or certain
renovations or remodeling. Environmental Laws also regulate
polychlorinated biphenyls (“PCBs”), which may be
present in electrical equipment. A number of our hotels have
underground storage tanks (“USTs”) and equipment
containing chlorofluorocarbons (“CFCs”); the operation
and subsequent removal or upgrading of certain USTs and the use
of equipment containing CFCs also are regulated by Environmental
Laws. In connection with our ownership, operation and management
of our properties, we could be held liable for costs of remedial
or other action with respect to PCBs, USTs or CFCs.
Congress and some states are considering or have undertaken
actions to regulate and reduce greenhouse gas emissions. New or
revised laws and regulations or new interpretations of existing
laws and regulations, such as those related to climate change,
could affect the operation of our hotels
and/or
result in significant additional expense and operating
restrictions on us. The cost impact of such legislation,
regulation, or new interpretations would depend upon the
specific requirements enacted and cannot be determined at this
time.
Environmental Laws are not the only source of environmental
liability. Under common law, owners and operators of real
property may face liability for personal injury or property
damage because of various
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environmental conditions such as alleged exposure to hazardous
or toxic substances (including, but not limited to, ACMs, PCBs
and CFCs), poor indoor air quality, radon or poor drinking water
quality.
Although we have incurred and expect to incur remediation and
various environmental-related costs during the ordinary course
of operations, management does not anticipate that such costs
will have a material adverse effect on our operations or
financial condition.
The hotel industry is seasonal in nature; however, the periods
during which our properties experience higher revenue activities
vary from property to property and depend principally upon
location. Generally, our revenues and operating income have been
lower in the first quarter than in the second, third or fourth
quarters.
We continually update and renovate our owned, leased and
consolidated joint venture hotels. While undergoing renovation,
these hotels are generally not operating at full capacity and,
as such, these renovations can negatively impact our owned hotel
revenues and operating income. Other events, such as the
occurrence of natural disasters may cause a full or partial
closure or sale of a hotel, and such events can negatively
impact our revenues and operating income. Finally, as we pursue
our strategy of reducing our investment in owned real estate
assets, the sale of such assets can significantly reduce our
revenues and operating income.
At December 31, 2010, approximately 145,000 people
were employed at our corporate offices, owned and managed hotels
and vacation ownership resorts, of which approximately 26% were
employed in the United States. At December 31, 2010,
approximately 34% of the
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. Generally, labor relations have been maintained
in a normal and satisfactory manner, and management believes
that our employee relations are satisfactory.
We file annual, quarterly and special 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 website at
http://www.sec.gov.
Our SEC filings are also available on our website at
http://www.starwoodhotels.com/
corporate/investor
relations.html as soon as reasonably practicable after they
are filed with or furnished to the SEC. You may also read and
copy any document we file with the SEC at its public reference
room located at 100 F Street, NE, in
Washington, D.C. 20549 on official business days during the
hours of 10 a.m. to 3 p.m. Please call the SEC at
(800) SEC-0330 for further information. Our filings with
the SEC are also available at the New York Stock Exchange. For
more information on obtaining copies of our public filings at
the New York Stock Exchange, you should call
(212) 656-5060.
You may also obtain a copy of our filings free of charge by
calling Investor Relations at
(914) 640-8165.
Risks
Relating to Hotel, Resort, Vacation Ownership and Residential
Operations
We Are Subject to All the Operating Risks Common to the
Hotel and Vacation Ownership and Residential
Industries. Operating risks common to the
hotel and vacation ownership and residential industries include:
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We are also impacted by our relationships with owners and
franchisees. Our hotel 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. Our ability to meet these financial and
performance criteria is subject to, among other things, the
risks described in this section. Additionally, our operating
results would be adversely affected if we could not maintain
existing management, franchise or representation agreements or
obtain new agreements on as favorable terms as the existing
agreements.
We utilize our brands in connection with the residential
portions of certain properties that we develop and license our
brands to third parties to use in a similar manner for a fee.
Residential properties using our brands could become less
attractive due to changes in mortgage rates and the availability
of mortgage financing generally, market absorption or oversupply
in a particular market. As a result, we and our third party
licensees may not be able to sell these residences for a profit
or at the prices that we or they have anticipated.
The Recent Recession in the Lodging Industry and the
Global Economy Generally Will Continue to Impact Our Financial
Results and Growth. The recent economic
recession has had a negative impact on the hotel and vacation
ownership and residential industries. Substantial increases in
air and ground travel costs and decreases in airline capacity
have reduced demand for our hotel rooms and interval and
fractional timeshare products. Accordingly, our financial
results have been impacted by the economic recession and both
our future financial results and growth could be further harmed
if recovery from the economic recession slows or the economic
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recession becomes worse. In certain cases, we have entered into
third party hotel management contracts which contain performance
guarantees specifying that certain operating metrics will be
achieved. As a result of the impact of the economic downturn on
the lodging industry, we may not meet the requisite performance
levels, and we may be forced to loan or contribute monies to
fund the shortfall of performance levels or terminate the
management contract. For a more detailed description of our
performance guarantees, see Note 26 of the consolidated
financial statements.
Moreover, many businesses, particularly financial institutions,
face restrictions on the ability to travel and hold conferences
or events at resorts and luxury hotels. The negative publicity
associated with such companies holding large events has also
resulted in reduced bookings. New or revised regulations on
businesses participating in government financial assistance
programs, as well as the negative publicity associated with
conferences and corporate events, could impact our financial
results.
Our Revenues, Profits, or Market Share Could Be Harmed If
We Are Unable to Compete Effectively. The
hotel, vacation ownership and residential industries are highly
competitive. Our properties compete for customers with other
hotel and 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 their facilities, reduce their prices or expand or
improve their marketing programs in ways that adversely affect
our operating results.
Moreover, our present growth strategy for development of
additional lodging facilities entails entering into and
maintaining various arrangements with property owners. We
compete with other hotel companies for management and franchise
agreements. The terms of our management agreements, franchise
agreements, and leases for each of our lodging facilities are
influenced by contract terms offered by our competitors, among
other things. We cannot assure you that any of our current
arrangements will continue or that we will be able to enter into
future collaborations, renew agreements, or enter into new
agreements in the future on terms that are as favorable to us as
those that exist today. In connection with entering into
management or franchise agreements, we may be required to make
investments in or guarantee the obligations of third parties or
guarantee minimum income to third parties.
Our Businesses Are Capital
Intensive. For our owned, managed and
franchised properties to remain attractive and competitive, the
property owners and we have to spend money periodically to keep
the properties well maintained, modernized and refurbished. This
creates an ongoing need for cash. Third-party property owners
may be unable to access capital or unwilling to spend available
capital when necessary, even if required by the terms of our
management or franchise agreements. To the extent that property
owners and we cannot fund expenditures from cash generated by
operations, funds must be borrowed or otherwise obtained.
Failure to make the investments necessary to maintain or improve
such properties could adversely affect the reputation of our
brands.
Recent events, including the failures and near failures of
financial services companies and the decrease in liquidity and
available capital, have negatively impacted the capital markets
for hotel and real estate investments.
Any Failure to Protect our Trademarks Could Have a
Negative Impact on the Value of Our Brand Names and Adversely
Affect Our Business. We believe our
trademarks are an important component of our business. We rely
on trademark laws to protect our proprietary rights. The success
of our business depends in part upon our continued ability to
use our trademarks to increase brand awareness and further
develop our brand in both domestic and international markets.
Monitoring the unauthorized use of our intellectual property is
difficult. Litigation has been and may continue to be necessary
to enforce our intellectual property rights or to determine the
validity and scope of the proprietary rights of others.
Litigation of this type could result in substantial costs and
diversion of resources, may result in counterclaims or other
claims against us and could significantly harm our results of
operations. In addition, the laws of some foreign countries do
not protect our proprietary rights to the same extent as do the
laws of the United States. From time to time, we apply to have
certain trademarks registered. There is no guarantee that such
trademark registrations will be granted. We cannot assure you
that all of the steps we have taken to protect our trademarks in
the United States and foreign countries will be adequate to
prevent imitation of our trademarks by others. The unauthorized
reproduction of our trademarks could diminish the value of our
brand and its market acceptance, competitive advantages or
goodwill, which could adversely affect our business.
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Our Dependence on Hotel and Resort Development Exposes Us
to Timing, Budgeting and Other Risks. We
intend 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 with are
subject to these same risks which may impact the amount and
timing of fees we had expected to collect from those properties.
New project development has a number of risks, including risks
associated with:
We cannot assure you that any development project, including
sites held for development of vacation ownership resorts, will
in fact be developed, and, if developed, the time period or the
budget of such development may be greater than initially
contemplated and the actual number of units or rooms constructed
may be less than initially contemplated.
International Operations Are Subject to Unique Political
and Monetary Risks. We have significant
international operations which as of December 31, 2010
included 247 owned, managed or franchised properties in Europe,
Africa and the Middle East (including 16 properties with
majority ownership); 62 owned, managed or franchised properties
in Latin America (including nine properties with majority
ownership); and 181 owned, managed or franchised properties in
the Asia Pacific region (including four properties with majority
ownership). International operations generally are subject to
various political, geopolitical, and other risks that are not
present in U.S. operations. These risks include the risk of
war, terrorism, civil unrest, expropriation and nationalization
as well as the impact in cases in which there are
inconsistencies between U.S. law and the laws of an
international jurisdiction. In addition, some international
jurisdictions restrict the repatriation of
non-U.S. earnings.
Various other international jurisdictions have laws limiting the
ability of
non-U.S. entities
to pay dividends and remit earnings to affiliated companies
unless specified conditions have been met. In addition, sales in
international jurisdictions typically are made in local
currencies, which subject us to risks associated with currency
fluctuations. Currency devaluations and unfavorable changes in
international monetary and tax policies could have a material
adverse effect on our profitability and financing plans, as
could other changes in the international regulatory climate and
international economic conditions.
Our Current Growth Strategy is Heavily Dependent on Growth
in International Markets. As of December 31,
2010, 84% of our pipeline represented international growth.
Further 60% of our pipeline represents new properties in Asia
Pacific with 45% of our pipeline representing new growth in
China alone. We must rely on third parties to build and complete
these projects as planned and cannot ensure that all such hotels
will be timely constructed. If our third-party property owners
fail to invest in these projects, or fail to invest at estimated
levels, the projects may not be realized or may not be as
successful as anticipated. Many countries in the Asia Pacific
region, including China, have construction and operational
logistics different than the U.S., including but not limited to
labor, transportation, real estate, and local reporting or legal
requirements. Our dependence on international markets for growth
is also limited by the availability of new markets, and we face
established competitors that are similarly looking to grow in
new markets. If our international expansion plans are
unsuccessful, our financial results could be materially
adversely affected.
Third Party Internet Reservation Channels May Negatively
Impact Our Bookings. Some of our hotel rooms
are booked through third party internet travel intermediaries
such as
Travelocity.com®,
Expedia.com®,
Orbitz.com®
and
Priceline.com®.
As the percentage of internet bookings increases, these
intermediaries may be able to obtain higher commissions, reduced
room rates or other significant contract concessions from us.
Moreover, some of these internet travel intermediaries are
attempting to commoditize hotel rooms by increasing the
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importance of price and general indicators of quality (such as
“three-star downtown hotel”) at the expense of brand
identification. These agencies hope that consumers will
eventually develop brand loyalties to their reservations system
rather than to our lodging brands. Although we expect to derive
most of our business from traditional channels and our websites,
if the amount of sales made through internet intermediaries
increases significantly, our business and profitability may be
significantly harmed.
A Failure to Keep Pace with Developments in Technology
Could Impair 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, distribution and
guest amenities. These technologies can be expected to require
refinements, including to comply with the legal requirements
such as privacy regulations and requirements established by
third parties such as the payment card industry, and there is
the risk that advanced new technologies will be introduced.
Further, the development and maintenance of these technologies
may require significant capital. There can be no assurance that
as various systems and technologies become outdated or new
technology is required, we will be able to replace or introduce
them as quickly as our competition or within budgeted costs and
timeframes. Further, there can be no assurance that we will
achieve the benefits that may have been anticipated from any new
technology or system.
Significant Owners of Our Properties May Concentrate
Risks. There is a concentration of ownership
of hotels operated under our brands by any single owner.
Following the acquisition of the Le Méridien brand business
and a large disposition transaction to one ownership group in
2006, 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 and
the impact on cost efficiencies if they choose not to
participate), they are more concentrated.
Our Real Estate Investments Subject Us to Numerous
Risks. We are subject to the risks that
generally relate to investments in real property because we own
and lease hotels and resorts. The investment returns available
from equity investments in real estate depend in large part on
the amount of income earned and capital appreciation generated
by the related properties, and the expenses incurred. In
addition, a variety of other factors affect income from
properties and real estate values, including governmental
regulations, insurance, zoning, tax and eminent domain laws,
interest rate levels and the availability of financing. For
example, new or existing real estate zoning or tax laws can make
it more expensive
and/or
time-consuming to develop real property or expand, modify or
renovate hotels. When interest rates increase, the cost of
acquiring, developing, expanding or renovating real property
increases and real property values may decrease as the number of
potential buyers decreases. Similarly, as financing becomes less
available, it becomes more difficult both to acquire and to sell
real property. Finally, under eminent domain laws, governments
can take real property. Sometimes this taking is for less
compensation than the owner believes the property is worth. Any
of these factors could have a material adverse impact on our
results of operations or financial condition. In addition,
equity real estate investments are difficult to sell quickly and
we may not be able to adjust our portfolio of owned properties
quickly in response to economic or other conditions. If our
properties do not generate revenue sufficient to meet operating
expenses, including debt service and capital expenditures, our
income will be adversely affected.
We May Be Subject to Environmental
Liabilities. Our properties and operations
are subject to a number of Environmental Laws. Under such laws,
we could be held liable for the costs of removing or cleaning up
hazardous or toxic substances at, on, under, or in our currently
or formerly owned or operated properties. Such laws often impose
liability without regard to whether the owner or operator knew
of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of hazardous or toxic substances
may adversely affect the owner’s ability to sell or rent
such real property or to borrow using such real property as
collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic wastes may be liable for the costs of removal
or remediation of such wastes at the treatment, storage or
disposal facility, regardless of whether such facility is owned
or operated by such person. We use certain substances and
generate certain wastes that may be deemed hazardous or toxic
under applicable Environmental Laws, and we from time to time
have incurred, and in the future may incur, costs related to
cleaning up contamination resulting from historic uses at
certain of our current or former properties or our treatment,
storage or disposal of wastes at facilities owned by others.
Other Environmental Laws govern
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occupational exposure to ACMs and require abatement or removal
of certain ACMs (limited quantities of which are present in
various building materials such as spray-on insulation, floor
coverings, ceiling coverings, tiles, decorative treatments and
piping located at certain of our hotels) in the event of damage
or demolition, or certain renovations or remodeling.
Environmental Laws also regulate PCBs, which may be present in
electrical equipment. A number of our hotels have USTs and
equipment containing CFCs; the operation and subsequent removal
or upgrading of certain USTs and the use of equipment containing
CFCs also are regulated by Environmental Laws. In connection
with our ownership, operation and management of our properties,
we could be held liable for costs of remedial or other action
with respect to PCBs, USTs or CFCs.
Congress and some states are considering or have undertaken
actions to regulate and reduce greenhouse gas emissions. New or
revised laws and regulations or new interpretations of existing
laws and regulations, such as those related to climate change,
could affect the operation of our hotels
and/or
result in significant additional expense and operating
restrictions on us. The cost impact of such legislation,
regulation, or new interpretations would depend upon the
specific requirements enacted and cannot be determined at this
time.
During fiscal 2010, Starwood subsidiaries generated
approximately $2 million of revenue from management and
other fees from hotels located in Syria, a country that the
United States has identified as a state sponsor of terrorism.
This amount constitutes significantly less than 1% of our
worldwide annual revenues. The United States does not prohibit
U.S. investments in, or the exportation of services to,
Syria, and our activities in that country are in full compliance
with U.S. and local law. However, the United States has
imposed limited sanctions as a result of Syria’s support
for terrorist groups and its interference with Lebanon’s
sovereignty, including a prohibition on the exportation of
U.S.-origin
goods to Syria and the operation of government-owned Syrian air
carriers in the United States except in limited circumstances.
The United States may impose further sanctions against Syria at
any time for foreign policy reasons. If so, our activities in
Syria may be adversely affected, depending on the nature of any
further sanctions that might be imposed. In addition, our
activities in Syria may reduce demand for our stock among
certain investors.
Our Debt Service Obligations May Adversely Affect our Cash
Flow. As a result of our debt obligations, we
are subject to: (i) the risk that cash flow from operations
will be insufficient to meet required payments of principal and
interest, (ii) restrictive covenants, including covenants
relating to certain financial ratios, and (iii) interest
rate risk. Although we anticipate that we will be able to repay
or refinance our existing indebtedness and any other
indebtedness when it matures, there can be no assurance that we
will be able to do so or that the terms of such refinancing will
be favorable. Our leverage may have important consequences
including the following: (i) our ability to obtain
additional financing for acquisitions, working capital, capital
expenditures or other purposes, if necessary, may be impaired or
such financing may not be available on terms favorable to us and
(ii) a substantial decrease in operating cash flow, EBITDA
(as defined in our credit agreements) or a substantial increase
in our expenses could make it difficult for us to meet our debt
service requirements and restrictive covenants and force us to
sell assets
and/or
modify our operations.
We Have Little Control Over the Availability of Funds
Needed to Fund New Investments and Maintain Existing
Hotels. 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 availability of funds for new investments and
maintenance of existing hotels depends in large measure on
capital markets and liquidity factors over which we have little
control. Current and prospective hotel owners may find hotel
financing expensive and difficult to obtain. Delays, increased
costs and other impediments to restructuring such projects may
affect our ability to realize fees, recover loans and guarantee
advances, or realize equity investments from such projects. Our
ability to recover loans and guarantee advances from hotel
operations or from owners through the proceeds of hotel sales,
refinancing of debt or otherwise may also affect our ability to
raise new capital. In addition, downgrades of our public debt
ratings by rating agencies could increase our cost of capital. A
breach of a covenant could result in an event of default that,
if not cured or waived, could result in an acceleration of all
or a substantial portion of our debt. For a more detailed
description of the covenants imposed by our debt obligations,
see Item 7, Management’s Discussion and Analysis of
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Financial Condition and Results of Operations —
Liquidity 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 our
vacation ownership units, and we attempt to sell interests in
those loans in the securities markets. Volatility in the credit
markets may impact the timing and volume of the timeshare loans
that we are able to sell. Although we expect to realize the
economic value of our vacation ownership note portfolio even if
future note sales are temporarily or indefinitely delayed, such
delays may result in either increased borrowings to provide
capital to replace anticipated proceeds from such sales or
reduced spending in order to maintain our leverage and return
targets.
Our financial and operating performance may be adversely
affected by so-called acts of God, such as natural disasters, in
locations where we own
and/or
operate significant properties and areas of the world from which
we draw a large number of customers. Similarly, wars (including
the potential for war), terrorist activity (including threats of
terrorist activity), political unrest and other forms of civil
strife and geopolitical uncertainty have caused in the past, and
may cause in the future, our results to differ materially from
anticipated results.
Our business could be materially and adversely affected by the
effect of a pandemic disease on the travel industry. For
example, the past outbreaks of SARS and avian flu had a severe
impact on the travel industry, and the recent outbreak of swine
flu in Mexico had a similar impact. A prolonged recurrence of
SARS, avian flu, swine flu or another pandemic disease also may
result in health or other government authorities imposing
restrictions on travel. Any of these events could result in a
significant drop in demand for our hotel and vacation ownership
businesses and adversely affect our financial condition and
results of operations.
We carry insurance coverage for general liability, property,
business interruption and other risks with respect to our owned
and leased properties and we make available insurance programs
for owners of properties we manage. These policies offer
coverage terms and conditions that we believe are usual and
customary for our industry. Generally, our “all-risk”
property policies provide that coverage is available on a per
occurrence basis and that, for each occurrence, there is a limit
as well as various
sub-limits
on the amount of insurance proceeds we will receive in excess of
applicable deductibles. In addition, there may be overall limits
under the policies.
Sub-limits
exist for certain types of claims such as service interruption,
debris removal, expediting costs or landscaping replacement, and
the dollar amounts of these
sub-limits
are significantly lower than the dollar amounts of the overall
coverage limit. Our property policies also provide that for the
coverage of critical earthquake (California and Mexico),
hurricane and flood, all of the claims from each of our
properties resulting from a particular insurable event must be
combined together for purposes of evaluating whether the annual
aggregate limits and
sub-limits
contained in our policies have been exceeded and any such claims
will also be combined with the claims of owners of managed
hotels that participate in our insurance program for the same
purpose. Therefore, if insurable events occur that affect more
than one of our owned hotels
and/or
managed hotels owned by third parties that participate in our
insurance program, the claims from each affected hotel will be
added together to determine whether the per occurrence limit,
annual aggregate limit or
sub-limits,
depending on the type of claim, have been reached and if the
limits or
sub-limits
are exceeded each affected hotel will only receive a
proportional share of the amount of insurance proceeds provided
for under the policy. In addition, under those circumstances,
claims by third party owners will reduce the coverage available
for our owned and leased properties.
In addition, there are also other risks including but not
limited to war, certain forms of terrorism such as nuclear,
biological or chemical terrorism, political risks, some
environmental hazards
and/or acts
of God that may be deemed to fall completely outside the general
coverage limits of our policies or may be uninsurable or may be
too expensive to justify insuring against.
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We may also encounter challenges with an insurance provider
regarding whether it will pay a particular claim that we believe
to be covered under our policy. Should an uninsured loss or a
loss in excess of insured limits occur, we could lose all or a
portion of the capital we have invested in a hotel or resort, as
well as the anticipated future revenue from the hotel or resort.
In that event, we might nevertheless remain obligated for any
mortgage debt or other financial obligations related to the
property.
We will consider corporate as well as property acquisitions and
investments that complement our business. In many cases, we will
be competing for these opportunities with third parties who may
have substantially greater financial resources or different or
lower acceptable financial metrics than we do. There can be no
assurance that we will be able to identify acquisition or
investment candidates or complete transactions on commercially
reasonable terms or at all. If transactions are consummated,
there can be no assurance that any anticipated benefits will
actually be realized. Similarly, there can be no assurance that
we will be able to obtain additional financing for acquisitions
or investments, or that the ability to obtain such financing
will not be restricted by the terms of our debt agreements.
We periodically review our business to identify properties or
other assets that we believe either are non-core, no longer
complement our business, are in markets which may not benefit us
as much as other markets during an economic recovery or could be
sold at significant premiums. We are focused on restructuring
and enhancing real estate returns and monetizing investments,
and from time to time, may attempt to sell these identified
properties and assets. There can be no assurance, however, that
we will be able to complete dispositions on commercially
reasonable terms or at all or that any anticipated benefits will
actually be received.
We may develop and launch additional brands in the future. There
can be no assurance regarding the level of acceptance of these
brands in the development and consumer marketplaces, that the
cost incurred in developing the brands will be recovered or that
the anticipated benefits from these new brands will be realized.
In addition to acquiring or developing hotels and resorts or
acquiring companies that complement our business directly, we
have from time to time invested, and expect to continue to
invest, as a co-venturer. Joint venturers often have shared
control over the operation of the joint venture assets.
Therefore, joint venture investments may involve risks such as
the possibility that the co-venturer in an investment might
become bankrupt or not have the financial resources to meet its
obligations, or have economic or business interests or goals
that are inconsistent with our business interests or goals, or
be in a position to take action contrary to our instructions or
requests or contrary to our policies or objectives.
Consequently, actions by a co-venturer might subject hotels and
resorts owned by the joint venture to additional risk. Further,
we may be unable to take action without the approval of our
joint venture partners. Alternatively, our joint venture
partners could take actions binding on the joint venture without
our consent. Additionally, should a joint venture partner become
bankrupt, we could become liable for our partner’s share of
joint venture liabilities.
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 basis. We also acquire,
develop and operate vacation ownership resorts, and provide
financing to purchasers of VOIs. These activities are all
subject to extensive regulation by the federal government and
the states in which vacation ownership resorts are located and
in which VOIs are marketed and sold including regulation of our
telemarketing activities under state and federal “Do Not
Call” laws. In addition, the laws of most states in which
we sell VOIs grant the purchaser the right to rescind the
purchase contract at any time within a statutory rescission
period. Although we believe that we are in material compliance
with all applicable federal, state, local and foreign laws and
regulations to which vacation ownership marketing, sales and
operations are currently subject, changes in these requirements,
or a determination by a regulatory authority that we were not in
compliance, could adversely affect us. In particular, increased
regulations of telemarketing activities could adversely impact
the marketing of our VOIs.
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We bear the risk of defaults under purchaser mortgages on VOIs.
If a VOI purchaser defaults on the mortgage during the early
part of the loan amortization period, we will not have recovered
the marketing, selling (other than commissions in certain
events), and general and administrative costs associated with
such VOI, and such costs will be incurred again in connection
with the resale of the repossessed VOI. Accordingly, there is no
assurance that the sales price will be fully or partially
recovered from a defaulting purchaser or, in the event of such
defaults, that our allowance for losses will be adequate.
We collect information relating to our guests for various
business purposes, including marketing and promotional purposes.
The collection and use of personal data are governed by privacy
laws and regulations enacted in the United States and other
jurisdictions around the world. Privacy regulations continue to
evolve and on occasion may be inconsistent from one jurisdiction
to another. Compliance with applicable privacy regulations may
increase our operating costs
and/or
adversely impact our ability to market our products, properties
and services to our guests. In addition, non-compliance with
applicable privacy regulations by us (or in some circumstances
non-compliance by third parties engaged by us) or a breach of
security on systems storing our data may result in fines,
payment of damages or restrictions on our use or transfer of
data.
Our future success and our ability to manage future growth
depend in large part upon the efforts of our senior management
and our ability to attract and retain key officers and other
highly qualified personnel. Competition for such personnel is
intense. In the past several years, we have experienced
significant changes in our senior management, including
executive officers (see Item 10. “Directors, Executive
Officers and Corporate Governance” of this Annual Report).
There can be no assurance that we will continue to be successful
in attracting and retaining qualified personnel. Accordingly,
there can be no assurance that our senior management will be
able to successfully execute and implement our growth and
operating strategies.
Over the last few years we have been pursuing a strategy of
reducing our investment in owned real estate and increasing our
focus on the management and franchise business. As a result, we
are planning on substantially increasing the number of hotels we
open every year and increasing the overall number of hotels in
our system. This increase will require us to recruit and train a
substantial number of new associates to work at these hotels as
well as increasing our capabilities to enable hotels to open on
time and successfully. There can be no assurance that our
strategy will be successful.
Evolving Government Regulation Could Impose Taxes or
Other Burdens on Our Business. We rely upon
generally available interpretations of tax laws and other types
of laws and regulations in the countries and locales in which we
operate. We cannot be sure that these interpretations are
accurate or that the responsible taxing or other governmental
authority is in agreement with our views. The imposition of
additional taxes or requirements to change the way we conduct
our business could cause us to have to pay taxes that we
currently do not collect or pay or increase the costs of our
services or increase our costs of operations.
Our current business practice with our internet reservation
channels is that the intermediary collects hotel occupancy tax
from its customer based on the price that the intermediary paid
us for the hotel room. We then remit these taxes to the various
tax authorities. Several jurisdictions have stated that they may
take the position that the tax is also applicable to the
intermediaries’ gross profit on these hotel transactions.
If jurisdictions take this position, they should seek the
additional tax payments from the intermediary; however, it is
possible that they may seek to collect the additional tax
payment from us and we would not be able to collect these taxes
from the customers. To the extent that any tax authority
succeeds in asserting that the hotel occupancy tax applies to
the gross revenue on these transactions, we believe that any
additional tax would be the responsibility of the intermediary.
However, it is possible that we might have additional tax
exposure. In such event, such actions could have a material
adverse effect on our business, results of operations and
financial condition.
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Our Board of Directors May Issue Preferred Stock and
Establish the Preferences and Rights of Such Preferred
Stock. Our charter provides that the total
number of shares of stock of all classes which the Corporation
has authority to issue is 1,200,000,000, consisting of one
billion shares of common stock and 200 million shares of
preferred stock. Our Board of Directors has the authority,
without a vote of shareholders, to establish the preferences and
rights of any preferred shares to be issued and to issue such
shares. The issuance of preferred shares having special
preferences or rights could delay or prevent a change in control
even if a change in control would be in the interests of our
shareholders. Since our Board of Directors has the power to
establish the preferences and rights of preferred shares without
a shareholder vote, our Board of Directors may give the holders
preferences, powers and rights, including voting rights, senior
to the rights of holders of our shares.
Our Board of Directors May Implement Anti-Takeover Devices
and Our Charter and Bylaws Contain Provisions which May Prevent
Takeovers. Certain provisions of Maryland law
permit our Board of Directors, without stockholder approval, to
implement possible takeover defenses that are not currently in
place, such as a classified board. In addition, our charter
contains provisions relating to restrictions on transferability
of the Corporation Shares, which provisions may be amended only
by the affirmative vote of our shareholders holding two-thirds
of the votes entitled to be cast on the matter. As permitted
under the Maryland General Corporation Law, our Bylaws provide
that directors have the exclusive right to amend our Bylaws.
Not applicable.
We are one 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, physical condition, quality and variety of services
offered in the markets in which they are located. Although
obsolescence arising from age, condition of facilities, and
style can adversely affect our Resorts, Starwood and third-party
owners of managed and franchised Resorts expend substantial
funds to renovate and maintain their facilities in order to
remain competitive. For further information see Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Liquidity and Capital
Resources in this Annual Report.
Our hotel business included 1,027 owned, managed or franchised
hotels with approximately 302,000 rooms and our owned vacation
ownership and residential business included 14 stand-alone
vacation ownership resorts and residential properties at
December 31, 2010, predominantly under seven brands. All
brands (other than the Four Points by Sheraton and the Aloft and
Element brands) represent full-service properties that range in
amenities from luxury hotels and resorts to more moderately
priced hotels. Our Four Points by Sheraton, Aloft and Element
brands are select service properties that cater to more value
oriented consumers.
The following table reflects our hotel and vacation ownership
properties, by brand, as of December 31, 2010:
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Managed and Franchised Hotels. Hotel
and resort properties in the United States are often owned by
entities that do not manage hotels or own a brand name. Hotel
owners typically enter into management contracts with hotel
management companies to operate their hotels. When a management
company does not offer a 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 offer both hotel management services and
well-established worldwide brand names appeal to hotel owners by
providing the full range of management, marketing and
reservation services. In 2010, we opened 70 managed and
franchised hotels with approximately 15,000 rooms and 22 managed
and franchised hotels with approximately 7,000 rooms left the
system.
Managed Hotels. We manage hotels
worldwide, usually under a long-term agreement with the hotel
owner (including entities in which we have a minority equity
interest). Our responsibilities under hotel management contracts
typically include hiring, training and supervising the managers
and employees that operate these facilities. For additional
fees, we provide centralized reservation services and coordinate
national advertising and certain marketing and promotional
services. We prepare and implement annual budgets for the hotels
we manage and are responsible for allocating property-owner
funds for periodic maintenance and repair of buildings and
furnishings. In addition to our owned and leased hotels, at
December 31, 2010, we managed 463 hotels with approximately
159,200 rooms worldwide. During the year ended December 31,
2010, we generated management fees by geographic area as follows:
Management contracts typically provide for base fees tied to
gross revenue and incentive fees tied to profits as well as fees
for other services, including centralized reservations, sales
and marketing, public relations and national and international
media advertising. In our experience, owners seek hotel managers
that can provide attractively priced base, incentive and
marketing fees combined with demonstrated sales and marketing
expertise and operations-focused management designed to enhance
profitability. Some of our management contracts permit the hotel
owner to terminate the agreement when the hotel is sold or
otherwise transferred to a third party, as well as if we fail to
meet established performance criteria. In addition, many hotel
owners seek equity, debt or other investments from us to help
finance hotel renovations or conversions to a Starwood brand so
as to align the interests of the owner and Starwood. Our ability
or willingness to make such investments may determine, in part,
whether we will be offered, will accept or will retain a
particular management contract. During the year ended
December 31, 2010, we opened 39 managed hotels with
approximately 9,000 rooms, and 15 managed hotels with
approximately 5,000 rooms left our system. In addition, during
2010, we signed management agreements for 61 hotels with
approximately 15,000 rooms, a small portion of which opened in
2010 and the majority of which will open in the future.
Brand Franchising and Licensing. We
franchise our Sheraton, Westin, Four Points by Sheraton, Luxury
Collection, Le Méridien, Aloft and Element brand names and
generally derive licensing and other fees from franchisees based
on a fixed percentage of the franchised hotel’s room
revenue, as well as fees for other services, including
centralized reservations, sales and marketing, public relations
and national and international media advertising. In addition, a
franchisee may also purchase hotel supplies, including
brand-specific products, from certain Starwood-approved vendors.
We approve certain plans for, and the location of, franchised
hotels and review
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their design. At December 31, 2010, there were 502
franchised properties with approximately 121,400 rooms. During
the year ended December 31, 2010, we generated franchise
fees by geographic area as follows:
In addition to the franchise contracts we retained in connection
with the sale of hotels during the year ended December 31,
2010, we opened 31 franchised hotels with approximately 6,000
rooms, and seven franchised hotels with approximately 2,000
rooms left our system. In addition, during 2010 we signed
franchise agreements for 35 hotels with approximately 7,000
rooms, a portion of which opened in 2010 and a portion of which
will open in the future.
Owned, Leased and Consolidated Joint Venture
Hotels. Historically, we have derived the
majority of our revenues and operating income from our owned,
leased and consolidated joint venture hotels and a significant
portion of these results are driven by these hotels in North
America. However, beginning in 2006, we embarked upon a strategy
of selling a significant number of hotels. Since the beginning
of 2006, we have sold 62 wholly owned hotels which has
substantially reduced our revenues and operating income from
owned, leased and consolidated joint venture hotels. The
majority of these hotels were sold subject to long-term
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, 2010, 2009 and 2008 were
$1.704 billion, $1.584 billion and
$2.212 billion, respectively (total revenues from our
owned, leased and consolidated joint venture hotels in North
America were $1.067 billion, $1.024 billion and
$1.380 billion for 2010, 2009 and 2008, respectively).
The following represents our top five markets in the United
States by metropolitan area as a percentage of our total owned,
leased and consolidated joint venture revenues for the year
ended December 31, 2010 (with comparable data for 2009):
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The following represents our top five international markets by
country as a percentage of our total owned, leased and
consolidated joint venture revenues for the year ended
December 31, 2010 (with comparable data for 2009):
Top Five
International Markets as a % of Total Owned
Revenues for the Year Ended December 31, 2010 with Comparable Data for 2009(1)
Following the sale of a significant number of our hotels in the
past three years, we currently own or lease 62 hotels as follows:
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18
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An indicator of the performance of our owned, leased and
consolidated joint venture hotels is revenue per available room
(“REVPAR”)(1),
as it measures the
period-over-period
growth in rooms revenue for comparable properties. This is
particularly the case in the United States where there is no
impact on this measure from foreign exchange rates.
The following table summarizes REVPAR, average daily rates
(“ADR”) and average occupancy rates on a
year-to-year
basis for our 54 owned, leased and consolidated joint venture
hotels (excluding nine hotels sold or closed and eight hotels
undergoing significant repositionings or without comparable
results in 2010 and 2009) (“Same-Store Owned Hotels”)
for the years ended December 31, 2010 and 2009:
During the years ended December 31, 2010 and 2009, we
invested approximately $184 million and $171 million,
respectively, for capital expenditures at owned hotels. These
capital expenditures include construction costs at W City Center
in Chicago, IL, Westin Peachtree Plaza in Atlanta, GA, Westin
Gaslamp in San Diego, CA, The Phoenician in Scottsdale, AZ,
and the Manhattan Hotel at Times Square in New York, NY.
The following table summarizes REVPAR, ADR and occupancy for our
Same-Store Systemwide Hotels on a
year-to-year
basis for the years ended December 31, 2010 and 2009.
Same-Store Systemwide Hotels represent results for the same
store owned, leased, managed and franchised hotels.
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We develop, own and operate vacation ownership resorts, market
and sell the VOIs in the resorts and, in many cases, provide
financing to customers who purchase such ownership interests.
Owners of VOIs can trade their interval for intervals at other
Starwood vacation ownership resorts, for intervals at certain
vacation ownership resorts not otherwise sponsored by Starwood
through an exchange company, or for hotel stays at Starwood
properties. From time to time, we securitize or sell the
receivables generated from our sale of VOIs.
We have also entered into arrangements with several owners for
mixed use hotel projects that will include a residential
component. We have entered into licensing agreements for the use
of certain of our brands to allow the owners to offer branded
condominiums to prospective purchasers. In consideration, we
typically receive a licensing fee equal to a percentage of the
gross sales revenue of the units sold. The licensing arrangement
generally terminates upon the earlier of sell-out of the units
or a specified length of time.
At December 31, 2010, we had 23 residential and vacation
ownership resorts and sites in our portfolio with 17 actively
selling VOIs and residences including one unconsolidated joint
venture. During 2010 and 2009 we invested approximately
$151 million and $145 million, respectively, for
vacation ownership capital expenditures, including VOI
construction at the Westin Desert Willow Villas in Palm Desert,
CA, the Westin Lagunamar Ocean Resort in Cancun, as well as
construction costs at the St. Regis Bal Harbour Resort in Miami
Beach, FL.
Due to the global economic crisis and its impact on the
long-term outlook for the timeshare industry, during the fourth
quarter of 2009, we completed a comprehensive review of our
vacation ownership projects. No new projects are being initiated
and we have decided not to develop three vacation ownership
sites and future phases of certain existing projects. As a
result, inventories, fixed assets and land values at certain
projects were determined to be impaired and were written down to
their fair value, resulting in a primarily non-cash pre-tax
impairment charge in 2009 of $255 million. Additionally, in
connection with this review of the business, we made a decision
to reduce the pricing of certain inventory at existing projects,
resulting in a pre-tax charge of $17 million. As a result
of these decisions and future plans for the vacation ownership
business, we also recorded a $90 million non-cash charge
for the impairment of goodwill associated with the vacation
ownership reporting unit.
Incorporated by reference to the description of legal
proceedings in Note 26. Commitments and Contingencies, in
the consolidated financial statements set forth in Item 8.
Financial Statements and Supplementary Data.
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The Corporation Shares are traded on the New York Stock Exchange
(the “NYSE”) under the symbol “HOT”.
The following table sets forth the quarterly range of the high
and low sale prices of the Corporation Shares for the fiscal
periods indicated as reported on the NYSE Composite Tape:
As of February 11, 2011, there were approximately 14,000
holders of record of Corporation Shares.
The following table sets forth the frequency and amount of
dividends made by the Corporation to holders of Corporation
Shares for the years ended December 31, 2010 and 2009:
In 2006, we completed the redemption of the remaining 25,000
outstanding shares of Class B Exchangeable Preferred Shares
of the Trust (“Class B EPS”) for approximately
$1 million in cash. Also in 2006, in connection with the
Host Transaction, we redeemed all of the Class A
Exchangeable Preferred Shares of the Trust (“Class A
EPS”) (approximately 562,000 shares) and Realty
Partnership units (approximately 40,000 units) for
approximately $34 million in cash. SLC Operating Limited
Partnership units are convertible into Corporation Shares at the
unit holder’s option, provided that we have the option to
settle conversion requests in cash or Corporation Shares. In
2006, we redeemed approximately 926,000 SLC Operating Limited
Partnership units for approximately $56 million in cash,
and there were approximately 166,000 and 169,000 of these units
outstanding at December 31, 2010 and 2009, respectively.
Issuer
Purchases of Equity Securities
We did not repurchase any Corporation Shares during 2010.
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STOCK
RETURN PERFORMANCE AND CUMULATIVE TOTAL RETURN
Set forth below is a line graph comparing the cumulative total
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, 2005 and ending December 31,
2010. The graph assumes that the value of the investments was
100 on December 31, 2005 and that all dividends and other
distributions were reinvested. In addition, the Share prices for
the periods prior to the Host Transaction on April 10, 2006
have been adjusted based on the value shareholders received for
their Class B shares. The comparisons are provided in
response to SEC disclosure requirements and are not intended to
forecast or be indicative of future performance.
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The following financial and operating data should be read in
conjunction 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.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (“MD&A”) discusses our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these consolidated financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and costs and expenses during the reporting periods.
On an ongoing basis, management evaluates its estimates and
judgments, including those relating to revenue recognition, bad
debts, inventories, investments, 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
experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily available from other
sources. Actual results may differ from these estimates under
different assumptions and conditions.
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We believe the following to be our critical 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 from managed and franchised properties; and
(5) other revenues which are ancillary to our operations.
Generally, revenues are recognized when the services have been
rendered. The following is a description of the composition of
our revenues:
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Goodwill and Intangible
Assets. Goodwill and intangible assets arise
in connection with acquisitions, including the acquisition of
management contracts. We do not amortize goodwill and intangible
assets with indefinite lives. Intangible assets with finite
lives are amortized on a straight-line basis over their
respective useful lives. We review all goodwill and intangible
assets for impairment by comparing their fair values to book
values annually, or upon the occurrence of a trigger event.
Impairment charges, if any, are recognized in operating results.
Frequent Guest Program. SPG is our
frequent 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 at substantially all of our owned, managed and
franchised hotels as well as through other redemption
opportunities with third parties, such as conversion to airline
miles.
We charge our owned, managed and franchised hotels the cost of
operating the SPG program, including the estimated cost of our
future redemption obligation, based on a percentage of our SPG
members’ qualified expenditures. The Company’s
management and franchise agreements require that we be
reimbursed for the costs of operating the SPG program, including
marketing, promotions and communications and performing member
services for the SPG members. As points are earned, the Company
increases the SPG point liability for the amount of cash it
receives from its managed and franchised hotels related to the
future redemption obligation. For its owned hotels we record an
expense for the amount of our future redemption obligation with
the offset to the SPG point liability. When points are redeemed
by the SPG members, the hotels recognize revenue and the SPG
point liability is reduced.
We, through the services of third-party actuarial analysts,
determine the value of the future redemption obligation based on
statistical formulas which project the timing of future point
redemptions based on historical experience, including an
estimate of the “breakage” for points that will never
be redeemed, and an estimate of the points that will eventually
be redeemed as well as the cost of reimbursing hotels and other
third parties in respect of other redemption opportunities for
point redemptions.
We consolidate the assets and liabilities of the SPG program
including the liability associated with the future redemption
obligation which is included in other long-term liabilities and
accrued expenses in the accompanying consolidated balance
sheets. The total actuarially determined liability (see
Note 18), as of December 31, 2010 and 2009 is
$753 million and $689 million, respectively, of which
$225 million and $244 million, respectively, is
included in accrued expenses.
Long-Lived Assets. We evaluate the
carrying value of our long-lived assets for impairment by
comparing the expected undiscounted future cash flows of the
assets to the net book value of the assets if certain trigger
events occur. If the expected undiscounted future cash flows are
less than the net book value of the assets, the excess of the
net book value over the estimated fair value is charged to
current earnings. Fair value is based upon discounted cash flows
of the assets at a rate deemed reasonable for the type of asset
and prevailing market conditions, sales of similar assets,
appraisals and, if appropriate, current estimated net sales
proceeds from pending offers. We evaluate the carrying value of
our long-lived assets based on our plans, at the time, for such
assets and such qualitative factors as future development in the
surrounding area, status of expected local competition and
projected incremental income from renovations. Changes to our
plans, including a decision to dispose of or change the intended
use of an asset, can have a material impact on the carrying
value of the asset.
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 uncollectibility based on pools of receivables.
In estimating loan loss reserves, we use a technique referred to
as static pool analysis, which tracks defaults for each
year’s mortgage originations over the life of the
respective notes and projects an estimated default rate. As of
December 31, 2010, the average estimated default rate for
our pools of receivables was 10%.
The primary credit quality indicator used by us to calculate the
loan loss reserve for the vacation ownership notes is the
origination of the notes by brand (Sheraton, Westin, and Other)
as we believe there is a relationship between the default
behavior of borrowers and the brand associated with the vacation
ownership property they have acquired. In addition to
quantitatively calculating the loan loss reserve based on its
static pool analysis, we
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supplement the process by evaluating certain qualitative data,
including the aging of the respective receivables, current
default trends by brand and origination year, and the Fair Isaac
Corporation (“FICO”) scores of the buyers.
Given the significance of our respective pools of VOI notes
receivable, a change in the projected default rate can have a
significant impact to its loan loss reserve requirements, with a
0.1% change estimated to have an impact of approximately
$3 million.
We consider a VOI note receivable delinquent when it is more
than 30 days outstanding. All delinquent loans are placed
on nonaccrual status and we do not resume interest accrual until
payment is made. Upon reaching 120 days outstanding, the
loan is considered to be in default and we commence the
repossession process. Uncollectible VOI notes receivable are
charged off when title to the unit is returned to us. We
generally do not modify vacation ownership notes that become
delinquent or upon default.
For the hotel segment, we measure the impairment of a loan based
on the present value of expected future cash flows, discounted
at the loan’s original effective interest rate, or the
estimated fair value of the collateral. For impaired loans, we
establish a specific impairment reserve for the difference
between the recorded investment in the loan and the present
value of the expected future cash flows or the estimated fair
value of the collateral. We apply the loan impairment policy
individually to all loans in the portfolio and do not aggregate
loans for the purpose of applying such policy. For loans that we
have determined to be impaired, we recognize interest income on
a cash basis.
Assets Held for Sale. We consider
properties to be assets held for sale when management approves
and commits to a formal plan to actively market a property or
group of properties for sale and a signed sales contract and
significant non-refundable deposit or contract
break-up fee
exist. Upon designation as an asset held for sale, we record the
carrying value of each property or group of properties at the
lower of its carrying value which includes allocable segment
goodwill or its estimated fair value, less estimated costs to
sell, and we stop recording depreciation expense. Any gain
realized in connection with the sale of a property for which we
have significant continuing involvement (such as through a
long-term management agreement) is deferred and recognized over
the initial term of the related agreement. The operations of the
properties held for sale prior to the sale date are recorded in
discontinued operations unless we will have continuing
involvement (such as through a management or franchise
agreement) after the sale.
Legal Contingencies. We are subject to
various legal proceedings and claims, the outcomes of which are
subject to significant uncertainty. An estimated loss from a
loss contingency should be accrued by a charge to income if it
is probable that an asset has been impaired or a liability has
been incurred and the amount of the loss can be reasonably
estimated. We evaluate, among other factors, the degree of
probability of an unfavorable outcome and the ability to make a
reasonable estimate of the amount of loss. Changes in these
factors could materially impact our financial position or our
results of operations.
Income Taxes. We provide for income
taxes in accordance with principles contained in ASC 740,
Income Taxes. Under these principles, we
recognize the amount of income tax payable or refundable for the
current year and deferred tax assets and liabilities for the
future tax consequences of events that have been recognized in
our financial statements or tax returns. We also measure and
recognize the amount of tax benefit that should be recorded for
financial statement purposes for uncertain tax positions taken
or expected to be taken in a tax return. With respect to
uncertain tax positions, we evaluate the recognized tax benefits
for derecognition, classification, interest and penalties,
interim period accounting and disclosure requirements. Judgment
is required in assessing the future tax consequences of events
that have been recognized in our financial statements or tax
returns.
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The following discussion presents an analysis of results of our
operations for the years ended December 31, 2010, 2009 and
2008.
Business conditions in the global lodging industry were
extremely difficult beginning in the middle of 2008 through late
2009, but have improved during 2010. These improvements have
resulted from better than expected occupancy primarily related
to our three main classes of customers: business, leisure and
group travelers, and the stabilization of room rates. As
corporate profits have continued to rise, our business from the
business travelers, which accounts for the majority of our
revenues, is leading the recovery. In addition, the supply side
growth has been lower than recent years which has led us to
achieve upper single digit to low double digit REVPAR growth in
many of our leading markets. We are the largest operator of
upper upscale and luxury hotels in the world and we are seeing
luxury travel leading the increases in occupancy. Despite the
improvement in revenues, we continue to enforce previously
instituted rigorous policies to control costs.
As discussed in Note 2 of the financial statements,
following the adoption of ASU Nos.
2009-16 and
2009-17 on
January 1, 2010, our statement of income beginning with the
year ended December 31, 2010 no longer reflects
securitization income, but instead reports interest income, net
charge-offs and certain other income associated with all
securitized loan receivables, and interest expense associated
with debt issued from the trusts to third-party investors in the
same line items in our statement of income as debt.
Additionally, we will no longer record initial gains or losses
on new securitization activity since securitized vacation
ownership notes receivable no longer receive sale accounting
treatment. Finally, we no longer recognize gains or losses on
the revaluation of the interest-only strip receivable as that
asset is not recognized in a transaction accounted for as a
secured borrowing.
Our statement of income for the year ended December 31,
2009 and our balance sheet as of December 31, 2009 have not
been retrospectively adjusted to reflect the adoption of ASU
Nos. 2009-16
and 2009-17.
Therefore, current period results will not be comparable to
prior period amounts, particularly with regards to:
Year
Ended December 31, 2010 Compared with Year Ended
December 31, 2009
The increase in revenues from owned, leased and consolidated
joint venture hotels was primarily due to improved REVPAR (as
discussed below) at our existing owned, leased and consolidated
joint venture hotels, offset in part by lost revenues from eight
wholly owned hotels sold or closed in 2010 and 2009. These sold
or closed hotels had revenues of $18 million in the year
ended December 31, 2010 compared to $98 million in the
corresponding period of 2009. Revenues at our Same-Store Owned
Hotels (54 hotels for the year ended December 31, 2010 and
2009, excluding the eight hotels sold or closed and eight
additional hotels undergoing significant repositionings or
without comparable results in 2010 and 2009) increased
8.2%, or $107 million, to $1.421 billion for the year
ended December 31, 2010 when compared to
$1.314 billion in the same period of 2009 due primarily to
an increase in REVPAR.
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REVPAR at our Same-Store Owned Hotels increased 11.2% to $136.27
for the year ended December 31, 2010 when compared to the
corresponding 2009 period. The increase in REVPAR at these
Same-Store Owned Hotels resulted from a 2.6% increase in ADR to
$196.62 for the year ended December 31, 2010 compared to
$191.60 for the corresponding 2009 period and an increase in
occupancy rates to 69.3% in the year ended December 31,
2010 when compared to 64.0% in the same period in 2009. REVPAR
at Same-Store Owned Hotels in North America increased 11.6% for
the year ended December 31, 2010 when compared to the same
period of 2009. REVPAR growth was particularly strong at our
owned hotels in New York, New York, Chicago, Illinois, Toronto,
Canada and New Orleans, Louisiana. REVPAR at our international
Same-Store Owned Hotels increased by 10.5% for the year ended
December 31, 2010 when compared to the same period of 2009.
REVPAR for Same-Store Owned Hotels internationally increased
11.6% excluding the unfavorable effects of foreign currency
translation.
The increase in management fees, franchise fees and other income
was primarily a result of a $59 million or 9.4% increase in
management and franchise revenue to $689 million for the
year ended December 31, 2010 compared to $630 million
in the corresponding period in 2009. Management fees increased
$53 million or 14.9% and franchise fees increased
$23 million or 16.7% compared to the year ended
December 31, 2009. These increases were due to growth in
REVPAR at existing hotels as well as the net addition of 27
managed and 65 franchised hotels to our system since the
beginning of 2009.
Total vacation ownership and residential sales and services
revenue increased 2.9% to $538 million compared to
$523 million in 2009 primarily driven by the impact of ASU
2009-17.
Originated contract sales of VOI inventory decreased 3.1% for
the year ended December 31, 2010 when compared to the same
period in 2009. This decline was primarily driven by lower tour
flow which was down 6.8% for the year ended December 31,
2010 when compared to the same period in 2009. The decline in
tour flow was a result of the economic climate and resulting
closure of fractional 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 primarily due to the recognition of
$4 million of marketing and license fees associated with a
new hotel and residential project in Guangzhou, China which
opened in 2010.
Other revenues from managed and franchised properties increased
primarily due to an increase in payroll costs commensurate with
increased occupancy at our existing managed hotels and payroll
costs for the new hotels entering the system. 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 are made based upon
the costs incurred with no added margin, these revenues and
corresponding expenses have no effect on our operating income
and our net income.
The increase in selling, general, administrative and other
expenses for the year ended December 31, 2010 was primarily
a result of higher incentive based compensation in the current
year when compared to the prior year. This increase was
partially offset by the reimbursement of previously expensed
legal costs in connection with the favorable settlement of a
lawsuit and an $8 million reversal of a guarantee liability
which was favorably settled during the period (see Note 26).
During the year ended December 31, 2010, we received cash
proceeds of $75 million in connection with the favorable
settlement of a lawsuit. We recorded this settlement, net of the
reimbursement of legal costs incurred in connection with the
litigation, as a credit to restructuring, goodwill impairment,
and other special (credits) charges.
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Additionally, we recorded an $8 million credit related to
the reversal of a reserve associated with an acquisition 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
decisions, we recorded a primarily non-cash impairment charge of
$255 million in the restructuring, goodwill impairment and
other special charges (credits) line item. Additionally, we
recorded a $90 million non-cash charge for the impairment
of goodwill in the vacation ownership reporting unit.
Additionally, throughout 2009, we recorded restructuring and
other special charges of $34 million related to our ongoing
initiative of rationalizing our cost structure. These charges
related to severance charges and costs to close vacation
ownership sales galleries.
The decrease in depreciation expense for the year ended
December 31, 2010, when compared to the same period of
2009, was due to reduced depreciation expense from sold hotels
offset by additional capital expenditures made in the last
twelve months.
The increase in operating income for the year ended
December 31, 2010, when compared to the same period of
2009, is primarily related to the restructuring, goodwill
impairments and other special charges (credits) favorable
benefit of $75 million in 2010 compared to a charge of
$379 million in 2009 (see earlier discussion).
Additionally, the increase in operating income was favorably
impacted by improved operating results in primarily all of our
revenue streams, as discussed earlier.
The increase in equity earnings and gains and losses from
unconsolidated joint ventures for the year ended
December 31, 2010, when compared to the same period of
2009, was primarily due to improved operating results at several
properties owned by joint ventures in which we hold
non-controlling interests. The increase also relates to a charge
of approximately $4 million, in 2009, related to an
unfavorable
mark-to-market
adjustment on a US dollar denominated loan in an unconsolidated
venture in Mexico.
The increase in net interest expense was primarily due to
interest of $27 million on securitized debt related to the
adoption of ASU
No. 2009-17,
partially offset by certain early debt extinguishment costs of
$21 million that were incurred in 2009. Our weighted
average interest rate was 6.86% at December 31, 2010 as
compared to 6.73% at December 31, 2009.
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During the year ended December 31, 2010, we recorded a net
loss on dispositions of approximately $39 million,
primarily related to a $53 million loss on the sale of one
wholly-owned hotel (see Note 5) as well as a
$4 million impairment of fixed assets that are being
retired in connection with a significant renovation of a
wholly-owned hotel, and a $2 million impairment on one
hotel whose carrying value exceeded its fair value. These
charges were partially offset by a gain of $14 million from
insurance proceeds received for a claim at a wholly-owned hotel
that suffered damage from a storm in 2008, a $5 million
gain as a result of an acquisition of a controlling interest in
a joint venture in which we previously held a non-controlling
interest (see Note 4) and a $4 million gain from
the sale of non-hotel assets.
During the year ended December 31, 2009, we recorded a net
loss on dispositions of approximately $91 million,
primarily related to $41 million of impairment charges on
six hotels whose carrying values exceeded their fair values, a
$22 million impairment of our retained interests in
vacation ownership mortgage receivables, a $13 million
impairment of an investment in a hotel management contract that
has been cancelled, a $5 million impairment of certain
technology-related fixed assets and a $4 million loss on
the sale of a wholly-owned hotel.
The $320 million increase in income tax expense primarily
relates to 2009 items that did not recur in 2010, including a
$120 million deferred tax benefit for an Italian tax
incentive program in which the tax basis of land and building
for the hotels we own in Italy was stepped up to fair value in
exchange for paying a current tax of $9 million, a
$51 million tax benefit related to previously unrecognized
foreign tax credits for prior tax years and a $10 million
benefit to reverse the deferred interest accrual associated with
the deferral of taxable income. The remaining increase is
primarily due to higher pretax income in 2010, partially offset
by a benefit of $42 million related to an IRS audit.
Discontinued
Operations, Net of Tax
During the year ended December 31, 2010, we recorded a gain
of $134 million related to the final settlement with the
IRS regarding the World Directories disposition and a gain of
approximately $36 million related to the sale of one
wholly-owned hotel. The tax benefit was related to the
realization of a high tax basis in this hotel that was generated
through a previous 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 operations
resulting in a loss of $2 million, net of tax. In addition,
the net gain on the assets sold in 2009 and the one hotel held
for sale at December 31, 2009 has been recorded in
discontinued operations resulting in income of $76 million,
net of tax.
30
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Year
Ended December 31, 2009 Compared with Year Ended
December 31, 2008
The decrease in revenues from owned, leased and consolidated
joint venture hotels was primarily due to the economic crisis in
the United States and internationally. The decrease was also due
to lost revenues from 15 wholly owned hotels sold or closed in
2009 and 2008. These sold or closed hotels had revenues of
$68 million in the year ended December 31, 2009
compared to $248 million in the corresponding period of
2008. Revenues at our Same-Store Owned Hotels (53 hotels for the
year ended December 31, 2009 and 2008, excluding the 15
hotels sold or closed and 10 additional hotels undergoing
significant repositionings or without comparable results in 2009
and 2008) decreased 24.0%, or $437 million, to
$1.386 billion for the year ended December 31, 2009
when compared to $1.823 billion in the same period of 2008
due primarily to a decrease in REVPAR.
REVPAR at our Same-Store Owned Hotels decreased 24.6% to $128.95
for the year ended December 31, 2009 when compared to the
corresponding 2008 period. The decrease in REVPAR at these
Same-Store Owned Hotels resulted from a 17.1% decrease in ADR to
$199.22 for the year ended December 31, 2009 compared to
$240.23 for the corresponding 2008 period and a decrease in
occupancy rates to 64.7% in the year ended December 31,
2009 when compared to 71.2% in the same period in 2008. REVPAR
at Same-Store Owned Hotels in North America decreased 24.4% for
the year ended December 31, 2009 when compared to the same
period of 2008. REVPAR declined in substantially all of our
major domestic markets. REVPAR at our international Same-Store
Owned Hotels decreased by 25.0% for the year ended
December 31, 2009 when compared to the same period of 2008.
REVPAR declined in most of our major international markets.
REVPAR for Same-Store Owned Hotels internationally decreased
20.3% excluding the unfavorable effects of foreign currency
translation.
The decrease in management fees, franchise fees and other income
was primarily a result of an $87 million decrease in
management and franchise revenue to $630 million for the
year ended December 31, 2009 compared to $717 million
in the corresponding period in 2008. The decrease was due to the
significant decline in base and incentive management fees as a
result of the global economic crisis, partially offset by fees
from the net addition of 40 managed and franchised hotels to our
system and approximately $15 million in termination fees
recognized in 2009 when compared to $4 million in 2008.
The decrease in vacation ownership and residential sales and
services was primarily due to lower originated contract sales of
VOI inventory, which represents vacation ownership revenues
before adjustments for percentage of completion accounting and
other deferrals, partially offset by gains of $23 million
relating to securitizations. Originated contract sales of VOI
inventory decreased 39% for the year ended December 31,
2009 when compared to the same period in 2008. This decline was
primarily driven by lower tour flow which was down 19.2% for the
year ended December 31, 2009 when compared to the same
period in 2008. The decline in tour flow was a result of the
economic climate and resulting closure of underperforming sales
centers. Additionally, the average contract amount per vacation
ownership unit sold decreased 21.4% to approximately $16,000,
driven by a higher sales mix of lower-priced inventory,
including a higher percentage of lower-priced biennial
inventory. The decrease is also due to a $43 million
decrease in residential revenue, as the 2008 period included
license fees in connection with two St. Regis projects.
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Other revenues from managed and franchised properties decreased
primarily due to a decrease in costs, commensurate with the
decline in revenues, at 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 are made
based upon the costs incurred with no added margin, these
revenues and corresponding expenses have no effect on our
operating income and our net income.
The decrease in selling, general, administrative and other
expenses was primarily a result of our focus on reducing our
cost structure in the current economic climate. Beginning in the
middle of 2008, we began an activity value analysis project to
review our cost structure across a majority of our corporate
departments and divisional headquarters. (See Note 14 for a
summary of charges associated with this initiative.) A majority
of the cost containment initiatives were completed and
implemented in late 2008 and early 2009 and are now being
realized. Costs and expenses related to our former Bliss spa
business were reclassified to discontinued operations for both
periods presented as a result of its sale at the end of 2009.
During the fourth quarter of 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 decisions, we
recorded a primarily non-cash impairment charge of
$255 million in the restructuring, goodwill impairment and
other special charges line item. Additionally, we recorded a
$90 million non-cash charge for the impairment of goodwill
in the vacation ownership reporting unit.
Additionally, throughout 2009, we recorded restructuring and
other special charges of $34 million related to our ongoing
initiative of rationalizing our cost structure. These charges
related to severance charges and costs to close vacation
ownership sales galleries.
During the year ended December 31, 2008, we recorded
restructuring and other special charges of $141 million,
including $62 million of severance and related charges
associated with our ongoing initiative of rationalizing our cost
structure in light of the current economic climate. We also
recorded impairment charges of approximately $79 million
primarily related to the decision not to develop two vacation
ownership projects as a result of the economic climate and its
impact on business conditions.
The decrease in depreciation expense was due to reduced
depreciation expense from sold hotels offset by additional
capital expenditures made in the last twelve months.
The decrease in operating income was primarily due to the
decline in our core business units, hotels and vacation
ownership, due to the severe impact from the global economic
crisis as discussed above and the related impairments and
restructuring charges previously discussed. Additionally,
operating income was impacted by a
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$17 million charge, recorded in the vacation ownership
costs and expenses line, related to a price reduction in
vacation ownership intervals, following an in-depth review of
the business. These decreases were partially offset by the
reduction in selling, general, administrative and other costs as
a result of our activity value analysis costs savings project
and other cost savings initiatives and a favorable
$14 million income item related to the expiration of the
statute of limitations on an indirect tax exposure and a
Brazilian water claim.
The decrease in equity earnings and gains and losses from
unconsolidated joint ventures was primarily due to decreased
operating results at several properties owned by joint ventures
in which we hold non-controlling interests. The decrease also
relates to a charge of approximately $4 million, in 2009,
related to an unfavorable
mark-to-market
adjustment on a US dollar denominated loan in an unconsolidated
venture in Mexico.
The increase in net interest expense was primarily due to higher
interest rates in the year ended December 31, 2009 when
compared to the same period of 2008 and early debt
extinguishment costs of $21 million that were incurred in
2009. This was partially offset by a lower average debt balance
in 2009 as compared to 2008. Our weighted average interest rate
was 6.73% at December 31, 2009 as compared to 5.24% at
December 31, 2008.
During 2009, we recorded a net loss on dispositions of
approximately $91 million, primarily related to
$41 million of impairment charges on six hotels whose
carrying values exceeded their fair values, a $22 million
impairment of our retained interests in vacation ownership
mortgage receivables, a $13 million impairment of an
investment in a hotel management contract that has been
cancelled, a $5 million impairment of certain
technology-related fixed assets and a $4 million loss on
the sale of a wholly-owned hotel.
During 2008, we recorded a net loss of $98 million
primarily related to $64 million of impairment charges on
five hotels, a $22 million impairment of our investment in
vacation ownership notes receivable that we have previously
securitized, and an $11 million write-off of our investment
in a joint venture in which we hold minority interest (see
Note 5).
The $365 million decrease in income tax expense primarily
relates to a deferred tax benefit of $120 million (net) in
2009 for an Italian tax incentive program in which the tax basis
of land and buildings for the hotels we own in Italy was
stepped-up
to fair value in exchange for paying a current tax of
$9 million. The remaining decrease primarily relates to tax
benefits of $67 million associated with impairments,
restructuring and asset sales and $37 million related to a
foreign tax credit election change. Additionally, a benefit of
$10 million was recognized to reverse the deferred interest
accrual associated with the deferral of taxable income. The
remaining decrease is primarily due to lower pretax income.
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Discontinued
Operations, Net of Tax
During 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 two hotels which were sold in 2010, were reported
in discontinued operations resulting in a loss of
$2 million, net of tax. In addition, the net gain on the
assets sold in 2009 and the one hotel held for sale at
December 31, 2009 has been recorded in discontinued
operations resulting in income of $76 million, net of tax.
For the year ended December 31, 2008, the gain on
dispositions includes a $124 million gain
($129 million pretax) on the sale of three properties which
were sold unencumbered by management or franchise contracts. The
tax impact on this transaction was minimized due to the
utilization of capital loss carryforwards. Additionally, in
2009, $5 million was reclassified to discontinued
operations (in the 2008 results) relating to one hotel that was
in the process of being sold at the end of 2009. Discontinued
operations for the year ended December 31, 2008 also
includes a $49 million tax charge as a result of a 2008
administrative tax ruling for an unrelated taxpayer, that
impacts the tax liability associated with the disposition of one
of our businesses several years ago.
LIQUIDITY
AND CAPITAL RESOURCES
Cash flow from operating activities is generated primarily from
management and franchise revenues, operating income from our
owned hotels and sales of VOIs and residential units. Other
sources of cash are distributions from joint ventures, servicing
financial assets and interest income. These are the principal
sources of cash used to fund our operating expenses, interest
payments on debt, capital expenditures, dividend payments and
property and income taxes. We believe that our existing
borrowing availability together with capacity for additional
borrowings and cash from operations will be adequate to meet all
funding requirements for our operating expenses, principal and
interest payments on debt, capital expenditures, dividends and
any share repurchase program we may initiate in the foreseeable
future.
The majority of our cash flow is derived from corporate and
leisure travelers and is dependent on the supply and demand in
the lodging industry. In a recessionary economy, we experience
significant declines in business and leisure travel. The impact
of declining demand in the industry and higher hotel supply in
key markets could have a material impact on our sources of cash.
Our
day-to-day
operations are financed through net working capital, a practice
that is common in our industry. The ratio of our current assets
to current liabilities was 1.07 and 0.74 as of December 31,
2010 and 2009, respectively. Consistent with industry practice,
we sweep the majority of the cash at our owned hotels on a daily
basis and fund payables as needed by drawing down on our
existing revolving credit facility.
State and local regulations governing sales of VOIs and
residential properties allow the purchaser of such a VOI or
property to rescind the sale subsequent to its completion for a
pre-specified number of days. In addition, cash payments
received from buyers of units under construction are held in
escrow during the period prior to obtaining a certificate of
occupancy. These payments and the deposits collected from sales
during the rescission period are the primary components of our
restricted cash balances in our consolidated balance sheets. At
December 31, 2010 and 2009, we had short-term restricted
cash balances of $53 million and $47 million,
respectively.
During 2010, we completed a series of disposition, financing and
other transactions that resulted in proceeds of approximately
$650 million as outlined below:
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Gross capital spending during the full year ended
December 31, 2010 was as follows (in millions):
Gross capital spending during the year ended December 31,
2010 included approximately $148 million of maintenance
capital, and $117 million of development capital.
Investment spending on gross vacation ownership interest and
residential inventory was $168 million, primarily in Bal
Harbour, Florida. Our capital expenditure program includes both
offensive and defensive capital. Defensive spending is related
to maintenance and renovations that we believe are necessary to
stay competitive in the markets we are in. Other than capital to
address fire and life safety issues, we consider defensive
capital to be discretionary, although reductions to this capital
program could result in decreases to our cash flow from
operations, as hotels in certain markets could become less
desirable. The offensive capital expenditures, which are
primarily related to new projects that we expect will generate a
return, are also considered discretionary. We currently
anticipate that our defensive capital expenditures for the full
year 2011 (excluding vacation ownership and residential
inventory) will be approximately $300 million for
maintenance, renovations, and technology capital. In addition,
for the full year 2011, we currently expect to spend
approximately $150 million for investment projects.
During the year ended December 31, 2010, we made a
$23 million investment into an unconsolidated joint
venture. Our partner in the joint venture contributed an equal
amount and the funds were used to pay off a third-party
mortgage. Our interest in this unconsolidated joint venture was
subsequently sold, and we received cash proceeds of
approximately $42 million. Additionally, we will continue
to manage the hotel, formerly owned by the joint venture, under
a long-term management contract.
During the year ended December 31, 2010, we paid
approximately $23 million to acquire a controlling interest
in a joint venture in which we had previously held a
non-controlling interest (see Note 4).
In order to secure management or franchise agreements, we have
made loans to third-party owners, made minority investments in
joint ventures and provided certain guarantees and
indemnifications. See Note 26 of the consolidated financial
statements for discussion regarding the amount of loans we have
outstanding with owners, unfunded loan commitments, equity and
other potential contributions, surety bonds outstanding,
performance guarantees and indemnifications we are obligated
under, and investments in hotels and joint ventures.
We intend to finance the acquisition of additional hotel
properties (including equity investments), construction 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 our credit facilities
described below, through the net proceeds from dispositions,
through the assumption of debt, and from cash generated from
operations.
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We periodically review our business to identify properties or
other assets that we believe either are non-core (including
hotels where the return on invested capital is not adequate), no
longer complement our business, are in markets which may not
benefit us as much as other markets during an economic recovery
or could be sold at significant premiums. We are focused on
enhancing real estate returns and monetizing investments.
Since 2006, we have sold 62 hotels realizing proceeds of
approximately $5.3 billion in numerous transactions (see
Note 5 of the consolidated financial statements). There can
be no assurance, however, that we will be able to complete
future dispositions on commercially reasonable terms or at all.
The 2010 asset sales resulted in gross cash proceeds from
investing activities of approximately $150 million and are
discussed in our general liquidity discussion under cash used
for financing activities.
Cash Used
for Financing Activities
The following is a summary of our debt portfolio (including
capital leases) as of December 31, 2010:
For specifics related to our financing transactions, issuances,
and terms entered into for the years ended December 31,
2010 and 2009, see Note 16 of the consolidated financial
statements. We have evaluated the commitments of each of the
lenders in our Revolving Credit Facilities (the
“Facilities”). In addition, we have reviewed our debt
covenants and do not anticipate any issues regarding the
availability of funds under the Facilities.
On April 20, 2010, we executed a new $1.5 billion
Senior Credit Facility (“New Facility”). The New
Facility matures on November 15, 2013 and replaces the
former $1.875 billion Revolving Credit Agreement, which
would have matured on February 11, 2011.
Due to the adoption of ASU
Nos. 2009-16
and 2009-17,
as discussed in Notes 2, 10, and 11, our 2010 cash flows
from financing activities include the borrowings and repayments
of securitized vacation ownership debt.
During 2010, as previously described in Cash from Operating
Activities, we completed a series of disposition, financing and
other transactions that resulted in proceeds of approximately
$650 million. As a result of these transactions and cash
flow from operations, net debt was reduced to
$2.060 billion compared to net debt of $2.819 billion
as of December 31, 2009. Our gross debt at
December 31, 2010 was $2.857 billion, excluding debt
associated with securitized vacation ownership notes receivable.
Additionally, we had cash and cash equivalents of
$797 million (including $44 million of restricted
cash) at December 31, 2010. As discussed earlier, we
adopted
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ASU Nos.
2009-16 and
2009-17 on
January 1, 2010 and, as a result, at December 31, 2010
we had $494 million of non-recourse debt and
$19 million of restricted cash associated with securitized
vacation ownership receivables. Including this debt and
restricted cash associated with securitized vacation ownership
receivables, our net debt was $2.535 billion at
December 31, 2010.
Our Facilities are used to fund general corporate cash needs. As
of December 31, 2010, we have availability of over
$1.4 billion under the Facilities. We have reviewed the
financial covenants associated with our Facilities, the most
restrictive being the leverage ratio. As of December 31,
2010, we were in compliance with this covenant and expect to
remain in compliance through the end of 2011. 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
expenditures. However, there can be no assurance that we will
stay below the required leverage ratio if the current economic
climate deteriorates.
Based upon the current level of operations, management believes
that our cash flow from operations and asset sales, together
with our significant cash balances (approximately
$816 million at December 31, 2010, including
$63 million of short-term and long-term restricted cash),
available borrowings under the Facilities and other bank credit
facilities (approximately $1.4 billion at December 31,
2010), and capacity for additional borrowings will be adequate
to meet anticipated requirements for scheduled maturities,
dividends, working capital, capital expenditures, marketing and
advertising program expenditures, other discretionary
investments, interest and scheduled principal payments and share
repurchases for the foreseeable future. However, there can be no
assurance that we will be able to refinance our indebtedness as
it becomes due and, if refinanced, on favorable terms. In
addition, there can be no assurance that in our continuing
business we will generate cash flow at or above historical
levels, that currently anticipated results will be achieved or
that we will be able to complete dispositions on commercially
reasonable terms or at all.
If we are unable to generate sufficient cash flow from
operations in the future to service our debt, we may be required
to sell additional assets at lower than preferred amounts,
reduce capital expenditures, refinance all or a portion of our
existing debt or obtain additional financing at 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 and to general economic,
political, financial, competitive, legislative and regulatory
factors beyond our control.
We had the following contractual obligations (1) outstanding as
of December 31, 2010 (in millions):
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We had the following commercial commitments outstanding as of
December 31, 2010 (in millions):
A dividend of $0.30 per share was paid in December 2010 to
shareholders of record as of December 16, 2010.
A dividend of $0.20 per share was paid in January 2010 to
shareholders of record as of December 31, 2009.
Off-Balance
Sheet Arrangements
Our off-balance sheet arrangements include letters of credit of
$159 million, unconditional purchase obligations of
$225 million and surety bonds of $23 million. These
items are more fully discussed earlier in this section and in
the Notes to Financial Statements and Item 8 of
Part II of this report.
In limited instances, we seek to reduce earnings and cash flow
volatility associated with changes in interest rates and foreign
currency exchange rates by entering into financial arrangements
intended to provide a hedge against a portion of the risks
associated with such volatility. We continue to have exposure to
such risks to the extent they are not hedged.
We enter into a derivative financial arrangement to the extent
it meets the objectives described above, and we do not engage in
such transactions for trading or speculative purposes.
At December 31, 2010, we were party to the following
derivative instruments:
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The following table sets forth the scheduled maturities and the
total fair value of our debt portfolio and other financial
instruments as of December 31, 2010 (in millions, excluding
average exchange rates):
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The financial statements and supplementary data required by this
Item are included in Item 15 of this Annual Report and are
incorporated herein by reference.
Not applicable.
As of the end of the period covered by this report, we carried
out an evaluation, under the supervision and with the
participation of our management, including our principal
executive and principal financial officers, of the effectiveness
of the design and operation of our disclosure controls and
procedures (as such term is defined in
Rules 13(a)-15(e)
and 15(d)-15(e) of the Securities Exchange Act of 1934 (the
“Exchange Act”)). Based upon the foregoing evaluation,
our principal executive and principal financial officers
concluded that our disclosure controls and procedures were
effective and operating to provide reasonable assurance that
information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is recorded, processed,
summarized, 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
appropriate to allow timely decisions regarding required
disclosure.
There has been no change in our internal control over financial
reporting (as defined in
Rules 13(a)-15(e)
and 15(d)-15(e) under the Exchange Act) that occurred during the
period covered by this report that has materially affected, or
is reasonably likely to materially affect, our internal control
over financial reporting.
Management of Starwood Hotels & Resorts Worldwide,
Inc. and its subsidiaries is responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act
Rule 13a-15(f)
or 15(d)-15(f). Those rules define internal control over
financial reporting as a process designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles
(“GAAP”) and includes those policies and procedures
that:
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of the
Company’s internal controls over financial reporting as of
December 31, 2010. In making this assessment, the
Company’s management used the criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
Based on our assessment and those criteria, management believes
that, as of December 31, 2010, 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 Company’s internal control over financial
reporting. Its report is included herein.
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The Board of Directors and Shareholders 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, 2010, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). The Company’s
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company as of
December 31, 2010 and 2009; 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, 2010 of the Company and our report dated
February 17, 2011, expressed an unqualified opinion thereon.
/s/ Ernst &
Young LLP
New York, New York
February 17, 2011
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There has not been any change in our internal control over
financial reporting identified in connection with the evaluation
that occurred during the year ended December 31, 2010 that
has materially affected, or is reasonably likely to materially
affect, those controls.
Not applicable.
Information regarding directors, executive officers and
corporate governance is incorporated by reference to our Proxy
Statement for the Annual Meeting of Stockholders to be held
May 5, 2011 (the “Proxy Statement”), which will
be filed with the Securities and Exchange Commission no more
than 120 days after the close of our fiscal year.
Information regarding executive compensation is incorporated by
reference to the Proxy Statement, which will be filed with the
Securities and Exchange Commission no more than 120 days
after the close of our fiscal year.
Information regarding security ownership of certain beneficial
owners and management and related stockholder matters is
incorporated by reference to the Proxy Statement, which will be
filed with the Securities and Exchange Commission no more than
120 days after the close of our fiscal year.
Information regarding certain relationships and related
transactions and director independence is incorporated by
reference to the Proxy Statement, which will be filed with the
Securities and Exchange Commission no more than 120 days
after the close of our fiscal year.
Information regarding principal accounting fees and services is
incorporated by reference to the Proxy Statement, which will be
filed with the Securities and Exchange Commission no more than
120 days after the close of our fiscal year.
(a) The following documents are filed as part of this
Annual Report:
3. Exhibits:
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44
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45
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46
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Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
Frits van Paasschen
Chief Executive Officer and Director
Date: February 17, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates
indicated.
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STARWOOD
HOTELS & RESORTS WORLDWIDE, INC.
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The Board of Directors and Shareholders of Starwood
Hotels & Resorts Worldwide, Inc.
We have audited the accompanying consolidated balance sheets of
Starwood Hotels & Resorts Worldwide, Inc. (the
“Company”) as of December 31, 2010 and 2009, 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, 2010. Our audits also
included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the
responsibility 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 perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 2010 and
2009, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2010, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
As discussed in Note 2 to the consolidated financial
statements, the Company adopted Financial Accounting Standards
Board (“FASB”) Accounting Standards Update
(“ASU”)
No. 2009-16,
Transfers and Servicing (Topic 860): Accounting for
Transfers of Financial Assets (formerly Statement of
Financial Accounting Standards (“SFAS”) No. 166),
and ASU
No. 2009-17,
Consolidations (Topic 810): Improvements to Financial
Reporting by Enterprises Involved with Variable Interest
Entities (formerly SFAS No. 167) on
January 1, 2010. The Company adopted
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements — an amendment
of ARB No. 51 (codified in FASB Accounting Standards
Codification Topic 810, Consolidations) on
January 1, 2009.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2010, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated February 17, 2011 expressed an unqualified
opinion thereon.
/s/ Ernst &
Young LLP
New York, New York
February 17, 2011
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STARWOOD
HOTELS & RESORTS WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
The accompanying notes to financial statements are an integral
part of the above statements.
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STARWOOD
HOTELS & RESORTS WORLDWIDE, INC.
The accompanying notes to financial statements are an integral
part of the above statements.
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STARWOOD
HOTELS & RESORTS WORLDWIDE, INC.
The accompanying notes to financial statements are an integral
part of the above statements.
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STARWOOD
HOTELS & RESORTS WORLDWIDE, INC.
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