2012 Hot Annual Report

2013 PROXY STATEMENT & 2012 ANNUAL REPORT
A BETTER WAY
TO EXPERIENCE
THE WORLD.
SHERATON MACAO HOTEL, COTAI CENTRAL
MACAU
The St. Regis Bal Harbour Resort
The St. Regis Doha
The St. Regis Mauritius Resort
Echoes, A Luxury Collection Resort, Blue Mountains
ITC Grand Chola, A Luxury Collection Hotel, Chennai
Keraton at The Plaza, A Luxury Collection Hotel, Jakarta
Lilianfels, A Luxury Collection Resort, Blue Mountains
Metropol Palace, A Luxury Collection Hotel, Belgrade
The Royal Begonia, A Luxury Collection Resort, Sanya
Twelve at Hengshan, A Luxury Collection Hotel, Shanghai
W Bangkok
W Paris - Opra
W Singapore - Sentosa Cove
Le Mridien Arlington
Le Mridien Bali Jimbaran
Le Mridien Istanbul Etiler
Le Mridien Mexico City
The Westin Cape Coral Resort at Marina Village
The Westin Changbaishan Resort
The Westin Lake Las Vegas Resort & Spa
The Westin Ningbo
The Westin Snowmass Resort
The Westin Xiamen
The Westin Xian
Sheraton Bali Kuta Resort
Sheraton Changbaishan Resort
Sheraton Changchun Jingyuetan Hotel
Sheraton Fuzhou Hotel
Sheraton Hartford South Hotel
Sheraton Hefei Xinzhan Hotel
Sheraton Huzhou Hot Spring Resort
Sheraton Macao Hotel, Cotai Central
Sheraton Madrid Mirasierra Hotel & Spa
Sheraton Qingdao Jiaozhou Hotel
Sheraton Qingyuan Lion Lake Resort
Sheraton Sanya Haitang Bay Resort
2012 NEW OPENINGS
Sheraton Shanghai Waigaoqiao Hotel
Sheraton Silver Spring Hotel
Sheraton Tampa East Hotel
Sheraton Valley Forge Hotel
Sheraton Vitoria Hotel
Sheraton Xian North City Hotel
Sheraton Yantai Golden Beach Resort
Aloft Asheville Downtown
Aloft Chandigarh Zirakpur
Aloft Nashville West End
Aloft San Jose Hotel, Costa Rica
Aloft Vaughan Mills
Aloft Zhengzhou Zhengdong New District
Element Miami International Airport
Four Points by Sheraton Chattanooga
Four Points by Sheraton Edmonton Gateway
Four Points by Sheraton French Quarter
Four Points by Sheraon Hainan, Sanya
Four Points by Sheraton Kalamazoo
Four Points by Sheraton Luohe
Four Points by Sheraton Memphis - Southwind
Four Points by Sheraton Mexico City, Colonia Roma
Four Points by Sheraton Perth
Four Points by Sheraton Puntacana Village
Four Points by Sheraton Qingdao, Jiaonan
Four Points by Sheraton Sandakan
Four Points by Sheraton San Diego Downtown
Four Points by Sheraton Shenzhou Peninsula Resort
Four Point by Sheraton Suzhou
Four Points by Sheraton Tallahassee Downtown
Four Points by Sheraton West Lafayette
Four Points by Sheraton Yangzhou, Hanjiang
Wildwood Snowmass
The global recovery continued through
2012, despite changing governments and
economic uncertainty. The major trends
driving growth in demand for high-end
travel enabled Starwood to perform well.
By the numbers, we:
Grew Same Store Worldwide RevPAR by
5% in constant dollars and Management
and Franchise Fees by over 10%
Opened 69 hotels, with nearly 18,000
rooms, including the Sheraton Macao,
our largest hotel
Signed 131 deals for new hotels, growing
our pipeline to 400 hotels, with 100,000
rooms
Sold eight hotels for $540 million
Invested over $300 million in our owned
hotels, including trophy properties like the
Gritti Palace in Venice and the Alfonso XIII
in Seville
Generated $684 million in residential sales
at The St. Regis Bal Harbour Resort
Returned over $550 million to stockholders
by increasing our dividend by 150% and
repurchasing 6.3 million shares
We delivered these results thanks to the
efforts and expertise of our 171,000
associates in nearly 100 countries.
UNPRECEDENTED GROWTH
IN GLOBAL TRAVEL
We are putting the final touches on this
letter from our month-long relocation to
Dubai. Our executive team is here to see
firsthand the development in this new
global crossroads and to work side by side
with our local teams to continue our growth.
Dubai can already lay claim to being
second only to New York as the city with
the largest number of Starwood hotels (14).
Fueling the growth in travel and demand
for hotels in Dubai and other markets is
the rising global middle class, which is
expected to grow from 2 billion to nearly
5 billion people in the next 20 years. New
cities are being built, old ones expanded
and more people than ever before have
the means to travel. The construction of
roads, rail and airports is creating demand
for hotels in places where it never existed
before. And a more connected world
means more global business and more
executives traveling to new markets in
search of opportunities. The result already
is rapid growth in passenger traffic in
airports like Dubai, Chongqing, So Paulo
and Moscow.
We believe we are on the cusp of a golden
age in high-end travel and that Starwood
is uniquely positioned to outgrow our
competitors. We have the most global
portfolio of high-end, compelling brands;
local-smart teams with decades of
experience in markets around the world;
and a first-mover advantage in places like
China, India, the Middle East and Africa.
SUSTAINING INNOVATION
Innovation is what lies behind our brands,
enabling them to stand out in a crowded
marketplace and offering travelers distinct
experiences. Starwoods history of game-
changing ideas goes back to the creation
DEAR FELLOW
STOCKHOLDERS
+5%

SAME STORE
WORLDWIDE REVPAR
IN CONSTANT
DOLLARS
+10%

MANAGEMENT AND
FRANCHISE FEES
69
HOTELS OPENED,
WITH NEARLY
18,000
ROOMS
131
SIGNED DEALS
FOR NEW HOTELS,
GROWING
OUR PIPELINE TO
400
HOTELS
$550+

MILLION RETURNED
TO SHAREHOLDERS
of W Hotels, the Westin Heavenly Bed
and Starwood Preferred Guest (SPG) with
no blackouts. In the past few years, we
rolled out the Link@Sheraton, a first-of-
its-kind cybercafe. And we launched Aloft
and Element, both of which promise to be
as disruptive to their segments as W has
been to luxury.
In 2012, we turned our innovation lens
back to loyalty. SPG was already the
industrys leading program. And we made
it even more valuable for SPG members
and our hotels by introducing new
benefits. Your24 allows our most loyal
guests to keep their room for a full 24
hours regardless of when they checked
in, and lifetime membership recognizes
guests who have stayed with us over
time. For our members who stay over 100
nights a year, we give them access to a
personal Starwood Ambassador to take
care of everything Starwood and more.
We like to say we have created Loyalty
Beyond Reason, winning a greater share
of business from the growing ranks of
global mega-travelers.
Innovation only matters if it drives results.
Our transformation of SPG in 2012 drove
a 12% year-over-year increase in revenue
to our hotels from SPG members. And
revenue from Platinum SPG members
was up 16%.
Our innovation lens is also focused on
the mobile revolution. Mobile bookings
are now growing even faster than web
bookings did a decade ago. In fast-
growing economies, mobile often is
already leapfrogging traditional channels.
So in 2012, we launched our latest SPG
App for both iPhone and Android. It has
all the features you might expect like
viewing hotel details, making bookings
and managing your SPG account. But
theres more. It connects guests to
Starwood through text, email, voice and
video chat. While guests are staying at
our properties, the Apps State Aware
technology changes the interface and
provides helpful information about the
property and local area. For example, it
shows the hotel address in Chinese to
help you take a taxi to the stunning new
Sheraton Huzhou. Were already seeing
great results. During 2012, the App was
installed over 600,000 times, and mobile
bookings more than doubled over 2011.
And on our Chinese App after just a few
months, mobile accounted for half of our
web bookings.
LOOKING AHEAD
Starwood is already the leading global
high-end hotel company, and in 2012,
we generated 35% of our fees outside of
mature markets. With 80% of our future
hotel openings planned in these high-
growth markets, we are growing where
demand is growing. Our focus on the
high end is also paying off, as interest
in high-end and luxury travel has more
than bounced back it has reached new
heights. The Sheraton and Le Mridien
brands, for example, have never been
stronger in terms of their performance,
guest satisfaction and future growth. And
their long-standing presence around the
world provides the foundation for two of
the fastest-growing brands in hospitality
history W and Aloft. The simple truth
is that having great hotels begets even
more growth as more guests, customers
and developers become connected to
our brands.
We enter 2013 with the strongest balance
sheet in the history of our company,
perhaps the fastest-growing luxury hotel
portfolio in the industry and the largest
high-end global footprint of hotels. As
a result, we expect to generate strong
free cash flow and to continue delivering
market-leading returns to stockholders.
Specifically, we expect to grow with our
high-quality global pipeline in rapidly
growing markets and with higher rates
in mature markets with tight supply, like
North America and Europe. All the while,
we will generate cash from selling hotels
and from vacation ownership.
Thank you for your confidence in Starwood.
As we leave Dubai and the Middle East,
we hope to see even faster growth in the
region, just as we did after our temporary
relocation to China a couple of years ago.
I wish you many wonderful stays at
Starwood properties in 2013, and as we
say on Facebook, Twitter and Weibo, we
hope you enjoy the #SPGLife.
Frits van Paasschen
Chief Executive Officer
STARWOOD
HOTELS & RESORTS
WORLDWIDE, INC.

One StarPoint
Stamford, CT 06902
April18, 2013
Dear Stockholder:
We cordially invite you to attend our 2013 Annual Meeting of Stockholders (the Annual Meeting), which will be held on
May30, 2013, at 10:00 a.m., local time, at the Sheraton New Orleans Hotel, 500 Canal Street, New Orleans, Louisiana
70130.
At the Annual Meeting, you will be asked to (i)elect eleven director nominees to serve on our board of directors until the 2014
Annual Meeting of Stockholders, (ii)approve, on a non-binding advisory basis, the compensation of our named executive
ofcers, (iii) approve Starwoods 2013 Long-Term Incentive Compensation Plan, (iv)ratify the appointment of Ernst& Young
LLP as our independent registered public accounting rm for the scal year ending December31, 2013 and (v)act on
any other matters that may be properly presented at the Annual Meeting or any adjournment or postponement thereof.
We hope you will attend the Annual Meeting, but whether or not you are planning to attend, we encourage you to vote
your shares. You can vote in person at the Annual Meeting or authorize proxies to vote your shares either by telephone,
electronically through the Internet, or by completing, signing and returning your proxy card by mail prior to the Annual
Meeting. To ensure your vote is counted, please vote as promptly as possible.
We thank you for your continued support and look forward to seeing you at the Annual Meeting.
Sincerely,

Frits van Paasschen Bruce W. Duncan
Chief Executive Ofcer and President Chairman of the Board
YOUR VOTE IS IMPORTANT.
PLEASE PROMPTLY SUBMIT YOUR PROXY BY MAIL, TELEPHONE OR OVER THE INTERNET.

Notice of Annual Meeting
ofStockholders
May30, 2013
10:00 a.m. local time
The Sheraton New Orleans Hotel, 500 Canal Street, New Orleans, Louisiana 70130
ITEMSOF BUSINESS:
1. To elect eleven directors to serve until the 2014 Annual Meeting of Stockholders and until their
successors are duly elected and qualied;
2. To consider and vote upon a proposal to approve, on a non-binding advisory basis, the compensation
of our named executive ofcers;
3. To approve Starwoods 2013 Long-Term Incentive Compensation Plan;
4. To consider and vote upon a proposal to ratify the appointment of Ernst & Young LLP as our independent
registered public accounting rm for scal year 2013; and
5. To transact such other business as may properly come before the meeting or any postponement or
adjournment thereof.
RECORD DATE:
Holders of record at the close of business on April3, 2013 are entitled to notice of, and to vote at,
themeeting and any adjournment or postponement thereof.

By Order of the Board of Directors,
Kenneth S. Siegel
Corporate Secretary
April18, 2013
Stamford, Connecticut
THE BOARD OF DIRECTORS URGES YOU TO VOTE IN PERSON AT THE ANNUAL MEETING
OR TO AUTHORIZE PROXIES TO VOTE YOUR SHARES BY TELEPHONE, THROUGH
THEINTERNET OR BY COMPLETING, SIGNING AND RETURNING YOUR PROXY CARD
PRIOR TO THEANNUALMEETING.
Table of Contents
PROXY SUMMARY 4
PROXY STATEMENT FOR2013ANNUALMEETINGOFSTOCKHOLDERS 8
THE ANNUAL MEETING AND VOTING QUESTIONS AND ANSWERS 8
CORPORATE GOVERNANCE 13
ELECTION OF DIRECTORS 15
ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION 21
APPROVAL OF THE COMPANYS 2013 LONG-TERM INCENTIVE COMPENSATION PLAN 21
RATIFICATION OF APPOINTMENT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 33
BENEFICIAL OWNERSHIP OF PRINCIPAL STOCKHOLDERS 34
BENEFICIAL OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS 35
EXECUTIVE COMPENSATION 37
Compensation Discussion and Analysis ..............................................................................................................................................................................................................................................37
Compensation Committee Report ...............................................................................................................................................................................................................................................................53
2012 Summary Compensation Table ......................................................................................................................................................................................................................................................55
2012 Grants of Plan-Based Awards Table ........................................................................................................................................................................................................................................56
Narrative Disclosure to Summary Compensation Table andGrants of Plan-Based Awards Table ...................................................................57
Outstanding Equity Awards at 2012 Fiscal Year-End Table ......................................................................................................................................................................................58
2012 Option Exercises and Stock Vested Table.......................................................................................................................................................................................................................60
2012 Nonqualied Deferred Compensation Table .................................................................................................................................................................................................................60
Potential Payments Upon Termination or Change in Control .................................................................................................................................................................................61
Director Compensation ................................................................................................................................................................................................................................................................................................64
AUDIT COMMITTEE REPORT 67
COMPENSATION COMMITTEE INTERLOCKS ANDINSIDER PARTICIPATION 68
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 68
OTHER MATTERS 69
SOLICITATION COSTS 69
HOUSEHOLDING 70
STOCKHOLDER PROPOSALS FOR NEXT ANNUALMEETING 70
GENERAL DIRECTIONS 71
ANNEX A: STARWOOD HOTEL & RESORTS WORLDWIDE, INC.
2013LONGTERMINCENTIVECOMPENSATION PLAN A-1
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.-2013Proxy Statement 4
PROXY SUMMARY
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information
that you should consider, and you should read the entire proxy statement carefully before voting. Page references (XX) are supplied
to help you nd further information in this proxy statement.
2013 Annual Meeting of Stockholders
Date and Time: Thursday, May30, 2013, at 10:00 a.m. local time
Location: The Sheraton New Orleans Hotel, 500 Canal Street, New Orleans, Louisiana 70130
Record Date: April3, 2013
Voting Matters and Board Recommendations
Our Boards Recommendation
Election of Directors (page 15 ) FOR each Director Nominee
Advisory Vote to Approve Named Executive Ofcer Compensation (page 21 ) FOR
Approval of 2013 Long-Term Incentive Compensation Plan (page 21 ) FOR
Ratication of Auditors (page 33 ) FOR
Advance Voting Methods
Even if you plan to attend the 2013 Annual Meeting of Stockholders
in person, please vote right away using one of the following advance
voting methods. Make sure to have your proxy card or Notice
of Meeting and Internet Availability of Proxy Materials in hand
and follow the instructions.
You can vote in advance in one of the following ways:
VIA THE INTERNET: Visit the website listed on your proxy
card or Notice.
BY TELEPHONE: Call the telephone number on your proxy
card or follow the instructions on the Notice.
BY MAIL: Follow the instructions on the Notice to request a
paper copy of the materials, which will include a proxy card
that you mark, sign, date and mail in the provided postage-
paid envelope.
Business Highlights
Results for the year ended December31, 2012 were strong. We
performed well along all four key drivers of value. We held our
costs in check for the fourth year in a row, grew our footprint with
quality hotels and contracts, sustained high Revenue Per Available
Room (RevPAR) and occupancies in an uncertain environment,
and realizedsignicant valuefromreal estate sales.Our results
for the year ended December31, 2012 beneted from the sales
of residential units at the St. Regis Bal Harbour. During 2012, we
closed sales of 188 units and realized revenues of $684million.
From project inception through December31, 2012, we have
closed contracts and recognized revenue on 224 units representing
approximately 73% of the total residential units.
For 2012, our business highlights included:
We grew Same Store Worldwide RevPAR by 5 % in constant
dollars and Management and Franchise Fees by over 10 %;
We opened 69 hotels with nearly 18 ,0 00 rooms, including the
Sheraton Macao, our largest hotel ;
We signed 131 deals for new hotels, growing our pipeline to
400 hotels with 100,000 rooms;
We sold eight hotels for $540 million;
We invested over $300million in our owned hotels, including
trophy properties like the Gritti Palace in Venice and the Alfonso
XIII in Seville;
We generated $684 million in residential sales at the St. Regis
Bal Harbour; and
We returned over $550 million to stockholders, increasing our
dividend by 150% and repurchasing 6.3million shares.
PROXY SUMMARY
Corporate Governance Highlights (page 13 )
Board Leadership Structure Our board leadership structure
consists of the Chief Executive Ofcer and President of the
Company and ten outside directors, including the Chairman
and four committee Chairs. The Board of Directors believes
that having a separate independent director serve as Chairman
promotes clear, independent board leadership and engagement.
The Board of Directors also believes it is well served by having
the Chief Executive Ofcer and President of the Company serve
as a member of the Board, as the Chief Executive Ofcer and
President of the Company has primary responsibility for managing
the Companys day-to-day operations and, consequently, a
unique understanding of the Companys operations, and the
hotel and leisure industry generally.
Declassied Board Structure Each of our directors is elected
to serve for one year only, until the next annual meeting of
stockholders and until his or her successor is duly elected and
qualied.
Director Independence Each of our directors, with the
exception of Mr. van Paasschen, is independent under the
New York Stock Exchange (NYSE) rules. Mr. van Paasschen,
as Chief Executive Ofcer and President of the Company, is not
an independent director. Each of our four standing committees
is fully independent.
Risk Oversight The Board of Directors regularly receives
reports from members of the Companys senior management
regarding any strategic, operational, nancial, legal, regulatory
or reputational risk that the Company may be facing. The Board
of Directors then reviews managements assessment, discusses
options for mitigating any such risk with management, and
directs management to manage and minimize the Companys
exposure. The Boards committees assist it with the risk oversight
function as follows:
the Audit Committee oversees the Companys controls and
compliance activities and oversees managements process for
identifying and quantifying risks facing the Company;
the Compensation and Option Committee oversees risk
associated with our compensation policies and practices and
structures the Companys incentive compensation in a way
that discourages the taking of excessive risks;
the Corporate Governance and Nominating Committee oversees
Board processes and corporate governance-related risk and
annually reviews legal and regulatory risk with the Companys
General Counsel; and
the Capital Committee oversees risks related to our hotel
portfolio, capital improvement plans and capital budgets, and
any investments, divestitures, signicant asset sales, mergers
and acquisitions and other extraordinary transactions.
Director Nominees (page15 )
The following table provides summary information about each Director nominee. Each Director stands for election annually.
Name Age
Director
Since Primary Occupation Independent
Committee
Memberships
(1)
Other Current Public
Company Boards
Frits van Paasschen 52 2007 CEO and President of Starwood No None 0
Adam M. Aron 58 2006 CEO of the Philadelphia 76ers and Chairman
andCEO of World Leisure Partners, Inc.
Yes Audit, Comp 1
Charlene Barshefsky 62 2001 Senior International Partner at WilmerHale, LLP Yes Audit, Gov 3
Thomas E. Clarke 61 2008 President, New Business Development of Nike, Inc. Yes Audit, Comp 1
Clayton C. Daley, Jr. 61 2008 Retired; former CFO and Vice Chair of The Procter &
Gamble Company
Yes Audit, Comp 2
Bruce W. Duncan 61 1999 President and CEO of First Industrial Realty Trust, Inc. Yes Gov 1
Lizanne Galbreath 55 2005 Managing Partner of Galbreath & Company Yes Capital, Gov 0
Eric Hippeau 61 1999 Partner with Lerer Ventures Yes Capital, Gov 0
Aylwin B. Lewis 57 2013 President and CEO of Potbelly Sandwich Works, LLC Yes Audit 1
Stephen R. Quazzo 53 1999 CEO of Pearlmark Real Estate Partners, L.L.C. Yes Capital 0
Thomas O. Ryder 68 2001 Retired; former Chairman and CEO ofTheReaders
Digest Association, Inc.
Yes Capital, Comp 3
(1) Full committee names are as follows:
Audit Audit Committee
Capital Capital Committee
Comp Compensation and Option Committee
Gov Corporate Governance and Nominating Committee
PROXY SUMMARY
Named Executive Ofcer Compensation (page37 )
Philosophy and Objectives (page 40 )
As a consumer lifestyle company with a branded hotel portfolio
at its core, we operate in a competitive, dynamic and challenging
business environment. In step with this mission and environment,
the key objectives for our compensation program for our named
executive ofcers for 2012 were to (1) attract and retain talented
executives from within and outside the hospitality industry who
understand the importance of innovation, brand enhancement and
consumer experience, (2) motivate our executives to sustain high
performance and achieve our nancial and strategic/operational/
leadership goals (without encouraging excessive risk taking), and (3)
align the investment interests of stockholders and the compensation
interests of our executives by linking executive compensation
to our annual business results and stock performance. More
specically, our compensation program for our named executive
ofcers was designed to achieve:
Alignment with Stockholders Signicant equity incentives with
stock ownership guidelines help ensure long-term compensation
is strongly linked to stockholder returns.
Achievement of Company Financial Objectives A portion
of named executive ofcer compensation is tied directly to our
nancial performance.
Achievement of Strategic/Operational/Leadership Objectives
A portion of our named executive ofcer compensation depends
on the achievement of specic individual objectives that align with
the execution of our business strategy, as well as demonstrated
performance tied to our core leadership competencies that
include team building and the development of future talent.
2012 Compensation Highlights (page 37 )
Key highlights of our named executive ofcer compensation
program for scal 2012 included:
Base Salaries Mr. van Paasschen did not receive an increase in
base salary in scal 2012. The base salaries of most other named
executive ofcers increased to more closely align these ofcers
salaries with the median base salary of executives at peer companies.
Incentive Pay Largely Contingent Upon Our Performance
Seventy-vepercent of our named executive ofcers total
target annual cash incentive opportunity was tied to our 2012
nancial results, representing no change in philosophy compared
to scal 2011.
Special Long-Term Cash Incentive Award Mr. Rivera
received a payout of $1.1 million in settlement of a special
long-term cash incentive award originally granted to him in
2009 regarding our St. Regis Bal Harbour property. Although
the target payout for this award was $1.0 million, the Board paid
Mr. Rivera at 110% of target due to exceptional nancial results
that beat expectations, signicant outperformance against all
payment terms and overwhelming external positive reviews of
the property since it opened.
Modest Increase in Equity Grants The total equity grants
made to our named executive ofcers increased by less than
5% when compared to scal 2011.
Pay Mix Geared Towards Variable Compensation The
proportion of the CEOs total compensation that was variable
was 86% in scal 2012, unchanged from scal 2011.
Elimination of Future Tax Gross-UpsIn line with market best
practice, the Compensation Committee agreed in 2012 that we
will no longer provide tax gross-ups other than those required to
be paid under existing employment agreements. In addition, Mr.
van Paasschens employment agreement renewal, discussed in
the section entitled New 2013 Employment Agreement with Mr.
van Paasschen beginning on page 50 of this proxy statement,
will not provide for any excise tax gross-up.
As the chart below indicates, a comparison of the compensation
that we have reported in the Summary Compensation Table since
2009 for Mr. van Paasschen has moved in tandem with our annual
total stockholder return over the past four years:
TSR CEO Compensation
STOCK RETURN PERFORMANCE vs. CEO COMPENSATION
2008 2010 2009 2012
2011
0
50
100
150
200
250
300
350
TSR assuming investment of $100 on
December 31, 2008 ($)
CEO Compensation ($ 000)
4,500
5,500
6,500
7,500
8,500
9,500
10,500
11,500
PROXY SUMMARY
Pay Mix (page 38 )
The information in the charts below should be read in connection with the explanatory information contained on page 38 , and is qualied
in its entirety by reference to such explanatory information. Because of rounding, percentages may not add up to 100%.
59%
14%
27%
CEO COMPENSATION MIX
LTI Base Salary Bonus
TARGET
61%
19%
19%
NEO COMPENSATION MIX
TARGET
Set forth below is the 2012 compensation for each named executive ofcer as determined under Securities and Exchange Commission
(SEC) rules. See the notes and narrative accompanying the 2012 Summary Compensation Table on page 55 of this proxy statement
for more information.
Name and Principal Position
Salary
($)
Bonus
($)
Stock Awards
($)
Option
Awards
($)
Non-Equity
IncentivePlan
Compensation
($)
All Other
Compensation
($)
Total
($)
Frits van Paasschen
Chief Executive Ofcer
andPresident
1,250,000 4,327,101 1,172,036 2,300,000 53,902 9,103,039
Vasant M. Prabhu
Vice Chairman
andChiefFinancial Ofcer
764,279 2,310,809 639,296 705,443 10,000 4,429,827
Sergio D. Rivera
Co-President, The Americas
699,912 1,258,469 255,726 1,764,240 26,894 4,005,241
Kenneth S. Siegel
Chief Administrative Ofcer,
General Counsel and Secretary
638,490 12,770 1,476,605 404,877 587,411 10,000 3,130,153
Simon M. Turner
President, Global Development
763,991 1,310,690 1,065,480 705,443 10,000 3,855,604
Matthew E. Avril
Former President, Hotel Group
764,279 1,710,765 468,818 352,722 26,891 3,323,475
PROXY STATEMENT
FOR2013ANNUALMEETINGOFSTOCKHOLDERS
Our Board of Directors (the Board) solicits your proxy for the
2013 Annual Meeting (the Annual Meeting) of Stockholders of
Starwood Hotels& Resorts Worldwide, Inc., a Maryland corporation
(we, us, Starwood or the Company), to be held on May30,
2013, at 10:00 a.m. local time, at the Sheraton New Orleans
Hotel, 500 Canal Street, New Orleans, Louisiana 70130, and
at any postponement or adjournment thereof. Proxy materials
or a Notice of Meeting and Internet Availability were rst sent to
stockholders on or about April18, 2013.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS. THE PROXY STATEMENT FOR THE
2013 ANNUAL MEETING OF STOCKHOLDERS AND THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER31, 2012 ARE AVAILABLE AT www.starwoodhotels.com/corporate/about/investor/index.html.
THE ANNUAL MEETING AND VOTING
QUESTIONS AND ANSWERS
What is the purpose of the Annual Meeting?
At our Annual Meeting, stockholders will act upon the matters
outlined in the Notice of Annual Meeting of Stockholders. These
include the election of the eleven director nominees, a non-
binding advisory vote to approve the compensation of our named
executive ofcers, approval of Starwoods 2013 Long-Term Incentive
Compensation Plan, ratication of the appointment of Ernst& Young
LLP as our independent registered public accounting rm, and
any other matters that may be properly presented at the meeting.
We are not aware of any matters to be presented at the meeting,
other than those described in this proxy statement. If any matters
not described in the proxy statement are properly presented at
the meeting, or any adjournment or postponement thereof, the
proxies may vote your shares pursuant to the discretionary authority
granted in the proxy.
Why did I receive a notice in the mail regarding the Internet
availability of the proxy materials instead of a paper copy
oftheproxy materials?
The SEC has adopted rules permitting the electronic delivery of
proxy materials. In accordance with those rules, we have elected
to provide access to our proxy materials, which include the Notice
of Annual Meeting, Proxy Statement and Annual Report on Form
10-K for the scal year ended December31, 2012, over the Internet
at www.starwoodhotels.com/corporate/about/investor/index.html.
We sent a Notice of Meeting and Internet Availability of Proxy
Materials (the Notice) to our stockholders of record and benecial
owners as of the close of business on April3, 2013, directing them
to a website where they can access the proxy materials and view
instructions on how to authorize proxies to vote their shares over
the Internet or by telephone. Stockholders who previously indicated
a preference for paper copies of our proxy materials going forward
received paper copies. If you received a Notice but would like to
request paper copies of our proxy materials, you may still do so by
following the instructions described in the Notice.
Choosing to receive your proxy materials by email will save us the
cost of printing and mailing the documents to you and will also
help preserve environmental resources. Unless you afrmatively
elect to receive paper copies of our proxy materials in the future by
following the instructions included in the Notice, you will continue
to receive a Notice directing you to a website for electronic access
to our proxy materials.
THE ANNUAL MEETING AND VOTING QUESTIONS AND ANSWERS
When and where will the Annual Meeting be held?
The Annual Meeting will be held on May30, 2013 at 10:00 a.m., local time, at the Sheraton New Orleans Hotel, 500 Canal Street,
New Orleans, Louisiana 70130. Seating will begin at 9:00 a.m. If you plan to attend the Annual Meeting and have a disability or require
special assistance, please contact the Companys Investor Relations department at (203)351-3500.
Who can attend the Annual Meeting?
Only stockholders of record at the close of business on April3,
2013, the record date, or their duly authorized proxies, may attend
the Annual Meeting. To gain admittance, you must present valid
photo identication, such as a drivers license or passport.
If you hold your shares in street name (through a broker, bank or
other nominee), you will also need to bring a copy of a brokerage
statement or a letter from your broker or other nominee (in a name
matching your photo identication) reecting your stock ownership
as of the record date.
If you are a representative of a corporate or institutional stockholder,
you must present valid photo identication, along with proof that
you are a representative of such stockholder.
Please note that cameras, phones, or other similar electronic
devices and the bringing of large bags, packages or sound or video
recording equipment will not be permitted in the meeting room.
How many shares must be present to hold the Annual Meeting?
In order for us to conduct the Annual Meeting, holders of a majority
of the shares entitled to vote as of the close of business on the
record date must be present in person or by proxy. This constitutes
a quorum for the transaction of business at the Annual Meeting.
You are counted as present if you attend the Annual Meeting and
vote in person, if you properly authorize proxies to vote your shares
over the Internet or by telephone or if you properly execute and
return a proxy card by mail prior to the Annual Meeting.
Abstentions and broker non-votes are counted as present for
purposes of determining whether a quorum is present at the
Annual Meeting.
If a quorum is not present, the Annual Meeting will be adjourned
until a quorum is obtained. Whether or not a quorum is present
when the Annual Meeting is convened, the presiding ofcer may
adjourn the Annual Meeting to a date not more than 120 days
after April3, 2013, the record date, without notice other than
announcement at the Annual Meeting. If a motion is made to
adjourn the Annual Meeting, the persons named as proxies on
the enclosed proxy card may vote your shares pursuant to the
discretionary authority granted in the proxy.
Who is entitled to vote at the Annual Meeting?
If you were a stockholder of record at the close of business on April3, 2013, the record date, you are entitled to notice of, and to vote
at, the Annual Meeting, or at any adjournment or postponement thereof, on any matter that is properly presented and submitted to
a vote. On April3, 2013, there were 194,618,929 shares of common stock issued, outstanding and entitled to vote. Each owner of
record on the record date is entitled to one vote for each share of common stock held.
How do I vote my shares?
In Person.If you are a stockholder of record, you may vote in
person at the Annual Meeting. If you hold shares in street name
(through a broker, bank or other nominee), you may also vote in
person at the Annual Meeting provided you have legal proxy from
such broker, bank or other nominee to vote the shares held on
your behalf. Please contact your broker, bank or other nominee
for further information on such proxy. You will not be able to vote
your shares at the Annual Meeting without a legal proxy from your
broker, bank or other nominee. You will need to bring the legal
proxy with you to the Annual Meeting and hand it in with a signed
ballot that will be made available and distributed at the Annual
Meeting. If you do not plan to attend the Annual Meeting or do
not wish to vote in person, you may authorize proxies to vote
your shares by written proxy, by telephone or over the Internet.
By Written Proxy.If you are a stockholder of record and wish to
authorize proxies to vote your shares by written proxy, you may
request a proxy card at any time by following the instructions
on the Notice. If you hold shares in street name, you should
receive instructions on how you may vote by written proxy from
your broker, bank or other nominee.
By Telephone or Internet.If you are a stockholder of record and
wish to authorize proxies to vote your shares by telephone or
over the Internet, you may use the toll-free telephone number or
access the electronic link to the proxy voting site by following the
instructions on the Notice. If you hold shares in street name, you
may authorize proxies to vote your shares by telephone or over
the Internet if your broker, bank or other nominee makes these
methods available, in which case you will receive instructions with
the proxy materials.
Each share represented by a properly completed written proxy or
properly authorized proxy by telephone or over the Internet will be
voted at the Annual Meeting in accordance with the stockholders
instructions specied in the proxy, unless such proxy has been
revoked. If no instructions are specied, the shares will be voted
FOR the election of each of the eleven nominees for director
named in this proxy statement, FOR the approval, on a non-
binding advisory basis, of the compensation of our named executive
ofcers, FOR the approval of Starwoods 2013 Long-Term Incentive
Compensation Plan, FOR ratication of the appointment of Ernst&
Young LLP as our independent registered public accounting rm
for scal year 2013, and, with respect to other matters to properly
come before the meeting, pursuant to the discretionary authority
granted in the proxy to the proxy holder.
How many Notices will I receive? What does it mean if I receive
more than one Notice?
If you are a stockholder of record, you will receive only one Notice
(or proxy card upon request) for all of the shares of common
stock you hold in certicate form, book entry form and in any of
our savings plans.
If you hold shares in street name, you will receive one Notice or
voting instruction form for each account you have with a bank or
broker. If you hold shares in multiple accounts, you may need to
provide voting instructions for each account. Please sign and return
all proxy cards or voting instruction forms you receive to ensure
that all of the shares you hold are voted.
What if I hold shares through the Companys 401(k) savings plan
or employee stock purchase plan?
If you participate in the Companys Savings and Retirement Plan
(the Savings Plan) or Employee Stock Purchase Plan (the ESPP),
your proxy card or vote by telephone or over the Internet will serve
as a voting instruction for the trustee of the Savings Plan or ESPP.
Whether you authorize your vote by proxy card, telephone or over
the Internet, you must transmit your vote to the transfer agent on or
prior to 11:59 p.m., Eastern Time on May24, 2013. If you participate
in the Savings Plan and your vote is not received by the transfer
agent by that date or if you sign and return your proxy card without
specifying your voting instructions, the trustee for the Savings Plan
will vote your shares in the same proportion as the other shares for
which such trustee has received timely voting instructions unless
contrary to the Employee Retirement Income Security Act of 1974,
as amended ( ERISA) . If you participate in the ESPP and your
proxy card is not received by the transfer agent by that date or if
you sign and return your proxy card without specifying your voting
instructions, the trustee of the ESPP will not vote your shares.
If I submit a proxy, may I later revoke it and/or change my vote?
If you are a stockholder of record or hold shares in street name,
you may revoke your proxy and change your vote at any time before
the nal vote at the Annual Meeting by:
signing and returning another proxy card with a later date;
submitting a proxy on a later date by telephone or over the
Internet (only your latest proxy will be counted); or
attending the meeting and voting in person if you hold your
shares in your own name or, provided you have obtained a
legal proxy from your broker, bank or other nominee, if you are
a stockholder who holds shares in street name.
Are votes condential? Who counts the votes?
The votes of all stockholders are kept condential except:
as necessary to meet applicable legal requirements and to
assert or defend claims for or against us;
in case of a contested proxy solicitation;
if a stockholder makes a written comment on the proxy card
or otherwise communicates his or her vote to management; or
to allow the independent inspector of election to certify the
results of the vote.
We have retained Broadridge Financial Solutions to tabulate
the votes. We have retained The Carideo Group, Inc. to act as
independent inspector of the election.
How can I conrm my vote was counted?
In furtherance of our commitment to the highest standards of
corporate governance practices, we are once again offering our
stockholders the opportunity to conrm that their votes were
cast in accordance with their instructions. We believe that a vote
conrmation mechanism promotes a more fair and transparent
electoral process. Beginning May 15, 2013 through July 30, 2013,
you may conrm your vote beginning twenty-four hours after your
vote is received, whether it was cast by proxy card, electronically or
telephonically. To obtain vote conrmation, log onto www.proxyvote.
com using your control number (located on your Notice or proxy
card) and receive conrmation on how your vote was cast. If you
hold your shares through a bank or brokerage account, the ability
to conrm your vote may be affected by the rules of your bank or
broker and the conrmation will not conrm whether your bank or
broker allocated the correct number of shares to you.
How does the Board recommend that I vote?
The Board of Directors recommends that you vote:
FOR each of the eleven director nominees;
FOR approval of the non-binding advisory vote on the
compensation of our named executive ofcers;
FOR approval of Starwoods 2013 Long-Term Incentive
Compensation Plan; and
FOR ratication of the appointment of Ernst& Young LLP
as our independent registered public accounting rm for scal
year 2013.
What vote is needed to approve each proposal?
The election of directors requires a plurality of votes cast in the
election of directors at the Annual Meeting, either in person or by
proxy. The eleven nominees who receive the largest number of
FOR votes will be elected to serve as directors until the 2014
Annual Meeting of Stockholders and until their successors are
duly elected and qualied. Stockholders cannot cumulate votes in
the election of directors. Brokers are not permitted to vote on the
election of directors without instructions from the benecial owner,
so if you hold your shares through a broker or other nominee,
your shares will not be voted in the election of directors unless
you afrmatively vote your shares in accordance with the voting
instructions provided by such broker or other nominee. Instructions
to ABSTAIN will have no effect on the result of the vote.
Adoption of a resolution approving, on a non-binding advisory
basis, the compensation of our named executive ofcers requires
a majority of the votes cast at the Annual Meeting, either in person
or by proxy. Abstentions and broker non-votes will have no effect
on the result of the vote. The Board of Directors expects to take
the result of the advisory vote into consideration when making
future compensation decisions.
The approval of Starwoods 2013 Long-Term Incentive Compensation
Plan requires a majority of the votes cast at the Annual Meeting,
either in person or by proxy. Brokers are not permitted to vote on the
approval of Starwoods 2013 Long-Term Incentive Compensation
Plan without instructions from the benecial owner, so if you hold
your shares through a broker or other nominee, your shares will not
be voted on the approval of Starwoods 2013 Long-Term Incentive
Compensation Plan unless you afrmatively vote your shares in
accordance with the voting instructions provided by such broker
or other nominee. Instructions to ABSTAIN will have no effect
on the result of the vote.
The ratication of the appointment of Ernst& Young LLP as our
independent registered public accounting rm for scal year 2013
requires a majority of the votes cast at the Annual Meeting, either
in person or by proxy. Brokers may vote uninstructed shares on
this matter. Abstentions will have no effect on the result of the
vote. If a majority of the votes cast are AGAINST ratication of
the appointment of Ernst& Young LLP, the Board of Directors and
the Audit Committee will reconsider the appointment.
What are broker non-votes?
If you hold shares through a broker, bank or other nominee, you
may give voting instructions to such party and the broker, bank or
other nominee must vote as you directed. If you do not give any
instructions, the broker, bank or other nominee may vote on all routine
matters, such as ratication of the appointment of an independent
registered public accounting rm, at its discretion. A broker, bank or
other nominee, however, may not vote uninstructed shares on non-
routine matters, such as the election of directors, the approval of a
compensation plan or an advisory vote on executive compensation,
at its discretion. This is referred to as a broker non-vote.
What happens if a director nominee does not receive
amajority of the votes cast?
Under our Bylaws, a director nominee, running uncontested,
who receives more WITHHELD votes than FOR votes is
required to tender his or her resignation for consideration by the
Board of Directors. The Corporate Governance and Nominating
Committee will then make a recommendation to the Board of
Directors as to whether the Board of Directors should accept
or reject such resignation. The Board of Directors will act on the
tendered resignation and publicly disclose its decision within
90days following certication of the election results. The director
nominee in question will not participate in the deliberation process.
When are stockholder proposals for the 2014 Annual Meeting
ofStockholders due?
In order to be eligible for inclusion in our proxy statement for our
2014 Annual Meeting of Stockholders, stockholder proposals
must be received no later than December19, 2013. Stockholder
proposals received after December19, 2013 would be untimely.
In order to be eligible for consideration at our 2014 Annual Meeting
of Stockholders but not included in our proxy statement, stockholder
proposals must be received no later than March16, 2014, nor
earlier than February19, 2014.
All stockholder proposals must be in writing and received by
the deadlines described above at our principal executive ofces
at Starwood Hotels& Resorts Worldwide, Inc., One StarPoint,
Stamford, Connecticut 06902, Attention: Kenneth S. Siegel,
Corporate Secretary. Stockholder proposals must be in the form
provided in our Bylaws and must include the information set
forth in the Bylaws. If we do not receive the required information
on a timely basis, the proposal may be excluded from the proxy
statement and from consideration at the 2014 Annual Meeting
of Stockholders.
Where can I nd more information about my voting rights as a
stock holder?
The SEC has an informational website that provides stock holders with general information about how to cast their vote and why voting
should be an and important consideration for s tock holders. You may access that information at investor.gov or at sec.gov/spotlight/
proxymatters.shtml.
CORPORATE GOVERNANCE
Overview
Starwood Hotels & Resorts Worldwide, Inc. is committed to
maintaining the highest standards of corporate governance and
ethical business conduct across all aspects of its operations and
decision-making processes.
Important documents governing our corporate governance practices
include our Articles of Incorporation, Bylaws and Amendment to
the Bylaws, Corporate Governance Guidelines, Board of Directors
Committee Charters, Code of Business Conduct and Ethics,
Finance Code of Ethics, Human Rights Policy, Human Trafcking
Position Statement, and Corporate Opportunity and Related
Person Transaction Policy. These documents can be accessed
on our website at www.starwoodhotels.com and are discussed
in more detail below.
Board Leadership Structure
Our board leadership structure consists of the Chief Executive
Ofcer and President of the Company and ten outside directors,
including the Chairman and four committee Chairs. The Board of
Directors believes that having a separate independent director serve
as Chairman promotes clear, independent board leadership and
engagement. The Board of Directors also believes it is well served
by having the Chief Executive Ofcer and President of the Company
serve as a member of the Board, as the Chief Executive Ofcer and
President of the Company has primary responsibility for managing
the Companys day-to-day operations and, consequently, a unique
understanding of the Companys operations, and the hotel and
leisure industry generally. Bruce Duncan currently serves as the
Chairman of the Board of Directors and presides over executive
sessions of non-management directors.
Board Role in Risk Oversight
The Board of Directors regularly receives reports from members
of the Companys senior management regarding any strategic,
operational, nancial, legal, regulatory or reputational risk that the
Company may be facing. The Board of Directors then reviews
managements assessment, discusses options for mitigating any
such risk with management, and directs management to manage
and minimize the Companys exposure. Management is ultimately
responsible for identifying any such risk, and for developing
and implementing mitigation plans throughout various planning
processes, including during the strategic planning process. The
Boards role is one of oversight. The Boards committees assist
it with the risk oversight function as follows:
the Audit Committee oversees the Companys controls and
compliance activities and oversees managements process for
identifying and quantifying risks facing the Company;
the Compensation and Option Committee oversees risk
associated with our compensation policies and practices and
structures the Companys incentive compensation in a way that
discourages the taking of excessive risks;
the Corporate Governance and Nominating Committee oversees
Board processes and corporate governance-related risk and
annually reviews legal and regulatory risk with the Companys
General Counsel; and
the Capital Committee oversees risks related to our hotel
portfolio, capital improvement plans and capital budgets, and
any investments, divestitures, signicant asset sales, mergers
and acquisitions and other extraordinary transactions.
Corporate Governance Policies
In addition to our Charter and Bylaws, we have adopted the
Corporate Governance Guidelines (the Guidelines), which are
posted on our website at www.starwoodhotels.com/corporate/
about/investor/governance.html. The Guidelines address signicant
corporate governance matters and provide the framework for the
Companys corporate governance policies and practices including:
board and committee composition, director and executive ownership
guidelines, incentive recoupment and anti-hedging policies, and
board and committee assessment. The Corporate Governance
and Nominating Committee is responsible for overseeing and
CORPORATE GOVERNANCE
reviewing the Guidelines and for reporting and recommending to
the Board of Directors any changes to the Guidelines.
We have adopted a Finance Code of Ethics (the Finance Code),
applicable to our Chief Executive Ofcer, Chief Financial Ofcer,
Corporate Controller, Corporate Treasurer, Senior Vice President-Taxes
and other persons performing similar functions. The Finance Code
is posted on the Companys website at www.starwoodhotels.com/
corporate/about/investor/governance.html. The Company intends
to post amendments to, and waivers from, the Finance Code on its
website, as required by applicable rules of the SEC.
The Company also has a Code of Business Conduct and Ethics
(the Code of Conduct), applicable to all employees and directors,
that addresses legal and ethical issues that may be encountered in
carrying out their duties and responsibilities. Subject to applicable
law, employees are required to report any conduct they believe to
be a violation of the Code of Conduct. The Code of Conduct is
posted on the Companys website at www.starwoodhotels. com/
corporate/about/investor/governance.html.
To further promote transparency and ensure accurate and adequate
disclosure, the Company has established a Disclosure Committee
comprised of certain senior executives to design, establish and
maintain the Companys internal controls and other procedures with
respect to the preparation of periodic reports required to be led
with the SEC, earnings releases and other written information that
the Company decides to disclose to the investment community. The
Disclosure Committee evaluates the effectiveness of the Companys
disclosure controls and procedures on a regular basis and maintains
written records of its meetings.
The Board of Directors also has certain policies relating to retirement
and a change in a directors principal occupation. One policy provides
that directors who are not employees of the Company or any of its
subsidiaries may not stand for re-election after reaching the age of
72 and that directors who are employees of the Company must retire
from the Board upon retirement from the Company. Another policy
provides that in the event a director changes his or her principal
occupation (including through retirement), such director should
voluntarily tender his or her resignation to the Board.
The Company indemnies its directors and ofcers to the fullest extent
permitted by law so that they will be free from undue concern about
personal liability in connection with their service to the Company.
Indemnication is required pursuant to our Charter and the Company
has entered into agreements with its directors and executive ofcers
undertaking a contractual obligation to provide the same.
Director Independence
In accordance with NYSE rules, the Board of Directors makes an
annual determination as to the independence of the directors and
director nominees. A director or director nominee is not deemed
independent unless the Board of Directors afrmatively determines
that such director or director nominee has no material relationship
with the Company, directly or as an ofcer, stockholder or partner
of an organization that has a relationship with the Company. The
Board of Directors observes all criteria for independence established
by the NYSE listing standards and other governing laws and
regulations. When assessing materiality of a directors relationship
with the Company, the Board of Directors considers all relevant facts
and circumstances, not merely from the directors standpoint, but
from that of the persons or organizations with which the director
has an afliation, and the frequency or regularity of the services,
whether the services are being carried out at arms length in the
ordinary course of business and whether the services are being
provided substantially on the same terms to the Company as
those prevailing at the time from unrelated parties for comparable
transactions. Material relationships can include any commercial,
banking, consulting, legal, accounting, charitable or other business
relationships each director or director nominee may have with
the Company. In addition, the Board of Directors consults with
the Companys external legal counsel to ensure that the Boards
determinations are consistent with all relevant securities laws and
other applicable laws and regulations regarding the denition of
independent director, including but not limited to those set forth
in pertinent listing standards of the NYSE.
Our Board of Directors has determined that each of the directors
and director nominees, with the exception of Mr.van Paasschen, is
independent under the NYSE rules and that these directors have
no material relationship with the Company that would prevent the
directors from being considered independent. Mr.van Paasschen,
as Chief Executive Ofcer and President of the Company, is not
an independent director under the NYSE rules.
In making this determination, the Board of Directors took into
account that four of the non-employee directors, Messrs. Daley,
Duncan and Hippeau and Ms.Galbreath, have no relationship
with the Company except as a director and stockholder of the
Company and that the remaining six non-employee directors have
relationships with companies that do business with the Company
that are consistent with the NYSE independence standards as well
as independence standards adopted by the Board of Directors.
Communications with the Board
The Company has adopted a policy which permits stockholders
and other interested parties to contact the Board of Directors.
If you are a stockholder or interested party and would like to
contact the Board of Directors, you may send a letter to the Board
of Directors, c/othe Corporate Secretary of the Company, One
StarPoint, Stamford, Connecticut 06902 or contact us online
ELECTION OF DIRECTORS
at www.hotethics.com. It is important that you identify yourself
as a stockholder or an interested party in the correspondence.
Ifthe correspondence contains complaints about our Companys
accounting, internal or auditing matters, the Corporate Secretary
will advise a member of the Audit Committee. If the correspondence
concerns other matters or is directed to the non-employee directors,
the Corporate Secretary will forward the correspondence to
the director to whom it is addressed or otherwise as would be
appropriate under the circumstances, attempt to handle the inquiry
directly (for example where it is a request for information or a
stock-related matter), or not forward the communication altogether
if it is primarily commercial in nature or relates to an improper or
irrelevant topic. At each regularly scheduled Board meeting, the
Corporate Secretary or his designee will present a summary of all
such communications received since the last meeting that were
not forwarded and shall make those communications available
to the directors upon request. This policy is also posted on the
Companys website at www.starwoodhotels.com/corporate/about/
investor/governance.html.
Posted Documents
You may obtain a free copy electronically of any of the aforementioned posted documents on Starwoods investor relations website
free of charge at www.starwoodhotels.com/corporate/about/investor/index.html.
Choosing to access the documents online will save us the cost of printing and mailing the documents to you and will also help preserve
environmental resources. While we encourage stakeholders to download documents electronically, if hard copies are required, you may
send a request to the Investor Relations Department of the Company by writing a letter to Starwood Hotels and Resorts Worldwide,
Inc., Attn: Investor Relations, One StarPoint, Stamford, Connecticut 06902.
Please note that the information on the Companys website is not incorporated by reference in this proxy statement.
Under the Companys Charter, each of the Companys directors is elected to serve until the next annual meeting of stockholders and
until his or her successor is duly elected and qualied. Set forth below is information as of April3, 2013 regarding the nominees of the
Board of Directors for election as a director, which has been conrmed by each of them for inclusion in this proxy statement. Each
nominee has agreed to serve on the Board of Directors if elected. If a nominee becomes unavailable for election, proxy holders and
stockholders may vote for another nominee proposed by the Board of Directors or, as an alternative, the Board of Directors may reduce
the number of directors to be elected at the meeting.
The director nominees, if elected, will serve until the 2014 Annual Meeting and until their successor is duly elected and qualied.

Frits van Paasschen
Age: 52
Director since: 2007
Mr. van Paasschen has been Chief Executive
Officer and President of the Company since
September 2007. From March 2005 until
September2007, he served as President and Chief Executive
Ofcer of Molson Coors Brewing Companys largest division,
Coors Brewing Company, a brewing company, prior to its merger
with Miller Brewing Company and the formation of MillerCoors
LLC. Prior to joining Coors, from April2004 until March2005,
Mr.van Paasschen worked independently through FPaasschen
Consulting, a consulting company, and Mercator Investments, a
private equity rm, evaluating, proposing, and negotiating private
equity transactions. Prior thereto, Mr.van Paasschen spent seven
years at Nike, Inc., a designer, developer and marketer of footwear,
apparel and accessory products, most recently as Corporate Vice
President/General Manager, Europe, Middle East and Africa from
2000 to 2004. From 1995 to 1997, Mr.van Paasschen served
as Vice President, Finance and Planning at Disney Consumer
Products, a business segment of The Walt Disney Company that
extends the Disney brand to a range of merchandise, and earlier
in his career was a management consultant for eight years at the
global management consulting rm of McKinsey& Company and
the Boston Consulting Group.
As the Companys Chief Executive Ofcer and President for the
past ve years, Mr. van Paasschen has valuable insight into, and a
unique understanding of, the Companys operations, management
and culture and provides an essential link between management
and the Board on managements business perspectives. His
specic experience with the Company, combined with his extensive
managerial experience and knowledge of the hotel and leisure
industry generally, make him essential to developing the strategic
plan for the Company.

Bruce W. Duncan
Age: 61
Director since: 1999 and current Chairman of
the Board
Committees served: Corporate Governance
and Nominating
Other Current Public Boards: First Industrial Realty Trust, Inc.
Mr. Duncan has been President, Chief Executive Ofcer and a
director of First Industrial Realty Trust, Inc., a real estate investment
trust that engages in the ownership, management, acquisition,
sale, development and redevelopment of industrial real estate
properties, since January2009. From April to September 2007,
Mr.Duncan served as Chief Executive Ofcer of the Company on
an interim basis. He also has been a senior advisor to Kohlberg
Kravis& Roberts& Co., a global investment rm, from July2008
to January2009. He was also a private investor from January2006
to January 2009. From May2005 to December2005, Mr.Duncan
was Chief Executive Ofcer and Trustee of Equity Residential
(EQR), a publicly traded real estate investment trust, and held
various positions at EQR from March2002 to December2005,
including President, Chief Executive Ofcer and Trustee from
January2003 to May2005, and President and Trustee from
March2002 to December2002.
As the Chief Executive Ofcer of First Industrial Realty and former
Chief Executive Ofcer of EQR, Mr, Duncan brings to the Board
extensive experience in real estate matters and investment strategy,
as well as valuable experience as Chief Executive Ofcer of other
publicly traded companies. He also brings a deep understanding
of the Companys operations and business as a result of his
extensive tenure with the Company, including as the interim Chief
Executive Ofcer of the Company.

Adam M. Aron
Age: 58
Committees served: Audit, Compensation and
Option
Other Current Public Boards: Norwegian Cruise Line Holdings Ltd.
Mr. Aron has been Chief Executive Ofcer of the Philadelphia 76ers,
a professional basketball team, and Alternate Governor of the
National Basketball Association since 2011 and, since 2006, has
been the Chairman and Chief Executive Ofcer of World Leisure
Partners, Inc., a leisure-related consultancy. From 1996 through
2006, Mr.Aron served as Chairman and Chief Executive Ofcer of
Vail Resorts, Inc., an owner and operator of ski resorts and hotels.
Mr. Aron is currently a director of Prestige Cruise Holdings and
Norwegian Cruise Line Holdings, and in the past 5years, Mr.Aron
also served as a director of e-Miles LLC, FTD Group, Inc., Rewards
Network, Inc. and Marathon Acquisition Corp.
As Chief Executive Ofcer of World Leisure Partners, former Chief
Executive Ofcer of Vail Resorts and director of Norwegian Cruise
Line and Prestige Cruise, Mr. Aron brings to the Board extensive
experience in the travel and leisure industries. Mr. Aron also has
signicant nancial and operational expertise from his experience as
Chief Executive Ofcer or director of several publicly traded companies.

Charlene Barshefsky
Age: 62
Commi ttees served: Audi t, Corporate
Governance and Nominating
Other Current Public Boards: The Estee Lauder Companies,
Inc., American Express Company and Intel Corporation
Ambassador Barshefsky has been Senior International Partner
at the law rm of WilmerHale, LLP, in Washington,D.C. since
September2001. From March1997 to January2001, Ambassador
Barshefsky was the United States Trade Representative, the chief
trade negotiator and principal trade policymaker for the United
States and a member of the Presidents Cabinet. Ambassador
Barshefsky is a member of the Council on Foreign Relations, a
Trustee of the Howard Hughes Medical Institute and a member
of the Global Advisory Board of Moelis& Company. In the past
5years Ambassador Barshefsky also served as a director of the
Council on Foreign Relations.
As a result of her long-standing career in the public sector,
Ambassador Barshefsky brings to the Board unique and invaluable
insight with respect to public policy and international matters.
Additionally, Ambassador Barshefsky has signicant corporate
governance experience from serving on a number of public
company boards of directors and board committees.
Thomas E. Clarke
Age: 61
Option
Other Current Public Boards: Newell Rubbermaid Inc.
Dr. Clarke has been President, New Business Development of
Nike, Inc., a designer, developer and marketer of footwear, apparel
and accessory products, since 2001. Dr.Clarke joined Nike in
1980. He was appointed Divisional Vice President in charge of
marketing in 1987, Corporate Vice President in 1990, and served
as President and Chief Operating Ofcer from 1994 to 2000.
Dr.Clarke previously held various positions with Nike, primarily in
research, design, development and marketing
As the President, New Business Development of Nike, Dr. Clarke
brings to the Board signicant expertise in brand development
and marketing. His long tenure in various positions with Nike gives
him a strong background and perspective on the marketing and
branding aspects of the Companys business.

Clayton C. Daley,Jr.
Age: 61
Option
Other Current Public Boards: Nucor Corporation and Foster
Wheeler, AG
Mr. Daley spent his entire professional career with The Procter&
Gamble Company, a global consumer packaged goods company,
joining the company in 1974, and has held a number of key
accounting and nance positions including Chief Financial Ofcer
and Vice Chair for Procter& Gamble; Comptroller, U.S.Operations
for Procter& Gamble USA; Vice President and Comptroller of
Procter& Gamble International; and Vice President and Treasurer
of Procter & Gamble. Mr.Daley retired from Procter& Gamble in
October2009. In the past 5 years, Mr.Daley served as a director of
Boy Scouts of America. In addition, Mr. Daley was Senior Advisor
to TPG Capital until October2012.
As the retired Chief Financial Ofcer of Procter & Gamble, Mr. Daley
brings to the Board extensive experience in corporate nance and
accounting matters relevant to large, global businesses, as well
as substantial managerial and strategic development experience.

Lizanne Galbreath
Age: 55
Committees served: Capital, Corporate
Ms. Galbreath has been the Managing Partner of Galbreath&
Company, a real estate investment rm, since 1999. From
April1997 to 1999, Ms.Galbreath was Managing Director of
LaSalle Partners/Jones Lang LaSalle, a real estate services and
investment management rm, where she also served as a director.
From 1984 to 1997, Ms.Galbreath served as a Managing Director,
Chairman and Chief Executive Ofcer of The Galbreath Company,
the predecessor entity of Galbreath& Company.
As the Managing Partner of Galbreath & Company, Ms. Galbreath
brings to the Board signicant expertise in real estate matters and
investment strategy. Her long tenure in the real estate industry
gives her a unique understanding of the Companys business.

Eric Hippeau
Age: 61
Committees served: Capital, Corporate
Mr. Hippeau has been a Partner with Lerer
Ventures, a venture capital fund, since June2011. From 2009 to
2011 he was the Chief Executive Ofcer of The Hufngton Post, a
news website. From 2000 to 2009, he was a Managing Partner of
Softbank Capital, a technology venture capital rm. Mr.Hippeau
served as Chairman and Chief Executive Ofcer of Ziff-Davis
Inc., an integrated media and marketing company, from 1993
to March2000 and held various other positions with Ziff-Davis
from 1989 to 1993. In the past 5 years, Mr.Hippeau served as a
director of the Hufngton Post and Yahoo! Inc.
As a Partner with Lerer Ventures, Mr. Hippeau brings to the Board
extensive investment and venture capital expertise. In addition,
Mr. Hippeau has signicant governance experience as a director,
a strong background in technology and modern media and a
deep understanding of the Companys business as a result of his
extended tenure with the Company.

Aylwin B. Lewis
Age: 57
Committees served: Audit
Other Current Public Boards: The Walt Disney
Company
Mr. Lewis has served as President and Chief Executive Ofcer of
Potbelly Sandwich Works, LLC since June2008. From September
2005 to February 2008, Mr. Lewis was President and Chief
Executive Ofcer of Sears Holdings Corporation, a nationwide
retailer. Prior to being named Chief Executive Ofcer of Sears,
Mr. Lewis was President of Sears Holdings and Chief Executive
Ofcer of KMart and Sears Retail following Sears acquisition
of KMart Holding Corporation in March2005. Prior to that, Mr.
Lewis was President and Chief Executive Ofcer of KMart since
October2004. Mr. Lewis was Chief Multi-Branding and Operating
Ofcer of YUM! Brands, Inc., a franchisor and licensor of quick
service restaurants including KFC, Long John Silvers, Pizza Hut,
Taco Bell and A&W, from 2003 until October2004, Chief Operating
Ofcer of YUM! Brands from 2000 until 2003 and Chief Operating
Ofcer of Pizza Hut from 1996.
As a result of his numerous senior management positions at Yum!
Brands, Kmart, Sears and Potbelly Sandwich Works, Mr. Lewis
brings to the Board signicant expertise in corporate branding,
franchising and management of complex global businesses.

Stephen R. Quazzo
Age: 53
Committees served: Capital
Mr. Quazzo is the Chief Executive Ofcer and
has been the Managing Director and co-founder
of Pearlmark Real Estate Partners, L.L.C., formerly known as
Transwestern Investment Company, L.L.C., a real estate principal
investment rm, since March1996. From April1991 to March1996,
Mr.Quazzo was President of Equity Institutional Investors, Inc., a
private investment rm and a subsidiary of Equity Group Investments,
Inc.
As the Chief Executive Ofcer of Pearlmark Real Estate Partners,
Mr. Quazzo brings to the Board signicant expertise in real estate
matters and investment strategy. He also has a deep understanding
of the Companys business as a result of his extended tenure
with the Company.

Thomas O. Ryder
Age: 68
Committees served: Capital, Compensation
and Option
Other Current Public Boards: Amazon.com,
Inc., Quad/Graphics, Inc. and RPX Corporation
Mr. Ryder retired as Chairman of the Board of The Readers Digest
Association, Inc., a global media and direct marketing company,
in January2007, a position he had held since January 2006.
Mr.Ryder was Chairman of the Board and Chief Executive Ofcer
of that company from April1998 through December 2005. In
addition, Mr.Ryder was Chairman of the Board and Chairman of
the Audit Committee of Virgin Mobile USA, Inc., a wireless service
provider, from October2007 to November2009. Mr.Ryder was
President, American Express Travel Related Services International,
a division of American Express Company, which provides travel,
nancial and network services, from October1995 to April1998.
In the past 5 years, Mr.Ryder has also served as a director of
World Color Press, Inc., a company acquired by Quad/Graphics,
Inc. in July2010.
As the retired Chairman and Chief Executive Ofcer of The Readers
Digest Association and former Chairman of Virgin Mobile USA, Mr.
Ryder brings to the Board extensive leadership, public company
governance and corporate nance experience.
The Board of Directors unanimously recommends
avote FOR the election of each of these nominees.
Board Meeting, Committee Meeting and Annual Meeting
Attendance
Directors are expected to attend Board of Directors meetings,
meetings of committees on which they serve and the annual
meeting of stockholders. The Company encourages all directors
to attend all meetings and believes that attendance at the annual
meeting is as important as attendance at meetings of the Board
of Directors and its committees. All of our incumbent directors
who were directors at the time of the 2012 Annual Meeting of
Stockholders attended such meeting.
During the year ended December31, 2012, the Board of Directors
held six meetings. In addition, directors attended meetings of
individual Board of Directors committees. Each incumbent director
who was a member of the Board of Directors in 2012 attended at
least 75% of the meetings of the Board of Directors and the Board
of Directors committees on which he or she served.
Board Committees
The Board of Directors has established four standing committees:
the Audit Committee, the Capital Committee, the Compensation and
Option Committee and the Corporate Governance and Nominating
Committee. Each of the standing committees operates pursuant
to a written charter adopted by the Board, which is available on
the Companys website at www.starwoodhotels.com/corporate/
about/investor/index.html. Each committees principal functions
are described below:
Audit Committee.The Audit Committee, which has been established
in accordance with Section3(a)(58)(A) of the Securities Exchange Act
of 1934, as amended (the Exchange Act), is currently comprised
of Mr.Daley (chairperson), Messrs. Aron, Lewis and Clarke and
Ambassador Barshefsky, all of whom are independent directors,
as determined by the Board in accordance with the NYSE listing
requirements and applicable federal securities laws. The Board of
Directors has determined that each of Messrs. Aron, Daley and
Lewis is an audit committee nancial expert under federal securities
laws. The Board of Directors has adopted a written charter for the
Audit Committee which states that the Audit Committee provides
oversight regarding accounting, auditing and nancial reporting
practices of the Company. The Audit Committee selects and engages
the Companys independent registered public accounting rm to
audit the Companys annual consolidated nancial statements
and discusses with it the scope and results of the audit. The Audit
Committee also discusses with the independent registered public
accounting rm, and with management, nancial accounting and
reporting principles, policies and practices and the adequacy of
the Companys accounting, nancial, operating and disclosure
controls. The Audit Committee met nine times during 2012.
Capital Committee.The Capital Committee is currently comprised
of Mr.Quazzo (chairperson), Ms.Galbreath and Messrs.Hippeau
and Ryder, all of whom are independent directors, as determined
by the Board in accordance with the NYSE listing requirements
and applicable federal securities laws. The Capital Committee was
established in November2005 to exercise some of the power
of the Board relating to, among other things, capital plans and
needs, mergers and acquisitions, divestitures and other signicant
corporate opportunities between meetings of the Board. The Capital
Committee met four times during 2012.
Compensation and Option Committee.Under the terms of its charter,
the Compensation and Option Committee (the Compensation
Committee) is required to consist of three or more members of the
Board who meet the independence requirements of the NYSE, are
non-employee directors pursuant to Exchange Act Rule16b-3,
and are outside directors for purposes of Section162(m) of the
Internal Revenue Code of 1986, as amended (the Code). The
Compensation Committee is currently comprised of Messrs.Aron
(chairperson), Clarke, Daley and Ryder, all of whom are independent
directors, as determined by the Board in accordance with the
NYSE listing requirements and applicable federal securities laws.
TheCompensation Committee makes recommendations to the
Board with respect to the salaries and other compensation to be
paid to the Companys executive ofcers and other members of
senior management, and administers the Companys employee
benets plans, including the Companys 2004 Long-Term Incentive
Compensation Plan. The Compensation Committee met six times
during 2012.
Corporate Governance and Nominating Committee.The Corporate
Governance and Nominating Committee (the Governance
Committee) operates pursuant to a written charter and is currently
comprised of Ambassador Barshefsky (chairperson), Ms.Galbreath,
and Messrs.Duncan and Hippeau, all of whom are independent
directors, as determined by the Board in accordance with the NYSE
listing requirements and applicable federal securities laws. The
Governance Committee establishes, or assists in the establishment
of, the Companys governance policies (including policies that
govern potential conicts of interest) and monitors and advises the
Company as to compliance with those policies. The Governance
Committee reviews, analyzes, advises and makes recommendations
to the Board with respect to situations, opportunities, relationships
and transactions that are governed by such policies, such as
opportunities in which a director or executive ofcer or their afliates
has a personal interest. In addition, the Governance Committee
is responsible for making recommendations for candidates to the
Board (taking into account suggestions made by ofcers, directors,
employees and stockholders), recommending directors for service
on Board committees, developing and reviewing background
information for candidates, monitoring our executive succession
plan and making recommendations to the Board of Directors for
changes to the Guidelines related to the nomination or qualications
of directors or the size or composition of the Board of Directors.
TheGovernance Committee met eight times during 2012.
There are no rm prerequisites to qualify as a candidate for the
Board, although the Board of Directors seeks a diverse group of
candidates who possess the background, skills and expertise
relevant to the business of the Company, or candidates that
possess a particular geographical or international perspective. The
Board of Directors looks for candidates with qualities that include
strength of character, an inquiring and independent mind, practical
wisdom and mature judgment. The Board of Directors seeks to
ensure that at least two-thirds of the directors are independent
under the Guidelines, and that members of the Audit Committee
meet the nancial literacy requirements under the rules of the NYSE
and at least one of them qualies as an audit committee nancial
expert under applicable federal securities laws. The Governance
Committee does not have a set policy for considering or weighing
diversity in identifying nominees but does seek to have a diversity
of backgrounds, skills and perspectives among Board members,
and considers how the background, skills and perspectives of
the nominee would contribute to the total mix of backgrounds,
skills and perspectives that would be available to the Board as a
whole. The Governance Committee reviews the qualications and
backgrounds of the directors and the overall composition of the
Board on an annual basis, and recommends to the full Board of
Directors the slate of directors to be recommended for nomination
for election at the next annual meeting of stockholders.
The Board of Directors does not believe that its members should
be prohibited from serving on boards and/or committees of other
organizations, and the Board of Directors has not adopted any
guidelines limiting such activities. However, the Governance
Committee and the full Board of Directors will take into account the
nature of, and time involved in, a directors service on other boards
in evaluating the suitability of individual directors and in making its
recommendations to Company stockholders. Service on boards
and/or committees of other organizations must be consistent with
the Companys conict of interest policies.
The Governance Committee may from time-to-time utilize the
services of a search rm to help identify and evaluate candidates
for director who meet the criteria and qualications outlined above.
The Governance Committee will consider candidates for nomination
recommended by stockholders and submitted for consideration.
Although it has no formal policy regarding stockholder candidates,
the Governance Committee believes that stockholder candidates
should be reviewed in substantially the same manner as other
candidates.
Under the Companys current Bylaws, stockholder nominations of
individuals to be elected as directors at an annual meeting of our
stockholders must be made in writing and delivered to the Corporate
Secretary of the Company, One StarPoint, Stamford, Connecticut
06902, and be received by the Corporate Secretary no later than
the close of business on the 75
th
day nor earlier than the close
of business on the 100
th
day prior to the rst anniversary of the
preceding years annual meeting. In accordance with the Companys
current Bylaws, in addition to other required information specied
in the Bylaws, such notice shall set forth as to each proposed
nominee (i)the name, age and business address of each nominee
proposed in such notice, and a statement as to the qualication of
each nominee, (ii)the principal occupation or employment of each
such nominee, (iii)the number of shares which are benecially owned
and owned of record by the nominating stockholder, and (iv)any
other information concerning the nominee that must be disclosed of
nominees in proxy solicitations regulated by Regulation14A of the
Exchange Act, including, without limitation, such persons written
consent to being named in the proxy statement as a nominee and
to serving as a director if elected.
The Company provides a comprehensive orientation for all new
directors. The process involves a corporate overview, one-on-one
meetings with members of senior management and an orientation
meeting. In addition, all directors are given written materials providing
information on the Companys business, its operations and decision-
making processes.
Section16(a) Benecial Ownership Reporting Compliance
Section16(a) of the Exchange Act requires that the Companys
directors and certain ofcers, and persons who own more than
10percent of the outstanding shares of the Company, le with the
SEC (and provide a copy to the Company) certain reports relating
to their ownership of shares.
To the Companys knowledge, based solely on a review of the
copies of these reports furnished to the Company for the scal
year ended December31, 2012, and written representations from
our directors and ofcers, all Section16(a) ling requirements
applicable to the Companys directors, ofcers and greater than
10percent benecial owners were complied with for the most recent
scal year, except that due solely to administrative error, one late
Form 4 was led for Mr. Duncan with respect to one transaction.
In addition, because the Company failed to timely advise Alan
Schnaid that he was subject to the reporting requirements of
Section16 in his position as chief accounting ofcer, Mr. Schnaid
failed to timely le one Form 3 and 24 Form 4s with respect to
84 transactions. Once the Company informed Mr. Schnaid of his
ling obligation, the Company assisted Mr. Schnaid with reporting
all late transactions in July2012.
ADVISORY VOTE ON NAMED EXECUTIVE OFFICER
COMPENSATION
The Board of Directors is committed to the highest standards of
corporate governance and recognizes the signicant interest of
stockholders and investors in executive compensation matters.
The Company has designed its executive compensation programs
to attract, motivate, reward and retain the senior management
talent required to achieve our corporate objectives and increase
stockholder value. We believe that our compensation programs
are centered on pay-for-performance principles and are strongly
aligned with the long-term interests of our stockholders. See the
discussion of the compensation of our named executive ofcers
in the section entitled Compensation Discussion and Analysis
beginning on page37 of this proxy statement.
At both our 2011 and 2012 annual meetings, we provided our
stockholders with the opportunity to cast a non-binding advisory
vote regarding the compensation of our named executive ofcers
as disclosed in the proxy statements for those annual meetings
of stockholders. In both years, our stockholders overwhelmingly
approved the proposal, with more than 96% of the votes cast in
favor of the proposal in both 2011 and 2012. Accordingly, this year
we are again asking our stockholders to indicate their support for
the compensation of our ofcers named in the 2012 Summary
Compensation Table on page 55 of this proxy statement (our
named executive ofcers), as such compensation is disclosed in
the Compensation Discussionand Analysis, compensation tables
and narrative discussion of this proxy statement, as required by
Section14A of the Exchange Act. This say-on-pay vote is not
intended to address any specic item of compensation, but, rather,
the overall compensation of our named executive ofcers and the
philosophy, policies and practices related thereto. We conduct our
say-on-pay votes annually, and expect to hold the next say-on-pay
vote in connection with our 2014 Annual Meeting of Stockholders.
Accordingly, we are asking our stockholders to vote FOR the
following resolution at the Annual Meeting:
RESOLVED, that the Companys stockholders hereby approve,
on a non-binding advisory basis, the compensation paid to our
named executive ofcers, as disclosed pursuant to Item402 of
RegulationS-K, including the Compensation Discussionand
Analysis, compensation tables and narrative discussion in our
proxy statement for the 2013 Annual Meeting of Stockholders.
This say-on-pay vote is advisory, and therefore is not binding on
the Company, the Compensation Committee or the Board of
Directors. However, the Compensation Committee and the Board
of Directors value the opinions of our stockholders and expect to
consider the outcome of the say-on-pay vote when making future
compensation decisions.
The Board of Directors unanimously recommends a
vote FOR the approval, on a non-binding advisory
basis, of the executive compensation program for the
Companys named executive offcers as disclosed in the
Compensation Discussionand Analysis, compensation
tables and narrative discussion of this proxy statement.
APPROVAL OF THE COMPANYS 2013 LONG-TERM
INCENTIVE COMPENSATION PLAN
Overview
In February 2013, the Board, on the recommendation of the
Compensation Committee , unanimously adopted, subject to
stockholder approval, the Companys 2013 Long-Term Incentive
Compensation Plan (the 2013 Plan). The Board unanimously
recommends that stockholders approve the 2013 Plan. The 2013
Plan will become effective upon approval by the stockholders and
will replace the 2004 Long-Term Incentive Compensation Plan, as
amended (the 2004 Plan). Outstanding awards under the 2004
Plan, however, will continue to be governed by the 2004 Plan.
No awards may be granted under the 2013 Plan after the tenth
anniversary of the date on which the stockholders approve the
2013 Plan. However, awards outstanding under the 2013 Plan
will continue to be governed by the 2013 Plan until all awards
granted prior to that date are no longer outstanding.
Awards are anticipated to be made under the 2013 Plan to further
enhance the alignment between executive pay and returns to our
stockholders. In particular, as described in the Compensation
Discussion and Analysis beginning on page 37 of this proxy
statement, the Compensation Committee has approved the use
of performance share awards under which executives may earn
payouts measured by the Companys three-year t otal s hareholder
APPROVAL OF THE COMPANYS 2013 LONG-TERM INCENTIVE COMPENSATION PLAN
r eturn relative to that of a custom peer group of 20 hospitality,
leisure and real estate peers that are of similar scale and operate
in the same space as the Company.
The initial performance shares reecting this design were granted in
February2013 under the 2004 Plan to our CEO and Executive Vice
Presidents . It is anticipated that performance shares reecting this
design will be granted under the 2013 Plan beginning in 2014. The
Compensation Committee believes this performance share design
will enhance the already strong pay for performance philosophy
of the Company and serve to ensure that key executives continue
to be closely aligned with long-term stockholder objectives and
expectations.
To allow for awards under the 2013 Plan to qualify as tax-deductible
performance-based compensation under Section162(m) of the
Code (Section162(m)), as explained below, we are also asking
stockholders to approve the material terms of the performance
goals under the 2013 Plan as well as certain other key terms of the
2013 Plan. Approval of the 2013 Plan will constitute approval of
the performance goals and other key terms specied in the 2013
Plan for purposes of the approval requirements of Section162(m).
On February28, 2013, we made our annual long-term incentive
grants for 2013 under the 2004 Plan. In addition, shares were added
back to the pool of shares available for issuance under the 2004 Plan
pursuant to the share replenishment provisions of the 2004 Plan.
Because these developments affect the amounts reported in the Equity
Compensation Plan Information table in the section entitled Benecial
Ownership of Directors and Executive Ofcers beginning on page
35 of this proxy statement, the following table provides supplemental
information regarding awards outstanding and shares available for
issuance under the 2004 Plan as of March1, 2013:
Number of Stock Options
Outstanding under 2004 Plan
(a)
Weighted Average
Exercise Price
of Outstanding
Options
(b)
Number of Full
Value Awards
Outstanding
under 2004 Plan
(c)
Number of Securities Remaining
Available for Future Issuance Under
2004 Plan (excluding securities
reected in columns (a) and (c))
(d)
Weighted Average Contractual
Life (Years) of Options
Outstanding under 2004 Plan
3,129 , 171 $38.73 3,584,713 55,807,363 3.95
We will grant no additional awards under the 2004 Plan after the
date on which our stockholders approve the 2013 Plan.
If the 2013 Plan is approved by our stockholders, our full dilution
level on May30, 2013 for the 2013 Plan will be 194,687,768
shares (assuming no additional equity-based award activity
between March1, 2013 and May30, 2013). The level of full dilution
assumes 11,000,000 shares will actually be issued and become
outstanding pursuant to awards granted under the 2013 Plan (and
assuming that outstanding performance-vested awards achieve
maximum performance). Our management team, our Board and
our Compensation Committee are cognizant of dilution levels and
strive to maintain dilution at an appropriate level.
Purpose of 2013 Plan
The objectives of the 2013 Plan are to (1) attract and retain
employees, non-employee directors, consultants, advisors and
other persons who perform services for the Company by providing
compensation opportunities that are competitive with other
companies; (2) provide incentives to those individuals who contribute
signicantly to the long-term performance and growth of the
Company and its afliates; and (3) align the long-term nancial
interests of employees and other individuals who are eligible to
participate in the 2013 Plan with those of stockholders.
Why We Believe You Should Vote to Approve the 2013 Plan
The 2013 Plan authorizes the Compensation Committee to provide
equity-based compensation in the form of stock options, stock
appreciation rights (SARs), unrestricted stock, restricted stock,
restricted stock units (RSUs), performance shares, performance
units and other stock-based awards for the purpose of providing
our ofcers and other employees, and those of our subsidiaries,
and non-employees who perform employee functions, incentives
and rewards for performance. We have designed the 2013 Plan
specically to reect our commitment to effective management of
equity-based and incentive compensation. The details of the key
design elements of the 2013 Plan are set forth in the section entitled
Plan Summary beginning on page 24 of this proxy statement.
As further described in the section entitled Compensation
Discussion and Analysis beginning on page 37 of this proxy
statement, we believe our future success depends in part on
our ability to attract, motivate and retain high quality employees.
Our ability to provide equity-based awards under our equity
compensation plans is critical to achieving this success. Our
existing 2004 Plan is scheduled by its terms to expire, and no
longer be available to us for future grants, after May 7, 2014.
We opted to design a new 2013 Plan rather than further extend
the term of the 2004 Plan so that we can reduce the number of
available shares down to a level that better aligns with stockholder
interests. In addition, we have designed the 2013 Plan to ensure
that it implements best practices in equity-based compensation
plan design, and that we continue to operate the plan in an
effective manner. If the 2013 Plan is not approved and the 2004
Plan expires, we would be at a severe competitive disadvantage
as we would not be able to use stock-based awards to recruit
and compensate our ofcers and other employees.
The use of our stock as part of our compensation program is
also important to our continued success because we believe it
fosters a pay-for-performance culture that is an important element
of our overall compensation philosophy. We believe that equity-
based compensation motivates employees to create stockholder
value because the value employees realize from equity-based
compensation is based on our stock price performance. Equity-
based compensation also aligns the compensation interests of
our employees with the investment interests of our stockholders
and promotes a focus on long-term value creation because our
equity-based compensation awards can be subject to vesting
and/or performance criteria.
As mentioned above, as of March 1, 2013, 55,807,363 shares
remained available for issuance under the 2004 Plan, constituting
a signicant number of shares. However, if the 2013 Plan is not
approved by our stockholders, the 2004 Plan will expire in May
2014, and we will have no ability to grant any of the shares remaining
as of that date as equity-based compensation in the future. In
2012, we granted awards under the 2004 Plan to 1,623 employees
covering 1,788,048 shares and we granted awards to 10 non-
employee directors covering 55,510 shares of our common stock.
We currently anticipate that our award grants in 2013 and in future
years (assuming a consistent stock price) will cover substantially the
same amount of (or potentially more) shares as those covered by our
2012 grants. If the 2013 Plan is not approved, we expect that our
2004 Plan will expire by its terms in May 2014 (eliminating our ability
to use shares currently available under that plan for equity-based
compensation), and we may be compelled to increase signicantly
the cash component of our employee compensation, which may
not necessarily align employee compensation interests with the
investment interests of our stockholders as well as the alignment
achieved by equity-based awards. Replacing equity-based awards
with cash payments would also increase cash compensation
expense and use up cash that would be better utilized if reinvested
in our business or returned to our stockholders.
If approved, the 2013 Plans share reserve will signicantly decrease
the number of shares that we may issue pursuant to equity-based
awards from 55,807,363 shares to 11,000,000 shares of common
stock, par value $0.01 per share, plus those shares underlying
awards under the 2004 Plan that are forfeited or cancelled or expire
without having shares issued (or such shares are reacquired by
the Company). The closing price of the common stock on the
NYSE on April 1, 2013 was $62.90 per share.
In determining the number of shares to request for the 2013 Plans
share authorization, we, at the direction of the Compensation
Committee, worked with Meridian Compensation Partners,
LLC (Meridian), the Compensation Committees independent
compensation consultant, to evaluate our recent share usage,
our share availability under the 2004 Plan, our historical burn rate
under the 2004 Plan, our projected burn rate under the 2013 Plan,
the potential cost to stockholders of the new share request under
the 2013 Plan, and the overhang cost associated with outstanding
equity-based awards that we granted under the 2004 Plan.
If the 2013 Plan is approved, we intend to utilize the shares
authorized under the 2013 Plan to continue our practice of
incentivizing key individuals through annual equity-based grants.
We have used a commercially available modeling tool to assist
us in developing the number of available shares as well as the
share counting principles reected in the 2013 Plan. Based on
the analyses provided by this tool, we believe that our authorized
share request and share counting principles are appropriate and
within industry standards. We expect that the authorized share
request will allow us to continue to grant long-term incentives for
the next three years.
We believe that we have demonstrated a commitment to sound
equity compensation practices in recent years. We recognize that
equity-based compensation awards dilute shareholder equity, so we
have carefully managed our equity-based incentive compensation.
Our equity-based compensation practices are targeted to be
competitive and consistent with market practices, and we believe
our historical share usage has been responsible and mindful of
stockholder interests, as described above.
In evaluating this proposal, stockholders should specically
consider the information set forth under the section entitled Plan
Summary below.
Section162(m)
The Board believes that it is in the best interests of the Company
and our stockholders to maintain an equity incentive plan under
which awards may be eligible to qualify for deductibility for federal
income tax purposes. Accordingly, the 2013 Plan is designed
to permit the grant of awards that are intended to qualify as
performance-based compensation to be exempt from the
$1,000,000 deduction limit of Section162(m). In general, under
Section162(m), in order for the Company to be able to deduct
compensation in excess of $1,000,000 paid in any one year to
certain executive ofcers (the Chief Executive Ofcer and three
other executive ofcers identied as specied in Section162(m)
based on their compensation ranking), the compensation must
qualify as performance-based. One of the requirements for
performance-based compensation is that the material terms of
the performance goals under which the compensation may be paid
must be disclosed to and approved by our stockholders at least
once every ve years. For purposes of Section162(m), the material
terms include (1) the employees eligible to receive compensation,
(2) a description of the business criteria on which the performance
goals are based, and (3) the maximum amount of compensation
that can be paid to an employee under the performance goals. With
respect to the various types of awards available under the 2013
Plan, each of these aspects is discussed below. In addition, as
noted above, stockholder approval of the 2013 Plan will constitute
approval of each of these aspects of the 2013 Plan for purposes
of the approval requirements of Section162(m).
Plan Summary
The following summary of the material terms of the 2013 Plan is
qualied in its entirety by reference to the full text of the 2013 Plan,
which is attached as Annex A to this Proxy Statement.
The 2013 Plan is not a qualied deferred compensation plan
under Section401(a) of the Code, and is not intended to be an
employee benet plan within the meaning of ERISA .
Administration of the 2013 Plan
The 2013 Plan will be administered by the Compensation Committee
or such other committee consisting of two or more members as
may be appointed by the Board to administer the 2013 Plan (in
each case, the Committee). So long as shares are traded on the
NYSE, all of the members of the Committee must be independent
directors within the meaning of the NYSEs Corporate Governance
Standards. If any member of the Committee does not qualify as
(1) a non-employee director within the meaning of Rule 16b-3 of
the Exchange Act, and (2) an outside director within the meaning
of Section162(m), the Board will appoint a subcommittee of the
Committee, consisting of at least two members of the Board, to
grant awards to individuals who are subject to the limitations of
Section162(m) (Covered Employees) and to ofcers and members
of the Board who are subject to Section16 of the Exchange
Act (Insiders), and each member of such subcommittee must
satisfy the requirements of (1) and (2) above. References to the
Committee in this summary include and, as appropriate, apply to
any such subcommittee.
Subject to the express provisions of the 2013 Plan, the Committee
is authorized and empowered to do all things that it determines to
be necessary or appropriate in connection with the administration
of the 2013 Plan. The Committee may delegate its authority to
one or more of its members (but not less than two members with
respect to Covered Employees and Insiders). To the extent permitted
by law and applicable stock exchange rules, the Committee may
also delegate its authority to one or more persons who are not
members of the Board, except that no such delegation will be
permitted with respect to Covered Employees and Insiders.
Eligible Participants
Employees of the Company or certain afliates, non-employee
members of the Board, and any other natural person who provides
bona de services to the Company or certain afliates not in
connection with the offer or sale of securities in a capital raising
transaction (subject to certain limitations) will be eligible for selection
by the Committee for the grant of awards under the 2013 Plan.
As of March1, 2013, approximately 1,600 employees of the
Company and its afliates and 10 non-employee members of the
Board would be eligible for awards under the 2013 Plan.
Types of Awards
The 2013 Plan provides for the grant of unrestricted stock, restricted stock, RSUs, performance shares, performance units, non-
qualied stock options (NQSOs), incentive stock options (ISOs), SARs and other stock-based awards. ISOs may be granted only
to employees of the Company or its subsidiaries.
Award Pool
The number of shares that will be available for issuance pursuant to
awards granted under the 2013 Plan is eleven million (11,000,000)
(the Award Pool), subject to adjustment as described in the 2013
Plan. The shares issued by the Company under the 2013 Plan
will be authorized but unissued shares or shares currently held
(or subsequently acquired) as treasury shares, including shares
purchased on the open market or in private transactions.
Upon approval of the 2013 Plan by the stockholders of the Company,
no further grants may be made under the 2004 Plan. However, if
shares awarded or subject to issuance pursuant to awards under
the 2004 Plan are not issued or are reacquired by the Company, in
either case due to the forfeiture, cancellation or expiration of such
awards without having been exercised or settled in shares, those
shares will be available for issuance pursuant to awards under the
2013 Plan. In addition, if the withholding obligation, exercise price
or purchase price under an award under the 2004 Plan is satised
by the Company retaining shares that otherwise would have been
issued also in settlement of the award or by shares tendered by
the participant, the number of shares so retained or tendered
will be available for issuance pursuant to awards under the 2013
Plan. All shares derived from the 2004 Plan will be tracked and
counted as provided in the 2013 Plan (as explained below) and
will not trigger a deduction from the Award Pool.
Each share of restricted stock, each share-settled restricted stock
unit, each share of unrestricted stock and each other stock-
based/stock-settled award will be counted as one share subject
to an award and deducted from the Award Pool (restricted stock
units and other stock-based awards that may not be settled in
shares will not result in a deduction from the Award Pool). Each
performance share that may be settled in shares will be counted
as one share subject to an award (based on the number of shares
that would be paid for achievement of target performance) and
deducted from the Award Pool. Each performance unit that
may be settled in shares will be counted as a number of shares
subject to an award (based on the number of shares that would
be paid for achievement of target performance), with the number
determined by dividing the value of the performance unit at the
time of grant by the fair market value of a share at the time of
grant (the closing price of a share of the Company on the NYSE
on the immediately preceding trading day), and the resulting
number of shares will be deducted from the Award Pool. If a
performance share or performance unit is later settled based on
above-target performance, the number of shares corresponding
to the above-target performance, calculated pursuant to the
applicable methodology specied above, will be deducted from the
Award Pool at the time of settlement; in the event that the Award
is later settled upon below-target performance, the number of
shares corresponding to the below-target performance, calculated
pursuant to the applicable methodology specied above, will be
added back to the Award Pool. Performance shares and units
that may not be settled in shares will not result in a reduction in
the Award Pool. Each NQSO, ISO, and SAR that may be settled
in shares will be counted as one share subject to an award and
deducted from the Award Pool. SARs that may not be settled in
shares will not result in a reduction of the Award Pool.
If shares awarded or subject to issuance under the 2013 Plan
are not issued, or are reacquired by the Company, for reasons
including, but not limited to, a forfeiture of restricted stock or a
restricted stock unit or the termination, expiration or cancellation
of an NQSO, ISO, SAR, performance share or performance
unit or the settlement of an award in cash in lieu of shares, that
number of shares will be added back to the Award Pool. If the
withholding obligation, exercise price or purchase price under an
award is satised by the Company retaining shares that otherwise
would have been issued in settlement of the award or by shares
tendered by the participant, the number of shares so retained or
tendered will be added back to the Award Pool.
Individual Limits
The Committee will determine the individuals to whom awards will
be granted, the number of shares subject to an award, and the
other terms and conditions of an award. Subject to adjustment as
described in the 2013 Plan, and except to the extent the Committee
determines that an award is not intended to comply with the
performance-based compensation provisions of Section162(m),
the maximum number of NQSOs, ISOs, and SARs that, in the
aggregate, may be granted pursuant to awards in any one scal
year to any one participant is three million (3,000,000), the maximum
number of shares of restricted stock and restricted stock units
that, in the aggregate, may be granted pursuant to awards in any
one scal year to any one participant is one million (1,000,000),
the maximum number of performance shares and performance
units (valued as of the grant date) that, in the aggregate, may be
granted in any one scal year to any one participant is equal to
the value of two million (2,000,000) shares, and the maximum
number of other awards (valued as of the grant date) that, in the
aggregate, may be granted pursuant to awards in any one scal
year to any one participant is equal to the value of ve hundred
thousand (500,000) shares. The limitations on performance shares,
performance units and other awards will be applied based on the
maximum amount that could be paid under each such award.
Subject to the change in control acceleration provisions in the
2013 Plan (as described in the section entitled Change in Control
beginning on page 29 of this proxy statement ), the Committee may
provide for automatic accelerated vesting and other rights upon
the occurrence of other events as specied in the agreements
relating to awards under the 2013 Plan.
Adjustments
The Committee will make equitable adjustments in the number
and class of securities available for issuance under the 2013 Plan
(including under any awards then outstanding), the number and
type of securities subject to the individual limits set forth in the 2013
Plan, and the terms of any outstanding award, as it determines are
necessary and appropriate, to reect any merger, reorganization,
consolidation, recapitalization, reclassication, stock split, reverse
stock split, spin-off combination, or exchange of shares, distribution
to stockholders (other than an ordinary cash dividend), or similar
corporate transactions or events.
Restricted Stock and Restricted Stock Units
The Committee will specify the terms of a restricted stock or
restricted stock unit award in the award agreement, including the
number of shares of restricted stock or units; the purchase price,
if any, to be paid for such restricted stock/unit, which may be
more than, equal to, or less than the fair market value of a share
and may be zero, subject to such minimum consideration as may
be required by applicable law; any restrictions applicable to the
restricted stock/unit such as continued service or achievement
of performance goals; the length of the restriction period and
whether any circumstances, such as death, disability, or a change
in control, shorten or terminate the restriction period; the rights
of the participant during the restriction period to vote and receive
dividends in the case of restricted stock or to receive dividend
equivalents in the case of restricted stock units that accrue dividend
equivalents; and whether restricted stock units will be settled in
cash, shares or a combination of both. The restriction period may
be of any duration. The Committee may provide in the restricted
stock/unit agreement for lapse of the restriction period in monthly
or longer installments over the course of the restriction period.
Performance Shares and Units
A performance share will have an initial value equal to the fair market
value of a share on the date of grant. A performance unit will have an
initial value that is established by the Committee at the time of grant. In
addition to any non-performance terms applicable to the performance
share or performance unit, the Committee will set performance goals
which, depending on the extent to which they are met, will determine
the number or value of the performance shares or units that will be
paid out to the participant. The Committee may provide for payment
of earned performance shares/units in cash or in shares or in the
form of other awards granted under the 2013 Plan which have a fair
market value equal to the value of the earned performance shares/
units at the close of the applicable performance period.
Performance shares/units will not possess voting rights and will
accrue dividend equivalents only to the extent provided in the
agreement relating to the award; provided, however, that rights to
dividend equivalents are permitted only to the extent they comply
with, or are exempt from, Section 409A of the Code (Section
409A). Any rights to dividend equivalents will be subject to the
same restrictions on vesting and payment as the underlying award.
With respect to Covered Employees, the Committee may apply
any restrictions it deems appropriate to the payment of dividends
declared with respect to performance shares/units such that the
dividends or performance shares/units maintain eligibility for the
performance-based compensation exception under Section162(m).
Performance Measures
For awards under the 2013 Plan that are intended to qualify under
the performance-based compensation provisions of Section162(m),
the performance measure or measures to be used for purposes of
such awards must be chosen from among the following: earnings,
earnings per share (EPS), consolidated pre-tax earnings, net
earnings, net income, operating income, earnings before interest
and taxes (EBIT), earnings before interest, taxes, depreciation
and amortization (EBITDA), gross margin, operating margin,
prot margin, revenues, revenue growth, market value added,
market share, economic value added, return measures (including
but not limited to return on equity, return on investment, return
on assets, return on net assets, and return on capital employed),
total stockholder return, prot, operating prot, economic prot,
capitalized economic prot, after-tax prot, pre-tax prot, cash,
cash ow measures (including but not limited to operating cash
ow, free cash ow, cash ow return, and cash ow per share),
sales, sales volume, sales growth, assets, inventory turnover
ratio, productivity ratios, share price, cost, unit cost, expense
targets or ratios, charge-off levels, operating efciency, operating
expenses, customer satisfaction, improvement in or attainment of
expense levels, working capital, improvement in or attainment of
working capital levels, debt, debt to equity ratio, debt reduction,
capital targets and/or consummation of acquisitions, dispositions,
projects or other specic events or transactions. Any performance
measure may be applied to the Company and certain afliates in
the aggregate, to a selection of or one or more of these entities,
to each as a whole or alternatively, or to any business unit of the
Company or any other entity included in the term Employer, either
individually, alternatively or in any combination and measured either
annually or cumulatively over a period of years, on an absolute basis
or relative to a pre-established target, to results for previous years
or to a designated comparison group of entities or to a published
or stock market or other index, in each case as specied by the
Committee. The Committee will specify the period over which
the performance goals for a particular award will be measured.
The Committee may also establish other performance measures for
awards granted to participants that are not intended to qualify for the
performance-based compensation exception from Section162(m).
The Committee will determine whether the applicable performance
goals have been met with respect to a particular award and, if they
have, the Committee must so certify in writing and ascertain the
amount payable under the award. The Committee is authorized
to make adjustments in performance-based criteria or in the
terms and conditions of other awards in recognition of unusual
or nonrecurring events affecting the Company or its nancial
statements (including, but not limited to, asset write-downs;
litigation or claim judgments or settlements; reorganizations or
restructuring programs; extraordinary, unusual, or nonrecurring
items of gain or loss as dened under U.S. generally accepted
accounting principles; mergers, acquisitions or divestitures; and
foreign exchange gains and losses) or changes in applicable laws,
regulations or accounting principles. In the case of awards to
Covered Employees (as dened for purposes of Section 162(m)) that
are intended to qualify under the performance-based compensation
exception from the deductibility limitations of Section162(m),
the adjustments must be made in accordance with guidelines
established by the Committee at the time the performance-based
award is granted (or within such period thereafter as may be
permissible under Section162(m)). In addition, in the event that
the Committee determines that it is advisable to grant awards
which are not intended to qualify for the performance-based
compensation exception from the deductibility limitations of
Section162(m), the Committee may make such grants without
satisfying the requirements of Section162(m).
Non-Employee Director Awards
On each date that the Company makes its regular, annual grant
of awards to employees, each non-employee director will be
granted an award in an amount determined by the Committee
(prorated awards will be granted to directors who are rst elected
to serve as directors after such date as described in the 2013
Plan). In addition, on the last day of March, June, September, and
December of each calendar year, each non-employee director
will be awarded, on a current or deferred basis, a number of
shares equal to one-quarter of the dollar amount specied by
the Committee for that calendar year divided by the fair market
value of a share. However, the applicable dollar amount will be
reduced to the extent the director makes an advance election
to receive cash in lieu of shares. For this purpose, fair market
value means the NYSE closing price of a share on the last
trading day of the calendar quarter immediately preceding the
grant date for such shares. For example, for purposes of shares
awarded on September30, 2013, fair market value will be the
NYSE closing price for a share on June28, 2013. On or before
each December31, a director may elect to defer any or all of the
shares or cash to be granted to the director that would be earned
for service performed after that date
Stock Options
An option provides the participant with the right to buy a specied
number of shares at a specied price (exercise price) after
certain conditions have been met. The Committee may grant
both NQSOs and ISOs under the 2013 Plan. The tax treatment of
NQSOs is different from the tax treatment of ISOs, as explained in
the section entitled Certain Federal Income Tax Consequences
beginning on page 30 of this proxy statement. The Committee
will determine and specify in the award agreement whether the
option is an NQSO or ISO, the number of shares subject to the
option, the exercise price of the option and the period of time
during which the option may be exercised (including the impact
of a termination of employment). Generally (except as otherwise
described in the 2013 Plan), no option can be exercisable more
than ten years after the date of grant and the exercise price of a
stock option must be at least equal to the fair market value of a
share on the date of grant of the option. However, with respect to
an ISO granted to a participant who is a stockholder holding more
than 10% of the Companys total voting stock, the ISO cannot be
exercisable more than ve years after the date of grant and the
exercise price must be at least equal to 110% of the fair market
value of a share on the date of grant.
A participant may pay the exercise price under an option in cash; in
a cash equivalent approved by the Committee; if approved by the
Committee, by tendering previously acquired shares (or delivering
a certication or attestation of ownership of such shares) having
an aggregate fair market value at the time of exercise equal to
the total option price (provided that the tendered shares must
have been held by the participant for any period required by the
Committee); or by a combination of these payment methods. The
Committee may also allow cashless exercises as permitted under
the Federal Reserve Boards Regulation T, subject to applicable
securities law restrictions, or by any other means which the
Committee determines to be consistent with the 2013 Plans
purpose and applicable law. No certicate representing a share
(to the extent shares are so evidenced) will be delivered until the
full option price has been paid.
Stock Appreciation Rights (SARs)
A SAR entitles the participant to receive cash, shares, a combination
thereof, or such other consideration as the Committee may
determine, in an amount equal to the excess of the fair market
value of a share on the exercise date over the exercise price for the
SAR, after certain conditions have been met. The Committee will
determine and specify in the SAR award agreement the number of
shares subject to the SAR, the SAR price (which generally (except
as otherwise described in the 2013 Plan) must be at least equal
to the fair market value of a share on the date of grant of the SAR)
and the period of time during which the SAR may be exercised
(including the impact of a termination of employment). Generally,
(except as otherwise described in the 2013 Plan), no SAR can
be exercisable more than ten years after the date of grant. SARs
may be granted in tandem with a stock option or independently.
If a SAR is granted in tandem with a stock option, the participant
may exercise the stock option or the SAR, but not both.
Other Awards
The Committee may grant other forms of equity-based or equity-
related awards that the Committee determines to be consistent with
the purpose of the 2013 Plan and the interests of the Company.
These other awards may provide for cash payments based in whole
or in part on the value or future value of shares, for the acquisition
or future acquisition of shares, or any combination thereof. Where
the value of such an award is based on the difference in the value
of a share at different points in time, the grant or exercise price
must generally (except as otherwise described in the 2013 Plan)
not be less than 100% of the fair market value of a share on the
date of grant.
Amendment and Termination
The Committee may amend or terminate the 2013 Plan in whole
or in part at any time, but the amendment or termination cannot
adversely affect any rights or obligations with respect to an award
previously granted without the affected participants written consent.
The Company must obtain the approval of the stockholders before
amending the 2013 Plan to the extent required by Section162(m)
or Section422 of the Code or the rules of the NYSE or other
applicable law.
The Committee may amend an outstanding award agreement in a
manner not inconsistent with the terms of the 2013 Plan, but the
amendment will not be effective without the participants written
consent if the amendment is adverse to the participant. However,
the Committee cannot reprice a stock option or SAR except in
accordance with the adjustment provisions of the 2013 Plan (as
described above) or to the extent the stockholders approve the
repricing. For this purpose, a repricing generally is an amendment
to the terms of an outstanding stock option or SAR that would
reduce the option exercise price or SAR price or a cancellation,
exchange, substitution, buyout or surrender of an outstanding stock
option or SAR in exchange for cash, another award or stock option
or SAR with an option exercise price or SAR price that is less than
the option exercise price or SAR price of the original stock option
or SAR. The Compensation Committee may provide for clawback
provisions in award agreements based on detrimental activity
(as dened in the 2013 Plan) or for other reasons.
Change in Control
Upon a change in control (as dened in the 2013 Plan), each
outstanding award will, except to the extent that the outstanding
award is continued, assumed, replaced or adjusted in the form
of a replacement award, vest or become immediately exercisable
and/or nonforfeitable (a) if the change in control occurs less than
two years after the date of grant for such outstanding award, on
a pro-rata basis (i) based on actual service during the vesting
period with respect to any time-based outstanding award and
(ii) based on actual service during the performance period with
respect to the greater of the target opportunity or actual results for
any performance-based outstanding award, and (b) if the change
in control occurs two years or more after the date of grant for
such outstanding award, (i) on a pro-rata basis based on actual
service during the vesting period with respect to any time-based
outstanding award and (ii) with respect to 100% of the greater of
the target opportunity or actual results for any performance-based
outstanding award.
If, subsequent to receiving a replacement award, the participants
employment with the Company or any of its subsidiaries or their
successors is terminated within a period of two years after the
change in control either (a) by the participant for good reason or
(b) by the Company, such subsidiary or such successor other
than for cause, then the replacement award will vest or become
immediately exercisable and/or nonforfeitable with respect to 100%
of any time-based replacement award and with respect to 100%
of the greater of the target opportunity or actual results for any
performance-based replacement award. The terms replacement
award, good reason and cause will be used as dened
in the applicable award agreement. Outstanding awards and
accelerated replacement awards shall become payable at such
time as specied under the terms and conditions of the applicable
award agreement except that, to the extent that such outstanding
awards or accelerated replacement awards are exempt from
Section 409A under the short-term deferral rule, payment for
such outstanding awards or accelerated replacement awards shall
be made not later than 2-1/2 months after the year in which they
are no longer subject to substantial risk of forfeiture.
Transferability
Awards generally may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated by a participant other than
by will or the laws of descent and distribution, and each option or SAR may be exercisable only by the participant during his or her
lifetime. However, the Committee may provide in an award agreement for an NQSO that the NQSO be transferable consistent with
securities law and other applicable law. NQSOs and SARs may not be transferred for value or consideration.
Certain Federal Income Tax Consequences
The following is intended only as a brief summary of the federal
income tax rules relevant to the primary types of awards available
for issuance under the 2013 Plan and is based on the terms of the
Code as currently in effect. The applicable statutory provisions are
highly technical and subject to change in the future (possibly with
retroactive effect), as are their interpretations and applications.
Because federal income tax consequences may vary as a result of
individual circumstances, participants are encouraged to consult their
personal tax advisors with respect to their tax consequences. The
following summary is limited only to United States federal income
tax treatment. It does not address state, local, gift, estate, social
security or foreign tax consequences, which may be substantially
different. Certain intended 2013 Plan participants are residents
of foreign countries.
Awards of Shares; Restricted Stock Awards
A participant generally will recognize taxable ordinary income upon
the receipt of shares as a stock award or restricted stock award
if the shares are not subject to a substantial risk of forfeiture. The
income recognized will be equal to the fair market value of the
shares at the time of receipt less any purchase price paid for the
shares. If the shares are subject to a substantial risk of forfeiture,
the participant generally will recognize taxable ordinary income
when the substantial risk of forfeiture lapses. If the substantial risk
of forfeiture lapses in increments over several years, the participant
will recognize income in each year in which the substantial risk
of forfeiture lapses as to an increment. If the participant cannot
sell the shares without being subject to suit under Section16(b)
of the Exchange Act (the short swing prots rule), the shares
will be treated as subject to a substantial risk of forfeiture. The
income recognized upon lapse of a substantial risk of forfeiture
will be equal to the fair market value of the shares determined as
of the time that the substantial risk of forfeiture lapses less any
purchase price paid for the shares. The Company generally will
be entitled to a deduction in an amount equal to the amount of
ordinary income recognized by the participant.
Alternatively, if the shares are subject to a substantial risk of forfeiture,
the participant may make a timely election under Section83(b) of the
Code (Section83(b)) to recognize ordinary income for the taxable
year in which the participant received the shares in an amount equal
to the fair market value of the shares at that time. That income will be
taxable at ordinary income tax rates. If a participant makes a timely
Section83(b) election, the participant will not recognize income at
the time the substantial risk of forfeiture lapses with respect to the
shares. At the time of disposition of the shares, a participant who has
made a timely Section83(b) election will recognize gain in an amount
equal to the difference between the purchase price, if any, and the
amount received on the disposition of the shares. The gain will be
taxable at the applicable capital gains rate. If the participant forfeits
the shares after making a Section83(b) election, the participant is
not entitled to a deduction with respect to the income recognized
as a result of the election. To be timely, the Section83(b) election
must be made within 30 days after the participant receives the
shares. The Company will generally be entitled to a deduction in
an amount equal to the amount of ordinary income recognized by
the participant at the time of the election.
Restricted Stock Units (RSUs)
A participant generally is not taxed upon the grant of an RSU.
Generally, if an RSU is designed to be paid on or shortly after the
RSU is no longer subject to a substantial risk of forfeiture, then
the participant will recognize ordinary income equal to the amount
of cash and the fair market value of the shares received by the
participant, and the Company will be entitled to an income tax
deduction for the same amount. However, if an RSU is not designed
to be paid on or shortly after the RSU is no longer subject to a
substantial risk of forfeiture, the RSU may be deemed a nonqualied
deferred compensation plan under Section 409A. In that case, if
the RSU is designed to meet the requirements of Section 409A,
then the participant will recognize ordinary income equal to the
amount of cash and the fair market value of the shares received by
the participant, and the Company will be entitled to an income tax
deduction for the same amount. However, if the RSU is not designed
to meet the requirements of Section 409A, the participant will be
subject to ordinary income when the substantial risk of forfeiture
lapses as well as an additional twenty-percent (20%) excise tax,
and additional tax could be imposed each following year.
Performance Share/Unit Awards; Stock Appreciation Rights (SARs)
A participant generally is not taxed upon the grant of a performance
share/unit or SAR. The participant will recognize taxable income at
the time of settlement of the performance share/unit or at the time
of exercise of the SAR in an amount equal to the amount of cash
and the fair market value of the shares received upon settlement
or exercise. However, if the participant is subject to suit under
Section16(b) of the Exchange Act (the short swing prots rule), the
participant will recognize taxable income at the time of settlement
or exercise, as applicable, in an amount equal to the amount of
cash received at that time and the fair market value (determined
as of the earlier of (i) the expiration of six months from the date of
settlement or exercise, as applicable, or (ii) the rst day on which
the disposition of the shares would not subject the participant to
suit under Section16(b) of the Securities Exchange Act, unless
the participant makes a timely election under Section83(b))
of the shares received upon such settlement or exercise. The
income recognized will be taxable at ordinary income tax rates.
The Company generally will be entitled to a deduction in an
amount equal to the amount of ordinary income recognized by
the participant. Any gain or loss recognized upon the disposition
of the shares acquired pursuant to settlement of a performance
share/unit or exercise of a SAR will qualify as long-term capital
gain or loss if the shares have been held for more than one year
after settlement or exercise.
Nonqualied Stock Options (NQSOs)
A participant generally is not taxed upon the grant of an NQSO,
unless the NQSO has a readily ascertainable fair market value
(usually meaning that the NQSO is traded on a securities market).
However, the participant must recognize ordinary income upon
exercise of the NQSO in an amount equal to the difference between
the NQSO exercise price and the fair market value of the shares
acquired on the date of exercise. If the participant is subject to suit
under Section16(b) of the Exchange Act (the short swing prots
rule), the participant recognizes ordinary income in the amount by
which the fair market value of the shares determined as of a later
date exceeds the exercise price for the shares, with such later date
being the earlier of (i) the expiration of six months from the date of
exercise, or (ii) the rst day on which the disposition of the shares
would not subject the participant to suit under Section16(b) of
the Exchange Act , unless the participant makes a timely election
under Section83(b), in which event the fair market value of the
shares will be determined on the date of exercise. The Company
generally will have a deduction in an amount equal to the amount
of ordinary income recognized by the participant in the Companys
tax year during which the participant recognizes ordinary income.
Upon the sale of shares acquired pursuant to the exercise of an
NQSO, the participant will recognize capital gain or loss to the
extent that the amount realized from the sale is different than the
fair market value of the shares on the date of exercise (or, if the
participant was subject to Section16(b) of the Exchange Act and
did not make a timely election under Section83(b), the fair market
value on the delayed determination date, if applicable). This gain
or loss will be long-term capital gain or loss if the shares have
been held for more than one year after exercise.
Incentive Stock Options (ISOs)
A participant is not taxed on the grant or exercise of an ISO. The
difference between the exercise price and the fair market value of
the shares covered by the ISO on the exercise date will, however,
be a preference item for purposes of the alternative minimum tax.
If a participant holds the shares acquired upon exercise of an ISO
for at least two years following the ISO grant date and at least
one year following exercise, the participants gain, if any, upon a
subsequent disposition of the shares is long-term capital gain.
The amount of the gain is the difference between the proceeds
received on disposition and the participants basis in the shares
(which generally equals the ISO exercise price). If a participant
disposes of shares acquired pursuant to exercise of an ISO before
satisfying these holding periods, the participant will recognize both
ordinary income and capital gain in the year of disposition. The
Company is not entitled to a federal income tax deduction on the
grant or exercise of an ISO or on the participants disposition of the
shares after satisfying the holding period requirement described
above. If the holding periods are not satised, the Company will
be entitled to a deduction in the year the participant disposes of
the shares in an amount equal to the ordinary income recognized
by the participant.
In order for an option to qualify as an ISO for federal income
tax purposes, the grant of the option must satisfy various other
conditions specied in the Code. In the event an option intended
to be an ISO fails to qualify as an ISO, it will be taxed as an NQSO
as described above.
Golden Parachute Payments
The terms of the agreement evidencing an award under the 2013
Plan may provide for accelerated vesting or accelerated payout of
the award in connection with a change in ownership or control of
the Company. In such event, certain amounts with respect to the
award may be characterized as parachute payments under the
golden parachute provisions of the Code. Under Section 280G
of the Code, no federal income tax deduction is allowed to the
Company for excess parachute payments made to disqualied
individuals, and receipt of such payments subjects the recipient
to a 20% excise tax under Section4999 of the Code. For this
purpose, disqualied individuals are generally ofcers, stockholders
or highly compensated individuals performing services for the
Company, and the term excess parachute payments includes
payments in the nature of compensation which are contingent
on a change in ownership or effective control of the Company,
to the extent that such payments (in present value) exceed three
times the recipients average annual taxable compensation from
the Company for the previous ve years. Certain payments for
reasonable compensation for services rendered after a change of
control and payments from tax-qualied plans are generally not
included in determining excess parachute payments. If payments
or accelerations may occur with respect to awards granted under
the 2013 Plan, certain amounts in connection with such awards
may possibly constitute parachute payments and be subject to
these golden parachute tax provisions.
New 2013 Plan Benets
No awards have been granted yet under the 2013 Plan. The Committee will grant future awards at its discretion. We cannot determine
the number of awards that may be granted in the future.
Registration with the SEC
We intend to le a Registration Statement on Form S-8 relating to the issuance of shares of common stock under the 2013 Plan with the
SEC pursuant to the Securities Act of 1933, as amended, as soon as practicable after approval of the 2013 Plan by our stockholders.
The Board unanimously recommends a vote FOR approval of the 2013 Plan.
RATIFICATION OF APPOINTMENT
OFINDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors has appointed and is requesting ratication
by stockholders of the appointment of Ernst& Young LLP (Ernst&
Young) as the Companys independent registered public accounting
rm for scal year 2013. While not required by law, the Board is
asking its stockholders to ratify the selection of Ernst& Young as a
matter of good corporate governance practice. Representatives of
Ernst& Young are expected to be present at the Annual Meeting,
will have an opportunity to make a statement, if they desire to
do so, and will be available to respond to appropriate questions.
If the appointment of Ernst& Young is not ratied, the Board
and the Audit Committee will reconsider the selection of Ernst&
Young as the independent registered public accounting rm of
the Company for scal year 2013.
The Board of Directors unanimously recommends a
vote FOR ratifcation of the appointment of Ernst&
Young as the Companys independent registered public
accounting frm for fscal year 2013.
BENEFICIAL OWNERSHIP OF PRINCIPAL
STOCKHOLDERS
The table below shows the number of Company shares benecially
owned by principal stockholders who benecially own more than
vepercent of the Companys outstanding shares as of April3,
2013. The information in this table is based upon the latest lings of
either a Schedule13D, Schedule13G or Form13F (or amendments
thereto) as led by the respective stockholder with the SEC as of
the date stated in the below footnotes.
We calculate the stockholders percentage of ownership assuming
the stockholder benecially owned that number of shares on April3,
2013, the record date for the Annual Meeting. Unless otherwise
indicated, the stockholder had sole voting and dispositive power
over the shares.
Name and Address of Benecial Owner
Amount and Nature of
Benecial Ownership
Percent
ofClass
T. Rowe Price Associates, Inc.
(1)
100E.Pratt Street
Baltimore, MD 21202
22,248,696 11.4%
The Vanguard Group Inc.
(2)
100 Vanguard Blvd.
Malvern, PA 19355
11,923,275 6.1%
BlackRock, Inc.
(3)
40 East 52
nd
Street
New York, NY 10022
11,161,636 5.7%
Waddell& Reed Financial, Inc.
(4)
6300 Lamar Avenue
Overland Park, KS 66202
10,434,891 5.4%
(1) Based on information contained in a Schedule13G/A, dated February14, 2013 (the Price Associates 13G/A), filed by T. Rowe Price Associates, Inc. (Price Associates) with
the SEC, with respect to the Company, reporting beneficial ownership as of December31, 2012. The Price Associates 13G/A reports that Price Associates has sole voting power
over 7,365,300shares and sole dispositive power over 22,248,696shares. These securities are owned by various individual and institutional investors which Price Associates
serves as an investment adviser with power to direct investments and/or sole power to vote the securities. For the purposes of the reporting requirements of the Exchange Act,
Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities.
(2) Based on information contained in a Schedule 13G/A, dated February 7, 2013 (the Vanguard 13G/A) filed by The Vanguard Group Inc. (Vanguard) with the SEC, with
respect to the Company, reporting beneficial ownership as of December31, 2012. The Vanguard 13G/A reports that Vanguard has sole voting power over 345,592 shares, sole
dispositive power over 11,596,837 shares and shared dispositive power over 326,438 shares. Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of Vanguard, holds
275,591 shares. Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of Vanguard, holds 120,918 shares.
(3) Based on information contained in a Schedule 13G, dated February4, 2013 (the BlackRock 13/G, filed by BlackRock, Inc. (BlackRock) with the SEC, with respect to the
Company, reporting beneficial ownership as of December 31, 2012. The BlackRock 13/G reports that BlackRock has sole voting power over 11,161,636 shares and sole
dispositive power of 11,161,636 shares.
(4) Based on information contained in a Schedule13G/A, dated February7, 2013 (the Waddell& Reed 13G/A), filed by Waddell& Reed Financial, Inc. (WDR), Waddell& Reed
Financial Services, Inc. (WRFSI), Waddell& Reed, Inc. (WRI), Waddell& Reed Investment Management Company (WRIMCO), and Ivy Investment Management Company
(IICO) (collectively Waddell & Reed) with the SEC, with respect to the Company reporting beneficial ownership as of December 31, 2012. The Waddell & Reed 13G/A
reports that Waddell & Reed has sole voting power and sole dispositive power over 10,434,891 shares as follows: WDR holds 10,434,891 shares indirectly; WRFSI holds
2,104,356shares indirectly; WRI holds 2,104,356shares indirectly; WRIMCO holds 2,104,356shares directly; and IICO holds 8,330,535shares directly.
BENEFICIAL OWNERSHIP OF DIRECTORS AND
EXECUTIVE OFFICERS
The table below shows the benecial ownership of Company
shares of (i)each director, (ii)each nominee for director, (iii)our Chief
Executive Ofcer, our Chief Financial Ofcer and each of the other
four most highly paid executive ofcers and (iv)all directors and
executive ofcers as a group, as of January31, 2013. Benecial
ownership includes any shares that a director, nominee for director
or executive ofcer may acquire pursuant to stock options and
other derivative securities that are exercisable on that date or that
will become exercisable within 60days thereafter. Unless otherwise
indicated, the stockholder had sole voting and dispositive power
over the shares.
Name (Listed alphabetically)
Amount and Nature
ofBenecial Ownership
Percent of
Class
Adam M. Aron 61,503
(1)(2)

(3)
Matthew E. Avril 175,656
(1)

(3)
Charlene Barshefsky 45,571
(1)(4)

(3)
Thomas E. Clarke 36,555
(1)

(3)
Clayton C. Daley, Jr. 33,587
(1)(4)(5)

(3)
Bruce W. Duncan 189,143
(1)(4)(6)

(3)
Lizanne Galbreath 54,871
(1)(4)

(3)
Eric Hippeau 68,695
(1)(4)

(3)
Aylwin B. Lewis
(3)
Vasant M. Prabhu 448,982
(1)

(3)
Stephen R. Quazzo 85,634
(1)(7)

(3)
Sergio D. Rivera 134,552
(1)

(3)
Thomas O. Ryder 67,297
(1)(4)

(3)
Kenneth S. Siegel 259,106
(1)

(3)
Simon M. Turner 255,240
(1)(8)

(3)
Frits van Paasschen 655,561
(1)

(3)
All Directors, Nominees for Directors and executive ofcers as a group (19persons) 2,752,128
(1)
1.4%
(1) Includes shares subject to options, restricted stock and restricted stock units that are exercisable as of, or will become exercisable or vest within 60days of, January31, 2013,
as follows: 33,051 for Mr.Aron; 172,471 for Mr.Avril; 24,196 for Ambassador Barshefsky; 83,324 for Mr.Jeffrey M. Cava; 24,941 for Dr.Clarke; 20,654 for Mr.Daley; 69,435
for Mr.Duncan; 35,175 for Ms.Galbreath; 5,588 for Ms. Christie N. Hicks; 35,175 for Mr.Hippeau; 91,263 for Mr.Philip P. McAveety; 398,809 for Mr.Prabhu; 35,175 for
Mr.Quazzo; 134,552 for Mr. Rivera; 35,175 for Mr.Ryder; 216,198 for Mr.Siegel; 225,804 for Mr.Turner; and 641,732 for Mr.van Paasschen.
(2) Includes 10,000 shares owned jointly with Mr. Arons wife.
(3) Less than 1%.
(4) Includes the following number of phantom stock units received as a result of the following directors election to defer directors annual fees: 4,884 for Ambassador Barshefsky;
4,884 for Mr.Daley; 7,300 for Mr.Duncan; 14,275 for Ms.Galbreath; 27,277 for Mr.Hippeau; and 22,231 for Mr.Ryder.
(5) Includes 3,000 shares held by the Clayton C. Daley, Jr. Revocable Trust of which Mr.Daley is a trustee and beneficiary.
(6) Includes 71,366 shares held by The Bruce W. Duncan Revocable Trust of which Mr.Duncan is a trustee and beneficiary.
(7) Includes 34,672 shares held by the Stephen Quazzo Trust, of which Mr.Quazzo is settlor and over which he exercises some investment control, 13,500 shares held by trusts
for Mr. Quazzos children and over which he exercises some investment control, and 397shares owned by Mr.Quazzos wife in a retirement account.
(8) Includes 26,660 shares owned jointly with Mr. Turners wife, and 280 shares held in a custodial account for Mr. Turners daughter.
BENEFICIAL OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information as of December31, 2012 regarding shares that may be issued under equity compensation
plans maintained by the Company.
EQUITY COMPENSATION PLAN INFORMATION-DECEMBER31, 2012
Plan Category
Number of Securities
to be Issued
Upon Exercise of
Outstanding Options,
Warrants and Rights
(a)
Weighted-Average
Exercise Price
of Outstanding
Options, Warrants
and Rights
(b)
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans (Excluding Securities
Reected in Column (a))
(c)
Equity compensation plans approved by security holders 7,966,566 $ 18.94 57,324,575
(1)
Equity compensation plans not approved by security holders
TOTAL 7,966,566 $ 18.94 57,324,575
(1) Does not include shares underlying deferred restricted stock units that vest over three years and may be settled in shares that were granted pursuant to the Annual Incentive Plan
for Certain Executives, amended and restated as of December2008 (the Executive Plan). The Executive Plan, as it was approved by stockholders at the 2010 Annual Meeting,
did not limit the number of deferred restricted stock units that may be issued. In addition, 9,926,752 shares remain available for issuance under our Employee Stock Purchase
Plan, a stock purchase plan meeting the requirements of Section423 of the Code.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Introduction
In this Compensation Discussion and Analysis section of the proxy
statement, we explain and analyze the executive compensation program
that applied to our named executive ofcers for 2012, including the
compensation awarded to or earned by our named executive ofcers
for 2012 and the compensation philosophy established and decisions
made by our Compensation Committee for 2012. This Compensation
Discussion and Analysis should be read in conjunction with the tabular
disclosures beginning with the 2012 Summary Compensation Table
on page 55 of this proxy statement. For 2012, our named executive
ofcers were:
Frits van Paasschen, Chief Executive Ofcer and President;
Vasant M. Prabhu, Vice Chairman and Chief Financial Ofcer;
Sergio D. Rivera, Co-President, The Americas;
Kenneth S. Siegel, Chief Administrative Ofcer, General Counsel
and Secretary;
Simon Turner, President, Global Development; and
Matthew E. Avril, Former President, Hotel Group.
Executive Summary
Our Business
Starwood is one of the worlds largest hotel and leisure companies.
We conduct our hotel and leisure business both directly and
through our subsidiaries, and our brand names include St. Regis
,
The Luxury Collection
, W
, Westin
, Le Mridien
, Sheraton
,
Four Points
, Aloft
and Element
SM
. Through our brands, we are
well represented in most major markets around the world. 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. At December31, 2012, our hotel portfolio included owned,
leased, managed and franchised hotels totaling 1,134 hotels with
approximately 335,000 rooms in approximately 100 countries,
consisting of 53 hotels that we own or lease or in which we have
a majority equity interest, 13 hotels where we own and operate
vacation ownership resorts, 547 hotels managed by us on behalf
of third-party owners (including entities in which we have a minority
equity interest) and 521 hotels for which we receive franchise fees.
2012 Business Results and Key Performance
Metrics
Results for the year ended December31, 2012 were strong. We
performed well along all four key drivers of value. We held our costs
in check for the fourth year in a row, grew our footprint with quality
hotels and contracts, sustained high RevPAR and occupancies in an
uncertain environment, and realizedsignicant valuefromreal estate
sales.Our results for the year ended December31, 2012 beneted
from the sales of residential units at the St. Regis Bal Harbour.
During 2012, we closed sales of 188 units and realized revenues
of $684million. From project inception through December31,
2012, we have closed contracts and recognized revenue on 224
units representing approximately 73% of the total residential units.
For 2012, our business highlights included:
We grew Same Store Worldwide RevPAR by 5 % in constant
dollars and Management and Franchise Fees by over 10 % ;
We opened 69 hotels with nearly 18,000 rooms, including the
Sheraton Macao, our largest hotel;
We signed 131 deals for new hotels , growing our pipeline to
400 hotels with 100,000 rooms;
We sold eight hotels for $540 million;
We invested over $300million in our owned hotels, including
trophy properties like the Gritti Palace in Venice and the Alfonso
XIII in Seville;
We generated $684 million in residential sales at the St. Regis
Bal Harbour; and
We returned over $550 million to stock holders, increasing our
dividend by 150% and repurchasing 6.3million shares.
2012 Pay Decisions
Our executive compensation program is designed to attract,
motivate and retain executive ofcers and other key employees
who contribute to our success in a way that rewards performance
and aligns pay with our stockholders long-term interests. The
Compensation Committee reviews our overall compensation
strategy for all employees, including our named executive ofcers,
on an annual basis. In the course of this review, the Compensation
Committee considers our current compensation programs and
whether to modify them or introduce new programs to better meet
our overall compensation objectives.
Key highlights of our executive compensation program for scal
2012 included:
Base SalariesMr. van Paasschen did not receive an increase
in base salary in scal 2012. The base salaries of most other
named executive ofcers increased based on an annual merit
increase of 2% compared to scal 2011. These increases were
specically approved to more closely align these ofcers salaries
with the median base salary of executives at peer companies.
Due to a mid-year promotion, Mr. Riveras salary increased by
an additional amount of less than 5% in July 2012.
Discretionary PaymentMr. Siegel received a lump sum cash
payment equal in value to an annual merit increase of 2% of his
base salary in scal 2012. This lump sum payment was provided
instead of a salary increase.
Incentive Pay Largely Contingent Upon Our Performance
Seventy-ve percent of our named executive ofcers total target
annual cash incentive opportunity was tied to our 2012 nancial
results, representing no change in philosophy compared to scal
2011. Payout eligibility for the company nancial portion of the
annual bonus was 92% for 2012 compared to 98% for 2011.
Annual incentive payments for performance in 2012 (paid in 2013)
were made 100% in cash, compared to our program in 2011
during which 25% was compulsorily deferred into restricted stock
units. This change was introduced in conjunction with the more
signicant changes to the companys equity incentive program
being introduced in 2013 (more detail is provided in the section
entitled Changes to Long-Term Incentive Compensation
Design in 2013 beginning on page 48 of this proxy statement).
Special Long-Term Cash Incentive AwardIn 2012, Mr.
Rivera received a payout of $1.1 million in settlement of a
special long-term cash incentive award originally granted to him
in 2009. This award was designed to reward Mr. Rivera for his
work during 2010 and 2011 in helping us achieve qualitative
and quantitative performance goals related to our St. Regis Bal
Harbour property. Although the target payout for this award
was $1.0 million, the Board paid Mr. Rivera at 110% of target
due to exceptional nancial results that beat expectations,
signicant outperformance against all payment terms and
overwhelming external positive reviews of the property since
it opened. Achievement of the performance metrics for this
award related to: (1) achieving construction of the project below
budget and on time; (2) funding all costs of the property from
Starwood Vacation Ownership cash ow; (3) achieving budgeted
close rates for sales of property units; (4) exceeding mid-2012
revenue goals for the property; and (5) keeping cumulative sales
and marketing costs for the property below target.
Modest Increase in Equity GrantsThe total equity grants
made to our named executive ofcers increased by less than
5% when compared to scal 2011.
Pay Mix Geared Towards Variable CompensationThe
proportion of the CEOs total compensation that was variable
was 86% in scal 2012, unchanged from scal 2011.
Elimination of Future Tax Gross-UpsIn line with market best
practice, the Compensation Committee agreed in 2012 that we
will no longer provide tax gross-ups other than those required to
be paid under existing employment agreements. In addition, Mr.
van Paasschens employment agreement renewal, discussed in
the section entitled New 2013 Employment Agreement with Mr.
van Paasschen beginning on page 50 of this proxy statement,
will not provide for any excise tax gross-up.
2012 Pay for Performance Analysis
Although 2012 continued to present global economic uncertainty
in many markets, we saw signs of stronger demand growth for the
global high-end lodging industry. As noted above, our business
and operating results for the year ended December 31, 2012
were strong, but our key pay decisions remained reective of the
global uncertainty and our Companys intention to achieve stronger
operating and business results in 2013 and beyond.
As discussed further below and reected in the following pay
mix charts, for 2012, once again an overwhelming portion of the
compensation for our named executive ofcers was tied to either
our nancial performance or potential increases in our stock price.
As a result, total compensation for 2012 for the named executive
ofcers was designed to increase as our performance goals were
achieved and as our stock price increased. The pay results for our
named executive ofcers, especially their annual incentive payouts
received at 92% of target and equity awards, reect our strong (but
capable of improvement) nancial and operating results. Because
of rounding, percentages may not add up to 100%.

59%
14%
27%
CEO COMPENSATION MIX
TARGET
61%
19%
19%
NEO COMPENSATION MIX
TARGET
In addition, our 2012 pay decisions were in line with changes in our stock price, measured both on an annual and three-year basis.
Our one-year and three-year total stockholder return results, measured as of the end of 2012, were 22% and 63%, respectively. As
the chart below indicates, a comparison of the compensation that we have reported in the Summary Compensation Table since 2009
for Mr. van Paasschen has moved in tandem with our annual total stockholder return over the past four years:
TSR CEO Compensation
STOCK RETURN PERFORMANCE vs. CEO COMPENSATION
2008 2010 2009 2012
2011
0
50
100
150
200
250
300
350
TSR assuming investment of $100 on
December 31, 2008 ($)
CEO Compensation ($ 000)
4,500
5,500
6,500
7,500
8,500
9,500
10,500
11,500
We believe that this chart demonstrates that we have effectively
operated an executive compensation program that has closely
linked CEO pay changes to the stock price results experienced
by our stockholders under Mr. van Paasschens leadership. For
purposes of this chart, total stockholder return includes the
reinvestment of dividends and is calculated on a compounded
annual growth rate basis.
Our analysis of our recent results, stock price performance and
trends in CEO pay demonstrate to us that our CEO pay decisions
in both 2012 and in recent years are closely aligned with Company
performance, and reect a balanced and responsible approach
to executive compensation.
Compensation Best Practices
For 2012, we engaged in the following pay practices, which we
believe align with market best practices, with respect to our named
executive ofcer compensation program:
All Incentive Awards Subject to Clawbackall incentive
awards received by any senior vice president or more senior
ofcer, including our named executive ofcers, remain subject to
a clawback policy that mandates repayment in certain instances
where there is a restatement of our nancial statements.
No Hedging Activities Linked to Company Stock our ofcers
and directors, including our named executive ofcers, were
required to refrain from engaging in any hedging or monetization
transaction directly linked to company stock.
Stock Ownership Requirementsall of our executive ofcers,
including our named executive ofcers, were required to hold
a number of shares having a market value equal to or greater
than a multiple of each executives base salary.
Formal Evaluation Processthe Compensation Committee
conducted a formal performance review of Mr. van Paasschen
and determined whether and to what extent our nancial
performance goals were achieved; Mr.van Paasschen, together
with the Chief Human Resources Ofcer and with oversight and
input from the Compensation Committee, conducted a formal
performance review of the other named executive ofcers
through the Performance Management Process.
Compensation Consultants Retainedthe Compensation
Committee retained Meridian to assist it in the review and
determination of compensation design and levels for the named
executive ofcers and to assist it in the annual assessment of
compensation risk, described in more detail in the section entitled
Risk Assessment beginning on page 53 of this proxy statement.
Consideration of 2012 Say-on-Pay Voting
Results
At both our 2011 and 2012 annual meetings, we provided our
stockholders with the opportunity to cast a non-binding advisory
vote regarding the compensation of our named executive ofcers
as disclosed in the proxy statements for those annual meetings of
stockholders. In 2012, our stockholders overwhelmingly approved
the proposal, and for a second straight year more than 96% of
the votes cast were in favor of the proposal. The Compensation
Committee considered the strong support for our say-on-pay
proposal in both 2011 and 2012 as evidence of our stockholders
support for the named executive ofcer compensation decisions
and actions that the Compensation Committee has been making.
As a result, the Compensation Committee did not make any
material changes in the structure of our named executive ofcer
compensation program for 2012 that were prompted specically
by the results of our 2012 say-on-pay vote.
In spite of this continuing majority stockholder support for our say-
on-pay proposals, in 2012 we noted the concerns expressed by a
small minority of shareholders about a perceived lack of alignment
between our named executive ofcers and our stockholders
due to the lack of performance-based equity vehicles in our
long-term equity incentive program. As part of a broader review
of our compensation program design conducted during 2012,
the Compensation Committee approved the introduction of
performance-based equity awards for our named executive
ofcers starting in 2013. The Compensation Committee believes
the introduction of performance share equity vehicles into our
program will enhance our already strong pay for performance
philosophy and serve to ensure that key executives interests
are closely aligned with long-term stockholder objectives and
expectations. We present more information about the changes
that we have made to the equity program design in the section
entitled Changes to Long-Term Incentive Compensation Design
in 2013 beginning on page 48 of this proxy statement.
Design and Operation of Starwoods 2012 Executive Compensation Program
Program Objectives andOtherConsiderations
Objectives.As a consumer lifestyle company with a branded hotel
portfolio at its core, we operate in a competitive, dynamic and
challenging business environment. In step with this mission and
environment, our compensation program for our named executive
ofcers has the following key objectives for 2012:
Attract and Retain: We seek to attract and retain talented executives
from within and outside the hospitality industry who understand
the importance of innovation, brand enhancement and consumer
experience. We are working to reinvent the hospitality industry,
and one element of this endeavor is to bring in key talent from
other industries. Therefore, overall program competitiveness must
take these other markets into account. To this end:
We broadly target total compensation opportunities at the
median (50
th
percentile) of the market for target performance
levels; however, we also review the range of values around the
median, including out to the 25
th
and 75
th
percentiles. Despite
these initial actions, we believe that benchmarking alone does
not provide a complete basis for establishing compensation
levels or design practices.
As a result, actual individual compensation may be above or
below our targeted levels based on company and individual
performance, key responsibilities, unique market demands,
and experience level, as further described below.
Motivate: We seek to motivate our executives to sustain high
performance and achieve our nancial and strategic/operational/
leadership goals over the course of business cycles in various
market conditions. However, our compensation programs are
designed not to encourage excessive risk taking; we assess
compensated-related risk annually. In addition, we have a
clawback policy which allows us to recoup incentives paid in
the event of a nancial restatement. See the section entitled
Potential Impact on Compensation for Executive Misconduct
beginning on page 51 of this proxy statement for more information.
Align Interests: We endeavor to align the investment interests of
stockholders and the compensation interests of our executives
by linking executive compensation to our annual business
results and stock performance. Moreover, we strive to keep
the executive compensation program transparent, in line with
market practices and consistent with the highest standards
of corporate governance practices. In 2012, we began to
eliminate tax gross-ups for arrangements put in place in 2008
and thereafter to better align compensation with the creation
and preservation of stockholder value.
What the Program Intends to Reward.Our executive compensation
program is strongly weighted towards variable compensation tied to
our annual business results and stock performance. Specically, our
compensation program for our named executive ofcers is designed
to ensure the following:
Alignment with Stockholders: A signicant portion of named
executive ofcer compensation is delivered in the form of equity
incentives with signicant vesting requirements, ensuring that
long-term compensation is strongly linked to stockholder
returns. Further, our executive ofcers, including our named
executive ofcers, are required to own a requisite amount of
company stock. See the section entitled Share Ownership
Guidelines beginning on page 52 of this proxy statement for
more information.
Achievement of Company Financial Objectives: A portion of
named executive ofcer compensation is tied directly to our
nancial performance.
Achievement of Strategic/Operational/Leadership Objectives: A
portion of our named executive ofcer compensation depends
on the achievement of specic individual objectives that align with
the execution of our business strategy, as well as demonstrated
performance tied to our core leadership competencies that
include team building and the development of future talent.
These objectives may be related to, among others, operational
excellence, brand enhancement, innovation, growth, cost
containment/efciency, customer experience and/or teamwork.
See the section entitled Strategic/Operational/Leadership
Goals beginning on page 44 of this proxy statement for more
information on the strategic, operational and leadership objectives
in effect for each of the named executive ofcers for 2012.
Roles and Responsibilities of Management
and the Compensation Committee
For 2012, the Compensation Committee established and reviewed
the compensation policies and programs for our executive ofcers,
including our named executive ofcers, to ensure that the executive
ofcers are compensated in a manner consistent with the objectives
and principles outlined above. The Compensation Committee
also reviewed and monitored our performance as it affected our
employees and the overall compensation policies for our employees.
The Compensation Committee made all compensation decisions
for 2012 with respect to our named executive ofcers. Our Chief
Executive Ofcer, together with the Chief Human Resources Ofcer,
reviewed the performance of each other named executive ofcer
and presented to the Compensation Committee in February2013
his conclusions and recommendations, including salary adjustments
and annual incentive compensation amounts for 2012 (as described
in more detail in the 2012 Annual Incentive Compensation
section beginning on page 43 of this proxy statement).
In February 2013, our management provided reviews and
recommendations on named executive ofcer compensation levels
and program design for the Compensation Committees consideration.
In addition, our management managed operational aspects of our
compensation programs, policies and governance during 2012, and
their direct responsibilities included:
providing an ongoing review of the effectiveness of the
compensation programs, including competitiveness, and
alignment with our objectives;
recommending changes to better align all program objectives
during 2012; and
recommending pay levels, payouts and/or awards for executive
ofcers other than the Chief Executive Ofcer.
Management also prepared tally sheets that described and quantied
all components of total compensation for our named executive
ofcers, including salary, annual incentive compensation, long-term
incentive compensation, deferred compensation, outstanding
equity awards, benets, perquisites and potential severance
and change in control payments. The Compensation Committee
reviewed and considered these tally sheets before making 2012
compensation decisions for our named executive ofcers, but this
review had no material impact on the Compensation Committees
compensation decisions.
The Compensation Committee directly engaged Meridian to assist
it in the review and determination of compensation awards to the
named executive ofcers (including the Chief Executive Ofcer) for
the 2012 performance period. Meridian worked with management
and the Compensation Committee in reviewing our compensation
structure and the compensation structure of the companies in the
peer group. Meridian does not provide any services to management.
The Compensation Committee has considered and assessed all
relevant factors, including but not limited to those set forth in Rule
10C-1(b)(4)(i) through (vi) under the Exchange Act, that could give
rise to a potential conict of interest with respect to Meridian. Based
on this review, we are not aware of any conict of interest that has
been raised by the work performed by Meridian.
Risk Assessment
In setting compensation, our Compensation Committee also
considers the risks to our stockholders, and to us as a whole,
arising out of our compensation programs. For more information
about our most recent risk assessment, see the section entitled
Risk Assessment beginning on page 53 of this proxy statement.
Primary Elements of 2012 Executive Compensation Program
The primary elements of our 2012 executive compensation program for our named executive ofcers are summarized in the following table:
Element Description Purpose
Base Salary Fixed annual cash compensation based on
competitive market levels when compared with
peer companies and to align with our compensation
philosophy
Enables us to continue to attract and retain
critical senior executives from within and outside
thehospitality industry
Annual Incentive Compensation Annual performance-based incentive awards earned
under our Executive Plan
Payouts earned based on a combination of EBITDA,
EPS and strategic/operational/leadership goals
performance
Directly links the achievement of our nancial and
strategic/operational/leadership performance
objectives toexecutive pay
Long-Term Incentive
Compensation
Equity compensation awards (consisting of
restricted stock and stock option awards made
under our Long-Term Incentive Compensation Plan
(LTIP)) granted in February2012 following the
announcement of our earnings for 2011
Strongly ties equity compensation to returns
experienced by our stockholders, providing adirect
link between the investment interests of our
stockholders and the compensation interests of
ournamed executive ofcers
Benets and Perquisites Retirement benets in the form of a tax-qualied
401(k) plan, a non-qualied deferred compensation
plan, standard health and welfare benets,
and limited perquisites in the form of relocation
assistance, corporate aircraft use, life insurance
premium payments and tax assistance payments
Retirement benets provide tax efcient vehicles to
accumulate retirement savings, subject to limits on
compensation under the Code
Limited perquisites helps attract and retain named
executive ofcers
Analysis of 2012 Named Executive Ofcer Compensation
Total compensation for our named executive ofcers for 2012
was initially benchmarked against the peer group identied in this
proxy statement at the 50
th
percentile, but individual elements
of compensation were established both above and below the
benchmark based on the Compensation Committees evaluations
described further below. Evaluated on this basis, the Compensation
Committee believes the actual cash and equity compensation
delivered for the 2012 performance year was appropriate in light
of our overall 2012 business performance described above and
its evaluation of the performance of the particular executives. We
describe each of the compensation elements in more detail below
and explain why we paid each element and how we determined
the amount of each element for 2012.
2012 Base Salary and Discretionary Payment
We believe it is essential to provide our named executive ofcers
with competitive base salaries to attract and retain the critical senior
executives needed to help drive our success. Base salaries for our
named executive ofcers in 2012 were initially benchmarked at
the 50
th
percentile against similar positions among a group of peer
companies developed by us and approved by the Compensation
Committee after consultation with Meridian, and then adjusted
based on the responsibilities of each position, company and
individual performance, unique market demands and experience
level as further described below. The peer group consisted of
similarly-sized hotel and property management companies as
well as other companies representative of markets in which we
compete for key executive talent. See the section entitled Use of
Peer Data beginning on page 51 of this proxy statement for a list
of the peer companies used in this analysis. We generally seek to
position base salaries of our named executive ofcers at or near
the median base salary of the Companys peer group for similar
positions but also review the range of values around the median,
including out to the 25
th
and 75
th
percentile for reference purposes.
See additional detail regarding base salaries in the section entitled
Narrative Disclosure to Summary Compensation Table and
Grants of Plan-Based Awards Table beginning on page 57 of
this proxy statement.
In the case of named executive ofcers other than the Chief
Executive Ofcer, 2012 base salary accounted for an average of
approximately 19% of total compensation at target (in other words,
total compensation assuming performance goals are satised at
targeted levels, but excluding benets and perquisites). In the case
of Mr. van Paasschen, base salary for 2012 was $1,250,000, which
accounted for approximately 14% of total compensation at target
for Mr. van Paasschen. This base salary was not increased from
its 2011 level. The base salaries of the other named executive
ofcers (except for Mr. Siegel) generally increased by an annual
merit amount of about 2% compared to 2011. The base salary
for Mr. Rivera was increased by an additional amount of less than
5% in July 2012 due to a mid-year promotion. In connection
with this promotion, the Compensation Committee determined
that this amount of increase was necessary to begin to move Mr.
Riveras new base salary to the 50
th
percentile of the peer group.
Mr. Siegel did not receive a base salary increase for 2012, but
instead received a lump sum cash payment equal to 2% of his
base salary. By providing this payment in the form of a discretionary
cash payment instead of a base salary increase (in which form it
would continue to be provided to him year after year), we were
able to maintain Mr. Siegels base salary at approximately 65%
of market median, and not raise his salary above that level. The
Compensation Committee viewed this as a favorable result as
it effectively rewarded Mr. Siegel for his accomplishments, but
maintains his base salary (or xed component of compensation)
below the 75
th
percentile.
0
250
500
750
1,000
1,250
1,500
$000
2011-2012 CEO AND CURRENT NEO BASE SALARY CHANGES
$1,250,000 $1,250,000
$766,785
$722,000
$638,490
$766,785
$751,750
$674,500
$638,490
$750,020
2011 Base Salary 2012 Base Salary
van Paasschen Prabhu Rivera Siegel Turner
2012 Incentive Compensation
Incentive compensation includes annual cash incentive awards
under our Executive Plan, special non-equity incentive awards paid
in cash and long-term incentive compensation in the form of equity
awards under our LTIP. For 2012, incentive compensation accounted
for an average of approximately 80% of total compensation at
target (86% for Mr.vanPaasschen in 2012), with annual cash
incentive compensation and long-term incentive compensation
accounting for 19% and 61%, respectively (27% and 59% for Mr.
van Paasschen, respectively, in 2012). We believe that this structure
allowed us to provide each participating named executive ofcer
with substantial incentive compensation opportunities for 2012 if
our performance objectives were met.
We believe that the allocation between base salary and incentive
compensation is appropriate and benecial because:
it promotes our competitive position by allowing us to provide
named executive ofcers with total compensation that reects
performance;
it targets and attracts highly motivated and talented executives
within and outside the hospitality industry;
it aligns senior managements interests with those of stockholders;
it promotes achievement of business and individual performance
objectives;and
it provides long-term incentives for named executive ofcers to
remain in our employment.
2012 Annual Incentive Compensation.Annual cash incentive
awards are a key part of our executive compensation program.
For 2012, each named executive ofcer had an opportunity to
receive an incentive award under the stockholder-approved
Executive Plan, except for Mr. Rivera, who is a newly-designated
executive ofcer and therefore was not subject to the Executive
Plan in 2012. While Mr. Riveras annual incentive compensation
for 2012 was not te chnically paid under the Executive Plan, the
structure of Mr. Riveras annual incentive compensation was
substantially the same as the structure used for the other named
executive ofcers under the Executive Plan, as described below.
Viewed on a combined basis, once minimum performance is
attained, the annual incentive payments attributable to both
company nancial and strategic/operational/leadership performance
can range from 0% to 200% of target for the named executive
ofcers. See additional detail regarding targets in the section entitled
Narrative Disclosure to Summary Compensation Table and
Grants of Plan-Based Awards Table beginning on page 57 of
this proxy statement.
Minimum Threshold
For the named executive ofcers (except Mr. Rivera), the 2012 annual
incentive award was paid under the Executive Plan. Mr. Riveras
annual incentive award was paid outside the Executive Plan, but the
following discussion applies equally as to the operation and outcome
for Mr. Riveras annual incentive award. Under the Executive Plan,
for 2012, the Compensation Committee established in advance a
threshold level of adjusted EBITDA that we had to achieve in order
for any incentive to be paid under the Executive Plan (which we
refer to as the EP Threshold). The Executive Plan also specied a
maximum incentive amount, in dollars, that could be paid to any
executive for 2012. When the threshold was established at the
beginning of 2012, the achievement of the threshold was considered
substantially uncertain for purposes of Section162(m), which is one
of the requirements for compensation paid under the Executive
Plan to be deductible as performance-based compensation under
Section162(m). For 2012, the EP Threshold was $880,000,000.
Under the 2012 program, each participating named executive
ofcer could receive payment of an incentive award under the
Executive Plan only if he remained employed by us on the award
payment date in 2013. However, subject to attaining the EP
Threshold for 2012, pro- rata awards could be paid at the discretion
of the Compensation Committee in the event of death, disability,
retirement or other termination of employment.
Once the EP Threshold was achieved, the maximum annual incentive
amount specied in the Executive Plan became available for each
participating named executive ofcer and the Compensation
Committee applied its discretion to reduce such amount to determine
the actual incentive amount for each individual. To determine the
actual bonus to be paid for 2012 under the Executive Plan, the
Compensation Committee established specic annual company
nancial and strategic/operational/leadership performance goals and
a related target incentive amount for each participating executive
(plus a maximum payout level for each participating named executive
ofcer despite the maximum annual incentive amount specied
in the Executive Plan). These nancial and strategic/operational/
leadership goals are described below.
Additional Performance Criteria
Since the EP Threshold under the Executive Plan was met for 2012, our
performance in comparison to the nancial and strategic/operational/
leadership goals for the year set by the Compensation Committee
was then used to determine each participating named executive
ofcers actual incentive payout, as follows:
Financial Goals
Our nancial goals for our named executive ofcers under the
Executive Plan consisted of EBITDA and EPS goals, with each criteria
accounting for half of the nancial goal portion of the annual incentive
awards. We deemed EBITDA and EPS to be the most appropriate
metrics to measure performance and we have consistently used
these metrics since 2009. As the Compensation Committee generally
sets target incentive award opportunities above the median and
monitors awards around the median, among our peer group, our
nancial and strategic/operational/leadership goals to achieve such
award levels are considered challenging but achievable, representing
requirements for a superior level of performance. Consistent with
maintaining these high standards and subject to achieving the EP
Threshold, the Compensation Committee retained the ability to
consider whether an adjustment of the nancial goals for 2012
was necessitated by exceptional circumstances (as examples, a
restructuring of the Company or unanticipated accounting changes).
Performance against the nancial goals determined 75% of
participating named executive ofcers total target annual incentive
payout, with the remaining 25% based on strategic/operational/
leadership goals achievement. Once the EP Threshold was
achieved, actual incentives paid to participating named executive
ofcers for nancial performance could have ranged from 0% to
200% of the pre-determined target incentive opportunities for this
category of performance, as determined by the Compensation
Committee. For our participating named executive ofcers, the
company nancial performance portion was based 50% on EPS
and 50% on our EBITDA. The overall cap on the plan is 200%.
As noted above, since the EP Threshold was achieved for 2012, the
minimum and maximum annual incentive amount specied in the
Executive Plan became available for award. The maximum incentive
payout for the applicable company nancial performance metric
was limited to 200% of target (or maximum) and the Compensation
Committee could apply its discretion to reduce such amount to the
actual bonus amount for each participating named executive ofcer.
The table below sets forth for each metric the performance levels for
2012 which would have resulted in 100% annual incentive payout
(or target), the minimum performance level (or minimum) that would
have resulted in a 40% annual incentive payout and the maximum that
would have resulted in a 200% annual incentive payout. In addition,
the table sets forth the approximate mid-points of potential payouts
between the minimum to target and target to maximum opportunities
and indicates the related required performance level:
Minimum
(40%)
Mid-point
(70%)
Target
(100%)
Mid-point
(150%)
Maximum
(200%)
Earnings per share $ 1.36 $ 1.76 $ 2.16 $ 2.83 $ 3.49
Company EBITDA $ 880,000,000 $ 990,000,000 $ 1,100,000,000 $ 1,283,500,000 $ 1,467,000,000
For the 2012 performance period, adjusted EBITDA (which
exceeded the EP Threshold) for purposes of determining annual
bonuses was $1,081,000,000 (or 98% of target). EBITDA was
adjusted to exclude the impact of asset sales and changes in foreign
exchange rates versus budgeted amounts. EPS from continuing
operations for 2012 for annual incentive purposes was $2.02 (or
94% of target), which excludes tax benets related to non-core
items partially offset by restructuring, goodwill impairment and
other special charges and debt extinguishment charges. Using the
metrics described above resulted in a payout eligibility of 92% of
target for the company nancial portion of the annual incentives for
the 2012 scal year for the participating named executive ofcers.
Strategic/Operational/Leadership Goals
The strategic/operational/leadership performance goals for our
named executive ofcers under the Executive Plan for 2012
consisted of Big 5 and leadership competency objectives that
link individual contributions to execution of our business strategy
and major nancial and operating goals. Big 5 refers to each
participating executives specic deliverables within our critical
performance categories (1) win with talent, (2) execute brilliantly,
(3) build great brands, (4) deliver global growth, and (5) drive
outstanding results. As part of a structured process that cascades
down throughout the company, these objectives were developed
at the beginning of 2012, and they integrated and aligned each
executive with our strategic, operational and leadership plan.
The portion of annual incentive awards attributable to strategic/
operational/leadership management performance represented 25%
of our participating named executive ofcers total target. Actual
incentives paid to our participating named executive ofcers for
strategic/operational/leadership performance could have ranged
from 0% to 175% of the pre-determined target amount for this
category of performance, as determined by the Compensation
Committee. The strategic/operational/leadership performance
goals were established at levels that were reasonably difcult to
achieve relative to historical trends and future expectations, and
generally required signicant effort on the part of our participating
named executive ofcers to achieve.
Evaluation Process
In the case of Mr. van Paasschen, the Compensation Committee
conducted a formal performance review process in February2013
during which the Compensation Committee evaluated how Mr. van
Paasschen performed against the strategic/operational/leadership
goals established for 2012. The Compensation Committee also
determined the extent to which our nancial performance goals
were achieved and whether we achieved the applicable minimum
threshold(s) required to pay annual incentive awards.
The Chief Executive Ofcer conducted an evaluation of the
other named executive ofcers (including Mr. Rivera) through the
Performance Management Process (PMP), which resulted in a
PMP rating for each executive. This PMP rating corresponded to
a payout range under the Executive Plan determined for 2012 by
the Compensation Committee for that rating. As noted, for 2012
the portion of the Executive Plan payouts based on PMP ratings
could have ranged from 0% to 175% of target once the target has
been adjusted to reect our performance. At the conclusion of his
review, the Chief Executive Ofcer submitted his recommendations
to the Compensation Committee for nal review and approval. In
determining the actual award payable to each participating named
executive ofcer under the Executive Plan and to Mr. Rivera, the
Compensation Committee reviewed the Chief Executive Ofcers
evaluation and made a nal determination as to how each named
executive ofcer performed against his strategic/operational/
leadership goals for 2012. The Compensation Committee also
determined, based on managements report, the extent to which
our nancial performance goals were achieved and whether we
achieved the applicable minimum threshold(s) required to pay
annual incentive awards. The Chief Executive Ofcer also met
in executive session with the Board of Directors to inform the
Board of Directors of his performance assessments regarding
the named executive ofcers and the basis for the compensation
recommendations he presented to the Compensation Committee.
The evaluation of Mr. van Paasschen and the other named executive
ofcers with respect to each executives strategic/operational/
leadership goals for 2012 is described below.
Mr. van Paasschens accomplishments for the 2012 performance year included the following:
Delivered strong nancial returns and exceeded targets on key
nancial measures, including growing adjusted EBITDA by 18.2%
and EPS before special items by 35.2% compared to 2011;
Held a tight rein on corporate overhead (still 25% below 2007 on
a per room basis), leading to improved hotel margins over 2011;
Drove top-line revenue through strategies to provide innovative
web and mobile bookings, cutting-edge revenue and price-
realization systems, and programs to provide better service
with guests, leading to an increase in Same Store Worldwide
RevPAR by 5% in constant dollars compared to 2011;
Grew share of occupancy for SPG above 50% for the rst time
in Company history, due in part to Starwoods innovative and
industry-leading transformation of benets of the SPG program;
Expanded the Companys hotel portfolio by opening 69 new
hotels. Executed deals for 131 new hotels, creating a pipeline
of 400 hotels and 100,000 rooms. Re-engaged 56 existing
hotels through renewals or changes in ownership; and
For the third year in a row, set a new Company record for
associate engagement and participation, based on a survey
of over 130,000 associates.
Mr. Prabhus accomplishments for the 2012 performance year included the following:
Achieved investment grade rating for the Company and continued
to strengthen the Companys liquidity position by executing a
new $1.75 billion credit facility on the Companys most favorable
terms to date, and optimized pricing of senior notes by completing
redemption of approximately $1.2 billion outstanding senior notes
and issuing $350 million of new 3.125% senior notes due 2023,
resulting in signicant interest expense savings;
Successfully consolidated the Companys major IT systems
into one data center, upgrading service and security standards
while lowering costs;
Successfully reorganized the tax department to align with the
Companys objectives and developed new policies and procedures
to enhance the Companys tax strategies and positioning.
Finalized implementation of certain corporate restructurings to
allow for efcient balance sheet utilization; and
Achieved Company nancial objectives while implementing a
comprehensive plan to strategically enhance the Companys
control and compliance functions, including enhancements of
global internal controls and risk assessment processes.
Mr. Riveras accomplishments for the 2012 performance year included the following:
Successfully opened the St. Regis Bal Harbour resort on schedule
with strong recognition. Generated signicant cash from the
sale of 188 residential units at the St. Regis Bal Harbour and
executed new purchase contracts, both in excess of target;
Successfully implemented the new organization structure for The
Americas to ensure Starwood is best-placed to take advantage
of accelerating travel trends within The Americas;
Increased earnings for both The Americas and vacation
ownership and residential business segments by 4.7% and
83.5%, respectively; and
Successfully opened 23 hotels in North America, resulting in the
addition of 4,300 new rooms and achieved strong performance
for SPG program enrollment and SPG occupancy.
Mr. Siegels accomplishments for the 2012 performance year included the following:
Delivered critical legal support to facilitate the negotiation and
execution of: 131 hotel management and franchise transactions;
56 re-engagements of existing hotels and changes in ownership;
and strategic hotel sales. Redesigned the Companys franchise
agreements to support further expansion;
Accelerated progress against Starwoods long-term global
citizenship goals, including substantial reductions in the use
of water and energy across our hotels and corporate ofces.
Successfully restructured the global citizenship function to
better align with the Companys objectives and implemented
target foundational initiatives, including property-specic audit
process and goal setting;
Successfully executed a number of strategic initiatives to ensure
the Company maintains best-in-class compliance and privacy
standards, including roll-out of an enhanced anti-corruption
compliance function, condentiality training program to safeguard
the Companys trade secrets and intellectual property, and global
safe harbor privacy initiative; and
Successfully concluded critical union negotiations and strategically
re-focused the Companys governmental relations program to
advance certain of the Companys key initiatives.
Mr. Turners accomplishments for the 2012 performance year included the following:
Successfully managed the global development team to execute
agreements for 131 new managed and franchise hotels, which
exceeds 2011 growth levels by 17%. Executed 56 deals in
excess of targets for renewals and changes in control of existing
hotels, which provides for the critical continuation of these hotels
in the Starwood portfolio;
Maximized global net room growth at 4.2%, surpassing ve year
average net room growth at 3.4%. Delivered on Aloft conversion
strategy with successful conversion and opening of Aloft San
Francisco and near completed conversion of Aloft Tucson;
Developed strategic initiatives and enhancements in technology
and other process innovations for global development team to
deliver on strategic growth plan and re-position team in key
growth markets; and
Completed strategic asset sale transactions generating gross
cash proceeds of over $540 million.
Mr. Avrils accomplishments for the 2012 performance year included the following:
Achieved market share increases across 6 of Starwoods 9
company brands, including a 9% increase in Element and a
5% increase in Aloft;
Strengthened key relationships with hotel owners, joint venture
partners and our Companys personnel to drive revenue, strong
owner relations, and retention of management talent throughout
our hotels;
Successfully drove share of SPG occupancy to greater than 50%
and delivered on Starwoods innovation agenda by implementing
industry-leading transformation of benets of the SPG program;
and
Adjusted for asset sales, grew hotel group EBITDA by 7%.
In light of these accomplishments and impact on the Company, the
Compensation Committee awarded Mr. van Paasschen a payout
at 100% of target for the strategic/operational /leadership portion
of the annual bonus. Mr. Avril announced his retirement in April
2012 with transition of his direct report responsibilities effective
July 1, 2012; throughout the remainder of 2012, Mr. Avril also
worked with the Company and its key ownership relationships to
ensure an effective transition. Mr. Avrils nal incentive award was
determined as described above, but reduced in light of his changed
responsibilities, with the strategic/operational/leadership portion of
the award determined based on the achievements described above
and this transition work. The Compensation Committee awarded
each of our other named executive ofcers participating in the
Executive Plan an accomplished objectives PMP performance
rating and a payout at 100% of target for their strategic/operational /
leadership portion of their annual bonus. While Mr. Riveras 2012
incentive was not technically paid under the Executive Plan, the
same evaluation structure was used for his award, and as a result he
was also awarded an accomplished objectives PMP performance
rating and a payout at 100% of target for the strategic/operational /
leadership portion of his annual bonus. The following table sets forth
for each named executive ofcer his salary, target award as both a
percentage of salary and a dollar amount, actual award and actual
award as a percentage of target award:
Name
Salary
($)
Award Target
Relative to Salary
(%)
Award Target
($)
Actual Award
($)
Actual Award
(% of Target)
van Paasschen 1,250,000 200% 2,500,000 2,300,000 92%
Prabhu 766,785 100% 766,785 705,443 92%
Rivera 722,000 100% 722,000 664,240 92%
Siegel 638,490 100% 638,490 587,411 92%
Turner 766,785 100% 766,785 705,443 92%
Avril
(1)
766,785 100% 766,785 352,722 46%
(1) Mr. Avrils job responsibilities changed during 2012, as further described in our Current Report on Form 8-K filed with the SEC on April16, 2012.
Annual awards made to our named executive ofcers with respect to
2011 performance are reected in the 2012 Summary Compensation
Table on page 55 of this proxy statement.
As noted above, effective with the 2012 performance period,
deferrals from cash incentive awards were no longer allowed under
the Executive Plan.
2012 Long-Term Incentive Compensation.Like the annual
incentives described above, long-term incentives are a key part of
the Companys named executive ofcer compensation program.
Long-term incentive compensation for our named executive
ofcers for 2012 consisted entirely of equity compensation awards
granted in February2012 following the announcement of our 2011
earnings under our LTIP. On average, approximately 60% of total
compensation at target award levels for 2012 was equity-based
long-term incentive compensation.
The Compensation Committee granted awards under the LTIP to
Mr. van Paasschen consisting of a combination of stock options
and restricted stock awards. The Compensation Committee granted
awards under the LTIP for 2012 to all other named executive ofcers
also consisting of a combination of stock options and restricted stock
awards. For the other named executive ofcers, this compensation
was also geared towards performance and long-term incentives,
but to a lesser degree than Mr. van Paasschen. The Compensation
Committee believed an emphasis on long-term equity compensation
was particularly appropriate for the leader of a management team
committed to the creation of stockholder value.
In 2012, for all named executive ofcers, the Compensation
Committee used a grant approach in which the long-term award
was articulated as a dollar value. Under this approach, an overall
award value, in dollars, was determined for each named executive
ofcer based upon our compensation strategy and competitive
market positioning taking into account company and individual
performance factors for the named executive ofcers described
in the section entitled 2012 Annual Incentive Compensation
beginning on page 43 of this proxy statement.
The Compensation Committee determined the appropriate mix of
restricted stock and stock options to be given to our named executive
ofcers. For 2012, the Compensation Committee determined that
a split of 75% of restricted stock awards and 25% of stock options
was the appropriate balance to maximize cost effectiveness and
encourage equity ownership among our management. The number
of shares of restricted stock was calculated by dividing 75% of
the award value by the fair market value of our stock for the grant
date. The number of stock options was determined by dividing
the remaining 25% of the award value by the fair market value of
our stock for the grant date and multiplying the result by two and
one-half, which we believe historically approximates the number of
options determined through formal lattice model option valuation
methods. The named executive ofcers were able to elect a greater
portion of options (up to 100%). During 2012, only Mr. Turner elected
a greater portion of options (50%). Based on the factors set forth
above, including our performance and individual performance of
each named executive ofcer in 2011, the Compensation Committee
believes that the equity award grants in 2012 were appropriate.
The exercise price for each stock option was equal to fair market
value of our common stock on the option grant date. See the
section entitled Equity Grant Practices beginning on page 53
of this proxy statement for a description of the manner in which
we determined fair market value for this purpose. Currently, most
stock options vest in 25% increments annually starting with the
rst anniversary of the date of grant. For stock options granted in
2012, awards granted to associates who were retirement-eligible,
as dened in the LTIP, vest in 16 equal quarterly periods. The only
named executive ofcer who currently meets the retirement criteria
is Mr. Siegel, our Chief Administrative Ofcer, General Counsel and
Secretary. Unexercised stock options expire eightyears from the
date of grant, or earlier in the event of termination of employment.
Stock options provide compensation only when vested and only if
our stock price appreciates and exceeds the exercise price of the
option. Therefore, during business downturns, option awards may
not represent any economic value to an executive.
Prior to the 2012 annual incentive awards, our named executive
officers mandatorily deferred 25% of their annual incentive
compensation awards under the Executive Plan in the form of
deferred restricted stock units. The Compensation Committee had
the discretion to reduce the percentage of an annual long-term
incentive compensation award that was required to be deferred.
For 2011, the deferred amount (as increased by the percentage
described below) was converted into a number of deferred restricted
stock units by dividing the amount of the deferred award by the
average of the high and low fair market value of a share on the
date of grant. The deferred restricted stock units are then subject
to time-based vesting. Upon vesting, shares of our common stock
equal to the number of vested units will be delivered to the named
executive ofcers. As such, the awards combine performance-based
compensation with a further link to stockholder interests. First,
amounts must be earned based on annual Company nancial and
strategic/operational/leadership performance under the Executive
Plan. Second, these already earned amounts are put at risk through
a vesting schedule. Vesting occurs in installments over a three-year
period. Third, these earned amounts become subject to share
price performance. Primarily in consideration of this vesting risk
being applied to already earned compensation (but also taking
into account the enhanced stockholder alignment that results from
being subject to share performance), the amount of the deferred
long-term incentive compensation amount was increased by 33%.
Vesting for these deferred restricted stock units will accelerate in
the event of death, disability or retirement. While this program was
discontinued commencing with 2012 annual incentive awards
paid in 2013, deferred restricted stock units that were awarded
with respect to 2011 annual incentive compensation earnings are
reected in certain of the compensation tables below.
Restricted stock and restricted stock unit awards provide some
measure of mitigation of business cyclicality while maintaining a
direct tie to share price. We seek to enhance the link to stockholder
performance by building a strong retention incentive into the equity
program. Consequently, for 2012 grants, 100% of restricted stock
unit awards vest on the scal year-end of the year immediately prior
to the third anniversary of the date of grant, and 100% of restricted
stock awards vest on the third anniversary of the date of grant.
This vesting places an executives long-term compensation at risk
to share price performance for a signicant portion of the business
cycle, while encouraging long-term retention of executives.
Promotion Equity Award. On August 1, 2012, we granted Mr. Rivera
a special award of 5,550 shares of restricted stock in connection
with his promotion to his current position as Co-President, The
Americas, to reward him for the new responsibilities and duties that
he assumed in connection with this position. The Compensation
Committee determined the value for this award based on competitive
benchmarking based on his new role. One hundred percent of this
restricted stock award vests on the third anniversary of the date of
grant. The fair value for this award is reected in the 2012 Summary
Compensation Table on page 55 of this proxy statement .
Special Long-Term Cash Incentive Award. In 2009, we granted
Mr. Rivera a special long-term performance-based cash award
opportunity related to the development of our St. Regis Bal Harbour
property. The design of the award was to align Mr. Riveras long-term
cash-based incentive compensation with overall construction
completion, contract sales and actual unit closing rates versus our
projections for the property. The target opportunity for the award
was established at $1.0 million, and performance metrics were
established for the award for 2010 and 2011 (to be evaluated in 2012)
consisting of: (1) achieving construction of the project below budget
and on time (during 2012); (2) funding all costs of the property from
Starwood Vacation Ownership cash ow; (3) achieving budgeted
closing rates for sales of property units; (4) exceeding mid-2012
revenue goals for the property; and (5) keeping cumulative sales
and marketing costs for the property below target. We do not
disclose any of the specic quantitative goals established for these
performance metrics for competitive harm reasons, but the goals
established for each of these performance metrics reected very
aggressive timetables and nancial expectations and tight budgetary
limits that were expected to require exceptional effort on the part of
Mr. Rivera to achieve. The St. Regis Bal Harbour property opened in
January 2012, after which Mr. Riveras performance with respect to
this award was evaluated by the Compensation Committee. Based
on its evaluation that Mr. Rivera exceeded all quantitative goals
for the applicable performance metrics and achieved signicant
outperformance against all of the other award terms, and based
on overwhelming external positive reviews of the property since
it opened, the Compensation Committee authorized a payout of
$1.1 million to Mr. Rivera for this award in 2012, representing 110%
achievement of the performance metrics. The payout for this award
is reected in the 2012 Summary Compensation Table on page
55 of this proxy statement .
Changes to Long-Term Incentive
Compensation Design in 2013
As outlined above, despite what we consider to be overwhelming and
continuing majority stockholder support for our say-on-pay proposals
(evidenced through the results for our recent say-on-pay votes), in 2012
we noted the concerns expressed by a small minority of stockholders
about a perceived lack of alignment between our named executive
ofcers and our stockholders due to the lack of performance-based
equity vehicles in our long-term equity incentive program. As part of a
routine review of our compensation program design conducted during
2012, the Compensation Committee approved the introduction of
performance-based equity awards for our named executive ofcers
starting in 2013. The Compensation Committee believes the introduction
of performance share equity vehicles into our program will enhance our
already strong pay for performance philosophy and serve to ensure that
key executives interests are closely aligned with long-term stockholder
objectives and expectations. The changes for 2013, which will be further
described and analyzed in next years proxy statement, are designed to:
Remain aligned with best practices;
Link executive reward opportunities to our performance, especially
in relation to peer companies;
Support global strategic business objectives, long-term growth
and key metrics of performance;
Reward behaviors that are in our best long-term interest;
Meet external expectations of our stockholders; and
Ensure we are delivering stockholder value creation and on
expectations.
More particularly, the program changes for 2013 will consist of:
Realigning the mix of equity grants with market practice, meaning
we will:
Eliminate stock option awards (and the voluntary election of
additional stock options in lieu of restricted stock); and
Introduce performance shares, the vesting of which will be
based on our three-year total shareholder return performance
relative to a group of peer companies (or relative TSR). For the
Chief Executive Ofcer, the equity mix will be 60% performance
shares and 40% restricted stock awards; for the other named
executive ofcers (except for Mr. Rivera), the equity mix will be
50% performance shares and 50% restricted stock awards;
and for Mr. Rivera (due to his position as a division president),
the equity mix will be 40% performance shares and 60%
restricted stock awards;
Revising the vesting schedule for restricted stock awards so that
such vesting occurs in installments over three years (1/3 increments
each year) rather than the current approach of vesting 100% of
these awards at the end of three years; and
Eliminating the mandatory requirement to defer 25% of bonus
into restricted stock (beginning with the 2012 annual incentive
that was paid in 2013).
The Compensation Committee believes that these changes will
enhance our already strong pay for performance philosophy and
help ensure that key executives are closely aligned with long-term
stockholder objectives and expectations.
Benets and Perquisites
Base salary and incentive compensation were supplemented for
2012 by limited benets and perquisites, as described below.
Perquisites. As reected in the 2012 Summary Compensation
Table on page 55 of this proxy statement, we provide certain limited
perquisites to select named executive ofcers when necessary
to provide an appropriate compensation package, including in
connection with enabling the executives and their families to smoothly
transition from previous positions which may require relocation.
For example, Mr. van Paasschen may use our company airplane
whenever reasonable for both personal and business travel and
our other named executive ofcers may use the airplane whenever
air travel is required for business.Depending on availability, family
members of executive ofcers are permitted to accompany our
executives on our company airplane.The cost of that travel is
imputed as income to the executive and the incremental fair value
for such travel is included in the All Other Compensation column
in the 2012 Summary Compensation Table. The executive is
fully responsible, however, for any associated tax liability.We also
reimburse named executive ofcers generally for travel expenses
and other out-of-pocket costs incurred with respect to attendance
by their spouses at one meeting of the Board of Directors each year.
Retirement Benets. We maintain a tax-qualied retirement savings
plan pursuant to Code section401(k) (which plan we refer to as
the Savings Plan) for a broadly-dened group of eligible employees
that includes the named executive ofcers. Eligible employees
may contribute a portion of their eligible compensation to the
Savings Plan on a before-tax basis, subject to certain limitations
prescribed by the Code. We matched 100% of the rst 1% of eligible
compensation and 50% of the next 6% of eligible compensation that
an eligible employee contributes. These matching contributions, as
adjusted for related investment returns, become fully vested upon
the eligible employees completion of two years of service with us.
Our named executive ofcers, in addition to certain other eligible
employees, are permitted to make additional deferrals of base pay
and regular annual incentive awards under our nonqualied deferred
compensation plan under which deferrals are not matched. This
plan is discussed in further detail under the section entitled 2012
Nonqualied Deferred Compensation Table on page 60 of this
proxy statement .
Change in Control Arrangements
Under Company policy, we are required to seek stockholder approval
of severance agreements with executive ofcers that provide Benets
(as dened in the policy) in excess of 2.99 times base salary plus
such ofcers most recent annual incentive award. In 2006, the Board
reviewed the change in control arrangements then in place with our
named executive ofcers and decided to enter into new change in
control agreements with our named executive ofcers at that time,
which included Messrs.Prabhu and Siegel. In connection with the
hiring of Mr.Turner in May2008 as President, Global Development,
and the promotion of Mr.Avril in September2008 to President,
Hotel Group, we entered into change in control arrangements with
Messrs. Turner and Avril and amended and restated our change in
control arrangements with Messrs. Prabhu and Siegel. These new
change in control arrangements are similar; however, pursuant to
our 2008 policy decision to cease paying tax gross-ups in change
in control agreements, the arrangements with Messrs.Turner
and Avril do not provide for a tax gross-up if the benets payable
thereunder are subject to the excise tax under Section280G of the
Code. Instead, the benets provided are reduced to the point that
it would be more advantageous to the executive to pay the excise
tax rather than reduce benets further. We also included change in
control arrangements in Mr. van Paasschens employment agreement.
These change in control arrangements are described in more detail
in the section entitled Potential Payments Upon Termination or
Change in Control beginning on page 61 of this proxy statement .
The change in control severance agreements are intended to promote
stability and continuity of senior management. We believe that the
provision of severance pay to these named executive ofcers upon
a change in control aligns their interests with those of stockholders.
By making severance pay available, we are able to mitigate executive
concern over employment termination in the event of a change
in control that benets stockholders. In addition, the acceleration
of equity compensation vesting in connection with a change in
control provides these named executive ofcers with protection
against equity forfeiture due to termination and ample incentive to
achieve company goals, including facilitating a sale of the company
at the highest possible price per share, which would benet both
stockholders and executives. In addition, we acknowledge that
seeking a new senior position is a long and time-consuming process.
Lastly, each severance agreement permits the executive to maintain
certain benets for a period of two years following termination and to
receive outplacement services. The aggregate effect of our change
in control provisions is intended to focus executives on maximizing
value to stockholders. In addition, should a change in control occur,
benets will be paid only after a double trigger event as described
in the section entitled Potential Payments Upon Termination or
Change in Control beginning on page 61 of this proxy statement .
We believe benet levels have been set to be competitive with peer
group practices.
Additional Severance Arrangements
In 2007, we entered into a letter agreement with Mr.Prabhu clarifying
that, pursuant to his employment agreement dated November13,
2003, his severance included the acceleration of 50% of unvested
stock options in the event that his employment was terminated without
cause by us or by him for good reason. The clarication formally
documented Mr.Prabhus existing severance arrangements as part
of his employment with us. This additional severance arrangement
is described in more detail below in the section entitled Potential
Payments Upon Termination or Change in Control beginning
on page 61 of this proxy statement .
New 2013 Employment Agreement with
Mr.van Paasschen
We have reached agreement in principle with Mr. van Paasschen
regarding a new employment agreement, which new agreement will
supersede his prior agreement dated December 30, 2008. The new
employment agreement will have an initial term ending December
31, 2016, and then will renew on an annual basis unless either party
timely elects not to renew the agreement. The new employment
agreement will provide for Mr. van Paasschen having a base salary
of at least $1,250,000 and allow for continued participation in the
Executive Plan, with an annual bonus targeted at 200% of base
salary, and actual payments ranging from 0% to 400% of base salary
depending on performance against objectives set by the Board. In
addition, Mr. van Paasschen will continue to be eligible to participate
in the LTIP, and his annual LTIP awards will provide an opportunity
with an expected value that ranges from $5,500,000 to $9,500,000,
with a target of $7,500,000. Actual payout of performance-based
LTIP awards will depend on performance against objectives set by
the Board. The agreement also will provide for Mr. van Paasschen
to receive certain limited perquisites and personal benets at a level
consistent with his prior agreement (such as the use of a driver and
car service for business purposes and a private aircraft for business
travel, with any permitted personal use being imputed as income
consistent with established practice, or as otherwise agreed), but
no longer will permit any tax gross-ups on such benets.
Mr. van Paasschen will be entitled to receive termination payments
and benets for various employment termination scenarios under
the agreement. If Mr. van Paasschens employment is terminated
by the Company without cause or by Mr. van Paasschen for good
reason, then Mr. van Paasschen will be entitled to: (i) a severance
payment equal to two times the sum of his base salary and target
bonus; (ii) a prorated portion of his annual bonus through the date
of termination (based on actual performance at the end of the
performance period); (iii) vesting of his stock options and restricted
stock grants only in accordance with the terms of the awards, with
performance-based LTIP awards vesting on a pro-rata basis, and
then paid at the usual time based on actual performance; and (iv)
certain health coverage and previously accrued benets. If the
termination without cause or by Mr. van Paasschen for good reason
occurs within 24 months after a change in control, or prior to but
in contemplation of a change in control (including at the direction
of a buyer), then Mr. van Paasschen will be entitled to the benets
described in the preceding sentence, except: (i) the prorated bonus
will be based on his target bonus, (ii) LTIP legacy awards outstanding
before January 1, 2013 will fully vest (with performance at maximum in
the case of uncompleted performance periods); (iii) later LTIP awards
will vest only in accordance with the terms of the awards; and (iv)
additional life, disability and accident coverage and outplacement
services will be provided; however, Mr. van Paasschen will no longer
be entitled to any excise tax gross-up under the agreement. If Mr.
van Paasschens employment is terminated because of death or
disability, then: (i) Mr. van Paasschen (or his estate) will be entitled
to certain previously accrued benets and a prorated portion of his
target bonus through the date of termination, (ii) his unvested stock
options will fully vest, and (iii) his other LTIP awards will either fully
vest (if not conditioned on performance) or vest on a pro-rata basis
(if conditioned on performance), assuming the requisite service has
been performed under the related agreement. If Mr. van Paasschens
employment is terminated by the Company for cause or by Mr. van
Paasschen without good reason, or if his employment terminates as
a result of non-renewal of the agreement, then Mr. van Paasschen
will be entitled to certain previously accrued benets, excluding any
earned but unpaid bonus for a completed prior year.
Under the terms of the new agreement, Mr. van Paasschen will
also be subject to customary restrictive covenants, including two-
year non-competition and non-solicitation provisions, consistent
with his prior agreement. We expect to provide more information
about the terms of Mr. van Paasschens compensation under the
new employment agreement in our proxy statement for the 2014
Annual Meeting of Stockholders.
Potential Impact on Compensation for Executive Misconduct
If the Board of Directors determines that an executive ofcer has engaged
in misconduct, the Board of Directors may take a range of actions
to remedy the misconduct. In 2011, the Compensation Committee
adopted an incentive recoupment policy that allows us to recover any
annual incentive payment or long-term incentive award to any individual
executive at the senior vice president level or above, including our
named executive ofcers, if the Board of Directors determines that:
we are required to prepare an accounting nancial restatement
due to the material non-compliance of the Company with any
nancial reporting requirement under applicable securities laws
and the compensation payment previously made was based
on erroneous data; or
the executive engaged in intentional misconduct that caused or
substantially caused the need for a nancial restatement and a
lower payment would have been made to the executive based
upon the restated nancial results.
In such circumstances we will, to the extent practicable, seek to
recover from the individual executive the amount by which the
individual executives payments for the relevant period exceeded the
lower payment that would have been made based on the restated
nancial results. In addition, our LTIP provides that the Compensation
Committee may cancel, suspend, withhold or otherwise restrict
or limit any long-term incentive award to any participant under the
LTIP, including executive ofcers, if the Compensation Committee
determines that such participant engaged in misconduct.
Background Information on the 2012 Executive Compensation Program
Use of Peer Data
In determining competitive compensation levels for 2012 compensation
decisions, the Compensation Committee reviewed data prepared
by Meridian, its executive compensation consultants, that reected
compensation practices for executives in hotel and property
management companies. Due to the limited number of direct
competitors of similar scale, a robust peer community required
expanding beyond these organizations to companies in related
industries with a strong brand focus, and/or with similar talent needs
(for example, hospitality/entertainment industries, brand-dependent
companies, and companies of similar size, scale and complexity). To
assess the appropriateness of including a potential peer company
in our peer group, the following eight screening criteria were used:
revenue size with stronger consideration given to companies
within a range of one-third to three times our revenue (given
our unique role in managing property revenues beyond those
captured in our nancial statements, a couple larger revenue
companies were included);
market capitalization with stronger consideration given to
companies within a range of one-third to three times our market
capitalization;
EBITDA with stronger consideration given to companies within a
range of one-third to three times our EBITDA (given our unique
role in managing property revenues beyond those captured in
our nancial statements, a couple larger revenue companies
were included);
nancial performance with stronger consideration given to
companies with nancial results comparable to ours in terms of
1-year, 3-year and 5-year annualized revenue growth, operating
income and total shareholder return;
direct competitors;
related industries (for example, cruise lines, entertainment, etc.);
talent competitors; and
global complexity with stronger consideration given to companies
with global scope, where greater than 25% of revenues are
generated outside the United States.
The Compensation Committee along with our management
frequently reviews the peer group to ensure it represents a relevant
market perspective. A review of the peer group was carried out
by Meridian in 2012, the results of which added Hyatt Hotels to
the group. The other constituents of the peer group remained
unchanged for use in 2012.
The Compensation Committee utilized the peer group for a broad
set of comparative purposes for 2012, including levels of total
compensation for executives and directors, pay mix, incentive
plan design and equity usage and other terms of employment.
We believe that by conducting the competitive analysis using a
broad peer group, which includes companies outside the hospitality
industry, we are able to attract and retain talented executives
from outside the hospitality industry. Our experience has proven
that key executives with diversied experience prove to be major
contributors to our continued growth and success.
The peer group approved by the Compensation Committee for 2012 is set out below. We expect that it will be necessary to update
the list periodically.
Avon Products, Inc. MGM Resorts International
Carnival Corporation and Carnival PLC* NIKE, Inc.
The Este Lauder Companies, Inc. Ralph Lauren Corporation
H.J. Heinz Company Royal Caribbean Cruises Ltd.
Host Hotels& Resorts, Inc. Simon Property Group, Inc.
Hyatt Hotels Corporation Starbucks Corporation
InterContinental Hotels Group PLC V.F. Corporation
Kellogg Company The Walt Disney Corporation
Limited Brands, Inc. Wyndham Worldwide Corporation
Marriott International, Inc. Yum! Brands, Inc.
* Carnival Corporation and Carnival PLC are public companies with separate listings and shareholders but operate as if they are a single economic enterprise.
In performing its competitive analysis for 2012, the Compensation
Committee reviewed:
base pay;
target and actual total cash compensation, consisting of salary,
target and actual annual incentive awards in prior years;
direct total compensation consisting of salary, target and actual
annual incentive awards, and the expected value of total long-
term incentives; and
retirement benets.
When establishing target compensation levels for 2012, the
Compensation Committee reviewed peer group data on payments
to named executive ofcers as reported in proxy statements
available as of February2012 as provided by Meridian.
Tax Considerations
Section162(m) generally disallows a federal income tax deduction
to public companies for incentive compensation in excess of
$1,000,000 paid to the chief executive ofcer and to each of the
three other most highly compensated executive ofcers (other
than the chief nancial ofcer). Qualied performance-based
compensation is not subject to the deduction limit if certain
requirements are met. We believe that compensation paid under the
Executive Plan for 2012 meets these requirements and is generally
fully deductible for federal income tax purposes. In addition, for
federal income tax purposes, compensation earned under option
grants is also fully deductible for federal tax purposes.
Although the Compensation Committee may continue taking actions
intended to limit the impact of Section162(m), the Compensation
Committee also believes that the tax deduction is only one of
several relevant considerations in setting named executive ofcer
compensation. The Compensation Committee believes that the tax
deduction limitation should not be permitted to compromise our
ability to design and maintain named executive ofcer compensation
arrangements that will attract and retain the executive talent to allow
us to compete successfully in our industry. Accordingly, achieving
the desired exibility in the design and delivery of compensation
may result in compensation that in certain cases is not deductible
for federal income tax purposes.
Share Ownership Guidelines
We have adopted share ownership guidelines for our executive
ofcers, including the named executive ofcers. Pursuant to the
guidelines, the named executive ofcers, including the Chief
Executive Ofcer, are required to hold that number of shares
having a market value equal to or greater than a multiple of each
executives base salary. For the Chief Executive Ofcer, the multiple
is six times base salary, and for the other named executive ofcers,
the multiple is four times base salary. This multiple is reduced one
times base salary, however, for executives that are retirement
eligible. A retention requirement of 35% is applied to restricted
shares upon vesting (net shares after tax withholding) and shares
obtained from option exercises until the executive meets the target,
or if an executive falls out of compliance, shares owned, stock
equivalents (vested/unvested restricted stock units) and unvested
restricted stock (pre-tax) count towards meeting ownership targets.
However, stock options and performance-based equity do not
count towards meeting the target. Ofcers have ve years from
the date of hire or, if later, the date they rst become subject to the
policy, to meet the ownership requirements. All named executive
ofcers were in compliance with share ownership guidelines as
of December31, 2012.
Equity Grant Practices
Determination of Option Exercise Prices.The Compensation
Committee grants stock options with an exercise price equal to the
fair market value of a share on the grant date. Under the LTIP, for
2012, the fair market value of our common stock on a particular
date was determined as the average of the high and low trading
prices of a share on the NYSE on that date.
Timing of Equity Grants.For 2012, the Compensation Committee
made annual equity compensation grants to named executive
ofcers on February28, 2012 which followed its rst regularly
scheduled meeting that occurred after the release of our earnings
for 2011. The timing of this meeting was determined based on
factors unrelated to the pricing of equity grants. The Compensation
Committee (or its delegates), however, had discretion under
unusual circumstances to award grants at other times in the year.
The Compensation Committee approves equity compensation
awards to a newly hired executive ofcer at the time that the Board
of Directors meets to approve the executives employment package.
Generally, the date on which the Board of Directors approves the
employment package becomes the grant date of the newly-hired
executive ofcers equity compensation awards. However, if we
and the new executive ofcer enter into an employment agreement
regarding the employment relationship, we require the executive
ofcer to sign his employment agreement shortly following the
date of Board approval of the employment package; the later
of the date on which the executive ofcer signs his employment
agreement or the date that the executive ofcer begins employment
becomes the grant date of these equity compensation awards.
Compensation Committee Report
The Compensation and Option Committee of the Board of Directors
of Starwood Hotels& Resorts Worldwide, Inc. has reviewed and
discussed the Compensation Discussion and Analysis required by
Item402(b) of RegulationS-K with management and, based on such
review and discussions, recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in the Companys
Proxy Statement for the 2013 Annual Meeting of Stockholders and
incorporated by reference into the Companys Annual Report on Form
10-K for the scal year ended December31, 2012.
Compensation and Option Committee of the Board of Directors
Adam M. Aron, Chairman
Thomas E. Clarke
Clayton C. Daley, Jr.
Thomas O. Ryder
Risk Assessment
In setting compensation, our Compensation Committee also considers
the risks to our stockholders, and to us as a whole, arising out
of our compensation programs. In February2013, management
held a special meeting to discuss and assess the risk prole of our
compensation programs. The Chief Human Resources Ofcer, our
Chief Administrative Ofcer, General Counsel and Secretary, our Vice
Chairman and Chief Financial Ofcer and Meridian, who had been
asked to work with management to help with such risk assessment,
were among the participants in the special meeting. Their review
considered risk-determining characteristics of the overall structure and
individual components of our company-wide compensation program,
including our base salaries, incentive plans and equity plans. A report
of the ndings was provided to the Compensation Committee for its
review and consideration. Following this assessment, we believe that
we have instituted policies that align our executive ofcers interests
with those of our stockholders without creating incentives for our
executive ofcers or other employees to take risks that are reasonably
likely to have a material adverse effect on us. For example:
Balance of Compensation: Across the Company, individual
elements of our compensation program include base salaries,
incentive compensation, and for certain of our employees,
equity-based awards. By providing a mix of different elements
of compensation which reward both short-term and long-term
performance, our compensation programs as a whole provide
a balanced approach to incentivizing and retaining employees,
without placing an inappropriate emphasis on any particular
form of compensation.
Objective Formula and Pre-established Performance
Measures Dictate Annual Incentives: Under the Executive
Plan, payment of annual incentives to our named executive
ofcers is subject to the satisfaction of specic company-wide
annual performance targets determined under an incentive formula
established by our Compensation Committee within the rst 90
days of each scal year. Similarly, our employees other than the
named executive ofcers that are eligible to receive an annual
incentive receive such incentive subject to the satisfaction of
specic company-wide annual performance targets determined
under an incentive formula established by our Compensation
Committee. These performance targets are directly and specically
tied to one or more of the following company-wide business
criteria: EBITDA, consolidated pre-tax earnings, net revenues,
net earnings, operating income, earnings before interest and
taxes, cash ow measures, return on equity, return on net assets
employed or EPS for the applicable scal year.
Minimum and Maximum Thresholds for Annual Incentives:
Each year our Compensation Committee establishes within
the rst 90 days of any scal year a threshold level of adjusted
EBITDA that we must achieve in order for any bonus to be paid
to our named executive ofcers or other company employees
eligible to receive an annual incentive for any given year. The
Executive Plan also species a maximum incentive amount, in
dollars, that may be paid to any executive ofcer for any 12-month
performance period. As a result of this threshold performance
requirement and the design of our Executive Plan, incentive
compensation is payable under our incentive plans only upon
the attainment of performance targets related to business criteria
that are in the interests of our stockholders.
Use of Long-Term Incentive Compensation: Equity-based
long-term incentive compensation that vests over a period of
years is a key component of total compensation of our executive
employees. This vesting period encourages our executives to
focus on sustaining our long-term performance. These grants
are also made annually, so executives always have unvested
awards that could decrease signicantly in value if our business
is not managed for the long-term.
Share Ownership Guidelines: Our share ownership guidelines
require our executive ofcers, including the named executive
ofcers, to hold that number of shares having a market value
equal to or greater than a multiple of each executives base
salary. For the Chief Executive Ofcer, the multiple is six times
base salary, and for the other named executive ofcers, the
multiple is four times base salary. This multiple is reduced one
times base salary, however, for executives that are retirement
eligible. A retention requirement of 35% is applied to restricted
shares upon vesting (net shares after tax withholding) and shares
obtained from option exercises until the executive meets the
target, or if an executive falls out of compliance. See the section
entitled Share Ownership Guidelines beginning on page 52
of this proxy statement for a description of the securities that
count towards meeting the target and other considerations.
Restrictions on Related Party Transactions: We have a
corporate opportunity and related person transaction approval
process regarding the review, approval and ratication by our
Governance Committee of all transactions with related parties,
executive ofcers, and their respective family members and/or
corporate afliates. See the section entitled Certain Relationships
and Related Transactions beginning on page 68 of this proxy
statement for a complete description of this policy.
Incentive Recoupment Policy: We have an incentive recoupment
policy that allows us to recover any annual incentive payment
or long-term incentive payment to any individual executive at
the senior vice president level and above, including our named
executive ofcers, under certain circumstances. See the section
entitled Potential Impact on Compensation for Executive
Misconduct beginning on page 51 of this proxy statement for
more information.
Anti-Hedging Policy: We have an anti-hedging policy that
restricts all ofcers and directors from engaging in short sales,
entering into any derivative transactions, such as swaps, straddles,
puts, or calls, or engaging in any hedging or monetization
transactions, such as collars or forward sale contracts, that
are directly linked to our shares.
Internal Processes Further Restrict Risk: We have in place
additional processes to limit risk to us from our compensation
programs. Specically, we have nancial policies that restrict the
amount of capital that any individual may deploy absent obtaining
internal approvals, which reduces the risk of inappropriate
expenditures by an individual. Further, the processes and controls
associated with respect to our compensation programs are
audited each year to insure that expenditures have been approved
within our guidelines and by required approval authorities. In
addition, we engage Meridian as an external compensation
consulting rm for design and review of our compensation
programs, as well as external legal counsel to assist us with the
periodic review of our compensation plans to ensure compliance
with applicable laws and regulations.
2012 Summary Compensation Table
The table below sets forth a summary of the compensation earned by the named executive ofcers for up to the past three years:
Name and Principal Position Year
Salary
($)
(1)
Bonus
($)
(2)
Stock
Awards
($)
(3)
Option
Awards
($)
(4)
Non-Equity
Incentive Plan
Compensation
($)
(5)
All Other
Compensation
($)
(6)
Total
($)
Frits van Paasschen
Chief Executive Ofcer andPresident
2012 1,250,000 4,327,101 1,172,036 2,300,000 53,902 9,103,039
2011 1,250,000 3,997,530 1,125,465 2,450,000 32,863 8,855,858
2010 1,208,333 3,956,262 1,210,395 3,000,000 19,927 9,394,917
Vasant M. Prabhu
Vice Chairman
andChiefFinancial Ofcer
2012 764,279 2,310,809 639,296 705,443 10,000 4,429,827
2011 751,750 2,174,427 630,256 736,715 11,198 4,304,346
2010 733,235 2,312,035 726,243 902,100 9,800 4,683,413
Sergio D. Rivera
Co-President, The Americas
2012 669,912 1,258,469 255,726 1,764,240 26,894 4,005,241

Kenneth S. Siegel
Chief Administrative Ofcer,
General Counsel and Secretary
2012 638,490 12,770 1,476,605 404,877 587,411 10,000 3,130,153
2011 638,490 1,600,725 461,442 625,720 11,981 3,338,358
2010 634,582 1,468,148 459,953 766,188 9,800 3,338,671
Simon M. Turner
President, Global Development
2012 763,991 1,310,690 1,065,480 705,443 10,000 3,855,604
2011 733,142 1,314,216 1,125,465 735,020 9,800 3,917,643
2010 644,792 693,824 1,888,226 778,500 9,800 4,015,142
Matthew E. Avril
Former President, Hotel Group
2012 764,279 1,710,765 468,818 352,722 26,891 3,323,475
2011 751,750 1,574,435 450,186 736,715 10,557 3,523,643
2010 747,292 1,550,838 484,167 902,100 9,901 3,694,298
(1) Represents salary actually earned during the fiscal year listed.
(2) Represents a lump sum cash payment equal to 2% of Mr. Siegels 2012 base salary, which lump sum payment was provided instead of a salary increase for 2012. For more
information about this payment, see the section entitled 2012 Base Salary and Discretionary Payment beginning on page 42 of this proxy statement.
(3) Represents the grant date fair value for restricted stock and restricted stock unit awards granted during the year computed in accordance with Financial Accounting Standards
Board Accounting Standards Codification Topic 718, or ASC 718. For additional information, refer to Note 22 of our financial statements filed with the SEC as part of the
Form10-K for the year ended December31, 2012. These amounts reflect the grant date fair value for these awards and do not correspond to the actual value that will be
recognized by the named executive officers. See the 2012 Grants of Plan-Based Awards Table on page56 of this proxy statement for information on awards granted
in 2012.
(4) Represents the grant date fair value for stock option awards granted during the year computed in accordance with ASC718. For additional information, refer to Note22 of our
financial statements filed with the SEC as part of the Form10-K for the year ended December31, 2012. These amounts reflect the grant date fair value for these awards and
do not correspond to the actual value that will be recognized by the named executive officers. See the 2012 Grants of Plan-Based Awards Table on page56 of this
proxy statement for information on awards granted in 2012.
(5) Represents cash awards paid in March2013 with respect to performance in 2012, as discussed under the section entitled 2012 Annual Incentive Compensation
beginning on page 43 of this proxy statement and the payout for a special long-term cash incentive award for Mr. Rivera, as discussed under the section entitled 2012 Long-
Term Incentive Compensation beginning on page47 of this proxy statement. Cash incentive awards disclosed for 2011 include the following 2011 amounts that were
converted into restricted stock units in 2012 and such number of restricted stock units was increased by 33% in accordance with the Executive Plan (no amounts earned for
2012 performance were so deferred, as that program was discontinued with respect to the 2012 annual incentive program):
Name 2011AmountDeferred
van Paasschen 612,500
Prabhu 184,179
Rivera 177,057
Siegel 156,430
Turner 183,755
Avril 184,179
(6) The amounts reported in All Other Compensation for 2012 include our contributions to the Savings Plan of $10,000 for each NEO, life insurance premiums for Mr. van
Paasschen, chauffeured car service for Mr. van Paasschen of $16,732, company reimbursement for Mr. Riveras relocation of $16,894, and tax gross-up payments (including a
payment to Mr.van Paasschen in the amount of $12,361). Each officers perquisites and personal benefits for 2012 are less than $10,000, and no other item reported in this
column for 2012 has a value that exceeds $10,000 with the exception of spousal travel expenses for Mr. Avril of $11,985.
2012 Grants of Plan-Based Awards Table
The table below sets forth a summary of the grants of plan-based incentive awards to the named executive ofcers made during 2012:
Name (a)
Grant
Date
(b)
(1)
Compensation
Committee
Approval Date
(c)
(1)
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
(2)
All Other Stock
Awards: Number
of Shares of
Stock or Units
(#)(g)
All Other Option
Awards: Number
of Securities
Underlying
Options
(#)(h)
(3)
Exercise
or Base
Price of
Option
Awards
($/Sh)(i)
(4)
Grant Date
Fair Value
of Stock
and Option
Awards
($)(j)
(5)
Threshold
($)(d)
Target
($)(e)
Maximum
($)(f)
van
Paasschen
2/28/2012 2/15/2012 62,432 55.06 1,172,036
2/28/2012 2/15/2012 74,918
(7)
4,124,985
3/01/2012
(6)
14,998
(6)
814,616
1,000,000 2,500,000 5,000,000
Prabhu 2/28/2012 2/15/2012 34,054 55.06 639,296
2/28/2012 2/15/2012 40,865
(7)
2,250,027
3/01/2012
(6)
4,510
(6)
244,961
306,714 766,785 1,533,570
Rivera 2/28/2012 2/15/2012 13,622 55.06 255,726
2/28/2012 2/15/2012 16,346
(7)
900,011
3/01/2012
(8)
4,336
(6)
235,510
8/01/2012 4/04/2012 5,550
(7)
300,005
288,800 722,000 1,444,000
Siegel 2/28/2012 2/15/2012 21,567 55.06 404,877
2/28/2012 2/15/2012 25,881
(7)
1,425,008
3/01/2012
(6)
3,830
(6)
208,026
255,396 638,490 1,276,980
Turner 2/28/2012 2/15/2012 56,756 55.06 1,065,480
2/28/2012 2/15/2012 22,703
(7)
1,250,027
3/01/2012
(6)
4,500
(6)
244,961
306,714 766,785 1,533,570
Avril 2/28/2012 2/15/2012 24,973 55.06 468,818
2/28/2012 2/15/2012 29,967
(7)
1,649,983
3/01/2012
(6)
4,510
(6)
244,961
306,714 766,785 1,533,570
(1) Grant date differs from Compensation Committee approval date in accordance with the procedure outlined in the section entitled Equity Grant Practices beginning on
page 53 of this proxy statement.
(2) Represents the potential values of the awards granted to the named executive officers for annual incentive awards for 2012 if the threshold, target and maximum goals are
satisfied for all applicable performance measures. See detailed discussion of these awards in the section entitled Narrative Disclosure To Summary Compensation
Table and Grants of Plan-Based Awards Table beginning on page 57 of this proxy statement.
(3) The options generally vest in four equal installments on the first, second, third and fourth anniversary of their grant. As of September4, 2010, Mr.Siegels awards vest quarterly
in equal installments over four years due to his retirement eligible status, as defined in the LTIP. As of December15, 2014, Mr.Prabhus awards will vest quarterly due to his
retirement eligible status, as defined in the LTIP.
(4) The exercise price was determined by using the average of the high and low price of shares on the grant date.
(5) Represents the fair value of the awards disclosed in columns (g)and (h)on their respective grant dates. For restricted stock and restricted stock units, fair value is calculated in
accordance with ASC718 using the average of the high and low price of shares on the grant date. For stock options, fair value is calculated in accordance with ASC718 using
a lattice valuation model. For additional information, refer to Note22 of our financial statements filed with the SEC as part of the Form10-K for the year ended December31,
2012. There can be no assurance that these amounts will correspond to the actual value that will be recognized by the named executive officers.
(6) On March1, 2012, in accordance with the Executive Plan, 25% of Messrs. van Paasschen, Avril, Prabhu, Siegel and Turners annual incentive award with respect to 2011
performance was converted into restricted stock units and the number of units was increased by 33%. The amount included in the Stock Awards column in the 2012 Summary
Compensation Table on page 55 of this proxy statement only includes the 33% increase, as the deferred annual incentive amount was disclosed separately for 2011 for the
Executive Plan participants. These restricted stock units for Messrs. van Paasschen, Avril, Prabhu, Siegel and Turner vest in equal installments on the first, second and third fiscal
year-ends following the date of grant, and vested units are distributed on the earlier of (a)the third fiscal year-end or (b)a termination of employment. Dividends are paid to the
named executive officers in amounts equal to those paid to holders of shares. No separate Compensation Committee approval was required for award of these deferred stock
units, which are provided by plan terms.
(7) This award vests on the third anniversary of the grant date, except with respect to Mr.Siegel whose awards as of September4, 2010 vest quarterly in equal installments over
three years due to his retirement-eligible status, as defined in the LTIP. Dividends are accrued and paid upon vesting.
(8) On March 1, 2012, a mandatory 25% of Mr. Riveras annual incentive award with respect to 2011 performance was converted into restricted stock and the number of shares was
also increased by 33%. The amount included in the Stock Awardscolumn in the 2012 Summary Compensation Table on page 55 of this proxy statement only includes the
33% increase, consistent with the reporting for the Executive Plan participants. Mr. Riveras restricted stock award vests in equal installments on the first and second anniversary
of the date of grant, but may vest on an earlier basis upon Mr. Riveras death, disability or retirement or upon a change in control. If Mr. Rivera is terminated without cause, he
will forfeit any unvested shares but will receive payment for the remaining unvested portion of the initially deferred annual incentive award. Current regular cash dividends are
paid to Mr. Rivera on this restricted stock award.
Narrative Disclosure to Summary Compensation Table
andGrants of Plan-Based Awards Table
We describe below the Executive Plan awards (and Mr. Riveras award) granted to our named executive ofcers in 2012. These awards
are reected in both the 2012 Summary Compensation Table on page 55 of this proxy statement and the 2012 Grants of Plan-
Based Awards Table on page56 of this proxy statement.
Each of the named executive ofcers received an award payout in March2013 relating to his 2012 performance. The table below sets
forth for each named executive ofcer his salary, target award as both a percentage of salary and a dollar amount, and actual award.
Name
Salary
($)
Award Target
Relative
toSalary
(%)
Award
Target
($)
Actual
Award
($)
van Paasschen 1,250,000 200% 2,500,000 2,300,000
Prabhu 766,785 100% 766,785 705,443
Rivera 722,000 100% 722,000 664,240
Siegel 638,490 100% 638,490 587,411
Turner 766,785 100% 766,785 705,443
Avril 766,785 100% 766,785 352,722
The following factors contributed to the Compensation Committees
determination of the 2012 annual incentive awards for the named
executive ofcers:
the Companys 2012 nancial performance as measured by
adjusted EBIDTA and EPS;
the strategic, operational and leadership performance goals for
each named executive ofcer that link individual contributions
to execution of our business strategy and major nancial and
operating goals;and
the annual incentives paid to executive ofcers performing
comparable functions in peer companies, as further described
in the section entitled 2012 Annual Incentive Compensation
beginning on page43 of this proxy statement.
See the section entitled 2012 Long-Term Incentive Compensation
beginning on page 47 of this proxy statement for more information
on the $1.1 million payout during 2012 to Mr. Rivera with respect
to a special long-term cash incentive award.
See the section entitled Potential Payments Upon Termination or
Change in Control beginning on page 61 of this proxy statement
for additional information regarding employment agreements for
the named executive ofcers.
Outstanding Equity Awards at 2012 Fiscal Year-End Table
The following table provides information on the current holdings of stock options and stock awards by the named executive ofcers as
of December31, 2012. This table includes unexercised and unvested stock options, unvested restricted stock and unvested restricted
stock units. Each equity grant is shown separately for each named executive ofcer. The market value of the stock awards is based on
the closing price of a share on December31, 2012, the last business day of the scal year, which was $57.36.
Name Grant Date
Option Awards Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(1)(2)
Underlying
Unexercised Options
(#) Unexercisable
(1)(2)
Option
Exercise
Price
($)
(1)
Option
Expiration
Date
Number of Shares
or Units of Stock
That Have Not
Vested
(#)
Market Value
ofShares or Units
of Stock That Have
Not Vested
($)
van Paasschen 9/24/2007 63,895 58.69 9/24/2015
2/28/2008 102,870 48.61 2/28/2016
2/27/2009 274,484 11.39 2/27/2017
2/26/2010 40,866 40,865 38.24 2/26/2018
2/28/2011 12,749 38,246 61.28 2/28/2019
2/28/2012 62,432 55.06 2/28/2020
2/26/2010 98,078
(3)
5,625,754
2/28/2011 61,195
(3)
3,510,145
3/01/2011 5,586
(4)
320,413
2/28/2012 74,918
(3)
4,297,296
3/01/2012 9,998
(4)
573,485
Prabhu 2/07/2006 79,913 48.80 2/07/2014
2/28/2007 34,538 65.15 2/28/2015
2/28/2008 78,696 48.61 2/28/2016
2/27/2009 18,621 68,621 11.39 2/27/2017
2/26/2010 24,520 24,519 38.24 2/26/2018
2/28/2011 7,140 21,417 61.28 2/28/2019
2/28/2012 34,054 55.06 2/28/2020
2/26/2010 58,847
(3)
3,375,464
2/28/2011 34,269
(3)
1,965,670
3/01/2011 1,679
(4)
96,307
2/28/2012 40,865
(3)
2,344,016
3/01/2012 3,006
(4)
172,424
Rivera 2/28/2007 20,723 65.15 2/28/2015
2/28/2008 5,555 48.61 2/28/2016
2/27/2009 65,876 11.39 2/27/2017
2/26/2010 9,808 38.24 2/26/2018
2/28/2011 3,060 9,179 61.28 2/28/2019
2/28/2012 13,622 55.06 2/28/2020
2/26/2010 23,539
(3)
1,350,197
2/28/2011 14,687
(3)
842,446
3/01/2011 753
(5)
43,192
2/28/2012 16,346
(3)
937,607
3/01/2012 2,890
(5)
165,770
8/01/2012 5,550
(3)
318,348
Siegel 2/28/2007 34,538 65.15 2/28/2015
2/28/2008 30,861 48.61 2/28/2016
2/27/2009 78,228 26,076 11.39 2/27/2017
2/26/2010 21,353 9,705 38.24 2/26/2018
2/28/2011 9,149 11,759 61.28 2/28/2019
2/28/2012 4,044 17,523 55.06 2/28/2020
2/26/2010 3,105
(3)
178,103
2/28/2011 10,453
(3)
599,584
3/01/2011 1,426
(4)
81,795
2/28/2012 19,410
(3)
1,113,358
3/01/2012 2,553
(4)
146,440
Name Grant Date
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(1)(2)
Underlying
Unexercised Options
(#) Unexercisable
(1)(2)
Option
Exercise
Price
($)
(1)
Option
Expiration
Date
Number of Shares
or Units of Stock
That Have Not
Vested
(#)
Market Value
ofShares or Units
of Stock That Have
Not Vested
($)
Turner 5/07/2008 67,612 53.25 5/07/2016
2/27/2009 256,099 137,242 11.39 2/27/2017
2/26/2010 63,751 63,750 38.24 2/26/2018
2/28/2011 12,749 38,246 61.28 2/28/2019
2/28/2012 56,756 55.06 2/28/2020
2/26/2010 17,000
(3)
975,120
2/28/2011 20,398
(3)
1,170,029
3/01/2011 1,449
(4)
83,115
2/28/2012 22,703
(3)
1,302,244
3/01/2012 3,000
(4)
172,080
Avril 2/28/2007 20,723 65.15 2/28/2015
2/28/2008 5,555 48.61 2/28/2016
2/27/2009 82,345 11.39 2/27/2017
2/26/2010 16,346 38.24 2/26/2018
2/28/2011 5,100 15,298 61.28 2/28/2019
2/28/2012 24,973 55.06 2/28/2020
2/26/2010 39,231
(3)
2,250,290
2/28/2011 24,478
(3)
1,404,058
3/01/2011 1,679
(4)
96,307
2/28/2012 29,967
(3)
1,718,907
3/01/2012 3,006
(4)
172,424
(1) In connection with the sale of 33 hotels to Host Hotels& Resorts, Inc. (Host), our stockholders received 0.6122 Host shares and $0.503 in cash for each of their ClassB
Shares. Holders of our employee stock options and restricted stock did not receive this consideration while the market price of shares was reduced to reflect the payment of
this consideration directly to the holders of the Class B Shares. In order to preserve the value of our options immediately before and after the Host transaction, we adjusted our
stock options to reduce the strike price and increase the number of stock options using the intrinsic value method based on the share price immediately before and after the
transaction. The option information provided reflects the number of options granted and the option exercise prices after these adjustments were made. As of December31, 2012,
this impacts Mr.Prabhus holdings related to his 2006 option award only.
(2) These options generally vest in equal installments on the first, second, third and fourth anniversary of their grant. As of September4, 2010, Mr.Siegels 2008, 2009, 2010,
2011 and 2012 awards vest quarterly in equal installments over four years due to his retirement-eligible status, as defined in the LTIP. As of December15, 2014, Mr.Prabhus
awards will vest quarterly due to his retirement-eligible status, as defined in the LTIP.
(3) For awards granted in 2010, 2011 and 2012, the restricted stock or restricted stock units generally vest 100% on the third anniversary of their grant. As of September4, 2010,
Mr.Siegels 2008, 2010 and 2011 awards vest quarterly in equal installments due to his retirement eligible status, as defined in the LTIP.
(4) These restricted stock units vest in equal installments on the first, second and third fiscal year-ends following the date of grant, and are distributed on the earlier of: (a)the third
fiscal year-end or (b)a termination of employment. Shares underlying the restricted stock units that vested as of December31, 2012, but which shares will not be distributed
to the named executive officers until either December31, 2013 or 2014, are non-forfeitable with respect to each named executive officer and will be included in the Option
Exercises and Stock Vested table for the year in which they are settled.
(5) These shares of restricted stock vest in equal installments on the first and second anniversary of their grant but may vest on an earlier basis upon Mr. Riveras death, disability or
retirement or upon a change in control. If Mr. Rivera is terminated without cause, he will forfeit any unvested shares but will receive payment for the remaining unvested portion
of the initially deferred annual incentive award upon which these awards are based. Shares are distributed upon vesting.
2012 Option Exercises and Stock Vested Table
The following table discloses, for each named executive ofcer, (1)option awards representing shares acquired pursuant to exercise of
stock options during 2012; and (2)stock awards representing (a)shares of restricted stock that vested in 2012 and (b)shares acquired
in 2012 on account of vesting of restricted stock units. The table also discloses the value realized by the named executive ofcer for
each such event, calculated prior to the deduction of any applicable withholding taxes and brokerage commissions.
Name
Number
of Shares
Acquired
onExercise
(#)
Value
Realized
onExercise
($)
Number
of Shares
Acquired
onVesting
(#)
Value
Realized
onVesting
($)
van Paasschen 623,452 29,295,997 21,468 1,213,157
Prabhu 50,000 2,444,903 122,808 6,735,487
Rivera 70,780 3,006,778 10,662 583,245
Siegel 130,380 6,012,474 33,675 1,826,100
Turner 4,562 257,799
Avril 90,518 3,697,816 10,847 604,909
2012 Nonqualied Deferred Compensation Table
The Companys Deferred Compensation Plan (or Plan) permits eligible executives, including our named executive ofcers, to defer up
to 100% of their Executive Plan cash bonus award, as applicable, and up to 75% of their base salary for a calendar year. We do not
contribute to the Plan.
Name
Executive
Contributions
in Last FY
($)
Registrant
Contributions
in Last FY
($)
Aggregate
Earnings
inLast FY
($)
Aggregate
Withdrawals/
Distributions
($)
Aggregate
Balance
atLast FYE
($)
van Paasschen 575,000
(1)
73,274
(2)
1,281,003
(3)
Prabhu
Rivera
Siegel
Turner
Avril
(1) This amount is included in the Non-Equity Incentive Plan Compensation column of the 2012 Summary Compensation Table on page 55 of this proxy statement .
(2) This amount is not included in the 2012 Summary Compensation Table on page 55 of this proxy statement .
(3) $500,000 of this amount previously was reported as salary in the prior years Summary Compensation Tables.
Deferral elections are made in December for base salary paid
in pay periods beginning in the following calendar year. Deferral
elections are made in June for annual incentive awards that are
earned for performance in that calendar year but paid in March
of the following year. Deferral elections are irrevocable.
Elections as to the time and form of payment are made at the
same time as the corresponding deferral election. A participant
may elect to receive payment on February1 of a calendar year
while still employed or either 6 or 12months following employment
termination. Payment will be made immediately in the event a
participant terminates employment on account of death or disability
or on account of certain changes in control. A participant may
elect to receive payment of his account balance in either a lump
sum or in annual installments, so long as the account balance
exceeds $50,000; otherwise payment will be made in a lump sum.
If a participant elects an in-service distribution, the participant
may change the scheduled distribution date or form of payment
so long as the change is made at least 12months in advance of
the scheduled distribution date. Any such change must provide
that distribution will commence at least ve years later than the
scheduled distribution date. If a participant elects to receive a
distribution upon employment termination, that election and the
corresponding form of payment election are irrevocable. Withdrawals
for hardship that result from an unforeseeable emergency are
available, but no other unscheduled withdrawals are permitted.
The Plan uses the investment funds listed below as potential
indices for calculating investment returns on a participants Plan
account balance. The deferrals the participant directs for investment
into these funds are adjusted based on a deemed investment in
the applicable funds. The participant does not actually own the
investments that he selects. TheCompany may, but is not required
to, make identical investments pursuant to a variable universal
life insurance product. When it does, participants have no direct
interest in this life insurance.
Name of Investment Fund
1-Year Annualized
Rate of Return
(asof 2/28/13)
NVIT Money Market ClassV -0.25%
PIMCO VIT Total Return Admin Shares 6.93%
Fidelity VIP High Income Service Class 9.43%
NVIT Inv Dest Moderate Class2 7.78%
T. Rowe Price Equity Income ClassII 15.24%
Dreyfus Stock Index Initial Shares 12.91%
Fidelity VIP II Contrafund Service Class 10.44%
NVIT Mid Cap Index ClassI 13.87%
Dreyfus IP Small Cap Stock Index Service Shares 13.80%
NVIT International Index Class2 9.18%
Invesco V.I. International Growth SeriesI Shares 8.12%
Potential Payments Upon Termination or Change in Control
We provide certain benets to our named executive ofcers in the event of employment termination, both in connection with a change
in control and otherwise. These benets are in addition to benets available generally to salaried employees, such as distributions under
our Savings Plan, disability insurance benets and life insurance benets. These benets are described below.
Termination Before Change in Control: Involuntary Other than for Cause, Voluntary for
Good Reason, Death or Disability
Pursuant to Mr.van Paasschens employment agreement, if Mr.van
Paasschens employment is terminated by us other than for cause or
by Mr.van Paasschen for good reason, we will pay Mr.vanPaasschen
as a severance benet (1)any accrued benets; (2)two times the
sum of his base salary and target annual bonus; and (3)a pro
rated annual bonus for the year of termination. None of the other
equity awards granted to Mr.van Paasschen would be accelerated,
provided that any unvested portion of restricted stock units and
options awarded on the effective date of the employment agreement
shall not vest and be forfeited. If Mr.van Paasschens employment
were terminated because of his death or permanent disability,
Mr.van Paasschen (or his estate) would be entitled to receive, in
addition to any accrued benets, a pro-rated target bonus for the
year of termination pursuant to the terms of the underlying award
agreements, and all of his equity awards would accelerate and
vest and his options would be exercisable upon the earlier of (a)
one year following the date of employment termination or (b) the
original expiration date of such option.
Pursuant to his employment agreement, as supplemented by the
letter agreement dated August14, 2007, if Mr.Prabhus employment
is terminated by us for any reason other than for cause or by
Mr.Prabhu for good reason, Mr.Prabhu will receive severance
benets of twelve months of base salary and we will continue to
provide medical benets coverage for up to twelve months after
the date of termination. In addition, we will accelerate the vesting
of 50% of Mr.Prabhus unvested restricted stock and options. If
Mr. Prabhus employment were terminated because of his death or
permanent disability, pursuant to the terms of the underlying award
agreements, all of his equity awards would accelerate and vest.
Pursuant to Mr.Riveras employment agreement, if Mr.Riveras
employment is terminated by us for any reason other than for cause,
Mr.Rivera will receive will receive severance benets of twelve
months of base salary and we will continue to provide medical
benets coverage for twelve months after the date of termination.
The receipt of such severance benets is subject to and conditioned
upon Mr. Riveras compliance with his agreement not to engage
in competitive activities or solicit employees for a period of twelve
months after the date of termination. If Mr. Riveras employment were
terminated because of his death or permanent disability, pursuant
to the terms of the underlying award agreements, all of his equity
awards would accelerate and vest.
Pursuant to Mr.Siegels employment agreement, in the event
Mr.Siegels employment is terminated by us for any reason other
than for cause, Mr.Siegel will receive severance benets of twelve
months of base salary plus 100% of his target annual incentive and
we will continue to provide medical benets coverage for up to twelve
months after the date of termination. If Mr. Siegels employment were
awards would accelerate and vest.
Pursuant to Mr.Turners employment agreement, if Mr.Turners
employment is terminated by us for any reason other than for cause
or by Mr.Turner for good reason, Mr.Turner will receive severance
benets of twelve months base salary and we will continue to provide
medical benets coverage for up to twelve months after the date
of termination. The receipt of such severance benets is subject to
and conditioned upon Mr.Turners compliance with his agreement
not to engage in competitive activities or solicit employees for a
period of twelve months after the date of termination. If Mr. Turners
employment were terminated because of his death or permanent
disability, pursuant to the terms of the underlying award agreements,
all of his equity awards would accelerate and vest.
Pursuant to Mr.Avrils employment agreement, if Mr.Avrils
employment had been terminated by us for any reason other
than for cause, Mr.Avril would have received severance benets
of twelve months of base salary and we would have continued to
provide medical benets coverage for up to twelve months after the
date of termination. The receipt of such severance benets would
have been subject to and conditioned upon Mr. Avrils compliance
with his agreement not to engage in competitive activities or solicit
employees for a period of twelve months after the date of termination.
In addition, Mr.Avril would also have been entitled to acceleration
of all of his restricted stock and options that were granted prior to
August19, 2008, but no acceleration for equity awards granted
on or after August19, 2008. If Mr. Avrils employment had been
awards would have accelerated and vested.
Termination in the Event of Change in Control
We have entered into severance agreements with each of
Messrs.Prabhu, Siegel, Turner and Avril. Each severance agreement
provides for a term of three years, with automatic one-year extensions
until either the executive or we noties the other that such party
does not wish to extend the agreement. If a Change in Control (as
described below) occurs, the agreement will continue for at least
24months following the date of such Change in Control.
Each agreement provides that if, following a Change in Control, the
executives employment is terminated without Cause (as dened in
the agreement) or with Good Reason (as dened in the agreement),
the executive would receive, in addition to any accrued salary or
normal post-termination compensation and benets in accordance
with our retirement, insurance and other compensation or benet
plans, programs and arrangements as in effect immediately prior to
the date of termination, the following:
two times the sum of his base salary plus the average of the
annual bonuses earned by the executive in the three scal
years ending immediately prior to the scal year in which the
termination occurs or, if higher, the annual bonus earned in the
immediately prior scal year;
continued life, disability and accident benets for two years,
reduced to the extent benets of the same type are received
by or made available to the executive from another employer;
continued medical benets for two years;
a lump sum amount, in cash, equal to the sum of (A)any
unpaid incentive compensation which had been allocated or
awarded to the executive for any measuring period preceding
termination under any annual or long-term incentive plan and
which, as of the date of termination, is contingent only upon
the continued employment of the executive until a subsequent
date, and (B)the aggregate value of all contingent incentive
compensation awards allocated or awarded to the executive
for all then uncompleted periods under any such plan that the
executive would have earned on the last day of the performance
award period, assuming the achievement, at the target level,
of the individual and corporate performance goals established
with respect to such award, prorated based upon the number
of days employed during such year;
immediate vesting of stock options, restricted stock and restricted
stock units held by the executive under any stock option or
incentive plan maintained by us;
outplacement services suitable to the executives position for
a period of two years or, if earlier, until the rst acceptance by
the executive of an offer of employment, the cost of which will
not exceed 20% of the executives base salary;
a lump sum payment of the executives deferred compensation
paid in accordance with Section409A distribution rules;and
payment by us of an amount equal to any unvested amounts
in the executives 401(k) account that are forfeited by reason
of the executives termination of employment.
In addition, to the extent that Messrs. Prabhu or Siegel become
subject to the golden parachute excise tax imposed under
Section4999 of the Code, the executive would receive a gross-up
payment in an amount sufcient to offset the effects of such excise
tax. No tax gross-up is provided to Messrs. Avril and Turner if such
payments become subject to the excise tax. If such payments
are subject to the excise tax, the benets under their respective
agreement will be reduced until the point where the executive is
better off paying the excise tax rather than reducing the benets.
Under the severance agreements, a Change in Control is deemed
to occur upon any of the following events:
any person becomes the benecial owner of our securities (not
including in the securities benecially owned by such person any
securities acquired directly from us or our afliates) representing
25% or more of our combined voting power;
a majority of the directors cease to serve on our Board in
connection with a successful hostile proxy contest;
a merger or consolidation of us or any of our direct or indirect
subsidiaries with any other corporation, other than:
a merger or consolidation in which our securities would represent
at least 70% of the voting power of the surviving entity;or
a merger or consolidation effected to implement a recapitalization
of the company in which no person becomes the benecial
owner of 25% or more of our voting power;or
approval of a plan of liquidation or dissolution by the stockholders
or the consummation of a sale of all or substantially all of our
assets, other than a sale to an entity in which our stockholders
would hold at least 70% of the voting power in substantially the
same proportions as their ownership of us immediately prior to
such sale. However, a Change in Control does not include a
transaction in which our stockholders continue to hold substantially
the same proportionate ownership in the entity which would own
all or substantially all of our assets following such transaction.
Mr.van Paasschens employment agreement provides that he
would be entitled to the following benets if his employment were
terminated without cause or he resigned with good reason within
twelve months after a Change in Control or at any time prior to, but
in contemplation of, a Change in Control:
two times the sum of his base salary and target annual bonus;
a lump sum payment, in cash, equal to the unpaid incentive
compensation then subject to performance conditions, payable
at the maximum level of performance;
immediate vesting of stock options, restricted stock and
restricted stock units held under any stock option or long-term
incentive plan maintained by the Company;
a lump sum payment of his nonqualied deferred compensation
paid in accordance with Section409A distribution rules;and
payment by us of an amount equal to any unvested amounts
in the executives 401(k) account that are forfeited by reason
of the executives termination of employment.
In addition, to the extent that Mr.van Paasschen becomes subject
to the golden parachute excise tax imposed under Section4999
of the Code, he would receive a gross-up payment in an amount
sufcient to offset the effects of such excise tax.
Estimated Payments Upon Termination
The tables below reect the estimated amounts payable to the named executive ofcers in the event their employment with us had
terminated as of December31, 2012 under various circumstances, and includes amounts earned through that date. The actual amounts
that would become payable in the event of an actual employment termination can only be determined at the time of such termination.
Involuntary Termination without Cause or Voluntary Termination for Good Reason
The following table discloses the amounts that would have become payable on account of an involuntary termination without cause or
a voluntary termination for good reason outside of the change in control context.
Name
Severance
Pay
($)
Medical
Benets
($)
Vesting of
Restricted
Stock
($)
(1)
Vesting of
Stock Options
($)
(2)
Total
($)
van Paasschen 10,000,000 29,161 10,029,161
Prabhu 766,785 10,721 4,256,055 1,851,083 6,884,644
Rivera 722,000 9,737 731,737
Siegel 1,276,980 10,284 1,287,264
Turner 766,785 10,284 777,069
Avril
(3)
222,111 16,082 3,654,3483 3,956,479 7,849,020
(1) Includes values for holdings of restricted stock and restricted stock units. With respect to Mr.Prabhu, includes vested but deferred restricted stock units in accordance with the
Executive Plan.
(2) Excludes vested stock options.
(3) Messrs.Siegel and Avrils employment agreements provide for payments in the event of involuntary termination other than for cause but do not provide for payments in the event
of voluntary termination for good reason.
Termination on Account of Death or Disability
The following table discloses the amounts that would have become payable on account of a termination on account of death or disability.
Name
Severance
Pay
($)
Medical
Benets
($)
Vesting of
Restricted
Stock
($)
(1)
Vesting of
Stock Options
($)
(2)
Total
($)
van Paasschen
(3)
2,500,000 29,161 15,254,777 13,544,539 31,328,477
Prabhu 766,785 10,721 8,232,881 3,702,101 12,712,488
Rivera 3,827,002 3,247,558 7,074,560
Siegel 638,490 10,284 2,356,234 1,424,755 4,429,763
Turner 766,785 10,284 3,954,972 7,659,459 12,391,500
Avril 20,000 16,082 5,920,986 4,155,867 10,112,935
(1) Includes values for holdings of restricted stock and restricted stock units. Includes vested but deferred restricted stock units in accordance with the Executive Plan.
(2) Includes vested stock options. Vested stock options could be subject to loss by the named executive officers in the event of a termination for cause and certain other events but
could not in the event of termination on account of death or disability.
(3) Excludes $706,003 of Mr.van Paasschens nonqualified deferred compensation that is payable upon death, disability or certain changes in control as discussed in the section
entitled 2012 Nonqualified Deferred Compensation Table beginning on page60 of this proxy statement.
Change in Control
The following table discloses the amounts that would have become payable on account of an involuntary termination without cause
following a change in control or a voluntary termination with good reason following a change in control.
Name
Severance
Pay
($)
Medical
Benets
($)
Vesting of
Restricted
Stock
($)
(1)
Vesting
ofStock
Options
($)
(2)
Outplacement
($)
401(k)
Payment
($)
Tax
Gross-Up
($)
Total
($)
van Paasschen
(3)
12,500,000 34,009 15,254,777 13,544,539 41,333,325
Prabhu 3,755,938 32,807 8,232,881 3,702,101 153,357 15,877,084
Rivera 3,619,750 29,971 3,827,002 3,247,558 144,400 10,868,681
Siegel 3,191,932 31,067 2,356,234 1,424,755 127,698 7,131,686
Turner 3,663,535 31,610 3,954,972 7,659,459 153,357 15,462,933
Avril 20,000 16,082 5,920,986 4,155,867 10,112,935
(1) Includes values for holdings of restricted stock and restricted stock units. Includes vested but deferred restricted stock units in accordance with the Executive Plan.
(2) Includes vested stock options. Vested stock options could be subject to loss by the named executive officers in the event of a termination for cause and certain other events but
could not in the event of an involuntary termination without cause following a change in control or a voluntary termination with good reason following a change in control.
(3) If the amount of severance pay and other benefits payable on account of a change in control is greater than three times certain base period taxable compensation for Mr.van Paasschen,
a 20% excise tax is imposed on the excess amount of such severance pay and other benefits. Excludes $706,003 of Mr.van Paasschens nonqualified deferred compensation that is
payable upon death, disability or certain changes in control as discussed in the section entitled 2012 Nonqualified Deferred Compensation Table beginning on page60
of this proxy statement.
Director Compensation
We use a combination of cash and stock-based awards to attract
and retain qualied candidates to serve on the Board. In setting
director compensation, we consider the signicant amount of
time that members of the Board spend in fullling their duties to
us as well as the skill level required by us of our directors. The
compensation structure in effect for 2012 is described below.
For 2012, under our director share ownership guidelines, each
non-employee director (Non-Employee Director) was required to
own shares (or deferred compensation stock equivalents) having
a market price equal to four times the annual Non-Employee
Directors fees paid to such Non-Employee Director. If any Non-
Employee Director fails to satisfy this requirement, sales of shares
by such Non-Employee Director shall be subject to a 35% retention
requirement. Any new Non-Employee Director shall be given a
period of three years to satisfy this requirement.
Non-Employee Directors receive compensation for their services
as described below.
Annual Fees
Each Non-Employee Director receives an annual fee in the amount
of $80,000, payable in four equal installments of shares issued
under our LTIP. The number of shares to be issued is based on the
fair market value of a share using the average of the high and low
price of our stock as of December31 of the year prior to grant.
A Non-Employee Director may elect to receive up to one-half of the
annual fee in cash and to defer (at an annual interest rate of LIBOR
plus 1.5% for deferred cash amounts) any or all of such annual
fee payable in cash. A Non-Employee Director is also permitted to
elect to defer to a deferred unit account any or all of the annual fee
payable in shares. Deferred cash or stock amounts are payable in
accordance with the Non-Employee Directors advance election.
Non-Employee Directors serving as members of the Audit Committee
receive an additional annual fee payable in cash of $10,000 ($25,000
for the Chairman of the Audit Committee). The chairperson of each
other committee of the Board receives an additional annual fee
payable in cash of $12,500. The Chairman of the Board receives
an additional fee of $150,000, payable quarterly in restricted stock
units which vest in three years.
Attendance Fees
Non-Employee Directors do not receive fees for attendance at meetings.
Equity Grant
In 2012, each Non-Employee Director received an annual equity
grant (made at the same time as the annual grant is made to
Company employees) under our LTIP with a value of $125,000.
The equity grant was delivered 50% in restricted stock units and
50% in stock options. The number of restricted stock units is
determined by dividing the award value by the fair market value
of our stock on the date of grant (fair market value is calculated
as the average of the high and low share price on such date). The
number of options is determined by dividing the award value by
the fair market value of our stock on the date of grant (fair market
value is calculated as the average of the high and low share price
on such date) and multiplying by two and one-half, which we
believe historically approximates the number of options determined
through formal lattice model option valuation. The options are fully
vested and exercisable upon grant and are scheduled to expire
eight years after the grant date. The restricted stock units awarded
pursuant to the annual grant generally vest in full upon the earlier
of (1)the third anniversary of the grant date and (2)the date such
person ceases to be a director of the Company.
Starwood Preferred Guest Program Points and Rooms
In 2012, each Non-Employee Director received an annual grant of 750,000 SPG points to encourage them to visit and personally
evaluate our properties.
Other Compensation
We reimburse Non-Employee Directors for travel expenses, other out-of-pocket costs they incur when attending meetings and, for one
meeting per year, expenses related to attendance by spouses.
We have summarized the compensation paid by us to our Non-Employee Directors in 2012 in the table below.
Name
(1)
Fees Earned or
Paid in Cash
($)
Stock
Awards
(2) (3)
($)
Option
Awards
(4)
($)
All Other
Compensation
(5)
($)
Total
($)
Adam M. Aron 22,500 142,433 47,532 18,750 231,215
Charlene Barshefsky 59,066 102,561 47,532 24,978 234,137
Thomas E. Clarke 50,000 102,561 47,532 18,750 218,843
Clayton C. Daley, Jr. 65,000 102,561 47,532 20,626 235,719
Bruce W. Duncan 292,441 47,532 20,651 360,624
Lizanne Galbreath 142,433 47,532 19,369 209,334
Eric Hippeau 142,433 47,532 21,815 211,780
Stephen R. Quazzo 12,500 142,433 47,532 18,750 221,215
Thomas O. Ryder 142,433 47,532 20,639 210,604
Kneeland Youngblood 17,170 77,143 47,532 18,750 160,595
(1) Mr.van Paasschen is not included in this table because he was an employee and thus received no compensation for his services as a director. Mr.van Paasschens 2012
compensation from us is disclosed in the 2012 Summary Compensation Table on page55 of this proxy statement.
(2) As of December31, 2012, every director as of such date, with the exception of Mr.Duncan, held 3,790 restricted stock units that had not vested. As of December31, 2012,
Mr.Duncan held 13,410 restricted stock units that had not vested.
(3) Represents the grant date fair value for stock (deferred and otherwise) and restricted stock unit awards granted during the year computed in accordance with ASC718. For
additional information, refer to Note22 of our financial statements filed with the SEC as part of the Form10-K for the year ended December31, 2012. These amounts reflect the
grant date fair value for these awards and do not correspond to the actual value that will be recognized by the Non-Employee Directors. The grant date fair value of each stock
award is set forth below:
Director Grant Date
Number of Shares
ofStock/Units
Grant Date Fair Value
($)
Adam M. Aron 2/28/2012 1135 62,493
3/31/2012 413 19,985
6/30/2012 413 19,985
9/30/2012 413 19,985
12/31/2012 413 19,985
Charlene Barshefsky 2/28/2012 1135 62,493
3/31/2012 207 10,017
6/30/2012 207 10,017
9/30/2012 207 10,017
12/31/2012 207 10,017
Thomas E. Clarke 2/28/2012 1135 62,493
3/31/2012 207 10,017
6/30/2012 207 10,017
9/30/2012 207 10,017
12/31/2012 207 10,017
Clayton C. Daley, Jr. 2/28/2012 1135 62,493
3/31/2012 207 10,017
6/30/2012 207 10,017
9/30/2012 207 10,017
12/31/2012 207 10,017
Bruce W. Duncan 2/28/2012 1135 62,493
3/31/2012 775 37,502
3/31/2012 413 19,985
6/30/2012 775 37,502
6/30/2012 413 19,985
9/30/2012 775 37,502
9/30/2012 413 19,985
12/31/2012 775 37,502
12/31/2012 413 19,985
Lizanne Galbreath 2/28/2012 1135 62,493
3/31/2012 413 19,985
6/30/2012 413 19,985
9/30/2012 413 19,985
12/31/2012 413 19,985
Eric Hippeau 2/28/2012 1135 62,493
3/31/2012 413 19,985
6/30/2012 413 19,985
9/30/2012 413 19,985
12/31/2012 413 19,985
Stephen R. Quazzo 2/28/2012 1135 62,493
3/31/2012 413 19,985
6/30/2012 413 19,985
9/30/2012 413 19,985
12/31/2012 413 19,985
Thomas O. Ryder 2/28/2012 1135 62,493
3/31/2012 413 19,985
6/30/2012 413 19,985
9/30/2012 413 19,985
12/31/2012 413 19,985
Kneeland Youngblood 2/28/2012 1135 62,493
3/31/2012 207 10,017
5/3/2012 77 4,633
(4) Represents the grant date fair value for stock option awards granted during the year computed in accordance with ASC718. For additional information, refer to Note22 of our financial
statements filed with the SEC as part of the Form10-K for the year ended December31, 2012. These amounts reflect the grant date fair value for these awards and do not correspond to
the actual value that will be recognized by the directors. As of December31, 2012, each director as of such date had the following aggregate number of stock options outstanding: Mr.Aron,
31,416; Ambassador Barshefsky, 22,561; Dr. Clarke, 23,306; Mr. Daley, 19,019; Mr. Duncan, 66,786; Ms. Galbreath, 39,039; Mr. Hippeau, 39,039; Mr. Quazzo, 33,540; Mr. Ryder,
33,540; Mr. Youngblood, 23,973. All directors received a grant of 2,838 options on February28, 2012 with a grant date fair value of $47,532.
(5) We reimburse Non-Employee Directors for travel expenses and other out-of-pocket costs they incur when attending meetings and, for one meeting per year, attendance by spouses. In
addition, in 2012 Non-Employee Directors received 750,000 SPG points valued at $0.025 per point. Non-Employee Directors receive interest on deferred dividends. Pursuant to SEC rules,
perquisites and personal benefits are not reported for any director for whom such amounts were less than $10,000 in the aggregate for 2012 but must be identified by type for each director
for whom such amounts were equal to or greater than $10,000 in the aggregate. SEC rules do not require specification of the value of any type of perquisite or personal benefit provided
to the Non-Employee Directors because no such value exceeded $25,000.
AUDIT COMMITTEE REPORT
The information contained in this Audit Committee Report shall not
be deemed to be soliciting material or led or incorporated
by reference in future lings with the SEC, or subject to the
liabilities of Section18 of the Exchange Act, except to the extent
that the Company specically incorporates it by reference into a
document led under the Securities Act of 1933, as amended,
or the Exchange Act.
The Audit Committee (the Audit Committee) of the Board of
Directors (the Board) of Starwood Hotels& Resorts Worldwide,
Inc. (the Company), which is comprised entirely of independent
directors, as determined by the Board in accordance with the
New York Stock Exchange (the NYSE) listing requirements
and applicable federal securities laws, serves as an independent
and objective party to assist the Board in fullling its oversight
responsibilities including, but not limited to, (i)monitoring the quality
and integrity of the Companys nancial statements, (ii)monitoring
compliance with legal and regulatory requirements, (iii)assessing the
qualications and independence of the independent registered public
accounting rm and (iv)establishing and monitoring the Companys
systems of internal controls regarding nance, accounting and legal
compliance. The Audit Committee operates under a written charter
which meets the requirements of applicable federal securities laws
and the NYSE requirements.
In the rst quarter of 2013, the Audit Committee reviewed and
discussed the audited nancial statements for the year ended
December31, 2012 with management, the Companys internal
auditors and the independent registered public accounting rm,
Ernst& Young LLP, including the matters required to be discussed
with the independent accountant by Statement of Auditing Standards
No.61, as amended. The Audit Committee also discussed with
the independent registered public accounting rm matters relating
to its independence, including a review of audit and non-audit
fees and the written disclosures and letter from Ernst& Young
LLP to the Audit Committee required pursuant to Rule3526
of the Public Company Accounting Oversight Board regarding
the independent accountants communications with the Audit
Committee concerning independence.
Based on the reviews and discussions referred to above, the
Audit Committee recommended to the Board that the nancial
statements referred to above be included in the Companys Annual
Report on Form10-K for the year ended December31, 2012.
Audit Committee of the Board of Directors
Clayton C. Daley, Jr., Chairman
Adam M. Aron
Charlene Barshefsky
Thomas E. Clarke
Aylwin B. Lewis
Audit Fees
The aggregate amounts paid by the Company for the scal years ended December31, 2012 and 2011 to the Companys principal accounting
rm, Ernst&Young LLP, are as follows (in millions):
2012 2011
Audit Fees
(1)
$ 6.3 $ 6.6
Audit-Related Fees
(2)
$ 0.8 $ 0.8
Tax Fees
(3)
$ 0.9 $ 1.5
TOTAL $ 8.0 $ 8.9
(1) Audit fees include the fees paid for the annual audit, the review of quarterly financial statements and assistance with financial reports required as part of regulatory and statutory
filings and the audit of the Companys internal controls over financial reporting with the objective of obtaining reasonable assurance about whether effective internal controls
over financial reporting were maintained in all material respects.
(2) Audit-related fees include fees for audits of employee benefit plans, audit and accounting consultation and other attest services.
(3) Tax fees include domestic and foreign tax compliance and consultations regarding tax matters.
The Company has adopted a policy which requires the Audit
Committee of the Board of Directors to approve the hiring of
any current or former employee (within the last veyears) of the
Companys independent registered public accounting rm into
any position (i)as a manager or higher, (ii)in its accounting or tax
departments, (iii)where the hire would have direct involvement
in providing information for use in its nancial reporting systems,
or (iv)where the hire would be in a policy setting position. When
undertaking its review, the Audit Committee considers applicable
laws, regulations and related commentary regarding the denition of
independence for independent registered public accounting rms.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pre-Approval of Services
The Audit Committee pre-approves all services, including both audit
and non-audit services, provided by the Companys independent
registered public accounting rm. The independent registered
public accounting rm submits an audit services fee proposal,
which also must be approved by the Audit Committee before the
audit commences. The Audit Committee may delegate authority
to one of its members to pre-approve all audit/non-audit services
by the independent registered public accounting rm, as long as
these approvals are presented to the full Audit Committee at its
next regularly scheduled meeting.
Management submits to the Audit Committee all non-audit
services that it recommends the independent registered public
accounting rm be engaged to provide and an estimate of the
fees to be paid for each. Management and the independent
registered public accounting rm must each conrm to the Audit
Committee that the performance of the non-audit services on the list
would not compromise the independence of the registered public
accounting rm and would be permissible under all applicable legal
requirements. The Audit Committee must approve both the list of
non-audit services and the budget for each such service before
commencement of the work. Management and the independent
registered public accounting rm report to the Audit Committee at
each of its regular meetings as to the non-audit services actually
provided by the independent registered public accounting rm and
the approximate fees incurred by the Company for those services.
All audit and permissible non-audit services provided by Ernst&
Young LLP to the Company for the scal years ended December31,
2012 and 2011 were pre-approved by the Audit Committee or
our Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS
ANDINSIDER PARTICIPATION
The members of the Compensation Committee during scal
year 2012 were all independent directors, and no member was
an employee or former employee of the Company. None of
the Compensation Committee members had any relationship
requiring disclosure under the Related Person Transaction Policy
described below. During scal year 2012, none of our executive
ofcers served on the compensation committee (or its equivalent)
or board of directors of another entity whose ofcer served on our
Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The Board of Directors has adopted a Corporate Opportunity and
Related Person Transaction Policy (the Related Person Transaction
Policy), the purpose of which is to address the reporting, review
and approval or ratication of transactions with directors, director
nominees, executive ofcers, stockholders known to own of
record or benecially more than vepercent of our shares (5%
Holders) and each of the foregoings respective family members
and/or corporate afliates (collectively Covered Persons). As a
general matter, we seek to avoid Related Person Transactions
because they can involve potential or actual conicts of interest
and pose the risk that they may be, or be perceived to be, based
on considerations other than the Companys best interests. For
purposes of the policy, a Related Person Transaction means any
transaction involving the Company in which a Covered Person
has a direct or indirect material interest. A transaction involving
entities controlled by the Company shall be deemed a transaction
in which the Company participates. However, we recognize that in
some circumstances transactions between us and related persons
may be incidental to the normal course of business or provide an
opportunity that is in the best interests of the Company, or that
is not inconsistent with the best interests of the Company, or is
more efcient to pursue than an alternative transaction. The Board
has charged the Governance Committee with establishing and
periodically reviewing our Related Person Transaction Policy. A
copy of the policy is posted on our website at www.starwoodhotels.
com/corporate/about/investor/governance.html.
SOLICITATION COSTS
The Related Person Transaction Policy also governs certain
corporate opportunities to ensure that Corporate Opportunities are
not pursued by Covered Persons unless and until the Company
has determined that it is not interested in pursuing said opportunity.
For purposes of the policy, a Corporate Opportunity means any
opportunity (i)that is within the Companys existing line of business
or is one in which the Company either has an existing interest or
a reasonable expectancy of an interest; and (ii)the Company is
reasonably capable of pursuing.
Under the Related Person Transaction Policy, except as otherwise
provided, each director, executive ofcer, and 5% Holder is required
to submit any such Related Person Transaction or Corporate
Opportunity to the Governance Committee for review. In its review,
the Governance Committee is to consider all relevant facts and
circumstances to determine whether it should (i)reject the proposed
transaction; (ii)conclude that the proposed transaction is appropriate
and suggest that the Company pursue it on the terms presented
or on different terms, and in the case of a Corporate Opportunity,
suggest that the Company pursue the Corporate Opportunity on
its own, with the party who brought the proposed transaction to
the Companys attention or with another third party; or (iii)ask
the Board of Directors to consider the proposed transaction so
that the Board of Directors may then take either of the actions
described in (i)or (ii)above, and, at the Governance Committees
option, in connection with (iii), make a recommendation to the
Board of Directors.
Any person bringing a proposed transaction to the Governance
Committee is obligated to provide any and all information requested
by the Governance Committee and, in the case of a director, such
director must recuse himself or herself from any vote or other
deliberation on the matter.
The policy may be changed at any time by the Board of Directors.
OTHER MATTERS
The Board of Directors is not aware of any matters not referred
to in this proxy statement that may properly be presented for
action at the Annual Meeting. The deadline for stockholders to
submit matters for consideration at the Annual Meeting and have
it included in these proxy materials was November22, 2012, and
the deadline for stockholders to submit matters for consideration
at the Annual Meeting without having the proposal included in
these proxy materials expired on February17, 2013. However, if
any other matter properly comes before the Annual Meeting, it is
the intention of the persons named in the enclosed proxy to vote
the shares represented thereby in accordance with their discretion.
SOLICITATION COSTS
The Company will pay the cost of soliciting proxies for the Annual
Meeting, including the cost of mailing. The solicitation is being made
by mail and over the Internet and may also be made by telephone
or in person using the services of a number of regular employees of
the Company at nominal cost. The Company will reimburse banks,
brokerage rms and other custodians, nominees and duciaries for
expenses incurred in sending proxy materials to benecial owners
of shares. The Company has engaged D.F. King& Co., Inc. to solicit
proxies and to assist with the distribution of proxy materials for a
fee of $17,500 plus reasonable out-of-pocket expenses.
HOUSEHOLDING
The SEC allows us to deliver a single proxy statement and annual
report or Notice to an address shared by two or more of our
stockholders. This delivery method, referred to as householding,
can result in signicant cost savings for us. In order to take
advantage of this opportunity, the Company and banks and
brokerage rms that hold your shares have delivered only one proxy
statement and annual report or Notice to multiple stockholders
who share an address unless one or more of the stockholders
has provided contrary instructions. The Company will deliver
promptly, upon written or oral request, a separate copy of the
proxy statement and annual report or Notice to any stockholder
at a shared address to which a single copy of the documents was
delivered. A stockholder who wishes to receive a separate copy
of the proxy statement and annual report or Notice, now or in the
future, may obtain one, without charge, by addressing a request to
Investor Relations, Starwood Hotels& Resorts Worldwide, Inc., One
StarPoint, Stamford, Connecticut 06902 or by calling (203)351-
3500. You may also obtain a copy of the proxy statement and
annual report from the investor relations page on the Companys
website (www.starwoodhotels.com/corporate/about/investor/index.
html). Stockholders of record sharing an address who are receiving
multiple copies of proxy materials and annual reports or Notices
and wish to receive a single copy of such materials in the future
should submit their request by contacting us in the same manner.
If you are the benecial owner, but not the record holder, of the
shares and wish to receive only one copy of the proxy statement
and annual report or Notice in the future, you will need to contact
your broker, bank or other nominee to request that only a single
copy of each document be mailed to all stockholders at the shared
address in the future.
STOCKHOLDER PROPOSALS FOR NEXT
ANNUALMEETING
If you want to make a proposal for consideration at next years annual
meeting and have it included in the Companys proxy materials,
the Company must receive your proposal by December19, 2013
and the proposal must comply with the rules of the SEC.
If you want to make a proposal or nominate a director for
consideration at next years annual meeting without having the
proposal included in the Companys proxy materials, you must
comply with the then current advance notice provisions and other
requirements set forth in the Companys Bylaws, including that
the Company must receive your proposal on or after February19,
2014 and on or prior to March16, 2014, with certain exceptions if
the date of next years annual meeting is advanced by more than
30days or delayed by more than 60days from the anniversary
date of the 2013 Annual Meeting.
If the Company does not receive your proposal or nomination by
the appropriate deadline and in accordance with the terms of the
Companys Bylaws, then it may not properly be brought before
the 2014 Annual Meeting of Stockholders.
The fact that the Company may not insist upon compliance with
these requirements should not be construed as a waiver by the
Company of its right to do so at any time in the future.
You should address your proposals or nominations to the Corporate
Secretary, Starwood Hotels& Resorts Worldwide, Inc., One
StarPoint, Stamford, Connecticut 06902.
By Order of the Board of Directors,
Kenneth S. Siegel
Corporate Secretary
GENERAL DIRECTIONS
To The Sheraton New Orleans Hotel
500 Canal Street
New Orleans, Louisiana 70130
(504) 525-2500
From North
From the Lake Pontchartrain Causeway, take Interstate 10 East
totheNew Orleans Business District.
Continue on Interstate 10 East to the Poydras Street Exit #234B.
Follow Poydras Street approximately 10 blocks to Camp Street.
Turn left on Camp Street.
Continue on Camp Street for approximately 3 blocks.
The hotel is on the right, at the corner of Camp Street and
Canal Street.
From South
Take Highway 90 to the Elevated Westbank Expressway.
Continue on the Elevated Westbank Expressway approximately
10miles to the Crescent City Connection.
From the right lane, exit at Camp Street.
Continue on Camp Street for 8 trafc lights.
Turn right on Canal Street.
The hotel is on the right, at the corner of Canal Street and
Camp Street.
From East
Take Interstate 10 West to the Canal Street Exit #235B.
Turn right on Canal Street.
Continue on Canal Street approximately 10 blocks.
The hotel is on the right, at the corner of Canal Street and
Camp Street.
From Louis Armstrong New Orleans International Airport
Take Interstate 10 East to the New Orleans Business District.
Continue on Interstate 10 East to the Poydras Street Exit #234B.
Follow Poydras Street approximately 10 blocks to Camp Street.
Turn left on Camp Street.
Continue on Camp Street approximately 3 blocks.
The hotel is on the right, at the corner of Camp Street and
Canal Street.
Taxi service is available from the Louis Armstrong New Orleans
International Airport, the New Orleans Train Station, and from
the Greyhound Bus Station.
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.-2013Proxy Statement A-1
ANNEX A
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
2013 LONG-TERM INCENTIVE COMPENSATION PLAN
ANNEX A
Table Of Contents
Article 1 - General Provisions ............................................................................................................................................................................................................................................................................ A-4
1.1 Establishment of Plan .................................................................................................................................................................................................................................................................. A-4
1.2 Purpose of Plan ................................................................................................................................................................................................................................................................................... A-4
1.3 Types of Awards ................................................................................................................................................................................................................................................................................. A-4
1.4 Effective Date ........................................................................................................................................................................................................................................................................................ A-4
1.5 Termination of Plan .......................................................................................................................................................................................................................................................................... A-4
Article 2 - Denitions .................................................................................................................................................................................................................................................................................................... A-4
Article 3 - Administration......................................................................................................................................................................................................................................................................................... A-8
3.1 General .......................................................................................................................................................................................................................................................................................................... A-8
3.2 Authority of the Committee .................................................................................................................................................................................................................................................... A-8
3.3 Rules for Foreign Jurisdictions .......................................................................................................................................................................................................................................... A-8
3.4 Delegation of Authority ............................................................................................................................................................................................................................................................... A-8
3.5 Agreements .............................................................................................................................................................................................................................................................................................. A-8
3.6 Indemnication .................................................................................................................................................................................................................................................................................... A-8
Article 4 - Shares Subject to the Plan ..................................................................................................................................................................................................................................................... A-9
4.1 Number of Shares ............................................................................................................................................................................................................................................................................. A-9
4.2 Individual Limits .................................................................................................................................................................................................................................................................................. A-9
4.3 Adjustment of Shares ................................................................................................................................................................................................................................................................... A-9
Article 5 - Stock Options ......................................................................................................................................................................................................................................................................................A-10
5.1 Grant of Options ..............................................................................................................................................................................................................................................................................A -10
5.2 Agreement ..............................................................................................................................................................................................................................................................................................A -10
5.3 Option Price ..........................................................................................................................................................................................................................................................................................A -11
5.4 Duration of Options ......................................................................................................................................................................................................................................................................A -11
5.5 Exercise of Options ......................................................................................................................................................................................................................................................................A -11
5.6 Payment ....................................................................................................................................................................................................................................................................................................A -11
5.7 Nontransferability of Options ............................................................................................................................................................................................................................................A -11
5.8 Special Rules for ISOs ..............................................................................................................................................................................................................................................................A -11
Article 6 - Stock Appreciation Rights ...................................................................................................................................................................................................................................................A -11
6.1 Grant of SARs .....................................................................................................................................................................................................................................................................................A -12
6.2 Agreement ..............................................................................................................................................................................................................................................................................................A -12
6.3 Tandem SARs .....................................................................................................................................................................................................................................................................................A -12
6.4 Payment ....................................................................................................................................................................................................................................................................................................A -12
6.5 SAR Price ................................................................................................................................................................................................................................................................................................A -12
6.6 Duration of SARs ............................................................................................................................................................................................................................................................................A -12
6.7 Exercise of SARs ............................................................................................................................................................................................................................................................................A -12
6.8 Nontransferability of SARs ..................................................................................................................................................................................................................................................A -12
Article 7 - Restricted Stock and Restricted Stock Units .............................................................................................................................................................................................A -13
7.1 Grant of Restricted Stock/Unit .......................................................................................................................................................................................................................................A -13
7.2 Restricted Stock/Unit Agreement ................................................................................................................................................................................................................................A -13
7.3 Nontransferability ...........................................................................................................................................................................................................................................................................A -13
7.4 Certicates .............................................................................................................................................................................................................................................................................................A -13
7.5 Dividends and Other Distributions .............................................................................................................................................................................................................................A -13
7.6 Short-Term Deferral .....................................................................................................................................................................................................................................................................A -13
Article 8 - Performance Shares and Units ......................................................................................................................................................................................................................................A -14
8.1 Grant of Performance Shares/Units ..........................................................................................................................................................................................................................A -14
8.2 Value of Performance Shares/Units ..........................................................................................................................................................................................................................A -14
8.3 Earning of Performance Shares/Units ....................................................................................................................................................................................................................A -14
8.4 Form and Timing of Payment of Performance Shares/Units ........................................................................................................................................................A -14
8.5 Dividends and Other Distributions .............................................................................................................................................................................................................................A -14
8.6 Nontransferability ...........................................................................................................................................................................................................................................................................A -14
Article 9 - Other Awards ........................................................................................................................................................................................................................................................................................A -14
Article 10 - Performance Measures ...........................................................................................................................................................................................................................................................A -15
10.1 In General ................................................................................................................................................................................................................................................................................................A -15
10.2 Section 162(m) Performance Measures................................................................................................................................................................................................................A -15
10.3 Other Performance Measures ..........................................................................................................................................................................................................................................A -15
10.4 Committee Determination of Achievement of Performance Goals; Adjustments.................................................................................................A -15
Article 11 - Awards to Directors ......................................................................................................................................................................................................................................................................A -16
11.1 Director Awards................................................................................................................................................................................................................................................................................A -16
11.2 Other Director Compensation ..........................................................................................................................................................................................................................................A -16
Article 12 - Beneciary Designation ..........................................................................................................................................................................................................................................................A -16
Article 13 - Deferrals ......................................................................................................................................................................................................................................................................................................A -16
Article 14 - Withholding .............................................................................................................................................................................................................................................................................................A -17
14.1 Tax Withholding ................................................................................................................................................................................................................................................................................A -17
14.2 Share Withholding .........................................................................................................................................................................................................................................................................A -17
Article 15 - Amendment and Termination ...........................................................................................................................................................................................................................................A -17
15.1 Amendment or Termination of Plan ...........................................................................................................................................................................................................................A -17
15.2 Amendment of Agreement ...................................................................................................................................................................................................................................................A -17
15.3 Cancellation of Awards ............................................................................................................................................................................................................................................................A -17
15.4 Assumption or Cancellation of Awards .................................................................................................................................................................................................................A -18
Article 16 - Change in Control ...........................................................................................................................................................................................................................................................................A -18
16.1 Single Trigger Treatment ........................................................................................................................................................................................................................................................A -18
16.2 Double Trigger Treatment ......................................................................................................................................................................................................................................................A -18
Article 17 - Miscellaneous Provisions .....................................................................................................................................................................................................................................................A -19
17.1 Restrictions on Shares .............................................................................................................................................................................................................................................................A -19
17.2 Rights of Stockholder ................................................................................................................................................................................................................................................................A -19
17.3 No Implied Rights ..........................................................................................................................................................................................................................................................................A -19
17.4 Compliance with Laws .............................................................................................................................................................................................................................................................A -19
17.5 Compliance with Code Section 409A ......................................................................................................................................................................................................................A -19
17.6 Deferrals for Code Section 162(m) .............................................................................................................................................................................................................................A -19
17.7 Successors ............................................................................................................................................................................................................................................................................................A -20
17.8 Tax Elections........................................................................................................................................................................................................................................................................................A -20
17.9 No Fractional Shares ..................................................................................................................................................................................................................................................................A -20
17.10 Delivery of Title .................................................................................................................................................................................................................................................................................A -20
17.11 Inability to Obtain Authority ................................................................................................................................................................................................................................................A -20
17.12 Uncerticated Shares ................................................................................................................................................................................................................................................................A -20
17.13 Legal Construction .......................................................................................................................................................................................................................................................................A -20
ANNEX A
Starwood Hotels & Resorts Worldwide, Inc. 2013 Long-Term
Incentive Compensation Plan
As Adopted Effective May 30, 2013
Article 1 - General Provisions
1.1 Establishment of Plan. Starwood Hotels & Resorts Worldwide,
Inc., a Maryland corporation (the Company), hereby establishes
an incentive compensation plan to be known as the Starwood
Hotels & Resorts Worldwide, Inc. 2013 Long-Term Incentive
Compensation Plan (the Plan), as set forth in this document.
1.2 Purpose of Plan. The objectives of the Plan are to (i) attract and
retain employees, directors, consultants, advisors and other
persons who perform services for the Company by providing
compensation opportunities that are competitive with other
companies; (ii) provide incentives to those individuals who
contribute signicantly to the long-term performance and
growth of the Company and its afliates; and (iii) align the
long-term nancial interests of employees and other Eligible
Participants with those of the Companys stockholders.
1.3 Types of Awards. Awards under the Plan may be made to
Eligible Participants in the form of (i) Incentive Stock Options,
(ii) Nonqualied Stock Options, (iii) Stock Appreciation Rights,
(iv) Stock Awards, (v) Restricted Stock, (vi) Restricted Stock
Units, (vii) Performance Shares, (viii) Performance Units, (ix)
Other Awards or any combination thereof.
1.4 Effective Date. The Plan will become effective on the date
on which the Companys stockholders approve the Plan (the
Effective Date).
1.5 Termination of Plan. No Awards shall be granted under the Plan
after the tenth anniversary of the Effective Date. However, Awards
granted under the Plan on or prior to the tenth anniversary of
the Effective Date shall remain outstanding beyond that date
in accordance with the terms and conditions of the Plan and
the Agreements corresponding to such Awards.
Article 2 - Denitions
Except where the context otherwise indicates, the following
denitions apply:
2.1 Act means the Securities Exchange Act of 1934, as now
in effect or as hereafter amended. All citations to sections of
the Act or rules thereunder are to such sections or rules as
they may from time to time be amended or renumbered.
2.2 Agreement means the written agreement evidencing an Award
granted under the Plan. As determined by the Committee, each
Agreement shall consist of either (i) a written agreement in a
form approved by the Committee and executed on behalf of
the Company by an ofcer duly authorized to act on its behalf,
or (ii) an electronic notice of Award grant in a form approved by
the Committee and recorded by the Company (or its designee)
in an electronic recordkeeping system used for the purpose
of tracking Award grants under the Plan, and if required by
the Committee, executed or otherwise electronically accepted
by the recipient of the Award in such form and manner as the
Committee may require. The Committee may authorize any
ofcer of the Company (other than the particular Award recipient)
to execute any or all Agreements on behalf the Company.
2.3 Award means an Option, a Stock Appreciation Right,
Restricted Stock, a Restricted Stock Unit, a Stock Award,
a Performance Share, a Performance Unit, Other Award or
a combination thereof.
2.4 Award Pool shall have the meaning ascribed to such term
in Section 4.1.
2.5 Board means the Board of Directors of the Company, as
constituted from time to time.
2.6 Cause means, unless provided otherwise in the applicable
Agreement, any conduct amounting to fraud, dishonesty,
willful misconduct, negligence, signicant activities materially
harmful to the reputation of any Employer, insubordination
or conviction of a felony or a crime involving moral turpitude.
Without limiting the foregoing, the following shall constitute
Cause with respect to a Participant: (i) the Participants breach
of this Plan or any agreement between the Participant and
the Employer, (ii) negligence in the Participants attention to
the business or affairs of the Employer or intentional failure to
perform a reasonably requested directive or assignment or
failure to perform the Participants duties with the Employer
substantially in accordance with the Employers operating and
personnel policies and procedures generally applicable to all
of its employees, or (iii) the Participants misappropriation (or
attempted misappropriation) of any of the Employers funds
or property. The existence of Cause under this Section
2.6 shall be determined in good faith by the Committee.
Notwithstanding the foregoing, if the Participant has entered
into an employment agreement with the Employer that is
binding as of the date of employment termination, and if such
employment agreement denes Cause, then the denition
of Cause in such agreement shall apply to the Participant
for purposes of this Plan.
ANNEX A
2.7 Change in Control means, except as expressly provided
otherwise in an Agreement or otherwise determined at any
time by the Committee consistent with applicable laws, rules
and regulations:
(a) Any Person (as dened below in this Section 2.7) is or
becomes the benecial owner within the meaning of
Rule 13d-3 promulgated under the Act (but without
regard to any time period specied in Rule 13d-3(d)(1)
(i)), of twenty-ve percent (25%) or more of either (i) the
then outstanding Shares (the Outstanding Shares),
or (ii) the combined voting power of then outstanding
securities of the Company entitled to vote generally in the
election of directors (the Outstanding Company Voting
Securities); excluding, however, (1) any acquisition by
the Company, or (2) any acquisition by an employee
benet plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the
Company;
(b) Individuals who, as of the Effective Date, constitute the
Board (the Incumbent Board) cease for any reason to
constitute at least a majority of such Board; provided that
any individual who becomes a director of the Company
subsequent to the Effective Date whose election, or
nomination for election by the Companys stockholders,
was approved by the vote of at least a majority of the
directors then comprising the Incumbent Board shall
be deemed a member of the Incumbent Board; and
provided further, that any individual who was initially
elected as a director of the Company as a result of an
actual or threatened solicitation by a Person other than
the Board for the purpose of opposing a solicitation by
any other Person with respect to the election or removal
of directors, or any other actual or threatened solicitation
of proxies or consents by or on behalf of any Person
other than the Board shall not be deemed a member
of the Incumbent Board;
(c) Consummation by the Company of a reorganization,
merger, or consolidation or sale of all or substantially all of
the assets of the Company (a Corporate Transaction);
excluding, however, a Corporate Transaction pursuant
to which (i) all or substantially all of the individuals or
entities who are the benecial owners, respectively, of
the Outstanding Shares and the Outstanding Company
Voting Securities immediately prior to such Corporate
Transaction will benecially own, directly or indirectly,
more than seventy-ve percent (75%) of, respectively,
the outstanding shares of common stock, and the
combined voting power of the outstanding securities of
such corporation entitled to vote generally in the election
of directors, as the case may be, of the corporation
resulting from such Corporate Transaction (including,
without limitation, a corporation which, as a result of such
transaction, owns the Company or all or substantially
all of the Companys assets either directly or indirectly)
in substantially the same proportions relative to each
other as their ownership, immediately prior to such
Corporate Transaction, of the Outstanding Shares and
the Outstanding Company Voting Securities, as the
case may be, (ii) no Person (other than: the Company,
any employee benet plan (or related trust) sponsored
or maintained by the Company or any corporation
controlled by the Company, the corporation resulting
from such Corporate Transaction, and any Person which
benecially owned, immediately prior to such Corporate
Transaction, directly or indirectly twenty-ve percent (25%)
or more of the Outstanding Shares or the Outstanding
Company Voting Securities, as the case may be) will
benecially own, directly or indirectly, twenty-ve percent
(25%) or more of, respectively, the outstanding shares
of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of
the outstanding securities of such corporation entitled
to vote generally in the election of directors and (iii)
individuals who were members of the Incumbent Board
will constitute at least a majority of the members of the
board of directors of the corporation resulting from such
Corporate Transaction; or
(d) Approval by the stockholders of the Company of a plan
of complete liquidation or dissolution of the Company.
For purposes of this Section 2.7, the meaning of Person
shall be based on the denition of person in Section 3(a)
(9) of the Act, as modied and used in Section 13(d) and
14(d) of the Act.
Notwithstanding anything in this Plan or any Agreement
to the contrary, to the extent any provision of this Plan or
an Agreement would cause a payment of a 409A Award
to be made because of the occurrence of a Change in
Control, then such payment shall not be made unless
such Change in Control also constitutes a change in
ownership, change in effective control or change in
ownership of a substantial portion of the Companys
assets within the meaning of Code section 409A.
Any payment that would have been made except for the
application of the preceding sentence shall be made in
accordance with the payment schedule that would have
applied in the absence of a Change in Control (and other
Participant rights that are tied to a Change in Control, such
as vesting, shall not be affected by this paragraph).
2.8 Code means the Internal Revenue Code of 1986, as now in
effect or as hereafter amended. All citations to sections of the
Code are to such sections as they may from time to time be
amended or renumbered and shall include all related regulations.
2.9 Committee means the Compensation and Option Committee
of the Board or such other committee consisting of two or
more members of the Board as may be appointed by the
Board from time to time to administer this Plan pursuant to
Article 3. If Shares are traded on the, all of the members of
the Committee shall be independent directors within the
meaning of the NYSEs Corporate Governance Standards.
If any member of the Committee does not qualify as (i) a
Non-Employee Director within the meaning of Rule 16b-
3 under the Act, and (ii) an outside director within the
meaning of Code section 162(m), the Board shall appoint a
ANNEX A
subcommittee of the Committee, consisting of at least two
Directors, to grant Awards to Covered Employees and to
ofcers and Directors who are subject to Section 16 of the
Act; each member of such subcommittee shall satisfy the
requirements of (i) and (ii) above. References to the Committee
in the Plan shall include and, as appropriate, apply to any
such subcommittee.
2.10 Company means Starwood Hotels & Resorts Worldwide,
Inc., a Maryland corporation, and its successors and assigns.
2.11 Covered Employee means a Participant whom the Committee
determines is or may be subject to the limitations of Code
section 162(m).
2.12 Director means any individual who is a member of the Board;
provided, however, that any individual who is both a member of
the Board and employed by the Company or any other entity
constituting the Employer shall not be considered a Director
for purposes of the Plan.
2.13 Disability means, with respect to any Incentive Stock Option,
a disability as determined under Code section 22(e)(3), and
with respect to any other Award, (i) with respect to a Participant
who is eligible to participate in the Employers program of
long-term disability insurance, if any, a condition with respect
to which the Participant is entitled to commence benets
under such program, and (ii) with respect to any Participant
(including a Participant who is eligible to participate in the
Employers program of long-term disability insurance, if any), a
disability as determined under procedures established by the
Committee or in any Agreement. Notwithstanding the preceding
provisions of this Section 2.13 or anything in any Agreement
to the contrary, to the extent any provision of this Plan or an
Agreement would cause a payment of a 409A Award to be
made because of the Participants Disability, then there shall
not be a Disability that triggers payment until the date (if any)
that the Participant is disabled within the meaning of Code
section 409A(a)(2)(C). Any payment that would have been
made except for the application of the preceding sentence
shall be made in accordance with the payment schedule that
would have applied in the absence of a Disability (and other
Participant rights that are tied to a Disability, such as vesting,
shall not be affected by the prior sentence).
2.14 Effective Date shall have the meaning ascribed to such term
in Section 1.4 above.
2.15 Eligible Participant means an employee of the Employer
(including an ofcer) as well as any other natural person,
including a Director or a consultant or advisor who provides
bona de services to the Employer not in connection with the
offer or sale of securities in a capital-raising transaction, subject
to limitations as may be provided by the Code, the Act or the
Committee, as shall be determined by the Committee.
2.16 Employer means the Company and any entity during any period
that it is a parent corporation or a subsidiary corporation
with respect to the Company within the meaning of Code
sections 424(e) and 424(f). With respect to all purposes of
the Plan, including but not limited to, the establishment,
amendment, termination, operation and administration of the
Plan, the Company shall be authorized to act on behalf of all
other entities included within the denition of Employer.
2.17 Fair Market Value means, on any given date:
(a) if the Shares are listed on the NYSE on the given date,
Fair Market Value on such date shall be the closing price
for a Share on the NYSE on the immediately preceding
day on which sales were made on the NYSE;
(b) if the Shares are listed on a national or regional securities
exchange other than the NYSE on the given date, Fair
Market Value on such date shall be the closing price for
a Share on the securities exchange on the immediately
preceding day on which sales were made on such
exchange; or
(c) if neither (a) nor (b) applies on the given date, the fair
market value of a Share on that date shall be determined
in good faith by the Committee.
For purposes of subsection (b) above, if Shares are not traded
on the NYSE but they are traded on more than one securities
exchange on the given date, then the following exchange
shall be referenced to determine Fair Market Value: (i) the
NASDAQ, or (ii) if shares are not traded on the NASDAQ, the
largest exchange on which Shares are traded.
Subject to the next two paragraphs of this Section 2.17, for
purposes of any Shares awarded to Directors under Section
11.2 of this Plan, each reference in subsections (a) and (b)
above to the closing price of a Share on the trading day
immediately preceding the grant date for such Shares shall
instead be a reference to the closing price of a Share on the
last trading day of the calendar quarter immediately preceding
the grant date for such Shares as specied in Section 11.2
(e.g., for purposes of any Shares awarded on September 30,
2013, under Section 11.2, Fair Market Value shall be the
NYSE closing price for a Share on June 28, 2013).
Notwithstanding the foregoing but subject to the next
paragraph, if the Committee determines in its discretion that
an alternative denition of Fair Market Value should be used
in connection with the grant, exercise, vesting, settlement or
payout of any Award, it may specify such alternative denition
in the Agreement applicable to the Award. Such alternative
denition may include a price that is based on the opening,
actual, high, low, or average selling prices of a Share on the
NYSE or other securities exchange on the given date, the
trading date preceding the given date, the trading date next
succeeding the given date, or an average of trading days.
Notwithstanding the foregoing, (i) in the case of an Option or
SAR, Fair Market Value shall be determined in accordance
with a denition of fair market value that permits the Award
to be exempt from Code section 409A; and (ii) in the case
of an Option that is intended to qualify as an ISO under
Code section 422 or an Award that is intended to qualify as
performance-based compensation under Code section 162(m),
Fair Market Value shall be determined by the Committee in
accordance with the requirements of Code section 422 or
Code section 162(m), as applicable.
2.18 409A Award means each Award that is not exempt from
Code section 409A.
ANNEX A
2.19 Incentive Stock Option or ISO means an Option granted
to an Eligible Participant under Article 5 of the Plan which is
designated as an Incentive Stock Option and intended to meet
the requirements of Code section 422.
2.20 Insider shall mean an individual who is, on the relevant date,
subject to the reporting requirements of Section 16(a) of the
Act.
2.21 Nonqualied Stock Option or NQSO means an Option
granted to an Eligible Participant under Article 5 of the Plan
which is not intended to meet the requirements of Code section
422 or that otherwise does not meet such requirements.
2.22 NYSE means the New York Stock Exchange.
2.23 Option means an Incentive Stock Option or a Nonqualied
Stock Option. An Option shall be designated as either an
Incentive Stock Option or a Nonqualied Stock Option, and
in the absence of such designation shall be a Nonqualied
Stock Option.
2.24 Option Price means the price at which a Share may be
purchased by exercise of an Option.
2.25 Other Award means any form of equity-based or equity-
related award, other than an Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Stock,
or Performance Unit, that is granted pursuant to Article 9.
2.26 Participant means an Eligible Participant to whom an Award
has been granted.
2.27 Payment Date shall have the meaning set forth in Section
5.6 of the Plan.
2.28 Performance Share means an Award under Article 8 of the
Plan that is valued by reference to a Share, which value may
be paid to the Participant by delivery of such property as the
Committee shall determine, including without limitation, cash
or Shares, or any combination thereof, upon achievement of
such performance objectives during the relevant performance
period as the Committee shall establish at the time of such
Award or thereafter, but not later than the time permitted by
Code section 162(m) in the case of a Covered Employee,
unless the Committee does not intend for such Award to
comply with Code section 162(m).
2.29 Performance Unit means an Award under Article 8 of the Plan
that has a value set by the Committee (or that is determined by
reference to a valuation formula specied by the Committee),
which value may be paid to the Participant by delivery of such
property as the Committee shall determine, including without
limitation, cash or Shares, or any combination thereof, upon
achievement of such performance objectives during the relevant
performance period as the Committee shall establish at the
time of such Award or thereafter, but not later than the time
permitted by Code section 162(m) in the case of a Covered
Employee, unless the Committee does not intend for such
Award to comply with Code section 162(m).
2.30 Plan means the Starwood Hotels & Resorts Worldwide, Inc.
2013 Long-Term Incentive Compensation Plan set forth in this
document and as it may be amended from time to time.
2.31 Restricted Stock means an Award of Shares under Article 7
of the Plan, which Shares are issued with such restriction(s) as
the Committee, in its sole discretion, may impose, including
without limitation, any restriction on the right to retain such
Shares, to sell, transfer, pledge or assign such Shares, to vote
such Shares, and/or to receive any dividends with respect to
such Shares, which restrictions may lapse separately or in
combination at such time or times, in installments or otherwise,
as the Committee may deem appropriate.
2.32 Restricted Stock Unit means an Award under Article 7 of
the Plan that is valued by reference to a Share, which value
may be paid to the Participant by delivery of such property as
the Committee shall determine, including without limitation,
cash or Shares, or any combination thereof, and that has
such restriction(s) as the Committee, in its sole discretion,
may impose, including without limitation, any restriction
on the right to retain such Awards, to sell, transfer, pledge
or assign such Awards, and/or to receive any dividend
equivalents with respect to such Awards, which restrictions
may lapse separately or in combination at such time or times,
in installments or otherwise, as the Committee may deem
appropriate.
2.33 Restriction Period means the period during which Restricted
Stock or Restricted Stock Units are subject to one or more
restrictions that will lapse based on the passage of time, the
achievement of performance goals, or the occurrence of
another event or events, as determined by the Committee
and specied in the applicable Agreement.
2.34 SAR Price means the amount that is subtracted from the
Fair Market Value of a Share at the time of exercise of a SAR
to determine the amount payable, if any, upon exercise of the
SAR.
2.35 Share means one share of common stock, par value $.01
per share, of the Company, as may be adjusted pursuant to
the provisions of Section 4.3 of the Plan.
2.36 Stock Appreciation Right or SAR means an Award granted
under Article 6 which provides for an amount payable in Shares
and/or cash, as determined by the Committee, equal to the
excess of the Fair Market Value of a Share on the day the
Stock Appreciation Right is exercised over the SAR Price.
2.37 Stock Award means an Award of Shares, Stock Appreciation
Rights, Restricted Stock, Restricted Stock Units, Performance
Shares, Performance Units or Other Awards granted to a
Director pursuant to Article 11 of the Plan.
ANNEX A
Article 3 - Administration
3.1 General. This Plan shall be administered by the Committee.
3.2 Authority of the Committee.
(a) The Committee shall have the full and exclusive discretionary
authority to (i) interpret, construe and administer the terms
and intent of the Plan and any Agreement (as well as any
other agreement or document related to the Plan or an
Award), (ii) select the persons who are eligible to receive
an Award, (iii) act in all matters pertaining to the granting of
an Award and the contents of the Agreement evidencing
the Award, including without limitation, the determination
of the number of Options, Stock Appreciation Rights,
Stock Awards, Restricted Stock, Restricted Stock Units,
Performance Shares, Performance Units or Other Awards
subject to an Award and the form, terms, conditions and
duration of each Award, and (iv) make any amendment to
an Award or Agreement consistent with the provisions of
the Plan. The Committee may adopt such rules, regulations
and procedures of general application for the administration
of this Plan, as it deems appropriate.
(b) The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or
any Agreement in the manner and to the extent it shall
deem desirable to address the matter.
(c) In the event the Company shall assume outstanding
employee benet awards or the right or obligation to make
future such awards in connection with the acquisition of
another corporation or business entity, the Committee
may, in its discretion, make such adjustments in the terms
of Awards under the Plan as it shall deem appropriate.
(d) In making any determination or in taking or not taking any
action under the Plan, the Committee may obtain and
may rely on the advice of experts, including employees
of the Company and professional advisors.
(e) All acts, determinations and decisions of the Committee
made or taken pursuant to grants of authority under the
Plan or with respect to any questions arising in connection
with the administration and interpretation of the Plan,
including the severability of any and all of the provisions
thereof, shall be conclusive, nal and binding upon all
parties, including the Company, its stockholders, any
Employer, Participants, Eligible Participants and their
estates, beneciaries and successors.
3.3 Rules for Foreign Jurisdictions. Notwithstanding anything
in the Plan to the contrary, the Committee may, in its sole
discretion, (i) amend or vary the terms of the Plan in order to
conform such terms with the requirements of each non-U.S.
jurisdiction where an Eligible Participant is located or where
an Eligible Participants Award rights are otherwise regulated
(including changes related to obtaining favorable tax treatment
and avoiding unfavorable tax treatment) or in order to meet
the goals and objectives of the Plan; (ii) establish one or more
sub-plans for these purposes; and (iii) establish administrative
rules and procedures to facilitate the operation of the Plan
in such non-U.S. jurisdictions. For purposes of clarity, the
terms and conditions contained herein which are subject to
variation in a non-U.S. jurisdiction shall be reected in a written
addendum to the Plan for each Employer affected by such
non-U.S. jurisdiction.
3.4 Delegation of Authority. The Committee may, in its discretion,
at any time and from time to time, delegate to one or more
of the members of the Committee such of its powers as it
deems appropriate (provided that any such delegation shall
be to at least two members of the Committee with respect
to Awards to Covered Employees and Insiders). Except with
respect to Awards to Covered Employees and Insiders, the
Committee may, in its discretion, at any time and from time to
time, delegate to one or more persons who are not members
of the Committee any or all of its authority and discretion under
Section 3.2 and 3.3, to the full extent permitted by law and
the rules of any exchange on which Shares are traded.
3.5 Agreements. Each Award granted under the Plan shall be
evidenced by an Agreement. Each Agreement shall be subject
to and incorporate, by reference or otherwise, the applicable
terms and conditions of the Plan, and may include any other
terms and conditions, not inconsistent with the Plan, as
determined by the Committee, including without limitation,
provisions related to the consequences of termination of
employment. A copy of the Agreement evidencing an Award
shall be provided to the affected Participant, and the Committee
may, but need not, require that the Participant sign a copy of
the Agreement.
3.6 Indemnication. In addition to such other rights of indemnication
as they may have as members of the Board or as members
of the Committee, the Company shall indemnify and hold
harmless the members of the Committee against (i) reasonable
expenses, including attorneys fees, actually and necessarily
incurred in connection with the defense of any action, suit
or proceeding, or in connection with any appeal thereof, to
which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the
Plan or any Award granted thereunder, (ii) all amounts paid
by them in settlement thereof, provided such settlement
is approved by independent legal counsel selected by the
Company, and (iii) all amounts paid by them in satisfaction
of a judgment in any such action, suit or proceeding, except
as to matters as to which the Committee member has been
negligent or engaged in misconduct in the performance of
his duties (all amounts reimbursed hereunder are referred to
as the Reimbursement Expenses); provided, that within 60
days after institution of any such action, suit or proceeding,
a Committee member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the
same. In the performance of its responsibilities with respect
to the Plan, the members of the Committee shall be entitled
to rely upon, and no member of the Committee shall be liable
for any action taken or not taken in good faith reliance upon,
information and/or advice furnished by the Companys ofcers
ANNEX A
or employees, the Companys accountants, or the Companys
counsel. To the extent the entitlement to Reimbursement
Expenses is subject to Code section 409A, it applies during
the lifetime of the Committee member; the Company shall pay
each Reimbursement Expense no later than the end of the
calendar year following the calendar year in which the Committee
member incurred such Reimbursement Expense; the amount
of Reimbursement Expenses available to a Committee member
in one tax year will not affect the amount of Reimbursement
Expenses available to the Committee member in any other
tax year; and the entitlement to Reimbursement Expenses is
not subject to liquidation or exchange for any other benet.
Article 4 - Shares Subject to the Plan
4.1 Number of Shares. Subject to adjustment as provided in Section
4.3, the aggregate number of Shares which are available for
issuance pursuant to Awards under the Plan is Eleven Million
(11,000,000) Shares (the Award Pool). The Award Pool shall
be available for all types of Awards granted under the Plan;
there is no maximum number of Shares per type of Award.
Such Shares shall be made available from Shares authorized
but unissued or Shares held (or subsequently acquired) by the
Company as treasury shares, including Shares purchased in
the open market or in private transactions.
Upon approval of this Plan by the stockholders of the Company,
no further grants may be made under the Companys 2004
Long-Term Incentive Compensation Plan, as amended (the
2004 Plan). However, if Shares awarded or subject to issuance
pursuant to awards under the 2004 Plan are not issued or are
reacquired by the Company, in either case due to the forfeiture,
cancellation or expiration of such awards without having been
exercised or settled in Shares, those Shares shall be available
for issuance pursuant to Awards under this Plan. In addition,
if the tax withholding obligation, exercise price or purchase
price under an award under the 2004 Plan is satised by the
Company retaining Shares that otherwise would have been
issued in settlement of the award or by Shares tendered by the
participant (either by actual delivery or attestation), the number
of Shares so retained or tendered shall be available for issuance
pursuant to Awards under this Plan. All Shares derived from
the 2004 Plan shall be tracked and counted as provided in this
Plan and shall not trigger a deduction from the Award Pool.
The following rules shall apply for purposes of determining the
number of Shares available for issuance under the Plan:
(a) Each Option shall be counted as one Share subject to
an Award and deducted from the Award Pool.
(b) Each share of Restricted Stock, each Restricted Stock
Unit that may be settled in Shares and each Other Award
that may be settled in Shares shall be counted as one
Share subject to an Award and deducted from the Award
Pool. Restricted Stock Units and Other Awards that may
not be settled in Shares shall not result in a deduction
from the Award Pool.
(c) Each Performance Share that may be settled in Shares
shall be counted as one Share subject to an Award,
based on the number of Shares that would be paid
under the Performance Share for achievement of target
performance, and deducted from the Award Pool. Each
Performance Unit that may be settled in Shares shall be
counted as a number of Shares subject to an Award, based
on the number of Shares that would be paid under the
Performance Unit for achievement of target performance,
with the number determined by dividing the value of the
Performance Unit at the time of grant by the Fair Market
Value of a Share at the time of grant, and this number shall
be deducted from the Award Pool. In both cases, in the
event that the Award is later settled based on above-target
performance, the number of Shares corresponding to the
above-target performance, calculated pursuant to the
applicable methodology specied above, shall be deducted
from the Award Pool at the time of such settlement; in the
event that the Award is later settled upon below-target
performance, the number of Shares corresponding to
the below-target performance, calculated pursuant to
the applicable methodology specied above, shall be
added back to the Award Pool. Performance Shares and
Performance Units that may not be settled in Shares shall
not result in a deduction from the Award Pool.
(d) Each Stock Appreciation Right that may be settled in
Shares shall be counted as one Share subject to an Award
and deducted from the Award Pool. Stock Appreciation
Rights that may not be settled in Shares shall not result
in a deduction from the Award Pool.
(e) If, for any reason, any Shares awarded or subject to
issuance under the Plan are not issued, or are reacquired
by the Company from the Participant or the Participants
transferee, for reasons including, but not limited to, a
forfeiture of Restricted Stock or a Restricted Stock
Unit or the termination, expiration or cancellation of an
Option, Stock Appreciation Right, Performance Share or
Performance Unit or the settlement of an Award in cash
in lieu of Shares, such Shares shall again be available for
issuance pursuant to an Award under the Plan and shall
be added back to the Award Pool If the tax withholding
obligation under an Award or the Option Price or purchase
price under an Award is satised by the Company retaining
Shares that otherwise would have been issued in settlement
of the Award or by Shares tendered by the Participant
(either by actual delivery or attestation), the number of
Shares so retained or tendered shall again be available
for issuance pursuant to Awards under the Plan and shall
be added back to the Award Pool.
4.2 Individual Limits. Subject to adjustment as provided in Section
4.3, and except to the extent the Committee determines that
an Award to a Covered Employee shall not comply with the
performance-based compensation provisions of Code section
162(m) (and may be excluded from these limits without adversely
ANNEX A
affecting the application of these provisions with respect to
Awards that are intended to comply with them), the following
rules shall apply to Awards under the Plan:
(a) Options and SARs. The maximum number of Options and
Stock Appreciation Rights that, in the aggregate, may be
granted in any one scal year to any one Participant shall
be three million (3,000,000).
(b) Restricted Stock and Restricted Stock Units. The maximum
number of Shares of Restricted Stock and Restricted
Stock Units that, in the aggregate, may be granted in any
one scal year to any one Participant shall be one million
(1,000,000) Shares and Units.
(c) Performance Shares and Performance Units. The maximum
number of Performance Shares and Performance Units
(valued as of the grant date) that, in the aggregate, may
be granted in any one scal year to any one Participant
shall equal the value of two million (2,000,000) Shares.
This limitation shall be applied based on the maximum
amount that could be paid under each Performance Share
and Performance Unit.
(d) Other Awards. The maximum number of Other Awards
(valued as of the grant date) that, in the aggregate, may
be granted in any one scal year to any one Participant
shall equal the value of ve hundred thousand (500,000)
Shares. This limitation shall be applied based on the
maximum amount that could be paid under each Other
Award.
The multipliers specied in subsections (a) through (d) of Section
4.1 shall not apply for purposes of applying the foregoing limitations
of this Section 4.2.
4.3 Adjustment of Shares. If any change in corporate capitalization,
such as a stock split, reverse stock split, or stock dividend;
or any corporate transaction such as a reorganization,
reclassication, merger or consolidation or separation, including
a spin-off, of the Company or sale or other disposition by the
Company of all or a portion of its assets, any other change
in the Companys corporate structure, or any distribution to
stockholders (other than an ordinary cash dividend) results in the
outstanding Shares, or any securities exchanged therefore or
received in their place, being exchanged for a different number
or class of shares or other securities of the Company, or for
shares of stock or other securities of any other corporation;
or new, different or additional shares or other securities of
the Company or of any other corporation being received by
the holders of outstanding Shares; then the Committee shall
make equitable adjustments, as it determines are necessary
and appropriate, in:
(a) the number and class of stock or other securities that
comprise the Award Pool as set forth in Section 4.1;
(b) the limitations on the aggregate number of Awards that
may be granted in any one scal year to any one Participant
as set forth in Section 4.2;
(c) the number and class of stock or other securities subject
to outstanding Awards, and which have not been issued
or transferred under outstanding Awards;
(d) the Option Price under outstanding Options, the SAR
Price under outstanding Stock Appreciation Rights and
the number of Shares to be transferred in settlement of
outstanding Options and Stock Appreciation Rights; and
(e) the terms, conditions or restrictions of any Award and
Agreement, including the price payable for the acquisition
of Shares.
It is intended that, if possible, any adjustments contemplated
above shall be made in a manner that satises applicable legal
requirements, as well as applicable requirements with respect
to taxation (including, without limitation and as applicable in the
circumstances, Code section 424, Code section 409A, and Code
section 162(m)) and accounting (so as to not trigger any charge to
earnings with respect to such adjustment).
Without limiting the generality of the above, any good faith
determination by the Committee as to whether an adjustment is
required in the circumstances and the extent and nature of any such
adjustment shall be nal, conclusive and binding on all persons.
Article 5 - Stock Options
5.1 Grant of Options. Subject to the terms and provisions of
the Plan, Options may be granted to Eligible Participants in
such amounts and upon such terms, and at any time and
from time to time, as shall be determined by the Committee.
The Committee shall have sole discretion in determining
the number of Shares subject to Options granted to each
Participant. The Committee may grant a Participant ISOs,
NQSOs or a combination thereof, and may vary such Awards
among Participants; provided that only Participants who are
common law employees of the Employer may be granted ISOs.
Notwithstanding anything in this Article 5 to the contrary, except
for Options that are specically designated as intended to be
subject to Code section 409A, Options may only be granted
to individuals who provide direct services on the date of grant
of the Option to the Company or another entity in a chain of
entities in which the Company or another such entity has a
controlling interest (within the meaning of Treasury Regulation
1.409A-1(b)(5)(iii)(E)) in each entity in the chain.
5.2 Agreement. Each Option grant shall be evidenced by an
Agreement that shall specify the Option Price, the duration of
the Option, the number of Shares to which the Option pertains,
the conditions upon which the Option shall become vested
and exercisable and such other provisions as the Committee
shall determine. The Option Agreement shall further specify
whether the Award is intended to be an ISO or an NQSO.
Any portion of an Option that is not designated as an ISO or
otherwise fails or is not qualied as an ISO (even if designated
as an ISO) shall be an NQSO.
ANNEX A
5.3 Option Price. The Option Price for each grant of an Option
shall be determined by the Committee and shall not be less
than one hundred percent (100%) of the Fair Market Value of
a Share on the date the Option is granted. Notwithstanding
the prior sentence, an Option may be granted with an Option
Price that is less than one hundred percent (100%) of the Fair
Market Value of a Share on the date the Option is granted if
such Option is granted in replacement for an award previously
granted by an entity that is assumed by the Company in a
business combination, provided that the Committee determines
that such Option Price is appropriate to preserve the economic
benet of the replaced award and will not impair the exemption
of the Option from Code section 409A (unless the Committee
clearly and expressly foregoes such exemption at the time
the Option is granted).
5.4 Duration of Options. Each Option shall expire at such time as
the Committee shall determine at the time of grant; provided,
however, that the Committee may extend the term of any Option
that would otherwise expire at a time when the Participant is
not permitted by applicable law or Company policy to exercise
such Option; and provided, further, that no Option shall be
exercisable later than the tenth (10
th
) anniversary of its grant
date. Notwithstanding the foregoing, for Options granted to
Participants outside the United States, the Committee has
the authority to grant Options that have a term that extends
past the tenth (10
th
) anniversary of the Option grant date.
5.5 Exercise of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions
and conditions as the Committee shall in each instance
approve, including conditions related to the employment of
or provision of services by the Participant to the Company or
any Employer, which need not be the same for each grant
or for each Participant. The Committee may provide in the
Agreement for automatic accelerated vesting and other rights
upon the occurrence of a Change in Control of the Company
or upon the occurrence of other events as specied in the
Agreement. Deferral of Option gains is not permitted.
5.6 Payment. Options shall be exercised by the delivery of an
oral, written or electronic notice of exercise to the Company
or its designated representative, setting forth the number of
Shares with respect to which the Option is to be exercised
and satisfying any requirements that the Committee may
apply from time to time. Full payment of the Option Price
(after taking into account any amount previously received to
acquire the Option) must be made on or prior to the Payment
Date, as dened below. The Option Price shall be payable to
the Company in United States dollars either: (a) in cash; (b)
cash equivalent approved by the Committee; (c) if approved
by the Committee, by tendering previously acquired Shares
(or delivering a certication or attestation of ownership of
such Shares) having an aggregate Fair Market Value at the
time of exercise equal to the total Option Price (provided that
the tendered Shares must have been held by the Participant
for any period required by the Committee); (d) if approved
by the Committee, by cashless exercise as permitted under
Federal Reserve Boards Regulation T, subject to applicable
securities law restrictions; (e) by any other means which
the Committee determines to be consistent with the Plans
purpose and applicable law, including a net exercise; or (f) by
any combination of the above. Payment Date shall mean the
date on which a sale transaction in connection with a cashless
exercise (whether or not payment is actually made pursuant
to a cashless exercise) would have settled in connection with
the subject option exercise. No certicate representing a Share
shall be delivered until the full Option Price has been paid.
5.7 Nontransferability of Options.
(a) Incentive Stock Options. No ISO granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws
of descent and distribution. Further, all ISOs granted to a
Participant under the Plan shall be exercisable during his
or her lifetime only by such Participant or the Participants
legal representative.
(b) Nonqualied Stock Options. Except as otherwise provided
in a Participants Agreement or otherwise determined at any
time by the Committee consistent with securities and other
applicable laws, rules and regulations, no NQSO granted
under this Article 5 may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than
by will or by the laws of descent and distribution. Further,
except as otherwise provided in a Participants Agreement
or otherwise determined at any time by the Committee, all
NQSOs granted to a Participant under this Article 5 shall be
exercisable during his or her lifetime only by such Participant
or the Participants legal representative. In no event may
an NQSO be transferred for value or consideration.
5.8 Special Rules for ISOs. Notwithstanding the above, in no
event shall any Participant who owns (within the meaning
of Code section 424(d)) stock of the Company possessing
more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any parent
or subsidiary (within the meaning of Code section 424(e) or
(f), respectively) be eligible to receive an ISO (i) at an Option
Price less than one hundred ten percent (110%) of the Fair
Market Value of a Share on the date the ISO is granted, or
(ii) that is exercisable later than the fth (5
th
) anniversary date
of its grant date. The aggregate Fair Market Value of Shares
with respect to which incentive stock options (within the
meaning of Code section 422) granted to a Participant are
rst exercisable in any calendar year under the Plan and all
other incentive stock option plans of the Employer) shall not
exceed One Hundred Thousand Dollars ($100,000). For this
purpose, Fair Market Value shall be determined with respect
to a particular incentive stock option on the date on which
such incentive stock option is granted. In the event that this
One Hundred Thousand Dollar ($100,000) limit is exceeded
with respect to a Participant, then Incentive Stock Options
granted under this Plan to such Participant shall, to the extent
and in the order required by Treasury Regulations under Code
section 422, automatically become NQSOs granted under this
Plan. Solely for purposes of determining the limit on ISOs that
may be granted under the Plan, the provisions of Section 4.1
that replenish or forgo a deduction from the Award Pool shall
only be applied to the extent permitted by Code section 422
and regulations promulgated thereunder.
ANNEX A
Article 6 - Stock Appreciation Rights
6.1 Grant of SARs. Subject to the terms and provisions of the
Plan, SARs may be granted to Eligible Participants in such
amounts and upon such terms, and at any time and from time
to time, as shall be determined by the Committee. A Stock
Appreciation Right may be granted to an Eligible Participant
in connection with an Option granted under Article 5 of this
Plan or may be granted independently of any Option. A Stock
Appreciation Right shall entitle the holder, within the specied
period, to exercise the SAR and receive in exchange therefor
a payment having an aggregate value equal to the amount by
which the Fair Market Value of a Share exceeds the SAR Price,
times the number of Shares with respect to which the SAR
is exercised. A SAR granted in connection with an Option (a
Tandem SAR) shall entitle the holder of the related Option,
within the period specied for the exercise of the Option, to
surrender the unexercised Option, or a portion thereof, and to
receive in exchange therefore a payment having an aggregate
value equal to the amount by which the Fair Market Value of a
Share exceeds the Option Price, times the number of Shares
under the Option, or portion thereof, which is surrendered.
Notwithstanding anything in this Article 6 to the contrary, except
for SARs that are specically designated as intended to be
subject to Code section 409A, SARs may only be granted to
individuals who provide direct services on the date of grant
of the SAR to the Company or another entity in a chain of
entities in which the Company or another such entity has a
controlling interest (within the meaning of Treasury Regulation
1.409A-1(b)(5)(iii)(E)) in each entity in the chain.
6.2 Agreement. Each SAR grant shall be evidenced by an Agreement
that shall specify the SAR Price, the duration of the SAR, the
number of Shares with respect to which the SAR pertains,
the conditions upon which the SAR shall become vested and
exercisable and such other provisions as the Committee shall
determine.
6.3 Tandem SARs. Each Tandem SAR shall be subject to the
same terms and conditions as the related Option, including
limitations on transferability, and shall be exercisable only to
the extent such Option is exercisable and shall terminate or
lapse and cease to be exercisable when the related Option
terminates or lapses. The grant of a Tandem SAR must be
concurrent with the grant of the Option.
6.4 Payment. The Committee shall have sole discretion to determine
in each Agreement whether the payment with respect to the
exercise of a SAR will be in the form of all cash, all Shares, or
any combination thereof. If payment is to be made in Shares,
the number of Shares shall be determined based on the Fair
Market Value of a Share on the date of exercise.
6.5 SAR Price. The SAR Price for each grant of a SAR shall be
determined by the Committee and shall not be less than one
hundred percent (100%) of the Fair Market Value of a Share
on the date the SAR is granted. Notwithstanding the prior
sentence, a SAR may be granted with a SAR Price that is
less than one hundred percent (100%) of the Fair Market
Value of a Share on the date the SAR is granted if such SAR
is granted in replacement for an award previously granted
by an entity that is assumed by the Company in a business
combination, provided that the Committee determines that
such SAR Price is appropriate to preserve the economic
benet of the replaced award and will not impair the exemption
of the SAR from Code section 409A (unless the Committee
clearly and expressly foregoes such exemption at the time
the SAR is granted).
6.6 Duration of SARs. Each SAR shall expire at such time as the
Committee shall determine at the time of grant; provided,
however, that the Committee may extend the term of any SAR
that would otherwise expire at a time when the Participant
is not permitted by applicable law or Company policy to
exercise such SAR; and provided, further, that no SAR shall
be exercisable later than the tenth (10
th
) anniversary of its
grant date. Notwithstanding the foregoing, for SARs granted
to Participants outside the United States, the Committee has
the authority to grant SARs that have a term that extends past
the tenth (10
th
) anniversary of the Option grant date.
6.7 Exercise of SARs. SARs granted under the Plan shall be
exercisable at such times and be subject to such restrictions
and conditions as the Committee shall in each instance
approve, including conditions related to the employment of
or provision of services by the Participant with the Company
or any Employer, which need not be the same for each grant
or for each Participant. The Committee may provide in the
Agreement for automatic accelerated vesting and other rights
upon the occurrence of a Change in Control of the Company
or upon the occurrence of other events as specied in the
Agreement. Upon exercise of a Tandem SAR, the number
of Shares subject to exercise under the related Option shall
automatically be reduced by the number of Shares represented
by the Option or portion thereof which is surrendered. SARs shall
be exercised by the delivery of an oral, written or electronic notice
of exercise to the Company or its designated representative,
setting forth the number of Shares with respect to which the
SAR is to be exercised and satisfying any requirements that
the Committee may apply from time to time.
6.8 Nontransferability of SARs. Except as otherwise provided in
a Participants Agreement or otherwise determined at any
time by the Committee consistent with securities and other
applicable laws, rules and regulations, no SAR granted under
this Article 6 may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution. Further, except as
otherwise provided in a Participants Agreement or otherwise
determined at any time by the Committee, all SARs granted
to a Participant under this Article 6 shall be exercisable during
his or her lifetime only by such Participant or the Participants
legal representative. In no event may a SAR be transferred
for value or consideration.
ANNEX A
Article 7 - Restricted Stock and Restricted Stock Units
7.1 Grant of Restricted Stock/Unit. Subject to the terms and
provisions of the Plan, Restricted Stock Awards and Restricted
Stock Unit Awards may be granted to Eligible Participants in
such amounts and upon such terms, and at any time and
from time to time, as shall be determined by the Committee.
Awards of Restricted Stock/Units may be made either alone or
in addition to or in tandem with other Awards granted under the
Plan and may be current grants of Restricted Stock, deferred
grants of Restricted Stock or Restricted Stock Units.
7.2 Restricted Stock/Unit Agreement.
(a) In General. Each Award of Restricted Stock/Units shall be
evidenced by an Agreement that shall set forth the terms
of the Award, as determined by the Committee, including,
without limitation, the number of Shares of Restricted
Stock or the number of Restricted Stock Units granted;
the purchase price, if any, to be paid for each Share of
Restricted Stock or Restricted Stock Unit, which may
be more than, equal to, or less than Fair Market Value
of a Share and may be zero, subject to such minimum
consideration as may be required by applicable law; any
restrictions applicable to the Restricted Stock/Units such
as continued service or achievement of performance
goals; the length of the Restriction Period and whether
any circumstances, such as death, Disability, or a Change
in Control, will shorten or terminate the Restriction Period;
and whether Restricted Stock Units will be settled in
cash, Shares or a combination of cash and Shares. The
Restriction Period may be of any duration. The Award
may provide for lapse of the Restriction Period in monthly
or longer installments over the course of the Restriction
Period, as determined by the Committee in its discretion.
(b) Execution of Agreements. Notwithstanding Section 3.5,
a Restricted Stock/Unit Award must be accepted within
a period of sixty (60) days from the date of grant, or such
other period as the Committee may specify, by executing
a Restricted Stock/Unit Agreement and paying whatever
price, if any, is required.
The prospective recipient of a Restricted Stock/Unit Award
shall not have any rights with respect to such Award, unless
and until such recipient has executed a Restricted Stock/Unit
Agreement and has delivered a fully executed copy thereof
to the Committee, and has otherwise complied with the
applicable terms and conditions of such Award.
7.3 Nontransferability. Except as otherwise provided in this Article
7 or an Agreement, Restricted Stock and Restricted Stock
Units may not be sold, exchanged, transferred, pledged, or
otherwise alienated or hypothecated or otherwise disposed of
during the Restriction Period or, in the case of Restricted Stock
Units, until the date of delivery of Shares or other payment
with respect to the Restricted Stock Units (other than by will
or by the laws of descent and distribution). Further, except as
otherwise provided in the applicable Agreement, a Participants
rights with respect to Shares of Restricted Stock or Restricted
Stock Units shall be available during the Participants lifetime
only to the Participant or the Participants legal representative.
7.4 Certicates. Upon an Award of Restricted Stock to a Participant,
Shares of Restricted Stock shall be registered in the Participants
name. Certicates, if issued, may either be held in custody
by the Company until the Restriction Period expires or until
restrictions thereon otherwise lapse and/or be issued to the
Participant and registered in the name of the Participant, bearing
an appropriate restrictive legend and remaining subject to
appropriate stop-transfer orders. If required by the Committee,
the Participant shall deliver to the Company one or more stock
powers endorsed in blank relating to the Restricted Stock. If
and when the Restriction Period expires without a prior forfeiture
of the Restricted Stock subject to such Restriction Period,
unrestricted certicates for such shares shall be delivered to
the Participant.
7.5 Dividends and Other Distributions. Except as provided in
this Article 7 or in the Agreement, a Participant receiving
a Restricted Stock Award shall have, with respect to such
Restricted Stock Award, all of the rights of a stockholder of
the Company, including the right to vote the Shares to the
extent, if any, such Shares possess voting rights and the right
to receive any dividends; provided, however, the Committee
may require that any dividends on such Shares of Restricted
Stock shall be automatically deferred and reinvested in additional
Restricted Stock subject to the same restrictions on vesting as
the underlying Award, or may require that dividends and other
distributions on Restricted Stock shall be paid to the Company
for the account of the Participant and held pending and subject
to the same restrictions on vesting as the underlying Award;
provided, however, that to the extent that any dividends are
deferred, reinvested or otherwise not paid when such dividends
would otherwise normally be paid, (i) all terms and conditions
for such delayed payment shall be included in the Agreement,
and (ii) such deferral, reinvestment or delay in payment of
the dividends shall only be allowed to the extent it complies
with, or is exempt from, the requirements of Code section
409A. The Committee shall determine whether interest shall
be paid on such amounts, the rate of any such interest, and
the other terms applicable to such amounts (again, provided
that all such terms shall, to the extent required, comply with
Code section 409A). A Participant receiving a Restricted Stock
Unit Award shall not possess voting rights and shall accrue
dividend equivalents on such Units only to the extent provided
in the Agreement relating to the Award; provided, however,
that rights to dividend equivalents shall only be allowed to the
extent they comply with, or are exempt from, Code section
409A. The Committee shall require that any such dividend
equivalents be subject to the same restrictions on vesting and
payment as the underlying Award. In addition, with respect to
Covered Employees, the Committee may apply any restrictions
it deems appropriate to the payment of dividends declared
with respect to Restricted Stock such that the dividends and/
or Restricted Stock maintain eligibility for the performance-
based compensation exception under Code section 162(m).
7.6 Short-Term Deferral. To the extent an Award described in this
Section is a 409A Award and is subject to a substantial risk of
forfeiture within the meaning of Code section 409A (or will be
ANNEX A
granted upon the satisfaction of a condition that constitutes
such a substantial risk of forfeiture), any compensation due
under the Award (or pursuant to a commitment to grant an
Award) shall be paid in full not later than the 60
th
day following
the date on which there is no longer such a substantial risk of
forfeiture with respect to the Award (and the Participant shall
have no right to designate the year of the payment), unless
the Committee shall clearly and expressly provide otherwise
at the time of granting the Award.
Article 8 - Performance Shares and Units
8.1 Grant of Performance Shares/Units. Subject to the terms and
provisions of the Plan, Performance Shares and Performance
Units may be granted to Eligible Participants in such amounts
and upon such terms, and at any time and from time to time,
as shall be determined by the Committee.
8.2 Value of Performance Shares/Units. Each Performance Unit
shall have an initial value that is established by the Committee at
the time of grant. Each Performance Share shall have an initial
value equal to the Fair Market Value of a Share on the date of
grant. In addition to any non-performance terms applicable to
the Award, the Committee shall set performance goals in its
discretion which, depending on the extent to which they are
met, will determine the number and/or value of Performance
Shares, Performance Units or both, as applicable, that will
be paid out to the Participant. For purposes of this Article 8,
the time period during which the performance goals must be
met shall be called a Performance Period. The Committee
may, but is not obligated to, set such performance goals by
reference to the performance measures set forth in Article 10.
8.3 Earning of Performance Shares/Units. Subject to the terms of
this Plan, after the applicable Performance Period has ended,
the holder of the Performance Shares/Units shall be entitled
to receive a payout of the number and value of Performance
Shares/Units earned by the Participant over the Performance
Period, to be determined as a function of the extent to which
the corresponding performance goals have been achieved
and any applicable non-performance terms have been met.
8.4 Form and Timing of Payment of Performance Shares/
Units. Subject to the terms of this Plan and the applicable
Agreement, the Committee, in its sole discretion, may pay
earned Performance Shares/Units in the form of cash or
Shares or other Awards (or a combination thereof) which
have an aggregate Fair Market Value equal to the value of
the earned Performance Shares/Units at the close of the
applicable Performance Period. Any such Shares may be
granted subject to any restrictions deemed appropriate by
the Committee. The determination of the Committee with
respect to the form and timing of payout of such Awards shall
be set forth in the Agreement pertaining to the grant of the
Award. Notwithstanding the foregoing, to the extent an Award
described in this Article 8 is a 409A Award and is subject to
a substantial risk of forfeiture within the meaning of Code
section 409A (or will be granted upon the satisfaction of a
condition that constitutes such a substantial risk of forfeiture),
any compensation due under the Award (or pursuant to a
commitment to grant an Award) shall be paid in full not later
than the 60
th
day following the date there is no longer such
a substantial risk of forfeiture with respect to the Award (and
the Participant shall have no right to designate the year of the
payment), unless the Committee shall clearly and expressly
provide otherwise at the time of granting the Award.
8.5 Dividends and Other Distributions. A Participant receiving a
Performance Share/Unit Award shall not possess voting rights
and shall accrue dividend equivalents on such Performance
Shares/Units only to the extent provided in the Agreement
relating to the Award; provided, however, that rights to dividend
equivalents shall only be allowed to the extent they comply
with, or are exempt from, Code section 409A. Any rights to
dividend equivalents on Performance Shares/Units shall be
subject to the same restrictions on vesting and payment as
the underlying Award. In addition, with respect to Covered
Employees, the Committee may apply any restrictions it
deems appropriate to the payment of dividends declared with
respect to Performance Shares/Units such that the dividends
and/or Performance Shares/Units maintain eligibility for the
performance-based compensation exception under Code
section 162(m).
8.6 Nontransferability. Except as otherwise provided in this Article
8 or the applicable Agreement, Performance Shares/Units may
not be sold, exchanged, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Further, except as otherwise
provided in the applicable Agreement, a Participants rights
with respect to Performance Shares/Units shall be available
during the Participants lifetime only by the Participant or the
Participants legal representative.
Article 9 - Other Awards
The Committee shall have the authority to specify the terms
and provisions of other forms of equity-based or equity-related
awards not described above that the Committee determines to
be consistent with the purpose of the Plan and the interests of
the Company. The Other Awards may provide for cash payments
based in whole or in part on the value or future value of Shares, for
the acquisition or future acquisition of Shares, or any combination
of the foregoing. Notwithstanding the foregoing, where the value
of an Other Award is based on the difference in the value of a
Share at different points in time, the grant or exercise price will not
be less than 100% of the Fair Market Value of the Shares on the
date of grant unless the Other Award is granted in replacement for
ANNEX A
an award previously granted by an entity that is assumed by the
Company in a business combination, provided that the Committee
determines that the Other Award preserves the economic benet
of the replaced award and is either exempt from or in compliance
with the requirements of Code section 409A.
Article 10 - Performance Measures
10.1 In General. The Committee may, in its discretion, include
performance conditions in any Award.
10.2 Section 162(m) Performance Measures. Unless and until the
Committee proposes for stockholder vote and stockholders
approve a change in the general performance measures set
forth in this Article 10, the attainment of which may determine
the degree of payout and/or vesting with respect to Covered
Employees Awards that are intended to qualify under the
performance-based compensation provisions of Code section
162(m), the performance measure(s) to be used for purposes
of such Awards shall be chosen from among the following:
earnings, earnings per share, consolidated pre-tax earnings,
net earnings, net income, operating income, EBIT (earnings
before interest and taxes), EBITDA (earnings before interest,
taxes, depreciation and amortization), gross margin, operating
margin, prot margin, revenues, revenue growth, market
value added, market share, economic value added, return
measures (including but not limited to return on equity, return on
investment, return on assets, return on net assets, and return
on capital employed), total stockholder return, prot, operating
prot, economic prot, capitalized economic prot, after-tax
prot, pre-tax prot, cash, cash ow measures (including but
not limited to operating cash ow, free cash ow, cash ow
return, and cash ow per share), sales, sales volume, sales
growth, assets, inventory turnover ratio, productivity ratios,
Share price, cost, unit cost, expense targets or ratios, charge-
off levels, operating efciency, operating expenses, customer
satisfaction, improvement in or attainment of expense levels,
working capital, improvement in or attainment of working
capital levels, debt, debt to equity ratio, debt reduction, capital
targets and/or consummation of acquisitions, dispositions,
projects or other specic events or transactions.
Any performance measure may be applied to the Company
and any other entity included in the term Employer in the
aggregate, to a selection of these, to each as a whole or
alternatively, or to any business unit of the Company or any
other entity included in the term Employer, either individually,
alternatively or in any combination and measured either annually
or cumulatively over a period of years, on an absolute basis
or relative to a pre-established target, to results for previous
years or to a designated comparison group of entities or to
a published or stock market or other index, in each case as
specied by the Committee. The Committee shall specify
the period over which the performance goals for a particular
Award shall be measured.
10.3 Other Performance Measures. The Committee may
establish other performance measures for Awards granted
to Eligible Participants that are not intended to qualify under
the performance-based compensation exception from the
deductibility limitations of Code section 162(m).
10.4 Committee Determination of Achievement of Performance
Goals; Adjustments. The Committee shall determine whether
the applicable performance goals have been met with respect
to a particular Award and, if they have, the Committee shall
so certify in writing and ascertain the amount payable under
the applicable Award. The Committee is authorized to make
adjustments in performance-based criteria or in the terms
and conditions of other Awards in recognition of unusual or
nonrecurring events affecting the Company or its nancial
statements (including, but not limited to, asset write-downs;
litigation or claim judgments or settlements; reorganizations or
restructuring programs; extraordinary, unusual, or nonrecurring
items of gain or loss as dened under US generally accepted
accounting principles; mergers, acquisitions or divestitures; and
foreign exchange gains and losses) or changes in applicable
laws, regulations or accounting principles. In the case of Awards
to Covered Employees that are intended to qualify under
the performance-based compensation exception from the
deductibility limitations of Code section 162(m), such adjustments
shall be made in accordance with guidelines established by
the Committee at the time the performance-based Award is
granted (or within such period thereafter as may be permissible
under Code section 162(m)). The Committee shall also have
the discretion to adjust downward the determinations of the
degree of attainment of the pre-established performance goals;
Awards may not be adjusted upward.
If applicable tax and/or securities laws permit Committee
discretion to alter the governing performance measures
without obtaining stockholder approval of such changes, the
Committee shall have sole discretion to make such changes
without obtaining stockholder approval. In addition, in the event
that the Committee determines that it is advisable to grant
Awards which shall not qualify for the performance-based
compensation exception from the deductibility limitations of
Code section 162(m), the Committee may make such grants
without satisfying the requirements of Code section 162(m).
ANNEX A
Article 11 - Awards to Directors
11.1 Director Awards. On each date that the Company makes its
regular, annual grant of Awards to employees (the Annual
Grant Date), each Director shall be granted a Stock Award or
NQSO in an amount determined by the Committee; provided,
however, that each individual who is rst elected to serve as
a Director on a date after an Annual Grant Date and prior to
the next Annual Grant Date (Prorated Grant Date) shall be
granted a prorated Stock Award and/or NQSO, as follows:
if the Prorated Grant Date is less than 3 months after the
Annual Grant Date, 100% of the Awards granted to Directors
on the Annual Grant Date; if the Prorated Grant Date is at
least 3 months but less than 6 months after the Annual Grant
Date, 75% of the Awards granted to Directors on the Annual
Grant Date; if the Prorated Grant Date is at least 6 months
but less than 9 months after the Annual Grant Date, 50% of
the Awards granted to Directors on the Annual Grant Date;
if the Prorated Grant Date is at least 9 months but less than
12 months after the Annual Grant Date, 25% of the Awards
granted to Directors on the Annual Grant Date.
11.2 Other Director Compensation. In place of cash compensation,
on the last day of March, June, September and December
of each calendar year, each Director shall be awarded, on
a current basis or at the prior election of the Director on a
deferred basis, a number of Shares (rounded to the nearest
whole Share) equal to one-quarter of the dollar amount specied
by the Committee for such calendar year divided by the Fair
Market Value of a Share on such date; provided that such dollar
amount shall be reduced to the extent a Director elects (prior
to such immediately preceding December 31, or with respect
to any person who became a Director subsequent to such
date, within 30 days of becoming a Director) to receive cash
in lieu of Shares under this Section 11.2 (a Cash Election).
For purposes of Shares awarded under this Section 11.2, the
denition of Fair Market Value in Section 2.17 above shall be
applied by replacing each reference to the closing price of a
Share on the trading day immediately preceding the grant date
for such Shares with a reference to the closing price of a Share
on the last trading day of the calendar quarter immediately
preceding the grant date for such Shares (e.g., for purposes
of any Shares awarded on September 30, 2013, under this
Section 11.2, Fair Market Value shall be the NYSE closing
price for a Share on June 28, 2013). The Committee shall
specify the dollar amount in effect under this Section 11.2 for
a calendar year no later than March 31 of such calendar year.
Any Shares awarded pursuant to this Section 11.2 shall not
be Restricted Stock. On or before each December 31 (or in
the case of a person who rst becomes a Director subsequent
to December 31, within 30 days of becoming a Director), a
Director may, by written notice to the Company, elect to defer
receipt (a Deferral Election) of any or all of the Shares to be
granted to the Director under this Section 11.2 (or cash to the
extent of his or her Cash Election) which would otherwise be
earned for service performed thereafter by him or her. Such
election shall be made on a form prescribed by the Company
for such deferrals and shall comply with the requirements of
Code section 409A.
Article 12 - Beneciary Designation
To the extent permitted by the Committee, each Participant under
the Plan may, from time to time, name any beneciary or beneciaries
(who may be named contingently or successively) to whom any
vested but unpaid Award is to be paid in case of the Participants
death. Each such designation shall revoke all prior designations by
the same Participant, shall be in a form prescribed by the Company,
and will be effective only when led by the Participant in writing
with the Company during the Participants lifetime. In the absence
of any such designation, vested but unpaid Awards outstanding
at the Participants death shall be paid to the Participants estate.
Article 13 - Deferrals
The Committee may permit or require a Participant to defer such
Participants receipt of the payment of cash or the delivery of Shares
that would otherwise be due to such Participant by virtue of the
exercise of an Option or SAR that is not a 409A Award, the lapse or
waiver of restrictions with respect to Restricted Stock or Restricted
Stock Units, or the satisfaction of any requirements or goals with
respect to Performance Shares or Performance Units. If any such
deferral election is required or permitted, the Committee shall, in its
sole discretion, establish rules and procedures for such deferrals,
and the Committee may provide for such arrangements, including
conversion to another form of Award that is available under the
Plan and has equivalent value, as it deems necessary in order to
permit the deferral of taxes in connection with such deferral by the
Participant. Any deferrals required or permitted by the Committee
of Awards shall be made in compliance with Code section 409A.
ANNEX A
Article 14 - Withholding
14.1 Tax Withholding. The Company shall have the power and the
right to deduct or withhold, or require a Participant to remit to
the Company, an amount sufcient to satisfy Federal, state,
and local taxes or similar charges, domestic or foreign, required
by law or regulation to be withheld with respect to any taxable
event arising as a result of or in connection with this Plan or
any Award.
14.2 Share Withholding. With respect to withholding required upon
the exercise of Options or SARs, upon the lapse of restrictions
on Restricted Stock or Restricted Stock Units, upon the
achievement of performance goals related to Performance
Shares or Performance Units, or upon any other taxable event
arising as a result of or in connection with an Award granted
hereunder that is settled in Shares, unless other arrangements
are made with the consent of the Committee, Participants shall
satisfy the withholding requirement by having the Company
withhold Shares having a Fair Market Value on the date the
tax is to be determined equal to not more than the amount
necessary to satisfy the Companys withholding obligations at
the minimum statutory withholding rates. All such withholding
arrangements shall be subject to any restrictions or limitations
that the Committee, in its sole discretion, deems appropriate.
Article 15 - Amendment and Termination
15.1 Amendment or Termination of Plan. The Committee may at any
time terminate or from time to time amend the Plan in whole or
in part, but no such action shall adversely affect any rights or
obligations with respect to any Awards previously granted under
the Plan, unless the affected Participants consent in writing.
The Company will obtain the approval of the stockholders
before amending the Plan to the extent required by Code
section 162(m) or 422 and/or the rules of the exchange upon
which the Shares are traded or other applicable law.
15.2 Amendment of Agreement. The Committee may, at any time,
amend outstanding Agreements in a manner not inconsistent with
the terms of the Plan; provided, however, except as provided in
Section 15.4, if such amendment is adverse to the Participant,
as determined by the Committee, the amendment shall not be
effective unless and until the Participant consents, in writing,
to such amendment. To the extent not inconsistent with the
terms of the Plan, the Committee may, at any time, amend an
outstanding Agreement in a manner that is not unfavorable
to the Participant without the consent of such Participant.
Notwithstanding the above provision, the Committee shall not
permit or effect a repricing, except in accordance with Section
4.3 or to the extent the repricing is approved by the stockholders
of the Company; for this purpose, a repricing is an amendment
to the terms of an outstanding Option or SAR that would reduce
the Option Price or SAR Price of that Option or SAR, respectively,
or a cancellation, exchange, substitution, buyout or surrender
of an outstanding Option or SAR in exchange for cash, another
Award or Option or SAR with an Option Price or SAR Price
that is less than the Option Price or SAR Price of the original
Option or SAR, respectively (or as further dened within US
generally accepted accounting practices or any applicable stock
exchange rule). Notwithstanding anything else in this Section
15.2, (i) no amendment of an Agreement shall cause an award
to be subject to Code section 409A, unless the Agreement,
as amended, complies with the requirements of Code section
409A, and (ii) no amendment of an Agreement that is subject
to Code section 409A shall cause such an Agreement (or the
underlying Award) to violate Code section 409A.
15.3 Cancellation of Awards. The Committee may provide in the
Agreement that if a Participant engages in any Detrimental
Activity (as dened below), the Committee may, notwithstanding
any other provision in this Plan to the contrary, cancel, rescind,
suspend, withhold or otherwise restrict or limit any unexpired,
unexercised, unpaid or deferred Award as of the rst date the
Participant engages in the Detrimental Activity, unless sooner
terminated by operation of another term of this Plan or any other
agreement. Without limiting the generality of the foregoing, the
Agreement may also provide that if the Participant exercises an
Option or SAR, receives a Performance Share or Performance
Unit payout, receives or vests in Shares under an Award or
vests in or receives a payout under a Restricted Stock Unit
at any time during the period beginning six months prior to
the date the Participant rst engages in Detrimental Activity
and ending six months after the date the Participant ceases
to engage in any Detrimental Activity, the Participant shall be
required to pay to the Company the excess of the then fair
market value of the Shares subject to the Award over the total
price paid by the Participant for such Shares.
For purposes of this Section, Detrimental Activity means
any of the following, as determined by the Committee in good
faith: (i) the violation of any agreement between the Company
and the Participant relating to the disclosure of condential
information or trade secrets, the solicitation of employees,
customers, suppliers, licensees, licensors or contractors,
or the performance of competitive services; (ii) conduct that
constitutes Cause (as dened in Section 2.6 above), whether
or not the Participants employment is terminated for Cause; (iii)
making, or causing or attempting to cause any other person
to make, any statement, either written or oral, or conveying
any information about the Company which is disparaging or
which in any way reects negatively upon the Company; (iv)
improperly disclosing or otherwise misusing any condential
information regarding the Company; or (v) the refusal or failure
of a Participant to provide, upon the request of the Company,
a certication, in a form satisfactory to the Company, that he
or she is in full compliance with the terms and conditions of
the Plan; provided, that the Committee may provide in the
Agreement that only certain of the restrictions provided above
apply for purposes of the Agreement.
ANNEX A
15.4 Assumption or Cancellation of Awards. This Section 15.4
applies with respect to the disposition of an outstanding
Award in a Corporate Event (as dened below) only to the
extent that such Corporate Event is not also a Change in
Control covered by Article 16. In the event of a sale of all or
substantially all of the assets or stock of the Company, the
merger of the Company with or into another corporation such
that stockholders of the Company immediately prior to the
merger exchange their shares of stock in the Company for
cash and/or shares of another entity or any other corporate
transaction to which the Committee deems this provision
applicable (a Corporate Event), each Award outstanding at the
time of the Corporate Event shall be assumed or an equivalent
Award shall be substituted by the successor corporation or
a parent or subsidiary of such successor corporation (and
adjusted as appropriate), unless such successor corporation
does not agree to assume the Award or to substitute an
equivalent award, in which case the Committee may, in lieu
of such assumption or substitution, provide for the Participant
to have the right to exercise the Option or other SAR as to all
Shares covered by the Award, including Shares as to which
the Option or SAR would not otherwise be exercisable or
provide that all restrictions applicable to any Restricted Stock,
Restricted Stock Units, Performance Shares or Performance
Units shall lapse). If the Committee makes an Option or SAR
fully exercisable in lieu of assumption or substitution in the
event of a Corporate Event, the Committee shall notify the
Participant that, subject to rescission if the Corporate Event
is not successfully completed within a certain period, the
Option or SAR shall be fully exercisable for a period of fteen
(15) days from the date of such notice (or such other period as
provided by the Committee), and, to the extent not exercised,
the Option or other Award will terminate upon the expiration of
such period. Alternatively, the Committee may make provision
for a cash payment in settlement of any or all outstanding
Awards or the cash, securities or property deliverable to the
holder of any or all outstanding Awards, based upon, to the
extent relevant under the circumstances, the distribution or
consideration payable to holders of Shares upon or in respect
of the Corporate Event. The Committee may adopt such
valuation methodologies for outstanding Awards as it deems
reasonable in the event of a cash settlement and, in the case
of Options, SARs or similar rights, but without limitation on
other methodologies, may base such settlement solely upon
the excess (if any) of the per share amount payable upon or
in respect of such event over the Option Price or SAR Price,
as applicable, of the Award and may cancel each Option
or SAR with an Option Price or SAR Price greater than the
per share amount payable upon or in respect of such event
without any payment to the person holding such Option or
SAR. Any actions taken under this Section 15.4 shall be valid
with respect to a 409A Award only to the extent that such
action complies with Code section 409A.
Article 16 - Change in Control
16.1 Single Trigger Treatment. Upon a C hange in Control, each
outstanding Award granted under this Plan (an Outstanding
Award) will, except to the extent that the Outstanding Award
is continued, assumed, replaced or adjusted in the form of a
Replacement Award, vest or become immediately exercisable
and/or nonforfeitable (a) if the Change in Control occurs less
than two years after the date of grant for such Outstanding
Award, on a pro-rata basis (i) based on actual service during
the vesting period with respect to any time-based Outstanding
Award and (ii) based on actual service during the performance
period with respect to the greater of the target opportunity or
actual results for any performance-based Outstanding Award,
and (b) if the Change in Control occurs two years or more after
the date of grant for such Outstanding Award, (i) on a pro-rata
basis based on actual service during the vesting period with
respect to any time-based Outstanding Award and (ii) with
respect to 100% of the greater of the target opportunity or
actual results for any performance-based Outstanding Award.
16.2 Double Trigger Treatment. If, subsequent to receiving a
Replacement Award in accordance with Section 16.1, the
Participants employment with the Company or any of its
subsidiaries (or their successors in the Change in Control) is
terminated within a period of two years after the Change in
Control either (a) by the Participant for Good Reason or (b) by
the Company, such subsidiary or such successor (as applicable)
other than for Cause, then the Replacement Award will vest
or become immediately exercisable and/or nonforfeitable with
respect to 100% of any time-based Replacement Award and
with respect to 100% of the greater of the target opportunity
or actual results for any performance-based Replacement
Award (an Accelerated Replacement Award). For purposes
of Article 16, Replacement Award, Good Reason and
Cause will be used as dened in the applicable Agreement.
Outstanding Awards and Accelerated Replacement Awards shall
become payable at such time as specied under the terms and
conditions of the applicable Agreement (or agreement for such
Accelerated Replacement Awards) except that, to the extent
that such Outstanding Awards or Accelerated Replacement
Awards are exempt from Section 409A of the Code under
the short-term deferral rule, payment for such Outstanding
Awards or Accelerated Replacement Awards shall be made
not later than 2-1/2 months after the year in which they are
no longer subject to substantial risk of forfeiture.
ANNEX A
Article 17 - Miscellaneous Provisions
17.1 Restrictions on Shares. All certicates for Shares delivered
under the Plan shall be subject to such stop-transfer orders
and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange
upon which the Shares are then listed and any applicable
federal or state laws, and the Committee may cause a legend
or legends to be placed on any such certicates to make
appropriate reference to such restrictions. In making such
determination, the Committee may rely upon an opinion of
counsel for the Company.
Notwithstanding any other provision of the Plan, the Company
shall have no liability to deliver any Shares under the Plan or
make any other distribution of the benets under the Plan
unless such delivery or distribution would comply with all
applicable laws (including, without limitation, the requirements
of the Securities Act of 1933), and the applicable requirements
of any securities exchange or similar entity.
17.2 Rights of Stockholder. Except as otherwise provided in Article
7 of the Plan or in the applicable Restricted Stock Agreement,
each Participant who receives an Award of Shares of Restricted
Stock shall at all times have all of the rights of a stockholder with
respect to such Shares, including but not limited to the right
to vote the Shares to the extent, if any, such Shares possess
voting rights and receive dividends and other distributions.
No Participant awarded an Option or Stock Appreciation
Right shall have any right as a stockholder with respect to
any Shares covered by such Award (including but not limited
to the right to vote the Shares) prior to the date on which
the Participant becomes the record holder of such Shares.
Except as provided otherwise in the Plan or in an Agreement,
no Participant awarded a Stock Award, Restricted Stock
Unit, Performance Share or Performance Unit shall have any
right as a stockholder with respect to any Shares covered by
such Award (including but not limited to the right to vote the
Shares) prior to the date on which the Participant becomes
the record holder of such Shares.
17.3 No Implied Rights. Nothing in the Plan or any Agreement shall
confer upon any Participant any right to continue in the service
of the Employer, or to serve as a Director thereof, or interfere in
any way with the right of the Employer to terminate his or her
employment or other service relationship at any time and for
any reason. Unless agreed by the Board, no Award granted
under the Plan shall be deemed salary or compensation
for the purpose of computing benets under any employee
benet plan, severance program, or other arrangement of the
Employer for the benet of its employees. No Participant shall
have any claim to an Award until it is actually granted under
the Plan. To the extent that any person acquires a right to
receive payments from the Company under the Plan, such
right shall, except as otherwise provided by the Committee,
be no greater than the right of an unsecured general creditor
of the Company.
17.4 Compliance with Laws. At all times when the Committee
determines that compliance with Code section 162(m) is
required or desirable, all Awards granted under this Plan to
Covered Employees shall comply with the requirements of
Code section 162(m). In addition, in the event that changes
are made to Code section 162(m) to permit greater exibility
with respect to any Awards under the Plan, the Committee
may, subject to the requirements of Article 15, make any
adjustments it deems appropriate. The Plan and the grant
of Awards shall be subject to all applicable federal and state
laws, rules, and regulations and to such approvals by any
United States government or regulatory agency as may be
required. Any provision herein relating to compliance with Rule
16b-3 under the Act shall not be applicable with respect to
participation in the Plan by Participants who are not Insiders.
17.5 Compliance with Code Section 409A. At all times, this Plan shall
be interpreted and operated (i) with respect to 409A Awards
in accordance with the requirements of Code section 409A,
and (ii) to maintain the exemptions from Code section 409A of
Options, SARs and Restricted Stock and any Awards designed
to meet the short-term deferral exception under Code section
409A. To the extent there is a conict between the provisions
of the Plan relating to compliance with Code section 409A
and the provisions of any Agreement issued under the Plan,
the provisions of the Plan control. Moreover, any discretionary
authority that the Committee may have pursuant to the Plan
shall not be applicable to a 409A Award to the extent such
discretionary authority would conict with Code section 409A.
In addition, to the extent required to avoid a violation of the
applicable rules under Code section 409A by reason of Code
section 409A(a)(2)(B)(i), any payment under an Award shall
be delayed until the earliest date of payment that will result
in compliance with the rules of Code section 409A(a)(2)(B)
(i) (regarding the required six-month delay for distributions
to specied employees that are related to a separation from
service). To the extent that a 409A Award provides for payment
upon the recipients termination of employment as an employee
or cessation of service as a Director, the 409A Award shall be
deemed to require payment upon the individuals separation
from service within the meaning of Code section 409A. In
the event that an Award shall be deemed not to comply with
Code section 409A, then neither the Company, the Board
of Directors, the Committee nor its or their designees or
agents, nor any of their afliates, assigns or successors (each
a protected party) shall be liable to any Award recipient or
other person for actions, inactions, decisions, indecisions or
any other role in relation to the Plan by a protected party if
made or undertaken in good faith or in reliance on the advice
of counsel (who may be counsel for the Company), or made
or undertaken by someone other than a protected party.
17.6 Deferrals for Code Section 162(m). The Committee, in
its discretion, may defer the payment of an Award, if
such payment would cause the annual remuneration of
ANNEX A
a Participant, who is subject to the requirements of Code
section 162(m), to be nondeductible because it exceeds
$1,000,000 (or such other amount allowed under Code
section 162(m) as a deduction). Any such deferral shall
be clearly and expressly provided for by the Committee
and, in the case of 409A Awards, shall be subject to the
limitations set forth in the next sentence. Any such deferral
(i) shall be until the earlier of (A) the Participants separation
from service (within the meaning of Code section 409A and
subject to the last sentence of Section 16.5 above in the
case of a specied employee), or (B) the next succeeding
year (or years) in which the deduction of the payment will
not be barred by application of Code section 162(m), (ii)
is conditioned on all payments to similarly situated Award
Recipients being treated in a reasonably consistent manner,
(iii) is conditioned on all payment to the Award recipient
that could also be deferred on the basis of nondeductibility
under Code section 162(m) being similarly delayed, and (iv)
shall not be applied to payments under Options and SARs.
17.7 Successors. The terms of the Plan and all outstanding Awards
shall be binding upon the Company, and its successors and
assigns.
17.8 Tax Elections. Each Participant agrees to promptly give the
Committee a copy of any election made by such Participant
under Code section 83(b) or any similar provision thereof.
Notwithstanding the preceding sentence, the Committee
may condition any Award on the Participant making or not
making an election under Code section 83(b) with respect
to the Award.
17.9 No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award; in the discretion
of the Committee, the Company shall forfeit the value of
fractional shares or make cash payments in lieu of fractional
Shares.
17.10 Delivery of Title. The Company shall have no obligation to
issue or deliver evidence of title for Shares under the Plan
prior to:
(a) Obtaining any approvals from governmental agencies
that the Company determines are necessary or advisable;
and
(b) Completing any registration or other qualication of the
Shares under any applicable national or foreign law or
ruling of any governmental body that the Company
determines are necessary or advisable.
17.11 Inability to Obtain Authority. The inability of the Company (after
reasonable efforts) to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the
Companys counsel to be necessary to the lawful issuance
and/or sale of any Awards or Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue
an/or sell such Awards or Shares as to which such requisite
authority shall not have been obtained.
17.12 Uncerticated Shares. To the extent that the Plan provides for
issuance of certicates to reect the transfer of Shares, the
transfer of such Shares may be effected on a noncerticated
basis, to the extent not prohibited by applicable law or the
rules of any stock exchange.
17.13 Legal Construction.
(a) Severability. If any provision of this Plan or an Agreement is
or becomes or is deemed invalid, illegal or unenforceable
in any jurisdiction, or would disqualify the Plan or any
Agreement under any law deemed applicable by the
Committee, such provision shall be construed or deemed
amended to conform to applicable laws or if it cannot
be construed or deemed amended without, in the
determination of the Committee, materially altering the
intent of the Plan or the Agreement, it shall be stricken
and the remainder of the Plan or the Agreement shall
remain in full force and effect.
(b) Gender and Number. Where the context admits, words
in any gender shall include the other gender, words in the
singular shall include the plural and words in the plural
shall include the singular.
(c) Governing Law. To the extent not preempted by federal
law, the Plan and all Agreements hereunder shall be
construed in accordance with and governed by the
laws of the State of New York, excluding any conicts
or choice or law rule or principle that might otherwise
refer construction or interpretation of the Plan or the
Agreement (as applicable) to the substantive law of
any other jurisdiction. Unless otherwise provided in
the applicable Agreement, the recipient of an Award is
deemed to submit to the exclusive jurisdiction and venue
of the Federal and state courts of New York to resolve
any and all issues that may arise out of or relate to the
Plan or such Agreement.
IN WITNESS WHEREOF, this Plan is executed this ___ day of ____________, 2013.
STARWOOD HOTELS &
RESORTS WORLDWIDE, INC
ATTEST By:
Secretary Authorized Ofcer
ANNEX A
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2012
OR
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from to
Commission File Number: 1-7959
(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.)
One StarPoint
Stamford, CT 06902
(Address of principal executive
offices, including zip code)
(203) 964-6000
(Registrants telephone number,
including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
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 No
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 No
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 No
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 registrants 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.
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 definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of the last business day of the registrants most recently completed second fiscal quarter, June 30, 2012, the aggregate market value of the
registrants voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the closing sales price as
quoted on the New York Stock Exchange was approximately $10.4 billion.
As of February 11, 2013, the registrant had 193,718,203 shares of common stock outstanding.
Documents Incorporated by Reference:
Document Where Incorporated
Proxy Statement Part III (Items 10, 11, 12, 13 and 14)
TABLE OF CONTENTS
Page
PART I
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations . . . 24
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . . 50
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Item 13. Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . . . 53
Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
PART IV
Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
This Annual Report is filed by Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the
Corporation). Unless the context otherwise requires, all references to we, us, our, Starwood, or the
Company refer to the Corporation and include those entities owned or controlled by the Corporation.
PART I
Forward-Looking Statements
This Annual Report contains statements that constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements are any statements other than
statements of historical fact, including 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. In some cases, forward-
looking statements can be identified by the use of words such as may, will, expects, should, believes,
plans, anticipates, estimates, predicts, potential, continue, or other words of similar meaning. Such
forward-looking statements appear in several places in this Annual Report, including, without limitation, Item 1.
Business and Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
All forward-looking statements involve risks and uncertainties that could cause actual results to differ materially
from those discussed in, or implied by, the forward-looking statements including, without limitation, the risks
and uncertainties disclosed under Item 1A. Risk Factors. We caution readers that any such statements are based
on currently available operational, financial and competitive information, and they should not place undue
reliance on these forward-looking statements, which reflect managements opinion only as of the date on which
they were made. Except as required by law, Starwood undertakes no obligation to publicly update or revise any
forward-looking statements to reflect current or future events or circumstances.
Item 1. Business
General
We are one of the largest hotel and leisure companies in the world, with 1,134 properties in nearly
100 countries and 171,000 employees at our owned and managed properties. We conduct our hotel and leisure
business both directly and through our subsidiaries. We boast one of the industrys leading loyalty programs,
Starwood Preferred Guest (SPG), allowing members to earn and redeem points for room stays, room upgrades
and flights, with no blackout dates. We also own Starwood Vacation Ownership, Inc., a premier provider of
world-class vacation experiences through villa-style resorts and privileged access to Starwood brands.
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. We consider our hotels and resorts, including vacation ownership resorts
(together Hotels), 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 attributable to age, condition of facilities, and style can adversely affect our Hotels, we and the
third-party owners of managed and franchised Hotels expend substantial funds to renovate and maintain our
facilities in order to remain competitive. For further information see Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources in this Annual
Report.
Our hotel business emphasizes the global operation of hotels and resorts primarily in the luxury and upscale
segments of the lodging industry. We seek to acquire management or franchise rights with respect to, or interests
in, properties in these segments. At December 31, 2012, our hotel business included 1,121 owned, managed or
franchised hotels with approximately 328,000 rooms, comprising 53 hotels that we own or lease or in which we
have a majority equity interest, 547 hotels managed by us on behalf of third-party owners (including entities in
which we have a minority equity interest) and 521 hotels for which we receive franchise fees. Additionally, our
vacation ownership and residential business included 13 stand-alone vacation ownership resorts and residential
properties at December 31, 2012. All brands (other than the Four Points by Sheraton and the Aloft
1
and Element brands) represent full-service properties that range in amenities from luxury hotels 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.
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, 2012:
Number of
Properties Rooms
Managed and unconsolidated joint venture hotels . . . . . . . . . . . . . . . . . . . . . . . 547 183,000
Franchised hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 521 127,700
Owned hotels
(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 17,300
Vacation ownership resorts and stand-alone properties . . . . . . . . . . . . . . . . . . . 13 7,400
Total properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,134 335,400
(a) Includes wholly owned, majority owned and leased hotels.
Number of
Properties Rooms
North America (and Caribbean) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 576 181,100
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 39,700
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 77,800
Africa and the Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 21,100
Latin America (and Mexico) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 15,700
Total properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,134 335,400
On July 1, 2012, we completed an internal management reorganization related to our former hotel segment.
Whereas our hotel business had previously been included in a single reportable segment, as a result of this
reorganization, these results are now segregated into three separate hotel segments: (i) the Americas, (ii) Europe,
Africa and the Middle East (EAME), and (iii) Asia Pacific. The vacation ownership and residential business
remains a separate segment. Note 26 to the consolidated financial statements presents further information about
our segments.
For a discussion of our revenues, profits, assets and reportable segments, see our consolidated financial
statements of this Annual Report, including the notes thereto.
The Corporation was incorporated in 1980 under the laws of Maryland. Sheraton and Westin, Starwoods
largest brands, have been serving guests for more than 60 years. Starwood Vacation Ownership (and its
predecessor, Vistana, Inc.) has been selling vacation ownership interests (VOIs) for more than 30 years.
Our principal executive offices are located at One StarPoint, Stamford, Connecticut 06902, and our
telephone number is (203) 964-6000.
Hotel Business
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. We believe 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 2012, we opened 68 managed and franchised hotels with approximately
17,500 rooms, and 20 managed and franchised hotels with approximately 4,200 rooms exited our system.
2
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 and
international 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,
2012, we managed 547 hotels with approximately 183,000 rooms worldwide.
During the year ended December 31, 2012, we generated management fees by geographic area as follows:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.5%
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.5%
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8%
Middle East and Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.7%
Latin America, Caribbean & Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0%
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, national and international advertising and
sales and marketing. 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,
2012, we opened 41 managed hotels with approximately 12,500 rooms, and 11 managed hotels with
approximately 2,400 rooms exited our system. In addition, during 2012, we signed management agreements for
79 hotels with approximately 21,600 rooms, a small portion of which opened in 2012 and the majority of which
will open in the future.
Brand Franchising and Licensing. We franchise our Luxury Collection, Westin, Le Mridien, Sheraton,
Four Points by Sheraton, Aloft and Element brand names and generally derive licensing and other fees from
franchisees based on a fixed percentage of the franchised hotels room revenue, as well as fees for other services,
including centralized reservations, national and international advertising and sales and marketing. In addition, a
franchisee may purchase hotel supplies, including brand-specific products, from certain Starwood-approved
vendors. We also review certain plans for, and the location of, franchised hotels and review their design. At
December 31, 2012, there were 521 franchised properties with approximately 127,700 rooms.
During the year ended December 31, 2012, we generated franchise fees by geographic area as follows:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69.9%
Latin America, Caribbean & Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6%
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.0%
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.0%
Middle East and Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0%
In addition to the franchise contracts we retained in connection with the sale of hotels during the year ended
December 31, 2012, we opened 27 franchised hotels with approximately 5,000 rooms, and 9 franchised hotels
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with approximately 1,800 rooms exited our system. In addition, during 2012 we signed franchise agreements for
52 hotels with approximately 8,900 rooms, a portion of which opened in 2012 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 the hotels in North America. However, beginning in 2006, we embarked
upon a strategy of selling a significant number of hotels. The majority of these hotels were sold subject to long-
term management or franchise contracts. Total revenues generated from our owned, leased and consolidated joint
venture hotels worldwide for the years ending December 31, 2012, 2011 and 2010 were $1.698 billion,
$1.768 billion and $1.704 billion, respectively (total revenues from our owned, leased and consolidated joint
venture hotels in North America were $956 million, $1.001 billion and $1.067 billion for 2012, 2011 and 2010,
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 years ended December 31, 2012 and
2011:
Top Five Domestic Markets in the United States as a % of Total Owned
Revenues for the Years Ended December 31, 2012 and 2011
(1)
2012 2011
Metropolitan Area Revenues Revenues
New York, NY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.9% 12.4%
Hawaii . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7% 6.1%
Phoenix, AZ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6% 5.3%
San Francisco, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6% 4.1%
Atlanta, GA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1% 3.6%
(1) Includes the revenues of hotels sold for the period prior to their sale.
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 years ended December 31, 2012 and 2011:
Top Five International Markets as a % of Total Owned
Revenues for the Years Ended December 31, 2012 and 2011
(1)
2012 2011
Country Revenues Revenues
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4% 11.0%
Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7% 7.4%
Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1% 5.9%
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.0% 4.9%
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6% 4.2%
(1) Includes the revenues of hotels sold for the period prior to their sale.
During the years ended December 31, 2012 and 2011, we invested approximately $315 million and
$283 million, respectively, for capital expenditures at owned hotels. These capital expenditures included
renovation costs at The Westin Peachtree Plaza in Atlanta, GA, the Sheraton Kauai Resort in Koloa, HI, the Aloft
San Francisco Airport in San Francisco, CA, the Four Points by Sheraton Tucson University in Tucson, AZ, the
Hotel Alfonso XIII in Seville, Spain, the Hotel Maria Cristina in San Sebastian, Spain and the Hotel Gritti Palace
in Venice, Italy.
As discussed above, we have implemented a strategy of reducing our investment in owned real estate and
increasing our focus on the management and franchise business. Since 2006, we have sold 73 hotels realizing
cash proceeds of approximately $6.1 billion in numerous transactions, including gross cash proceeds of
approximately $542 million from the sale of eight hotels during the year ended December 31, 2012. As a result,
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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
system, 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.
Following the sale of a significant number of our hotels in the past few years, as of December 31, 2012, we
own or lease 53 hotels as follows:
Hotel Location Rooms
U.S. Hotels:
The St. Regis Hotel, San Francisco San Francisco, CA 260
The St. Regis Bal Harbour Resort Bal Harbour, FL 243
The St. Regis New York New York, NY 229
The Phoenician, Scottsdale Scottsdale, AZ 643
W New York Times Square New York, NY 509
W New Orleans New Orleans, LA 410
W New Orleans French Quarter New Orleans, LA 98
The Westin Peachtree Plaza, Atlanta Atlanta, GA 1,068
The Westin Maui Resort & Spa, Kaanapali Maui, HI 759
The Westin San Francisco Airport San Francisco, CA 397
The Westin St. John Resort & Villas St. John, Virgin Islands 175
Sheraton Kauai Resort Koloa, HI 394
Sheraton Suites Philadelphia Airport Philadelphia, PA 251
Sheraton Steamboat Resort Steamboat Springs, CO 208
Aloft San Francisco Airport Millbrae, CA 252
Aloft Lexington
(a)
Lexington, MA 136
Aloft Philadelphia Airport Philadelphia, PA 136
Element Lexington
(a)
Lexington, MA 123
Four Points by Sheraton Philadelphia Airport Philadelphia, PA 177
Four Points by Sheraton Tucson University
(b)
Tucson, AZ 150
The Tremont Chicago Hotel at Magnificent Mile Chicago, IL 135
(a) These hotels were classified in assets held for sale, net, as of December 31, 2012, and we completed the sale
of these hotels in January 2013 (see Note 6).
(b) As of December 31, 2012, this hotel is undergoing a conversion to the Aloft Tucson University.
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International Hotels: Location Rooms
St. Regis Grand Hotel, Rome Rome, Italy 161
St. Regis Osaka Osaka, Japan 160
St. Regis Florence Florence, Italy 100
Park Tower, Buenos Aires Buenos Aires, Argentina 181
Hotel Alfonso XIII, Seville Seville, Spain 151
Hotel Imperial, Vienna Vienna, Austria 138
Hotel Maria Cristina, San Sebastian San Sebastian, Spain 136
Hotel Goldener Hirsch, Salzburg Salzburg, Austria 69
Hotel Gritti Palace, Venice Venice, Italy 90
W Barcelona Barcelona, Spain 473
W London Leicester Square London, England 192
The Westin Resort & Spa Cancun Cancun, Mexico 379
The Westin Excelsior, Rome Rome, Italy 316
The Westin Resort & Spa, Puerto Vallarta Puerto Vallarta, Mexico 280
The Westin Denarau Island Resort Nadi, Fiji 273
The Westin Resort & Spa, Los Cabos Los Cabos, Mexico 243
The Westin Excelsior, Florence Florence, Italy 171
The Westin Dublin Dublin, Ireland 163
Sheraton Centre Toronto Hotel Toronto, Canada 1,377
Le Centre Sheraton Montreal Hotel Montreal, Canada 825
Sheraton Maria Isabel Hotel & Towers Mexico City, Mexico 755
Sheraton Buenos Aires Hotel & Convention Center Buenos Aires, Argentina 742
Sheraton on the Park Sydney, Australia 557
Sheraton Rio Hotel & Resort Rio de Janeiro, Brazil 542
Sheraton Gateway Hotel in Toronto International Airport Toronto, Canada 474
Sheraton Lima Hotel & Convention Center Lima, Peru 431
The Park Lane Hotel, London London, England 303
Sheraton Fiji Resort Nadi, Fiji 264
Sheraton Paris Airport Hotel & Conference Centre Paris, France 252
Sheraton Ambassador Hotel Monterrey, Mexico 229
Sheraton Diana Majestic Hotel, Milan Milan, Italy 106
Sheraton Santa Maria de El Paular Rascafria, Spain 44
Vacation Ownership and Residential Business
Our revenues and earnings are also derived from the development, ownership and operation of vacation
ownership resorts, marketing and selling VOIs in the resorts and providing financing to customers who purchase
such interests. Generally these resorts are marketed under our brand names. Additionally, our revenues 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.
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, 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 the receivables generated from our sale of VOIs.
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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, 2012, we had 22 owned vacation ownership resorts (including 13 stand-alone, eight
mixed-use and one unconsolidated joint venture) in the United States, Mexico and the Bahamas. In addition, we
had one wholly-owned residential development in Bal Harbour, FL. At December 31, 2012, we were actively
selling VOIs and residences at 18 sites in our portfolio.
In late 2011, we completed the development of a wholly-owned residential project at the St. Regis Bal
Harbour Resort in Bal Harbour, FL (St. Regis Bal Harbour) and are in the process of selling residential units.
During the year ended December 31, 2012, we closed sales of 188 units. From project inception through
December 31, 2012, we have closed contracts and recognized revenue on 224 units representing approximately
73% of the total residential units.
During 2012 and 2011, we invested approximately $85 million and $221 million, respectively, for vacation
ownership and residential capital expenditures, including construction at the St. Regis Bal Harbour, Westin
Desert Willow in Palm Desert, CA, Westin Lagunamar Ocean Resort in Cancun, as well as capital expenditures
at the Sheraton Vistana Resort in Orlando, FL.
Our Brands
Through our brands, we are well represented in most major markets around the world. The following table
reflects our hotel and vacation ownership properties, by brand, as of December 31, 2012:
Hotels,
VOI and Residential
(a)
Properties Rooms
St. Regis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 6,400
Luxury Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 16,400
W . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 12,400
Westin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 74,600
Le Mridien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 25,400
Sheraton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427 149,800
Four Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 30,900
Aloft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 9,900
Element . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1,600
Independent / Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,134 335,400
(a) Includes vacation ownership properties of which 13 are stand-alone, eight are mixed-use and one is an
unconsolidated joint venture totaling rooms of 7,400.
Our brand names include the following:
St. Regis
(luxury full-service hotels, resorts and residences) is for connoisseurs who desire the finest
expressions of luxury. They provide flawless and bespoke service to high-end leisure and business travelers. St.
Regis hotels are located in the ultimate locations within the worlds 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
7
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) is where iconic design and cutting-edge
lifestyle set the stage for exclusive and extraordinary experiences. Each hotel and retreat is uniquely inspired by
its destination, where innovative design converges with local influences to create energizing spaces for guests to
play or work by day or mix and mingle by night. Guests are invited into dynamic environments that combine
entertainment, vibrant lounges, modern guestrooms, and innovative cocktail culture and cuisine. The beats per
minute increase as the day transitions to night, amplifying the scene in every W Living Room for guests to
socialize and see and be seen. W Hotels Worldwide, a global design powerhouse brought to life through W
Happenings, exclusive partnerships and the signature Whatever/Whenever
service philosophy that grants its

guests and local community access to whats new and next.
Westin
(luxury and upscale full-service hotels, resorts and residences) provides innovative programs and
instinctive services which transform every aspect of a guests stay into a revitalizing experience. Indulge in a
deliciously wholesome menu including exclusive SuperFoodsRx
dishes. Energize in the fitness studio with the

industry-leading WestinWORKOUT
. Revive in the Heavenly
Bath where luxurious touches create a spa-like

experience. And of course, experience truly restorative sleep in the world-renowned Heavenly
Bedan oasis of
lush sheets, down, and patented pillow-top mattress. Whether an epic city center location or refreshing resort
destination, Westin ensures guests leave feeling better than when they arrived. Westin. For A Better You.
Le Mridien
(luxury and upscale full-service hotels, resorts and residences) is a Paris-born hotel brand,
currently represented by 96 properties in 41 countries worldwide. Le Mridien aims to target the creative mind:
an audience inspired by creativity who are eager to learn something new and see things in a different light. A
curated approach towards the arts connects Le Mridien with the creative mind in an authentic and credible way.
A cultural curator was engaged, responsible for integrating the arts into the guest experience and identifying the
appropriate creative talents, a family of cultural innovators, LM100
TM
, to define and enrich the guest experience
through their dedicated tailor-made creations. This esteemed group comprises of a global array of visionaries,
from painters to photographers, musicians to designers and chefs. Le Mridien is more than a hotel, its a way of
life that provides A New Perspective.
Sheraton
(luxury and upscale full-service hotels, resorts and residences) is our largest brand serving the
needs of business and leisure travelers worldwide. For over 75 years this iconic brand has welcomed guests,
becoming a trusted friend to travelers and one of the worlds 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. Our social spaces define and
differentiate Sheraton. The Link@Sheraton
SM
experienced with Microsoft is the heart of our lobby. Guests enjoy
the upside of everything with Sheraton Club, designed with SPG members in mind. Sheraton Fitness
programmed by Core Performance brings guests together as they train and eat healthy on the road. Sheraton
transcends lifestyles, generations and geographies and will continue to welcome generation after generation of
world travelers as The Worlds Gathering Place.
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). Its
the little indulgences that make their time away from home special.
Aloft
(select-service hotels) first opened in 2008. It opened its 62nd property in 2012. 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) first 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
8
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 todays world. Space to live your life.
Competition
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. We
believe 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). 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.
Intellectual Property
We operate in a highly competitive industry and our intellectual property, including brands, logos,
trademarks, service marks, and trade dress, is an important component of our business. The success of our
business depends, in part, on the increased recognition of our brands and our ability to further develop our brands
globally through the use of our intellectual property. To that end, we apply to register and renew our intellectual
property, enforce our rights against the unauthorized use of our intellectual property by third parties; and
otherwise protect our intellectual property through strategies and in jurisdictions where we reasonably deem
appropriate.
Environmental Matters
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 owners 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
9
those related to climate change, could affect the operation of our hotels and/or result in significant additional
expense and operating restrictions. 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
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.
Seasonality and Diversification
The hotel industry is seasonal in nature; however, the periods during which our properties experience higher
revenues 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.
Comparability of Owned Hotel Results
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 from owned,
leased and consolidated joint venture hotels.
Employees
At December 31, 2012, approximately 171,000 people were employed at our corporate offices, owned and
managed hotels and vacation ownership resorts, of which approximately 28% were employed in the
United States. At December 31, 2012, approximately 27% 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.
Where You Can Find More Information
We file an annual report on a Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports, a proxy statement and other information with the Securities and Exchange
Commission (SEC). Our SEC filings are available to the public over the internet at the SECs 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 (203) 351-3500.
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Item 1A. Risk Factors.
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:
changes in general economic conditions, including the severity and duration of downturns in the United
States, Europe and global economies;
impact of war and terrorist activity (including threatened terrorist activity) and heightened travel security
measures instituted in response thereto;
domestic and international political and geopolitical conditions;
travelers fears of exposures to contagious diseases;
decreases in the demand for transient rooms and related lodging services, including a reduction in
business travel as a result of general economic conditions;
decreases in demand or increases in supply for vacation ownership interests;
the impact of internet intermediaries on pricing and the value of our brands and our increasing reliance on
technology;
cyclical over-building in the hotel and vacation ownership industries;
restrictive changes in zoning and similar land use laws and regulations or in health, safety and
environmental laws, rules and regulations and other governmental and regulatory action;
changes in travel patterns;
changes in operating costs including, but not limited to, energy, labor costs (including the impact of
unionization), food costs, workers compensation and health-care related costs, insurance and
unanticipated costs such as acts of nature and their consequences;
the costs and administrative burdens associated with compliance with applicable laws and regulations,
including, among others, franchising, timeshare, privacy, licensing, accessibility and labor and
employment;
disputes with owners of properties, including condominium hotels, franchisees and homeowner
associations which may result in litigation, and non-compliance with insurance and other requirements by
such owners;
the availability and cost of capital to allow us and hotel owners and franchisees to fund construction,
renovations and investments;
foreign exchange fluctuations;
the financial condition of third-party owners, project developers and franchisees, which may impact our
ability to recover indemnity payments that may be owed to us and their ability to fund amounts required
under development, management and franchise agreements and in most cases our recourse is limited to
the equity value said party has in the property;
the financial condition of the airline industry and the impact on air travel; and
regulation or taxation of carbon dioxide emissions by airlines and other forms of transportation.
If We Are Unable to Maintain Existing Management and Franchise Agreements or Obtain New
Agreements on as Favorable Terms, Our Operating Results May Be Adversely Affected. We are impacted by
our relationships with hotel 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
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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 common to hotel industries described above. Factors outside of our control, such as the current
European sovereign debt crisis, could also have a significant negative impact on the financial condition and
viability of our hotel property owners. Additionally, the nature of responsibilities under these management and
franchise arrangements may give rise to disagreements with the property owners, making it difficult to maintain
positive relationships with current and potential hotel owners and franchisees. Consequently, 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 and Our Third Party Licensees May Not Be Able to Sell Residential Properties Using Our Brands for
a Profit or at Anticipated Prices. 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 Has Impacted and
May Continue to Impact Our Financial Results and Growth. The recent economic recession and economic
uncertainty in the United States, Europe and much of the rest of the world 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. 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 (and despite the stabilization in lodging that began in 2010), 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 25 of the consolidated financial statements.
Moreover, many businesses, particularly financial institutions and pharmaceutical companies, face
restrictions on the ability to travel and hold conferences or events at resorts and luxury hotels. These restrictions
as well as negative publicity associated with such companies holding large conference and corporate events has
resulted in reduced corporate bookings that could impact our financial results in the future.
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, ranging from national and international hotel brands to independent, local
and regional hotel operators, and, with respect to our vacation ownership resorts and residential projects, with
owners reselling their VOIs, including fractional ownership, or apartments. We compete based on a number of
factors, including quality and consistency of rooms, restaurant and meeting facilities and services, attractiveness
of locations, availability of a global distribution system, price, and the ability to earn and redeem loyalty program
points. Some of our competitors may have substantially greater marketing and financial resources than we do,
and if we are unable to successfully compete in these areas, our operating results could be adversely affected.
Moreover, our present growth strategy for development of additional lodging facilities entails entering into and
maintaining various management agreements, franchise agreements, and leases with property owners. We compete
with other hotel companies for this business primarily on the basis of fees, contract terms, brand recognition, and
reputation. In connection with entering into these agreements, we may be required to make investments in, or
guarantee the obligations of, third parties or guarantee minimum income to third parties. 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.
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Our Businesses Are Capital Intensive and the Failure to Make Necessary Investments Could Adversely
Affect the Quality and Reputation of Our Brands. 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, act in accordance with applicable brand
standards or project a consistent brand image could adversely affect the quality and reputation of our brands.
Moreover, third party owners or franchisees may be unwilling or unable to incur the cost of complying with
brand standards for new and existing brands as such brands may evolve from time to time. If the reputation or
perceived quality of our brands declines, our market share, reputation, business, financial condition or results of
operations could be affected.
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. From time to time, we apply to have certain trademarks registered
and there is no guarantee that such trademark registrations will be granted. Further, 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. 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.
Our Dependence on Hotel and Resort Development Exposes Us to Timing, Budgeting and Other Risks.
We intend to participate in the development of 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:
construction delays or cost overruns that may increase project costs;
receipt of zoning, occupancy and other required governmental permits and authorizations;
development costs incurred for projects that are not pursued to completion;
so-called acts of God such as earthquakes, hurricanes, floods or fires that could adversely impact a
project;
defects in design or construction that may result in additional costs to remedy or require all or a portion of
a property to be closed during the period required to rectify the situation;
ability to raise capital; and
governmental restrictions on the nature or size of a project or timing of completion.
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.
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International Operations Are Subject to Unique Political and Monetary Risks. We have significant
international operations which as of December 31, 2012 included 164 owned, managed or franchised properties
in Europe (including 16 properties with majority ownership); 80 managed or franchised properties in Africa and
the Middle East; 71 owned, managed or franchised properties in Latin America (including nine properties with
majority ownership); and 243 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 difficulties involved
in managing an organization doing business in many different countries, exposure to local economic conditions,
potential adverse changes in the diplomatic relations between foreign countries and the United States, including
the threat of international boycott or U.S. anti-boycott legislation, hostility from local populations, including the
risk of war, acts of terrorism and civil unrest, restrictions on the repatriation of non-U.S. earnings and withdrawal
of foreign investments, restriction on the ability to pay dividends and remit earnings to affiliated companies,
uncertainty as to the enforceability of contractual rights and intellectual property rights under local law, conflicts
between local law and United States law and compliance with complex and changing laws, regulations and
policies. 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.
Additionally, our current growth strategy is heavily dependent upon growth in international markets. As of
December 31, 2012, 85% of our pipeline represented growth outside North America. Further, 60% of our
pipeline represents new properties in Asia Pacific and 44% represents new growth in China alone. 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 Expedia.com
, Orbitz.com
,
Booking.com
, and CTrip.com
, as well as lesser-known online travel service providers. 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 importance of price and general indicators of quality
(such as three-star downtown hotel) at the expense of brand identification. Over time, consumers may develop
loyalties to these third party internet reservations systems rather than to our lodging brands. Although we expect
to derive most of our business from traditional channels and our websites, our business and profitability could be
adversely affected if customer loyalties significantly shift from our lodging brands to their travel services,
diverting bookings away from our websites, or through their fees increasing the overall cost of internet bookings
for our hotels.
In addition, recent class action litigation against several online travel intermediaries and lodging companies,
including Starwood, challenges the legality under antitrust law of certain provisions in contracts with third party
intermediaries. While the company is vigorously defending the litigation and believes the contract provisions are
lawful, the courts will ultimately determine this issue and an adverse outcome could force us to alter our business
arrangements with these third parties and could have a negative impact on our financial condition and results of
operations.
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, revenue management 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.
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Disasters, Disruptions and Other Impairment of Our Information Technologies and Systems Could
Adversely Affect our Business. Our business involves the processing, use, storage and transmission of personal
information regarding our employees, customers, hotel owners, and vendors for various business purposes,
including marketing and promotional purposes. The protection of personal as well as proprietary information is
critical to us. We are subject to numerous laws and regulations designed to protect personal information,
including Member State implementation of the European Union Directive on Data Protection and various U.S.
federal and state laws. We have established policies and procedures to help protect the privacy and security of
our information. However, every year the number of laws and regulations continues to grow, as does the
complexity of such laws. Further, privacy regulations, 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.
We are dependent on information technology networks and systems to process, transmit and store
proprietary and personal information, and to communicate among our various locations around the world, which
may include our reservation systems, vacation exchange systems, hotel/property management systems, customer
and employee databases, call centers, administrative systems, and third party vendor systems. The complexity of
this infrastructure contributes to the potential risk of security breaches. We rely on the security of our information
systems and, those of our vendors and other authorized third parties, to protect our proprietary and personal
information.
Despite our efforts, information networks and systems may be vulnerable to threats such as system, network
or internet failures; computer hacking or business disruption; cyber-terrorism; viruses, worms or other malicious
software programs; employee error, negligence, fraud, or misuse of systems; or other unauthorized attempts by
third parties to access, modify or delete our proprietary and personal information. Although we have taken steps
to address these concerns by implementing network security and internal controls, there can be no assurance that
a system failure, unauthorized access, or breach will not occur.
Any compromise of our networks or systems, public disclosure, or loss of personal or proprietary
information, non-compliance with contractual or legal obligations regarding personal information, or a violation
of a privacy or security policy pertaining to personal information could result in a disruption to our operations;
damage to our reputation and a loss of confidence from our customers or employees; legal claims or proceedings,
liability under laws that protect personal information, regulatory penalties, potentially resulting in significant
monetary damages, regulatory enforcement actions, fines, and/or criminal or civil prosecution in one or more
jurisdictions; and subjecting us to additional regulatory scrutiny, or additional costs and liabilities which could
have a material adverse effect on our business, operations or financial condition.
Significant Owners of Our Properties May Concentrate Risks. There is potential for a concentration of
ownership of hotels operated under our brands by any single owner. Following the acquisition of the Le Mridien
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. If an owner with a considerable portfolio of hotels were to leave our system, it may
have a significant impact in certain of our markets and on our financial condition and results of operations.
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
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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 owners
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 materials or wastes may be liable for the costs of extraction, 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 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.
We Could Be Adversely Affected by Violations of the U.S. Foreign Corrupt Practices Act and Similar Anti-
Corruption Laws. Our business operations in countries outside the United States are subject to anti-corruption laws
and regulations, including restrictions imposed by the Foreign Corrupt Practices Act (FCPA). The FCPA and
similar anti-corruption laws in other jurisdictions generally prohibit companies and their intermediaries from
making improper payments to government officials for the purpose of obtaining or retaining business. We operate in
many parts of the world that have experienced governmental corruption to some degree and, in certain
circumstances, strict compliance with anti-corruption laws may conflict with local customs and practices. We train
our employees concerning anti-corruption laws and issues, and also require our third-party business partners and
agents and others who work with us or on our behalf that they must comply with our anti-corruption policies. We
also have policies, procedures and controls in place to monitor internal and external compliance. We cannot provide
assurance that our internal controls and procedures will always protect us from the reckless or criminal acts
committed by our employees or third-parties with whom we work. If we are found to be liable for violations of the
FCPA or similar anti-corruption laws in international jurisdictions, either due to our own acts or out of inadvertence,
or due to the acts or inadvertence of others, we could suffer criminal or civil penalties which could have a material
and adverse effect on our results of operations, financial condition and cash flows.
Risks Relating to Operations in Syria and Other Countries Subject to Sanction Laws
From time to time, the United States may impose sanctions that prohibit U.S. companies from engaging in
business activities with certain persons or foreign countries or governments that it determines are adverse to U.S.
foreign policy interests.
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For example, the United States has issued an executive order that prohibits U.S. companies from engaging
in certain business activities with the government of Syria, a country that the United States has identified as a
state sponsor of terrorism. During fiscal 2012, a foreign subsidiary of Starwood generated less than $10,000 of
revenue from management and other fees from existing hotels located in Syria. This amount constitutes
significantly less than 1% of our worldwide annual revenues. We believe our activities in Syria are in full
compliance with U.S. and local law. At any time, the United States may impose additional sanctions against
Syria. If so, our existing activities in Syria may be adversely affected, or we may incur costs to respond to an
executive order, depending on the nature of any further sanctions that might be imposed.
In addition, in 2011 the United States issued an executive order that prohibited U.S. companies from
transacting with the government of Libya and certain entities and individuals associated with the former Gaddafi
regime. A foreign subsidiary of Starwood currently has a management contract for one hotel located in Libya, as
well as three hotels outside Libya that are indirectly owned by the government of Libya, and we believe our
activities in that country have been in compliance with U.S. law. Although the restriction was released following
the fall of the Gaddafi regime, the United States may impose additional sanctions against Libya at any time.
Further, our activities in countries that are subject to U.S. sanction laws or countries that have experienced
government corruption may reduce demand for our stock among certain investors. Any restrictions on
Starwoods ability to conduct its business operations across the world could negatively impact our financial
results.
Risks Relating to Debt Financing
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, Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity
and Capital Resources Cash Used for Financing Activities in this Annual Report.
Volatility in the Credit Markets May 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
17
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.
Risks Relating to So-Called Acts of God, Terrorist Activity and War
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. For example, in 2011, our hotels in Japan and Thailand experienced reduced
bookings as a result of the tsunami and flooding, respectively, in these countries. 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. In 2011, our hotels in Syria, Tunisia, Libya and Egypt experienced reduced
bookings as a result of the political climate in these countries. If these conditions do not improve, our financial
results could be negatively impacted.
Risks Related to Pandemic Diseases
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. 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.
Our Insurance Policies May Not Cover All Potential Losses
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), named windstorm 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.
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
18
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.
Our Acquisitions/Dispositions and Investments in New Brands May Ultimately Not Prove Successful and
We May Not Realize Anticipated Benefits
We consider corporate as well as property acquisitions and investments that complement our business. In
many cases, we compete 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.
Investing Through Partnerships or Joint Ventures Decreases Our Ability to Manage Risk
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 partners share of joint venture liabilities.
Our Vacation Ownership Business is Subject to Extensive Regulation and Risk of Default
We market and sell VOIs, which typically entitle the buyer to ownership of a fully-furnished resort unit for
a one-week period on either an annual or an alternate-year 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, states or other jurisdictions 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 jurisdictions in which we sell VOIs grant the purchaser
the right to rescind the purchase contract at any time within a statutory rescission period. Laws in some of the
jurisdictions would impose liability on us as the developer of the resort for certain construction related defects.
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.
19
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.
Risks Related to Our Dependence on Senior Management and Our Ability to Achieve Our Growth
Strategy
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. 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.
Tax Risks
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.
In most cases, where our hotel rooms are booked through third party internet travel intermediaries, 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. Tax authorities in several jurisdictions
have taken the position that the tax is also applicable to the intermediaries gross profit on these hotel
transactions. Tax authorities that take this position have generally sought the additional tax payments from the
intermediaries. It is possible, however, that certain tax authorities may also seek to collect the additional tax
payments from us. 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, either directly or as a result of intermediaries obligations to indemnify us. Nevertheless, it is
possible that we might have additional tax exposure and that we may not be able to collect these taxes from the
intermediaries or their customers. In such event, such actions could have a material adverse effect on our
business, results of operations and financial condition.
Risks Relating to Ownership of Our Shares
Our Board of Directors May Issue Preferred Stock and Establish the Preferences and Rights of Such
Preferred Stock. Our charter provides that the total number of shares of stock of all classes which the
Corporation has authority to issue is 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 stockholders, 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
20
in control would be in the interests of our stockholders. Since our Board of Directors has the power to establish
the preferences and rights of preferred shares without a stockholder 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 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. As permitted under the Maryland General Corporation Law, our Bylaws provide that directors have the
exclusive right to amend our Bylaws.
We Cannot Provide Assurance That We Will Continue to Pay Dividends. There can be no assurance that
we will continue to pay dividends. Our Board of Directors may suspend the payment of dividends if the Board
deems such action to be in the best interests of the Company or stockholders. If we do not pay dividends, the
price of our common stock must appreciate for you to realize a gain on your investment in the Company. This
appreciation may not occur and our stock may, in fact, depreciate in value.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
Our hotel properties and vacation ownership and residential business properties are described in Part I,
Item 1. Business, earlier in this report.
Our corporate headquarters are located at One StarPoint, Stamford, Connecticut, which lease expires in
February 2027. In addition to our corporate headquarters, we lease space for our divisional offices, service
centers and sales offices, both domestically and internationally.
We believe that our corporate headquarters and other leased space are in good condition and are sufficient
and suitable for the conduct of our business. In the event we need to expand our operations, we believe that
suitable space will be available on commercially reasonable terms.
Item 3. Legal Proceedings.
Information regarding Legal Proceedings is incorporated by reference from the Litigation section in Note
25, Commitments and Contingencies, of our consolidated financial statements set forth in Item 8. Financial
Statements and Supplementary Data of this Annual Report, which is incorporated herein by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information
Our common stock, par value $0.01 per share (Corporation Shares), is traded on the New York Stock
Exchange (the NYSE) under the symbol HOT.
21
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:
High Low
2012
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $58.48 $50.22
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $61.09 $48.37
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $60.81 $47.41
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $59.10 $48.23
2011
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $54.15 $35.78
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $59.45 $37.88
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $61.70 $50.87
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $65.51 $54.95
Approximate Number of Equity Security Holders
As of February 11, 2013, there were approximately 12,000 holders of record of Corporation Shares.
Dividends
We declared cash dividends to holders of Corporation Shares for the fiscal years ended December 31, 2012
and 2011 as follows:
Dividends
Declared
2012
Annual dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.25
(a)
2011
Annual dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.50
(b)
(a) We declared a dividend in the fourth quarter of 2012 to shareholders of record on December 14, 2012,
which was paid in December 2012.
(b) We declared a dividend in the fourth quarter of 2011 to shareholders of record on December 15, 2011,
which was paid in December 2011.
Conversion of Securities; Sale of Unregistered Securities
Units of SLC Operating Limited Partnership, our wholly-owned subsidiary, are convertible into Corporation
Shares at the unit holders option, provided that we have the option to settle conversion requests in cash or
Corporation Shares. At December 31, 2012 and 2011 there were approximately 158,000 and 159,000 of these
units outstanding, respectively.
Issuer Purchases of Equity Securities
During the year ended December 31, 2012, our Board of Directors authorized a $250 million increase to the
share repurchase program, and we repurchased 6.3 million common shares at an average price of $50.83 for a
total cost of approximately $320 million. As of December 31, 2012, $180 million remained available under the
share repurchase authorization.
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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
against the cumulative total return on the S&P 500 and the S&P Hotels, Resorts & Cruise Lines Index (the S&P
Hotel) for the five fiscal years beginning after December 31, 2007 and ending December 31, 2012. The graph
assumes that the value of the investments was $100 on December 31, 2007 and that all dividends and other
distributions were reinvested. The comparisons are provided in response to SEC disclosure requirements and are
not intended to forecast or be indicative of future performance.
2012 2011 2010 2009 2008 2007
D
O
L
L
A
R
S
Starwood
S&P 500
S&P Hotel
0
50
100
150
200
12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12
Starwood $100.00 42.70 87.71 146.50 116.83 142.74
S&P 500 $100.00 63.01 79.69 91.71 93.62 108.59
S&P Hotel $100.00 51.71 80.59 123.51 99.68 125.37
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Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with the information set forth under
Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations and our
consolidated financial statements and related notes thereto (the Notes) beginning on page F-1 of this Annual
Report.
Year Ended December 31,
2012 2011 2010 2009 2008
(In millions, except per share data)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,321 $5,624 $5,071 $4,696 $5,754
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 912 $ 630 $ 600 $ 26 $ 610
Income (loss) from continuing operations
(a)
. . . . . . . . . . . . . . . . . $ 470 $ 502 $ 310 $ (1) $ 249
Diluted earnings per share from continuing operations . . . . . . . . . $ 2.39 $ 2.57 $ 1.63 $ 0.00 $ 1.34
Cash from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,184 $ 641 $ 764 $ 571 $ 646
Cash from (used for) investing activities . . . . . . . . . . . . . . . . . . . . $ 126 $ (176) $ (71) $ 116 $ (172)
Cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,456) $ (755) $ (26) $ (993) $ (243)
Aggregate cash distributions paid . . . . . . . . . . . . . . . . . . . . . . . . . . $ 242 $ 99 $ 93 $ 165 $ 172
Cash distributions and dividends declared per Share . . . . . . . . . . . $ 1.25 $ 0.50 $ 0.30 $ 0.20 $ 0.90
(a) Amounts represent income from continuing operations attributable to Corporation Shares (i.e. excluding
non-controlling interests).
At December 31,
2012 2011 2010 2009 2008
(In millions)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,861 $9,560 $9,776 $8,761 $9,703
Long-term debt, net of current maturities . . . . . . . . . . . . . . . . . . . . $1,656 $2,596 $3,215 $2,955 $3,502
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
This Managements 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 decisions 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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CRITICAL ACCOUNTING POLICIES
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) management fees and franchise fees;
(3) vacation ownership and residential sales; (4) other revenues from managed and franchised properties.
Generally, revenues are recognized when the services have been rendered. The following is a description of the
composition of our revenues:
Owned, Leased and Consolidated Joint Ventures Represents revenue primarily derived from hotel
operations, including the rental of rooms and food and beverage sales from owned, leased or consolidated
joint venture hotels and resorts. Revenue is recognized when rooms are occupied and services have been
rendered. These revenues are impacted by global economic conditions affecting the travel and hospitality
industry as well as relative market share of the local competitive set of hotels. Revenue per available
room (REVPAR) is a leading indicator of revenue trends at owned, leased and consolidated joint
venture hotels as it measures the period-over-period growth in rooms revenue for comparable properties.
Management Fees and Franchise Fees Represents fees earned on hotels and resorts managed
worldwide, usually under long-term contracts, franchise fees received in connection with the franchise of
our Luxury Collection, Westin, Le Mridien, Sheraton, Four Points by Sheraton, Aloft and Element brand
names, termination fees and the amortization of deferred gains related to sold properties for which we
have significant continuing involvement. Management fees are comprised of a base fee, which is
generally based on a percentage of gross revenues, and an incentive fee, which is generally based on the
propertys profitability. For any time during the year, when the provisions of our management contracts
allow receipt of incentive fees upon termination, incentive fees are recognized for the fees due and earned
as if the contract was terminated at that date, exclusive of any termination fees due or payable. Therefore,
during periods prior to year-end, the incentive fees recorded may not be indicative of the eventual
incentive fees that will be recognized at year-end as conditions and incentive hurdle calculations may not
be final. Franchise fees are generally based on a percentage of hotel room revenues. As with our owned,
leased and consolidated joint venture hotel revenues discussed above, these revenue sources are affected
by conditions impacting the travel and hospitality industry as well as competition from other hotel
management and franchise companies.
Vacation Ownership and Residential Sales We recognize revenue from VOI sales and financings and
the sales of residential units which are typically a component of mixed use projects that include a hotel.
Such revenues are impacted by the state of the global economy and, in particular, the U.S. economy, as
well as interest rates and other economic conditions affecting the lending market. Revenue is generally
recognized upon the buyer demonstrating a sufficient level of initial and continuing investment, when the
period of cancellation with refund has expired and receivables are deemed collectible. We determine the
portion of revenues to recognize for sales accounted for under the percentage of completion method based
on judgments and estimates including total project costs to complete. Additionally, we record reserves
against these revenues based on expected default levels. Changes in costs could lead to adjustments to the
percentage of completion status of a project, which may result in differences in the timing and amount of
revenues recognized from the projects. We have also entered into licensing agreements with third-party
developers to offer consumers branded condominiums or residences. Our fees from these agreements are
generally based on the gross sales revenue of units sold. Residential fee revenue is recorded in the period
that a purchase and sales agreement exists, delivery of services and obligations has occurred, the fee to
the owner is deemed fixed and determinable and collectability of the fees is reasonably assured.
Residential revenue on whole ownership units is generally recorded using the completed contract method,
whereby revenue is recognized only when a sales contract is completed or substantially completed.
During the performance period, costs and deposits are recorded on the balance sheet.
Other Revenues from Managed and Franchised Properties These revenues represent reimbursements of
costs incurred on behalf of managed hotel properties and franchisees. These costs relate primarily to
payroll costs at managed properties where we are the employer. Since the reimbursements are made based
25
upon the costs incurred with no added margin, these revenues and corresponding expenses have no effect
on our operating income or our net income.
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 over their respective useful lives. In accordance
with Accounting Standards Codification (ASC) Topic 350, Intangibles Goodwill and Other, we review all
goodwill and intangible assets for impairment annually, or upon the occurrence of a trigger event. ASC Topic
350 permits us to assess qualitative factors to determine whether it is more likely than not that the fair value of
the reporting unit is less than its carrying amount as a basis to determine whether the two-step impairment test is
necessary. We also have the option to bypass the qualitative assessment for any reporting unit in any period and
proceed directly to performing the first step of the two-step goodwill impairment test. Impairment charges, if
any, are recognized in operating results.
Frequent Guest Program. Starwood Preferred Guest (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 (see Note 17). 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. Our management and franchise agreements require that we are 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, we increase the SPG point liability for the amount of cash
we receive from our managed and franchised hotels related to the future redemption obligation. For our 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.
Through the services of third-party actuarial analysts, we 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 17), as of
December 31, 2012 and 2011 was $922 million and $844 million, respectively, of which $275 million and $251
million, respectively, was 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.
In 2012, we had one hotel, with a carrying value of $9 million, that passed the impairment test despite
deteriorating operating results. It is reasonably possible that if the operating results do not improve in the future,
the carrying value of this hotel may be impaired.
26
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 years mortgage originations over the life of the respective notes and projects an
estimated default rate. As of December 31, 2012, the average estimated default rate for our pools of receivables
was 9.7%.
We use the origination of the notes by brand (Sheraton, Westin, and Other) as the primary credit quality
indicator to calculate the loan loss reserve for the vacation ownership notes, 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 our static pool analysis, we
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 pools of VOI notes receivable, a change in the projected default rate can have
a significant impact to our loan loss reserve requirements, with a 0.1% change estimated to have an impact of
approximately $4 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. We consider
loans to be in default upon reaching 120 days outstanding, at which point, we generally 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 segments, we measure the impairment of a loan based on the present value of expected future
cash flows, discounted at the loans 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 Topic 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.
27
Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in earnings in the period when the new rate is enacted. Deferred tax assets are
evaluated for future realization and reduced by a valuation allowance to the extent we believe a portion will not
be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax
assets, including our recent cumulative earnings experience and expectations of future available taxable income
by taxing jurisdiction, the carry-back and carry-forward periods available to us for tax reporting purposes and tax
attributes.
We 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.
RESULTS OF OPERATIONS
The following discussion presents an analysis of results of our operations for the years ended December 31,
2012, 2011 and 2010.
Results for the year ended December 31, 2012 were strong. We performed well along all four key drivers of
value. We held our costs in check for the fourth year in a row, grew our footprint with quality hotels and
contracts, sustained high REVPAR and occupancies in an uncertain environment, and we realized significant
value from real estate sales. Our results for the year ended December 31, 2012 benefited from the sales of
residential units at the St. Regis Bal Harbour. During 2012, we closed sales of 188 units and realized revenues of
$684 million. From project inception through December 31, 2012, we have closed contracts and recognized
revenue on 224 units representing approximately 73% of the total residential units.
The uncertainty we saw in major world economies is showing signs of giving way to stronger demand
growth. Beyond next year into the foreseeable future, we are bullish about the long-term outlook on the global
high-end lodging industry. We are poised to benefit from higher rates in North America and Europe where
demand is growing but supply is already limited. Even more importantly, the dramatic economic growth in Asia,
Latin America, Middle East and Africa is fueling demand for our brands worldwide.
We remain optimistic that the strength of our brands will continue to drive strong operating results. We
believe that we have the highest quality pipeline in the industry, as measured by percentage growth potential as
well as our focus on valuable management contracts in the upscale and luxury segments. At December 31, 2012,
the Company had approximately 400 hotels in the active pipeline representing approximately 100,000 rooms. Of
these rooms, 67% are in the upscale and luxury segments and 85% are outside of North America. During 2012,
we signed 131 hotel management and franchise contracts (representing approximately 30,500 rooms). Also,
during 2012, 69 new hotels and resorts (representing approximately 17,600 rooms) entered the system and 25
properties (representing approximately 5,500 rooms) exited the system.
An indicator of the performance of our owned, leased and consolidated joint venture hotels, as well as our
managed and franchised hotels, is REVPAR, as it measures the period-over-period change in rooms revenue for
comparable properties. Along with REVPAR, we also evaluate our hotels by measuring the change in Average
Daily Rate (ADR) and occupancy. This is particularly the case in the United States, where there is no impact
on this measure from foreign currency exchange rates.
We continually update and renovate our owned, leased and consolidated joint venture hotels and include
these hotels in our Same-Store Owned Hotel results. We also undertake major repositionings of hotels. While
undergoing major repositionings, hotels are generally not operating at full capacity and, as such, these
repositionings can negatively impact our hotel revenues and are not included in Same-Store Owned Hotel results.
28
We may continue to reposition our owned, leased and consolidated joint venture hotels as we pursue our brand
and quality strategies. In addition, several owned hotels are located in regions which are seasonal and, therefore,
these hotels do not operate at full capacity throughout the year.
We and our hotel owners have continued to invest capital in our hotels and provide innovative ways to
utilize public space, such as our Link@Sheraton
SM
experienced with Microsoft, and also by maximizing guest
room conveniences. Finally, we believe our SPG loyalty guest program is an industry leader. With our recently
announced changes to the program, we expect to drive further loyalty to our properties and brands from our SPG
members as well as attract the next wave of global elite members. As the program is constantly refined and new
promotions are offered, it provides rewards to our patrons while its growth in membership favorably impacts our
results. As we move forward to 2013, we will continue to focus on providing superior guest experiences for our
business, leisure, and group customers while maintaining a commitment to controlling our costs.
On July 1, 2012, we completed an internal management reorganization related to how we manage and
operate our former hotel operating segment. Whereas our hotel business had previously been included in a single
reportable segment, as a result of this reorganization, these results are now segregated into three separate hotel
segments: (i) the Americas, (ii) EAME, and (iii) Asia Pacific. Our vacation ownership and residential business
remains a separate segment. Prior period data has been restated to be consistent with the current year
presentation.
In addition to revenues recorded within our four segments, we also have other revenues from managed and
franchised properties, which represent the reimbursement of costs incurred on behalf of managed property
owners. These revenues, together with the corresponding expenses, are not recorded within our segments. Other
corporate unallocated revenues and earnings primarily relate to other license fee income and are also reported
outside of segment revenues.
This Managements Discussion and Analysis of Financial Condition and Results of Operations includes
discussion of our consolidated operating results, which were unaffected by our internal management
reorganization, as well as discussion about each of our four segments. Additionally, Note 26 to the consolidated
financial statements presents further information about our segments.
Year Ended December 31, 2012 Compared with Year Ended December 31, 2011
Consolidated Results
Year Ended
December 31,
2012
Year Ended
December 31,
2011
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Owned, Leased and Consolidated Joint Venture Hotels . . . . $1,698 $1,768 $ (70) (4.0)%
Management Fees, Franchise Fees and Other Income . . . . 888 814 74 9.1%
Vacation Ownership and Residential . . . . . . . . . . . . . . . . . . . 1,287 703 584 83.1%
Other Revenues from Managed and Franchised
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,448 2,339 109 4.7%
Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,321 $5,624 $697 12.4%
The decrease in revenues from owned, leased and consolidated joint venture hotels was primarily due to lost
revenues from 11 owned hotels that were sold or closed in 2011 and 2012. These sold or closed hotels had
revenues of $420 million in the year ended December 31, 2012, compared to $484 million for the corresponding
period in 2011. Revenues at our Same-Store Owned Hotels (39 hotels for the year ended December 31, 2012 and
2011, excluding the 11 hotels sold and 14 additional hotels undergoing significant repositionings or without
comparable results in 2012 and 2011) decreased 0.2%, or $3 million, to $1.252 billion for the year ended
December 31, 2012, when compared to $1.255 billion in the corresponding period of 2011.
29
REVPAR at our worldwide Same-Store Owned Hotels was $160.01 for the year ended December 31, 2012,
compared to $159.85 in the corresponding period in 2011. The slight increase in REVPAR at these worldwide
Same-Store Owned Hotels resulted from an increase in occupancy rates to 72.5% for the year ended
December 31, 2012, compared to 72.3% in the corresponding period in 2011, partially offset by a 0.2% decrease
in ADR to $220.71 for the year ended December 31, 2012, compared to $221.17 for the corresponding period in
2011. While REVPAR growth was particularly strong at our owned hotels in San Francisco, California, Mexico
City, Mexico and Rio de Janeiro, Brazil, the growth was substantially offset by decreases in REVPAR at our
owned hotels in Montreal, Canada, Buenos Aires, Argentina and various cities in Italy.
The increase in management fees, franchise fees and other income was primarily a result of an $89 million
increase in management fees and franchise fees to $861 million for the year ended December 31, 2012, compared
to $772 million for the corresponding period in 2011. Management fees increased 11.9% to $509 million and
franchise fees increased 7.0% to $200 million. These increases were primarily due to the net addition of 48
managed and franchised hotels to our system in 2012 and a 3.2% increase in Worldwide Systemwide REVPAR,
compared to the same period in 2011. Other income for the year ended December 31, 2012 decreased $15 million
when compared to the corresponding period in 2011, primarily as a result of payments received, in 2011, on
promissory notes that had previously been reserved.
Total vacation ownership and residential revenue increased $584 million to $1.287 billion for the year ended
December 31, 2012, when compared to the corresponding period in 2011, primarily due to the recognition of
residential sales at the St. Regis Bal Harbour. In late 2011, we received the certificate of occupancy for this
project and began contract closings and, during the year ended December 31, 2012, we closed sales of 188 units.
We realized revenues of $684 million during the year ended December 31, 2012 compared to realized revenues
of $122 million for the year ended December 31, 2011. From project inception through December 31, 2012, we
have closed contracts and recognized revenue on 224 units representing approximately 73% of the total
residential units.
Vacation ownership revenues for the year ended December 31, 2012 increased 3.7% to $587 million,
compared to the corresponding period in 2011, primarily due to increased revenues from resort operations.
Originated contract sales of VOI inventory decreased 1.8% in the year ended December 31, 2012, when
compared to the corresponding period in 2011, primarily due to a lower average price per contract and lower
closing efficiency, partially offset by an increase in tour flow. The number of contracts signed decreased 0.9%
when compared to 2011 and the average contract amount per vacation ownership unit sold decreased 0.9% to
approximately $14,800, driven by inventory mix.
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 or our net
income.
Year Ended
December 31,
2012
Year Ended
December 31,
2011
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Selling, General, Administrative and
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $370 $352 $18 5.1%
Selling, general, administrative and other expenses increased $18 million to $370 million for the year ended
December 31, 2012, when compared to the corresponding period in 2011, primarily due to non-recurring
severance expenses and professional expenses incurred in 2012. We recently completed certain organizational
changes to our EAME and Americas segments. Some of those changes took place in late 2012 and we recorded
30
approximately $9 million in severance costs. Other changes took place in early 2013, and we expect to record
additional severance costs in the first quarter of 2013.
Year Ended
December 31,
2012
Year Ended
December 31,
2011
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Restructuring and Other Special Charges
(Credits), Net . . . . . . . . . . . . . . . . . . . . . . . . $(12) $68 $(80) n/m
n/m = not meaningful
As a result of a court ruling, during the year ended December 31, 2012, we recorded a favorable adjustment
of $11 million to reverse a portion of our litigation reserve associated with a pending appeal of an unfavorable
decision in a lawsuit. During the year ended December 31, 2011, we recorded a charge of approximately $70
million related to an unfavorable decision in the above mentioned lawsuit.
Year Ended
December 31,
2012
Year Ended
December 31,
2011
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Depreciation and Amortization . . . . . . . . . . . $251 $265 $(14) (5.3)%
The decrease in depreciation and amortization expense for the year ended December 31, 2012, when
compared to the same period of 2011, was primarily due to reduced depreciation expense from sold hotels and
hotels reclassified to assets held for sale, partially offset by additional depreciation related to capital expenditures
in the last twelve months. The decrease was also due to a reduction in amortization expense from certain
intangible assets that are now fully amortized.
Year Ended
December 31,
2012
Year Ended
December 31,
2011
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Operating Income . . . . . . . . . . . . . . . . . . . . . . $912 $630 $282 44.8%
The increase in operating income for the year ended December 31, 2012, when compared to the
corresponding period of 2011, was primarily due to the increase in operating income of approximately $144
million related to vacation ownership and residential sales and the $74 million increase in management fees and
franchise fees and other income. During the year ended December 31, 2012, we also recorded an $11 million
benefit from a favorable adjustment to a litigation reserve compared to a charge, in 2011, of $70 million related
to an unfavorable decision in this same lawsuit. Increases in selling, general, administrative and other expenses
of $18 million and a decrease in owned hotel operating income of $12 million were partially offset by the $14
million decrease in depreciation and amortization expense.
Year Ended
December 31,
2012
Year Ended
December 31,
2011
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Equity Earnings (Losses) and Gains and
(Losses) from Unconsolidated Ventures,
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25 $11 $14 n/m
The increase in equity earnings (losses) and gains and (losses) from unconsolidated joint ventures, net for
the year ended December 31, 2012, when compared to the same period of 2011, was primarily due to improved
operating results at several properties owned by joint ventures in which we hold non-controlling interests, and a
$2 million gain realized on the disposal of a non-core asset. Additionally, in 2011, we experienced approximately
31
$8 million in unfavorable mark-to-market adjustments on US dollar denominated loans at primarily three joint
venture properties in Latin America.
Year Ended
December 31,
2012
Year Ended
December 31,
2011
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Net Interest Expense . . . . . . . . . . . . . . . . . . . . $170 $200 $(30) (15.0)%
Net interest expense decreased $30 million for the year ended December 31, 2012, when compared to the
same period of 2011, primarily due to the significant reduction in our debt balances and lower average interest
rates, partially offset by a reduction in capitalized interest related to completed construction projects.
Our weighted average interest rate was approximately 5.86% at December 31, 2012, compared to 6.66% at
December 31, 2011.
Year Ended
December 31,
2012
Year Ended
December 31,
2011
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Loss on Early Extinguishment of Debt,
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $128 $16 $112 n/m
In December 2012, we redeemed all $500 million of our 7.875% Senior Notes due 2014 and partially
redeemed $156 million of our 7.375% Senior Notes due 2015, $29 million of our 6.75% Senior Notes due 2018
and $40 million of our 7.15% Senior Notes due 2019 (the December 2012 Redemptions). We recognized a net
charge of approximately $113 million, in the year ended December 31, 2012, associated with the December 2012
Redemptions, which primarily represents $108 million in tender premiums and other redemption costs and an
$11 million charge to write-off unamortized deferred financing costs and unamortized issuance discounts,
partially offset by gains on swap settlements of $6 million.
In June 2012, we redeemed all $495 million of our 6.25% Senior Notes due 2013. We recognized a net
charge of approximately $15 million, in the year ended December 31, 2012, associated with this redemption,
which represents $18 million in tender premiums and other redemption costs, partially offset by gains on swap
settlements of $3 million.
In December 2011, we redeemed all $605 million of our 7.875% Senior Notes due 2012. We recognized a
net charge of approximately $16 million associated with this redemption, in the year ended December 31, 2011,
which represents the tender premiums, swap settlements and other related redemption costs.
Year Ended
December 31,
2012
Year Ended
December 31,
2011
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Gain (Loss) on Asset Dispositions and
Impairments, Net . . . . . . . . . . . . . . . . . . . . . $(21) $ $(21) n/m
During the year ended December 31, 2012, we recorded a loss of $9 million related to the impairment of our
investment in an unconsolidated joint venture, a loss of $7 million related to the sale of one hotel, $2 million in
losses related to the impairments of two hotels whose carrying values exceeded their fair values and a charge of
$4 million to reflect the current market price less costs to sell two properties.
During the year ended December 31, 2011, we recorded an impairment charge of $31 million to write-off
our noncontrolling interest in a joint venture that owns a hotel in Tokyo, Japan, a $9 million loss due to
significant renovations and related asset retirements at two properties, $7 million in losses relating to the
impairment of six hotels whose carrying value exceeded their book value and a $2 million loss on an investment
in a management contract that was terminated during the period. These amounts were offset by a $50 million
32
gain as a result of the write-up to fair value of our previously held noncontrolling interest in two hotels in which
we obtained a controlling interest (see Note 4).
Year Ended
December 31,
2012
Year Ended
December 31,
2011
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Income Tax (Benefit) Expense . . . . . . . . . . . . $148 $(75) $223 n/m
The increase in income tax expense was the result of higher pretax income and a higher effective rate in
2012 compared to 2011 and large tax benefits generated in 2011 as compared to 2012. Additional income tax
expense due to higher pretax income was approximately $46 million and the increase due to the effective tax rate
in 2012 resulted in incremental income tax expense of approximately $60 million. The increase in the effective
rate is primarily due to higher pretax income in the U.S. as a result of the Bal Harbour residential sales previously
discussed.
Incremental tax benefits in 2011 compared to 2012 amounted to approximately $117 million. In 2011, we
completed transactions that involved certain domestic and foreign subsidiaries. These transactions generated
capital gains, increased the tax basis in subsidiaries including U.S partnerships and resulted in the inclusion of
foreign earnings for U.S. tax purposes, resulting in a net tax benefit of $87 million. The capital gains were largely
reduced by the utilization of capital losses. Additionally, during 2011, the IRS closed its audit with respect to tax
years 2004 through 2006 resulting in a $25 million tax benefit primarily related to the reversal of tax and interest
reserves.
Year Ended
December 31,
2012
Year Ended
December 31,
2011
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Discontinued Operations Gain (Loss), Net . . $92 $(13) $105 n/m
During the year ended December 31, 2012, we recorded a gain of $92 million (net of tax) primarily related
to the gain of $78 million (net of tax) from the sale of one wholly owned hotel, which was sold unencumbered by
a management or franchise agreement and a gain of $23 million (net of tax) from the favorable settlement of
certain liabilities associated with a former subsidiary of ITT Corporation, which we acquired in 1998. These
gains were partially offset by a loss of $5 million (net of tax) related to the impairment and loss on sale of four
wholly-owned hotels and a loss of $5 million (net of tax) for accrued interest related to an uncertain tax position
associated with a previous disposition.
During the year ended December 31, 2011, we recorded a loss of $13 million (net of tax), primarily related
to an $18 million pre-tax loss from the sale of our interest in a consolidated joint venture, offset by a $10 million
income tax benefit on the sale. Additionally, we recorded a loss of $5 million (net of tax) for accrued interest
related to an uncertain tax position associated with a previous disposition.
33
Segment Results
The following table summarizes REVPAR, ADR and occupancy for our Same-Store Owned Hotels for the
year ended December 31, 2012 and 2011. The results for the year ended December 31, 2012 and 2011 represent
results for 39 owned, leased and consolidated joint venture hotels (excluding 11 hotels sold and 14 hotels
undergoing significant repositionings or without comparable results in 2012 and 2011).
Year Ended
December 31,
2012 2011 Variance
Worldwide (39 hotels with approximately 13,400 rooms)
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $160.01 $159.85 0.1%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $220.71 $221.17 (0.2)%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.5% 72.3% 0.2
Americas (25 hotels with approximately 10,000 rooms)
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $138.06 $135.38 2.0%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $195.78 $192.22 1.9%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70.5% 70.4% 0.1
EAME (10 hotels with approximately 2,100 rooms)
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $243.98 $259.18 (5.9)%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $321.49 $342.36 (6.1)%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75.9% 75.7% 0.2
Asia Pacific (4 hotels with approximately 1,300 rooms)
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $191.37 $185.35 3.2%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $232.06 $228.50 1.6%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82.5% 81.1% 1.4
The following table summarizes REVPAR, ADR and occupancy for our Same-Store Systemwide Hotels for
the year ended December 31, 2012 and 2011. Same-Store Systemwide Hotels represent results for same-store
owned, leased, managed and franchised hotels.
Year Months Ended
December 31,
2012 2011 Variance
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $116.51 $112.93 3.2%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $169.55 $168.49 0.6%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68.7% 67.0% 1.7
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $114.17 $107.93 5.8%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $161.02 $156.05 3.2%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70.9% 69.2% 1.7
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $132.37 $137.47 (3.7)%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $203.82 $215.18 (5.3)%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64.9% 63.9% 1.0
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $108.79 $105.36 3.3%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $166.29 $166.49 (0.1)%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65.4% 63.3% 2.1
(1) REVPAR is calculated by dividing room revenue, which is derived from rooms and suites rented or leased,
by total room nights available for a given period. REVPAR may not be comparable to similarly titled
measures such as revenues.
34
The following tables summarize segment revenues and segment earnings for the year ended December 31,
2012 and 2011.
Segment Revenues
Year Ended
December 31,
2012
Year Ended
December 31,
2011
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,627 $1,630 $ (3) (0.2)%
EAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550 592 (42) (7.1)%
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . 337 303 34 11.2%
Vacation ownership and residential . . . . . . . . 1,271 688 583 84.7%
Total segment revenues . . . . . . . . . . . . . . . . . . $3,785 $3,213 $572 17.8%
Segment Earnings
Year Ended
December 31,
2012
Year Ended
December 31,
2011
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 581 $ 555 $ 26 4.7%
EAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 204 (25) (12.3)%
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 186 32 17.2%
Vacation ownership and residential . . . . . . . . 312 170 142 83.5%
Total segment earnings . . . . . . . . . . . . . . . . . . $1,290 $1,115 $175 15.7%
We primarily evaluate the operating performance of a segment based on segment earnings. We define
segment earnings as net income attributable to our common stockholders before interest expense, taxes,
depreciation and amortization, as well as our share of interest, depreciation and amortization associated with our
unconsolidated joint ventures, excluding certain recurring and nonrecurring items, such as restructuring costs,
goodwill impairment and other special charges and gains (losses) on asset dispositions and impairments. General,
administrative and other expenses directly related to the segments are included in the calculation of segment
earnings, whereas corporate general, administrative, and other expenses are not included in the segment earnings
calculation. In addition to revenues recorded within our four segments, we also have other revenues from
managed and franchised properties, which represent the reimbursement of costs incurred on behalf of managed
property owners. These revenues, together with the corresponding expenses, are not recorded within our
segments. Other corporate unallocated revenues and earnings primarily relate to other license fee income and are
also reported outside of segment revenues. Note 26 to the consolidated financial statements presents further
information about our segments.
The Americas
Segment revenues decreased $3 million in the year ended December 31, 2012, compared to the
corresponding period in 2011.
Revenues from our owned, leased and consolidated joint venture hotels decreased $38 million, primarily
due to lost revenues from 10 owned hotels that were sold or closed in 2011 and 2012. These sold or closed hotels
had revenues of $114 million in the year ended December 31, 2012, compared to $209 million for the
corresponding period in 2011. Lost revenue from sold hotels was partially offset by a $48 million increase in
revenues from eight owned hotels without comparable results in 2012 and 2011 and an increase in revenue of
approximately $9 million attributable to the increase in Same-Store Owned Hotel REVPAR of 2.0% to $138.06
for the year ended December 31, 2012, when compared to the corresponding period in 2011.
Revenues from management fees and franchise fees increased $38 million primarily due to the net addition
of 16 managed and franchised hotels in 2012 and a 5.8% increase in Same-Store Systemwide REVPAR
compared to the same period in 2011.
35
Segment earnings increased $26 million in the year ended December 31, 2012, compared to the
corresponding period in 2011, primarily due to a $44 million increase in earnings from management fees,
franchise fees and other income, partially offset by a decrease of $11 million in earnings from our owned, leased
and consolidated joint venture hotels.
EAME
Segment revenues decreased $42 million in the year ended December 31, 2012, compared to the
corresponding period in 2011. The decrease in revenues was primarily related to a $35 million decrease in our
owned, leased and consolidated joint venture hotels, while revenues from management fees, franchise fees and
other income remained substantially consistent, despite the net exit of one managed or franchised hotel in 2012.
The decrease in revenues from our owned, leased and consolidated joint venture hotels was primarily due to
lost revenue from one owned hotel that was sold in 2011 and the unfavorable impact of foreign currency
translation. This sold hotel had no revenue in the year ended December 31, 2012, compared to $14 million for the
corresponding period in 2011. Revenues from owned, leased and consolidated joint venture hotels were also
negatively impacted by a $5 million decrease in revenues from six owned hotels without comparable results in
2012 and 2011. The decline in owned, leased and consolidated joint venture hotel revenues was also due to the
unfavorable impact of foreign currency translation, when compared to the corresponding period in 2011. Finally,
Same-Store Owned Hotel revenues decreased $12 million in the year ended December 31, 2012, compared to the
same period in 2011, as REVPAR declined 5.9% to $243.98 in 2012; however, in local currency, REVPAR
increased 2.4% at these hotels.
Segment earnings decreased $25 million in the year ended December 31, 2012, compared to the
corresponding period in 2011, primarily due to a $12 million increase in general overhead expenses, primarily
due to $9 million in severance charges previously discussed, a decrease of $6 million in earnings from our
owned, leased and consolidated joint venture hotels and the unfavorable impact of foreign currency translation.
Asia Pacific
Segment revenues increased $34 million in the year ended December 31, 2012, compared to the
corresponding period in 2011. The increase in revenues was primarily related to a $28 million increase in our
revenues from management fees and franchise fees, as well as a $5 million increase in our revenues from our
owned, leased and consolidated joint venture hotels. The increase in management fees and franchise fees was due
to the net addition of 33 managed and franchised hotels in 2012 and a 3.3% increase in Same-Store Systemwide
Hotel REVPAR for the year ended December 31, 2012, when compared to the corresponding period in 2011.
franchise fees and other income and an increase of $6 million in earnings from our owned, leased and
consolidated joint venture hotels driven by higher revenues and operational costs savings, partially offset by an
increase of $6 million in general overhead expenses, commensurate with the growth in this region.
Vacation ownership and residential
Total vacation ownership and residential services segment revenue increased $583 million to $1.271 billion
for the year ended December 31, 2012, when compared to the corresponding period in 2011, primarily due to the
recognition of residential sales at the St. Regis Bal Harbour. Segment earnings increased $142 million in the year
ended December 31, 2012, compared to the corresponding period in 2011, also driven by residential sales at the
St. Regis Bal Harbour and an increase in resort and other income at vacation ownership properties.
36
Year Ended December 31, 2011 Compared with Year Ended December 31, 2010
Continuing Operations
Year Ended
December 31,
2011
Year Ended
December 31,
2010
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Owned, Leased and Consolidated Joint
Venture Hotels . . . . . . . . . . . . . . . . . . . . . . $1,768 $1,704 $ 64 3.8%
Management Fees, Franchise Fees and
Other Income . . . . . . . . . . . . . . . . . . . . . . . 814 712 102 14.3%
Vacation Ownership and Residential . . . . . . . 703 538 165 30.7%
Other Revenues from Managed and
Franchised Properties . . . . . . . . . . . . . . . . . 2,339 2,117 222 10.5%
Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . $5,624 $5,071 $553 10.9%
The increase in revenues from owned, leased and consolidated joint venture hotels was primarily due to
increased REVPAR (as discussed below) at our existing owned, leased and consolidated joint venture hotels,
offset in part by lost revenues from six wholly owned hotels sold or closed in 2011 and 2010. These sold or
closed hotels had revenues of $56 million in the year ended December 31, 2011, compared to $158 million in the
corresponding period of 2010. Revenues at our Same-Store Owned Hotels (45 hotels for the year ended
December 31, 2011 and 2010, excluding the six hotels sold or closed and 14 additional hotels undergoing
significant repositionings or without comparable results in 2011 and 2010) increased 9.4%, or $123 million, to
$1.441 billion for the year ended December 31, 2011 when compared to $1.318 billion in the corresponding
period of 2010 due primarily to an increase in REVPAR.
REVPAR at our Same-Store Owned Hotels increased 11.5% to $159.12 for the year ended December 31,
2011 when compared to the corresponding 2010 period. The increase in REVPAR at these Same-Store Owned
Hotels was driven by a 6.4% increase in ADR to $218.65 for the year ended December 31, 2011, compared to
$205.49 for the corresponding 2010 period and an increase in occupancy rates to 72.8% for the year ended
December 31, 2011 when compared to 69.5% in the corresponding period in 2010. REVPAR at Same-Store
Owned Hotels in North America increased 7.3% for the year ended December 31, 2011 when compared to the
corresponding period of 2010. REVPAR growth was particularly strong at our owned hotels in San Francisco,
California, Maui, Hawaii and Scottsdale, Arizona. REVPAR at our international Same-Store Owned Hotels
increased by 17.7% for the year ended December 31, 2011, when compared to the corresponding period of 2010.
REVPAR for Same-Store Owned Hotels internationally increased 8.1% excluding the favorable effects of
foreign currency translation.
The increase in management fees, franchise fees and other income was primarily a result of an $83 million or
12.0% increase in management and franchise revenue to $772 million for the year ended December 31, 2011,
compared to $689 million in the corresponding period of 2010. Management fees increased $46 million or 11.2%
and franchise fees increased $26 million or 16.1%, compared to the corresponding period of 2010. These increases
were due to growth in REVPAR at existing hotels as well as the net addition of 38 managed and 11 franchised
hotels to our system since the beginning of 2011. Additionally, other income increased approximately $19 million,
for the year ended December 31, 2011, when compared to the corresponding period of 2010, primarily due to
payments received on promissory notes that had previously been reserved due to uncertainty around collection.
Total vacation ownership and residential revenue increased 30.7% to $703 million, for the year ended
December 31, 2011, when compared to $538 million in 2010, primarily driven by residential sales related to the
St. Regis Bal Harbour which received its certificate of occupancy in late 2011. Originated contract sales of VOI
inventory increased 6.1% for the year ended December 31, 2011, when compared to the corresponding period in
2010. This increase was primarily driven by increased tour flow from new buyers and improved sales
performance from existing owner channels. The average contract amount per vacation ownership unit sold was
relatively unchanged, for the year ended December 31, 2011 when compared to the corresponding period of
37
2010, at approximately $14,900. Residential revenue increased approximately $125 million for the year ended
December 31, 2011 primarily due to residential sales related to the St. Regis Bal Harbour as discussed above.
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.
Year Ended
December 31,
2011
Year Ended
December 31,
2010
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Selling, General, Administrative and
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $352 $344 $8 2.3%
Selling, general, administrative and other expenses for the year ended December 31, 2011 increased 2.3% to
$352 million, when compared to the corresponding period of 2010, primarily due to higher legal costs incurred in
2011, while results in 2010 benefitted from the reimbursement of legal costs as a result of a favorable legal
settlement. This increase was partially offset by lower incentive compensation in 2011 compared to 2010.
Year Ended
December 31,
2011
Year Ended
December 31,
2010
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Restructuring and Other Special Charges
(Credits), Net . . . . . . . . . . . . . . . . . . . . . . . . $68 $(75) $143 n/m
During the year ended December 31, 2011, we recorded a charge of approximately $70 million related to an
unfavorable decision in a lawsuit.
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 and other special (credits) charges. 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.
Year Ended
December 31,
2011
Year Ended
December 31,
2010
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Depreciation and Amortization . . . . . . . . . . . $265 $285 $(20) (7.0)%
The decrease in depreciation expense for the year ended December 31, 2011, when compared to the
corresponding period of 2010, was primarily due to reduced depreciation expense from sold hotels, partially
offset by additional depreciation related to capital expenditures made in the last twelve months.
Year Ended
December 31,
2011
Year Ended
December 31,
2010
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Operating Income . . . . . . . . . . . . . . . . . . . . . . $630 $600 $30 5.0%
The increase in operating income for the year ended December 31, 2011, when compared to the
corresponding period of 2010, was primarily due to continued improvement in results from our owned and leased
hotels and the increase in management and franchise fees attributable to the increase in REVPAR as well as the
38
net addition of 49 managed and franchised hotels to our system since the beginning of 2011. Additionally,
residential sales at the St. Regis Bal Harbour favorably impacted 2011 operating income by $27 million.
Operating income for the year ended December 31, 2011, as compared to 2010, was negatively impacted by a
$70 million charge associated with an unfavorable legal decision in 2011, while 2010 benefited from a favorable
settlement of a lawsuit of $75 million. Results were also negatively impacted by political unrest in the Middle
East and North Africa, as well as the earthquake and tsunami in Japan.
Year Ended
December 31,
2011
Year Ended
December 31,
2010
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Equity Earnings (Losses) and Gains and
Losses from Unconsolidated Ventures,
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11 $10 $1 10.0%
The increase in equity earnings and gains and losses from unconsolidated joint ventures for the year ended
December 31, 2011, when compared to the corresponding period of 2010, was primarily due to improved
operating results at several properties owned by joint ventures in which we hold non-controlling interests,
partially offset by unfavorable mark-to-market adjustments on US dollar denominated loans at several properties
in Latin America.
Year Ended
December 31,
2011
Year Ended
December 31,
2010
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Net Interest Expense . . . . . . . . . . . . . . . . . . . . $200 $235 $(35) (14.9)%
The decrease in net interest expense for the year ended December 31, 2011, when compared to the
corresponding period of 2010, was primarily due to a lower average debt balance and an increase in capitalized
interest related to construction projects, primarily relating to the St. Regis Bal Harbour. Our weighted average
interest rate was 6.66% at December 31, 2011 as compared to 6.86% at December 31, 2010.
Year Ended
December 31,
2011
Year Ended
December 31,
2010
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Loss on Early Extinguishment of Debt,
net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16 $1 $15 n/m
The increase in loss on early extinguishment of debt, net is from the $16 million charge for redemption
premiums and other costs associated with the December 2011 redemption of all $605 million of our 7.875%
Senior Notes due 2012.
Year Ended
December 31,
2011
Year Ended
December 31,
2010
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Loss on Asset Dispositions and Impairments,
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $(39) $(39) 100.0%
During the year ended December 31, 2011, we recorded an impairment charge of $31 million to write-off
our noncontrolling interest in a joint venture that owns a hotel in Tokyo, Japan, a $9 million loss due to
significant renovations and related asset retirements at two properties, $7 million in losses relating to the
impairment of six hotels whose carrying value exceeded their book value and a $2 million loss on an investment
in a management contract that was terminated during the period. These amounts were offset by a $50 million
gain as a result of the write-up to fair value of our previously held noncontrolling interest in two hotels in which
we obtained a controlling interest (see Note 4).
39
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.
Year Ended
December 31,
2011
Year Ended
December 31,
2010
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Income Tax (Benefit) Expense . . . . . . . . . . . . $(75) $27 $(102) n/m
In 2011, the Company completed transactions that involved certain domestic and foreign subsidiaries. These
transactions generated capital gains increased the tax basis in subsidiaries including U.S. partnerships and
resulted in the inclusion of foreign earnings for U.S. tax purposes. The capital gains were largely reduced by the
utilization of capital losses. Due to the uncertainty regarding the Companys ability to generate capital gain
income, the deferred tax asset associated with these capital losses was offset by a full valuation allowance prior
to these transactions. These transactions resulted in a net tax benefit of $87 million. Additionally, during 2011, an
income tax benefit of approximately $60 million was generated as the result of the sale of two wholly-owned
hotels. Also, in 2011, the IRS closed its audit in respect to tax years 2004 through 2006 resulting in the
recognition of a tax benefit of approximately $25 million, primarily for the reversal of tax and interest reserves.
These benefits were partially offset by tax on increased pretax income and valuation allowance increases in 2011
compared to 2010.
During 2010, the IRS closed its audit with respect to tax years 1998 through 2003 and the Company
recognized a $42 million tax benefit in continuing operations, primarily associated with the refund of interest on
taxes already paid. This benefit was partially offset by interest and taxes recorded on uncertain tax positions,
which resulted in a charge of $23 million.
Year Ended
December 31,
2011
Year Ended
December 31,
2010
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Discontinued Operations Gain (Loss), Net . . $(13) $168 $(181) n/m
During the year ended December 31, 2011, we recorded a loss of $13 million primarily related to an
$18 million pretax loss from the sale of our interest in a consolidated joint venture, offset by a $10 million
income tax benefit on the sale. Additionally, we recorded $5 million of interest charges related to an uncertain
tax position.
During the year ended December 31, 2010, we recorded a gain of $134 million related to the final settlement
with the IRS regarding a disposition in a prior year and a pretax gain of approximately $3 million ($36 million
after tax) 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.
40
Segment Results
The following table summarizes REVPAR, ADR and occupancy for our Same-Store Owned Hotels for the
year ended December 31, 2011 and 2010. The results for the year ended December 31, 2011 and 2010 represent
results for 45 owned, leased and consolidated joint venture hotels (excluding six hotels sold and 14 hotels
undergoing significant repositionings or without comparable results in 2011 and 2010).
Year Ended
December 31,
2011 2010 Variance
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $159.12 $142.76 11.5%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $218.65 $205.49 6.4%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.8% 69.5% 3.3
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $140.44 $129.30 8.6%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $196.75 $190.37 3.4%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71.4% 67.9% 3.5
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $255.48 $220.08 16.1%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $339.15 $299.25 13.3%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75.3% 73.5% 1.8
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $183.33 $144.86 26.6%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $218.78 $182.58 19.8%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83.8% 79.3% 4.5
The following table summarizes REVPAR, ADR and occupancy for our Same-Store Systemwide Hotels for
the year ended December 31, 2011 and 2010. Same-Store Systemwide Hotels represent results for same-store
owned, leased, managed and franchised hotels.
Year Months Ended
December 31,
2011 2010 Variance
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $114.56 $104.43 9.7%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $168.37 $158.57 6.2%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68.0% 65.9% 2.1
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $107.59 $ 98.25 9.5%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $155.19 $148.05 4.8%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69.3% 66.4% 2.9
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $143.28 $132.58 8.1%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $219.35 $199.11 10.2%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65.3% 66.6% (1.3)
REVPAR
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $111.90 $ 99.57 12.4%
ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $169.17 $157.03 7.7%
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66.1% 63.4% 2.7
(1) REVPAR is calculated by dividing room revenue, which is derived from rooms and suites rented or leased,
by total room nights available for a given period. REVPAR may not be comparable to similarly titled
measures such as revenues.
41
The following tables summarize segment revenues and segment earnings for the year ended December 31,
2011 and 2010.
Segment Revenues
Year Ended
December 31,
2011
Year Ended
December 31,
2010
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,630 $1,597 $ 33 2.1%
EAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592 529 63 11.9%
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 235 68 28.9%
Total segment revenues . . . . . . . . . . . . . . . . . . $3,213 $2,887 $326 11.3%
Segment Earnings
Year Ended
December 31,
2011
Year Ended
December 31,
2010
Increase /
(decrease)
from prior
year
Percentage
change
from prior
year
(in millions)
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 555 $484 $ 71 14.7%
EAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 191 13 6.8%
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 165 21 12.7%
Total segment earnings . . . . . . . . . . . . . . . . . . $1,115 $963 $152 15.8%
The Americas
corresponding period in 2010, primarily related to the increase in management fees and franchise fees, partially
offset by the decrease in revenues from our owned leased and consolidated joint venture hotels.
Revenues from our owned, leased and consolidated joint venture hotels decreased $50 million, primarily
due to lost revenues from five owned hotels that were sold or closed in 2010 and 2011. These sold or closed
hotels had revenues of $42 million in the year ended December 31, 2011, compared to $142 million for the
corresponding period in 2010. Revenues from owned, leased and consolidated joint venture hotels were also
negatively impacted by an $11 million decrease in revenues from eight owned hotels without comparable results
in 2011 and 2010. These decreases in revenue were offset by an increase in revenue of approximately $51 million
attributable to the increase in Same-Store Owned Hotel REVPAR of 8.6% to $140.44 for the year ended
December 31, 2011, when compared to the corresponding period in 2010. The increase in revenues is also due to
a $14 million increase in revenues from a joint venture in which we obtained a controlling interest during 2010
(see Note 4).
Revenues from management fees and franchise fees increased $52 million for the year ended December 31,
2011, when compared to the corresponding period in 2010, primarily due to the net addition of 23 managed and
franchised hotels in 2011 and a 9.5% increase in Same-Store Systemwide REVPAR compared to the same period
in 2010.
franchise fees and other income and a decrease in general overhead expenses of $17 million due to lower
compensation expense and legal accruals, partially offset by a decrease of $14 million in earnings from our
owned, leased and consolidated joint venture hotels.
42
EAME
owned, leased and consolidated joint venture hotels and the favorable impact of foreign currency translation.
The increase in revenues from our owned, leased and consolidated joint venture hotels was primarily due to
an increase in Same-Store Owned Hotel REVPAR of 16.1% to $255.48 for the year ended December 31, 2011,
when compared to the corresponding period in 2010. REVPAR increased 8.7% in local currency for the year
ended December 31, 2011, when compared to the corresponding period in 2010. Revenues from owned, leased
and consolidated joint venture hotels also benefited from a $21 million increase in revenues from five owned
hotels without comparable results in 2011 and 2010.
Revenues from management fees and franchise fees remained substantially consistent, despite the net exit of
three managed or franchised hotels in 2011.
corresponding period in 2010, primarily due to a $10 million increase in earnings from our owned, leased and
consolidated joint venture hotels.
Asia Pacific
owned, leased and consolidated joint venture hotels and a $23 million increase in our revenues from management
fees and franchise fees.
The increase in revenues from our owned, leased and consolidated joint venture hotels was primarily due to
a $19 million increase in revenue from one owned, leased and consolidated hotel without comparable results in
2011 and 2010. The increase in management fees and franchise fees was due to the net addition of 29 managed
and franchised hotels in 2011, a 12.4% increase in Same-Store Systemwide Hotel REVPAR for the year ended
December 31, 2011, when compared to the corresponding period in 2010, and the favorable impact of foreign
currency translation.
franchise fees and other income and an increase of $14 million in earnings from our owned, leased and
consolidated joint venture hotels, partially offset by an increase of $17 million in general overhead expenses,
commensurate with the growth in this region.
Total vacation ownership and residential services segment revenue increased $162 million to $688 million
for the year ended December 31, 2011, when compared to the corresponding period in 2010, primarily due to the
recognition of residential sales at the St. Regis Bal Harbour. Segment earnings increased $47 million in the year
ended December 31, 2011, compared to the corresponding period in 2010, also driven by residential sales at the
St. Regis Bal Harbour.
43
LIQUIDITY AND CAPITAL RESOURCES
In 2012, we returned over half a billion dollars of capital to shareholders. We did this through increasing our
dividend, paid in December 2012, by 150% and by repurchasing 6.3 million shares in 2012 for a total cost of
approximately $320 million. Additionally during 2012, we retired $1.272 billion of debt, and issued $350 million
of 3.125% Senior Notes due 2023.
Cash From Operating Activities
Cash flow from operating activities is generated primarily from management and franchise revenues,
operating income from our owned hotels and resorts 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 share
repurchases.
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 cash flow from operating activities.
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 0.95 and 1.27 as of December 31, 2012 and
2011, 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.
The majority of our restricted cash balance relates to cash used as collateral to reduce fees on letters of
credit. Additionally, 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 another component of our restricted cash balances in our consolidated balance
sheets. At December 31, 2012 and 2011, we had short-term restricted cash balances of $158 million and
$232 million, respectively.
44
Cash From Investing Activities
Gross capital spending during the full year ended December 31, 2012 was as follows (in millions):
Maintenance Capital Expenditures
(1)
:
Owned, Leased and Consolidated Joint Venture Hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68
Corporate and information technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
Vacation Ownership and Residential Capital Expenditures:
Net capital expenditures for inventory (excluding St. Regis Bal Harbour)
(2)
. . . . . . . . . . . . . . (38)
Capital expenditures for inventory St. Regis Bal Harbour . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11)
Development Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
Total Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $406
(1) Maintenance capital expenditures include renovations, asset replacements and improvements that extend the
useful life of the asset.
(2) Represents gross inventory capital expenditures of $34 million less cost of sales of $72 million.
Gross capital spending during the year ended December 31, 2012 included approximately $146 million of
maintenance capital, and $271 million of development capital. Investment spending on gross vacation ownership
interest and residential inventory was $61 million, primarily related to the completion of construction of our hotel
and residential project 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 2013
(excluding vacation ownership and residential inventory) will be approximately $200 million for maintenance,
renovations, and technology capital. In addition, for the full year 2013, we currently expect to spend
approximately $350 million for investment projects, various joint ventures and other investments.
In order to secure management or franchise agreements, we have made loans to third-party owners, minority
investments in joint ventures and provided certain guarantees and indemnifications related thereto. See Note 25
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), 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 facility described below, the net proceeds from dispositions,
the assumption of debt, and from cash generated from operations.
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.
45
Since 2006, we have sold 73 hotels realizing cash proceeds of approximately $6.1 billion in numerous
transactions, including gross cash proceeds of approximately $542 million from the sale of eight hotels during
the year ended December 31, 2012 (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.
In late 2011, we received certificates of occupancy for the St. Regis Bal Harbour and, as a result, we began
closings of units that had previously been sold. During the year ended December 31, 2012, we closed on 188
additional units. From project inception through December 31, 2012, we have closed contracts on 224 units
representing approximately 73% of the total residential units available at the St. Regis Bal Harbour and realized
residential revenue of $810 million.
Cash Used for Financing Activities
The following is a summary of our indebtedness (including capital leases) as of December 31, 2012:
Amount
Outstanding at
December 31,
2012
(a)
Weighted
Average
Interest Rate at
December 31,
2012
Weighted
Average
Maturity
(Dollars in millions) (In years)
Floating Rate Debt
Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.2
Mortgages and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 4.65% 4.0
Total/Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43 4.65% 4.0
Fixed Rate Debt
Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,220 5.93% 6.4
Mortgages and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.07% 14.6
Total/Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,232 5.90% 6.5
Total Debt
Total Debt and Average Terms . . . . . . . . . . . . . . . . . . . . $1,275 5.86% 6.4
(a) Excludes approximately $389 million of our share of unconsolidated joint venture debt and securitized
vacation ownership debt of $533 million, all of which is non-recourse.
For specifics related to our financing transactions, issuances, and terms entered into for the years ended
December 31, 2012 and 2011, see Note 15 of the consolidated financial statements.
In 2012, we repaid approximately $1.2 billion of our fixed rate senior notes with varying maturities. In June
2012, we redeemed all $495 million of our 6.25% Senior Notes, which were scheduled to mature in February
2013. We paid $513 million in connection with the early redemption and recorded a net charge of approximately
$15 million, which represents $18 million in tender premiums and other redemption costs, partially offset by
swap settlements of $3 million. In December 2012, we redeemed all $500 million of our 7.875% Senior Notes
due 2014 and partially redeemed $156 million of our 7.375% Senior Notes due 2015, $29 million of our 6.75%
Senior Notes due 2018 and $40 million of our 7.15% Senior Notes due 2019. We paid $833 million in connection
with these early redemptions and recorded a net charge of approximately $113 million, which primarily
represents $108 million in tender premiums and other redemption costs and an $11 million charge to write-off
unamortized deferred financing costs and unamortized issuance discounts, partially offset by gains on swap
settlements of $6 million.
Also during 2012, we prepaid $52 million of third party debt previously secured by one owned hotel.
46
During the twelve months ended December 31, 2012, we repurchased 6.3 million common shares at an
average price of $50.83 for a total cost of approximately $320 million (see Note 21).
In December 2012, we issued $350 million of 3.125% Senior Notes, which will mature in February 2023.
We used the net proceeds from the offering, together with cash on hand, to finance the December 2012
Redemptions.
During the year ended December 31, 2012, we completed a securitization of approximately $174 million of
vacation ownership notes receivable. The securitization transaction did not qualify as a sale for accounting
purposes and, accordingly, no gain or loss was recognized and the proceeds are presented as debt. Of the
$174 million securitized in 2012, $155 million was previously unsecuritized and approximately $19 million
related to the 2005 securitization for which the termination was prefunded. The net cash proceeds from the
securitization, after the amount pre-funded for the future termination of the 2005 securitization and associated
deal costs, were approximately $140 million (see Note 10). The pre-funded amount of $18 million is included in
restricted cash until the 2005 securitization is terminated, which is expected to occur in 2013.
In November 2012, we closed on a new $1.75 billion senior credit facility (the New Facility) to replace
the existing $1.5 billion credit agreement (the Existing Facility). The New Facility matures in February 2018,
whereas the Existing Facility was scheduled to mature in November 2013. The New Facility is a multi-currency
revolving loan commitment and is expected to be used for general corporate purposes. We have evaluated the
commitments of each of the lenders in our New Facility, and we have reviewed our debt covenants and do not
anticipate any issues regarding the availability of funds under the New Facility.
In December 2011, we redeemed all $605 million of our 7.875% Senior Notes outstanding, which were
originally issued in April 2002 and due May 2012. We paid $628 million in connection with the redemptions and
recorded a charge of approximately $16 million, representing the call premiums, and other related redemption
costs.
During 2011, we completed the securitization of vacation ownership receivables resulting in net proceeds of
December 31,
2012
December 31,
2011
(in millions)
Gross Unsecuritized Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,275 $2,197
less: cash (including restricted cash of $123 million in 2012 and $212
million in 2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (428) (666)
Net Unsecuritized Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 847 $1,531
Gross Securitized Debt (non-recourse) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 533 $ 532
less: cash restricted for securitized debt repayments (not included
above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41) (22)
Net Securitized Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 492 $ 510
Total Net Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,339 $2,041
The cost of borrowing under the New Facility is determined by a combination of our leverage ratios and
credit ratings. Changes in our credit ratings may result in changes in our borrowing costs. Downgrades in our
credit ratings would likely increase the relative costs of borrowing and reduce our ability to issue long-term debt,
whereas upgrades would likely reduce costs and increase our ability to issue long-term debt. A credit rating is not
a recommendation to buy, sell or hold securities, is subject to revision or withdrawal at any time by the assigning
rating organization and should be evaluated independently of any other rating. During the three months ended
March 31, 2012, we were upgraded to investment grade by all three rating agencies. We were subsequently
upgraded one additional ratings notch by all three rating agencies during the year ended December 31, 2012.
47
Our New Facility is used to fund general corporate cash needs. As of December 31, 2012, no amounts were
drawn under the New Facility with up to $1.75 billion available for borrowing. The New Facility allows for
multi-currency borrowing and, if drawn upon, would have an applicable margin, inclusive of the commitment
fee, of 1.25% plus the applicable currency LIBOR rate. Our ability to borrow under the New Facility is subject to
compliance with the terms and conditions under the New Facility, including certain leverage covenants. Based
upon the current level of operations, management believes that our cash flow from operations, together with our
significant cash balances, available borrowings under the New Facility, and our capacity for additional
borrowings will be adequate to meet anticipated requirements for scheduled maturities (primarily our
$294 million of Senior Notes due in 2015), 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. Approximately $145 million, included
in our cash balance above, is deemed to be permanently invested in foreign countries and we would be subject to
income taxes if we repatriated these amounts. 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, 2012 (in millions):
Total
Due in Less
Than 1 Year
Due in
1-3 Years
Due in
3-5 Years
Due After
5 Years
Debt
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . $1,274 $ 2 $297 $ 38 $ 937
Interest payable . . . . . . . . . . . . . . . . . . . . 462 74 155 113 120
Capital lease obligations . . . . . . . . . . . . . 1 1
Operating lease obligation . . . . . . . . . . . . 1,410 95 185 167 963
Unconditional purchase obligations
(3)
. . . 143 76 62 5
Other long-term obligations . . . . . . . . . . . 16 1 3 4 8
Total contractual obligations . . . . . . . . . . $3,306 $248 $703 $327 $2,028
(1) This table excludes unrecognized tax benefits that would require cash outlays for $226 million, the timing of
which is uncertain. Refer to Note 14 of the consolidated financial statements for additional discussion on this
matter.
(2) Excludes securitized debt of $533 million, all of which is non-recourse.
(3) Includes commitments that may be reimbursed or satisfied by our managed and franchised properties.
We had the following commercial commitments outstanding as of December 31, 2012 (in millions):
Total
Less Than
1 Year 1-3 Years 3-5 Years
After 5
Years
Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . $117 $94 $19 $ $4
A dividend of $1.25 per share was paid in December 2012 to shareholders of record as of December 14,
2012.
A dividend of $0.50 per share was paid in December 2011 to shareholders of record as of December 15,
2011.
48
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements include letters of credit of $117 million, unconditional purchase
obligations of $143 million and surety bonds of $80 million. These items are discussed in greater detail in Item 8,
Financial Statements and Supplementary Data, and in Note 25.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
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, 2012, we were party to the following derivative instruments:
Forward contracts to hedge forecasted transactions for management and franchise fee revenues earned in
foreign currencies. The aggregate dollar equivalent of the notional amounts was approximately
$40 million. These contracts expire in 2013.
Forward foreign exchange contracts to manage the foreign currency exposure related to certain
intercompany loans not deemed to be permanently invested. The aggregate dollar equivalent of the
notional amounts of the forward contracts was approximately $645 million. These contracts expire in
2013.
49
The following table sets forth the scheduled maturities and the total fair value of our indebtedness and
financial instruments as of December 31, 2012 (in millions, excluding average exchange rates):
Expected Maturity or Transaction Date
At December 31,
Total at
December 31,
2012
Total Fair
Value at
December 31,
2012 2013 2014 2015 2016 2017 Thereafter
Indebtedness
Fixed rate . . . . . . . . . . . . . . . . . . . . . . $ 1 $ $294 $ $ $937 $1,232 $1,406
Average interest rate . . . . . . . . . . . . . . 5.90%
Floating rate . . . . . . . . . . . . . . . . . . . . $ 1 $ 2 $ 2 $35 $ 3 $ $ 43 $ 43
Average interest rate . . . . . . . . . . . . . . 4.65%
Forward Foreign Exchange Hedge
Contracts:
Fixed (EUR) to Fixed (USD) . . . . . . . $ 40 $ $ $ $ $ $ (1) $ (1)
Average Exchange rate . . . . . . . . . . . . 1.29
Forward Foreign Exchange
Contracts:
Fixed (EUR) to Fixed (USD) . . . . . . . $ 55 $ $ $ $ $ $ $
Fixed (USD) to Fixed (EUR) . . . . . . . $ 41 $ $ $ $ $ $ $
Fixed (CLP) to Fixed (USD) . . . . . . . $ 59 $ $ $ $ $ $ $
Fixed (THB) to Fixed (USD) . . . . . . . $ 13 $ $ $ $ $ $ $
Fixed (JPY) to Fixed (USD) . . . . . . . . $ 84 $ $ $ $ $ $ 2 $ 2
Fixed (MXP) to Fixed (USD) . . . . . . . $ 10 $ $ $ $ $ $ $
Fixed (AUD) to Fixed (USD) . . . . . . . $ 15 $ $ $ $ $ $ $
Fixed (CAD) to Fixed (USD) . . . . . . . $259 $ $ $ $ $ $ $
Fixed (GBP) to Fixed (EUR) . . . . . . . $ 90 $ $ $ $ $ $ $
Fixed (JPY) to Fixed (THB) . . . . . . . . $ 19 $ $ $ $ $ $ $
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data required by this item appear beginning on page F-1 of this
Annual Report and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
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
50
Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (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(f)
and 15(d)-15(f) 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.
Managements Report on Internal Control over Financial Reporting and the Report of the Corporations
Independent Registered Public Accounting Firm are set forth in Part II of the Annual Report and are incorporated
herein by reference.
Item 9B. Other Information.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information regarding directors and corporate governance will be included in our proxy statement for the
2013 Annual Meeting of Stockholders (the Proxy Statement). The Proxy Statement will be filed with the
Securities and Exchange Commission within 120 days after the close of our fiscal year ended December 31, 2012
and such information is incorporated herein by reference.
Executive Officers of the Registrants
The following table includes certain information with respect to each of our executive officers.
Name
(listed alphabetically, after
Chief Executive Officer) Position
Frits van Paasschen Chief Executive Officer and President and a Director
Jeffrey M. Cava Executive Vice President and Chief Human Resources Officer
Christie N. Hicks Senior Vice President, Starwood Sales Organization
Philip P. McAveety Executive Vice President and Chief Brand Officer
Vasant M. Prabhu Vice Chairman and Chief Financial Officer
Sergio D. Rivera Co-President, The Americas
Kenneth S. Siegel Chief Administrative Officer, General Counsel and Secretary
Simon M. Turner President, Global Development
Biographies for our executive officers follow:
Frits van Paasschen. Mr. van Paasschen, 52, has been Chief Executive Officer and President of the
Company since September 2007. From March 2005 until September 2007, he served as President and Chief
Executive Officer of Molson Coors Brewing Companys largest division, Coors Brewing Company, a brewing
company, prior to its merger with Miller Brewing Company and the formation of MillerCoors LLC. Prior to
joining Coors, from April 2004 until March 2005, Mr. van Paasschen worked independently through FPaasschen
Consulting, a consulting company, and Mercator Investments, a private equity firm, evaluating, proposing, and
negotiating private equity transactions. Prior thereto, Mr. van Paasschen spent seven years at Nike, Inc., a
designer, developer and marketer of footwear, apparel and accessory products, most recently as Corporate Vice
51
President/General Manager, Europe, Middle East and Africa from 2000 to 2004. From 1995 to 1997, Mr. van
Paasschen served as Vice President, Finance and Planning at Disney Consumer Products, a business segment of
The Walt Disney Company that extends the Disney brand to a range of merchandise, and earlier in his career was
a management consultant for eight years at the global management consulting firm of McKinsey & Company and
the Boston Consulting Group. Mr. van Paasschen has been a director of the Company since September 2007.
Jeffrey M. Cava. Mr. Cava, 61, has been Executive Vice President and Chief Human Resources Officer
since May 2008. Mr. Cava served as Executive Vice President Administration and Chief Human Resources
Officer for Wendys International, Inc., a restaurant franchising company specializing in quick-service
hamburgers, from June 2003 to May 2008. Prior to joining Wendys, Mr. Cava was Vice President and Chief
Human Resources Officer for Nike, Inc., a designer, developer and marketer of footwear, apparel and accessory
products; Vice President Human Resources for The Walt Disney Company, Consumer Products Group, a
business segment of The Walt Disney Company that extends the Disney brand to a range of merchandise; and
Vice President of Global Staffing, Training and Development for ITT Sheraton Corporation, a hotel company.
Mr. Cava is also a member of the board of directors and has chaired the compensation committee of The Society
for Human Resources Management, a non-profit global human resources professional organization.
Christie N. Hicks. Ms. Hicks, 57, has been Senior Vice President of Sales, Starwood Sales Organization
since December, 2009. Ms. Hicks has been with the Company since October, 1999, when she joined as Vice
President, Global Sales, North America, a position she held until mid-2001. From June 2001 to October 2009,
Ms. Hicks was Senior Vice President, Global Sales of the Company. Prior to joining the Company, Ms. Hicks
held a number of sales positions with Hyatt Hotels and Resorts, a global hospitality company, including Vice
President, National Sales.
Philip P. McAveety. Mr. McAveety, 46, has been Executive Vice President and Chief Brand Officer since
April 2008. Prior to joining the company, Mr. McAveety was Global Brand Director of Camper, SL, a fashion
footwear company, from January 2007 until March 2008. From July 1997 until December 2006, he served as
Vice President, Brand Marketing, Europe, Middle East and Africa at Nike, Inc., a designer, developer and
marketer of footwear, apparel and accessory products.
Vasant M. Prabhu. Mr. Prabhu, 53, has been Vice Chairman and Chief Financial Officer since February
2010. Prior to that, he was Executive Vice President and Chief Financial Officer since January 2004. Prior to
joining the Company, Mr. Prabhu served as Executive Vice President and Chief Financial Officer for Safeway
Inc., a North American food and drug retailer specializing in grocery and general merchandise, from September
2000 through December 2003. Mr. Prabhu was previously the President of the Information and Media Group at
the McGraw-Hill Companies, Inc., a provider of information services for the financial, education, commercial,
and commodities market worldwide, from June 1998 to August 2000, and held several senior positions at
divisions of PepsiCo, Inc., a global food, snack and beverage company, from June 1992 to May 1998. From
August 1983 to May 1992 he was a partner at Booz Allen Hamilton Inc., an international management consulting
firm. Mr. Prabhu is a member of the board of directors of Mattel, Inc.
Sergio D. Rivera. Mr. Rivera, 50, has been Co-President, The Americas since June 2012. Previously,
Mr. Rivera was President and Chief Executive Officer of Starwood Vacation Ownership, a wholly owned
subsidiary of the Company. Prior to 2008, Mr. Rivera held progressively senior management roles within the
Company, including Controller, Vice President of Sales and Marketing, Senior Vice President of International
Operations, and President of Global Real Estate. Mr. Rivera began his career with the Company through its
predecessor company, Vistana Resorts, in 1989.
Kenneth S. Siegel. Mr. Siegel, 57, has been Chief Administrative Officer and General Counsel since May
2006. From November 2000 to May 2006, Mr. Siegel held the position of Executive Vice President and General
Counsel. In February 2001, he was also appointed as the Secretary of the Company. Mr. Siegel was formerly the
Senior Vice President and General Counsel of Gartner, Inc., a provider of research and analysis on information
technology industries, from January 2000 to November 2000. Prior to that time, he served as Senior Vice
President, General Counsel and Corporate Secretary of IMS Health Incorporated, an information services
company, and its predecessors from February 1997 to December 1999. Prior to that time, Mr. Siegel was a
Partner in the law firm of Baker & Botts, LLP. Mr. Siegel is also a Trustee of Cancer Hope Network, a non-profit
52
entity, a Trustee of Minority Corporate Counsel Association, and a Trustee of the American Hotel & Lodging
Educational Foundation.
Simon M. Turner. Mr. Turner, 51, has been President, Global Development since May 2008. From June
1996 to April 2008, he was a principal of Hotel Capital Advisers, Inc., a hotel investment advisory firm. During
this period, Mr. Turner served on the board of directors of Four Season Hotels, Inc., serving as a member of the
Human Resources Committee and the Audit Committee. He was also a member of the board of directors of
Fairmont Raffles Hotels International and was chairman of the Audit Committee. From July 1987 to May 1996,
Mr. Turner was a member of the Investment Banking Department of Salomon Brothers, based in both New York
and London. He currently serves as a trustee of the Urban Land Institute and is a member of the Deans Advisory
Board of the School of Hotel Administration at Cornell University.
Item 11. Executive Compensation.
Information regarding executive compensation will be included in our Proxy Statement. The Proxy
Statement will be filed with the Securities and Exchange Commission within 120 days after the close of our
fiscal year ended December 31, 2012 and such information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Information regarding security ownership of certain beneficial owners and management and related
stockholder matters will be included in our Proxy Statement. The Proxy Statement will be filed with the
Securities and Exchange Commission within 120 days after the close of our fiscal year ended December 31, 2012
and such information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and Director Independence.
Information regarding certain relationships and related transactions and director independence will be
included in our Proxy Statement. The Proxy Statement will be filed with the Securities and Exchange
Commission within 120 days after the close of our fiscal year ended December 31, 2012 and such information is
incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
Information regarding principal accounting fees and services will be included in our Proxy Statement. The
Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the close of
our fiscal year ended December 31, 2012 and such information is incorporated herein by reference.
53
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this Annual Report:
1-2. The financial statements and financial statement schedule listed in the Index to Financial
Statements and Schedule following the signature pages hereof.
3. Exhibits:
Exhibit
Number Description of Exhibit
3.1 Articles of Amendment and Restatement of the Company, as of May 30, 2007 (incorporated by
reference to Appendix A to the Companys 2007 Notice of Annual Meeting and Proxy Statement filed
with the SEC on April 26, 2007).
3.2 Amended and Restated Bylaws of the Company, as amended and restated through April 10, 2006
(incorporated by reference to Exhibit 3.2 to the Companys Current Report on Form 8-K filed with the
SEC on April 13, 2006 (the April 13 Form 8-K).
3.3 Amendment to Amended and Restated Bylaws of the Company, dated as of March 13, 2008
(incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed with the
SEC on March 18, 2008).
4.1 Termination Agreement dated as of April 7, 2006 between the Company and the Trust (incorporated
by reference to Exhibit 4.1 of the April 13 Form 8-K).
4.2 Amended and Restated Rights Agreement, dated as of April 7, 2006, between the Company and
American Stock Transfer and Trust Company, as Rights Agent (which includes the form of Amended
and Restated Articles Supplementary of the Series A Junior Participating Preferred Stock as Exhibit
A, the form of Rights Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Stock
as Exhibit C) (incorporated by reference to Exhibit 4.2 of the April 13 Form 8-K).
4.3 Amended and Restated Indenture, dated as of November 15, 1995, as Amended and Restated as of
December 15, 1995 between ITT Corporation (formerly known as ITT Destinations, Inc.) and the
First National Bank of Chicago, as trustee (incorporated by reference to Exhibit 4.A.IV to the First
Amendment to ITT Corporations Registration Statement on Form S-3 filed November 13, 1996).
4.4 First Indenture Supplement, dated as of December 31, 1998, among ITT Corporation, the Company
and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K filed with the SEC on January 8, 1999).
4.5 Second Indenture Supplement, dated as of April 9, 2006, among the Company, Sheraton Holding
Corporation and Bank of New York Trust Company, N.A., as trustee (incorporated by reference to
Exhibit 4.3 to the April 13 Form 8-K).
4.6 Indenture, dated as of September 13, 2007, between the Company and U.S. Bank National
Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current Report on
Form 8-K filed with the SEC on September 17, 2007 (the September 17 Form 8-K)).
4.7 Supplemental Indenture No. 2, dated as of May 23, 2008, between the Company and U.S. Bank
National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K filed with the SEC on May 28, 2008).
4.8 Supplemental Indenture No. 4, dated as of November 20, 2009, between the Company and U.S. Bank
National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K filed with the SEC on November 23, 2009).
4.9 Indenture, dated as of December 10, 2012, between the Company and The Bank of New York Mellon
Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K filed with the SEC on December 10, 2012 (the December 10 Form 8-K)).
4.10 Supplemental Indenture No. 1, dated as of December 10, 2012, between the Company and The Bank of
New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 to the
December 10 Form 8-K).
The registrant hereby agrees to file with the Commission a copy of any instrument, including
indentures, defining the rights of long-term debt holders of the registrant and its consolidated
subsidiaries upon the request of the Commission.
54
Exhibit
10.1 Third Amended and Restated Limited Partnership Agreement of SLC Operating Limited Partnership,
dated January 6, 1999, among the Company and the limited partners of SLC Operating Limited
Partnership (incorporated by reference to Exhibit 10.2 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).
10.2 Form of Trademark License Agreement, dated as of December 10, 1997, between Starwood Capital
Group, L.L.C. and [the Company]/[Starwood Lodging Trust] (incorporated by reference to Exhibit 10.22
to the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
10.3 Credit Agreement, dated as of November 30, 2012, by and among the Company, certain of its
subsidiaries, as borrowers, the lenders from time to time party thereto, JPMorgan Chase Bank, N.A.,
as administrative agent, Citigroup Global Markets Inc., as syndication agent, Bank of America, N.A.,
HSBC Bank USA, National Association and Wells Fargo Bank, National Association, as
documentation agents (incorporated by reference to Exhibit 10.1 to the Companys Current Report on
Form 8-K filed with the SEC on December 5, 2012).
10.4 First Amendment to Credit Agreement, dated as of February 6, 2013, by and among the Company,
certain of its subsidiaries, as borrowers, JPMorgan Chase Bank, N.A., as administrative agent, and the
lenders party thereto.
+
10.5 Starwood Hotels & Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation Plan (the
1999 LTIP) (incorporated by reference to Exhibit 10.4 to the Companys Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1999 (the 1999 Form 10-Q2)).
*
10.6 First Amendment to the 1999 LTIP, dated as of August 1, 2001 (incorporated by reference to Exhibit
10.1 to the Companys Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2001).
*
10.7 Second Amendment to the 1999 LTIP (incorporated by reference to Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003 (the 2003
Form 10-Q1)).
*
10.8 Form of Non-Qualified Stock Option Agreement pursuant to the 1999 LTIP (incorporated by
reference to Exhibit 10.30 to the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2004 (the 2004 Form 10-K)).
*
10.9 Form of Restricted Stock Agreement pursuant to the 1999 LTIP (incorporated by reference to
Exhibit 10.31 to the 2004 Form 10-K).
*
10.10 Starwood Hotels & Resorts Worldwide, Inc. 2002 Long-Term Incentive Compensation Plan (the
2002 LTIP) (incorporated by reference to Annex B of the Companys 2002 Notice of Annual
Meeting and Proxy Statement filed with the SEC on April 12, 2002).
*
10.11 First Amendment to the 2002 LTIP (incorporated by reference to Exhibit 10.1 to the 2003
Form 10-Q1).
*
reference to Exhibit 10.49 to the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 (the 2002 Form 10-K)).
*
*
10.14 2004 Long-Term Incentive Compensation Plan, amended and restated as of December 31, 2008
(2004 LTIP) (incorporated by reference to Exhibit 10.3 to the Companys Current Report on
Form 8-K filed with the SEC on January 6, 2009 (the January 2009 Form 8-K)).
*
reference to Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004).
*
*
reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed with the SEC
February 13, 2006 (the February 2006 Form 8-K)).
*
55
Exhibit
Exhibit 10.1 to the February 2006 Form 8-K).
*
10.19 Form of Amended and Restated Non-Qualified Stock Option Agreement pursuant to the 2004 LTIP
(incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the
period ended June 30, 2006 (the 2006 Form 10-Q2)).
*
10.20 Form of Amended and Restated Restricted Stock Agreement pursuant to the 2004 LTIP (incorporated
by reference to Exhibit 10.2 to the 2006 Form 10-Q2).
*
10.21 Annual Incentive Plan for Certain Executives, amended and restated as of December 2008
(incorporated by reference to Exhibit 10.2 to the January 2009 Form 8-K).
*
10.22 Starwood Hotels & Resorts Worldwide, Inc. Amended and Restated Deferred Compensation Plan,
effective as of January 22, 2008 (incorporate by reference to Exhibit 10.35 to the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2007).
*
10.23 Form of Indemnification Agreement between the Company and each of its Directors and executive
officers (incorporated by reference to Exhibit 10.10 to the Companys Current Report on Form 8-K
filed with the SEC on November 25, 2009).
*
10.24 Employment Agreement, dated as of November 13, 2003, between the Company and Vasant Prabhu
(incorporated by reference to Exhibit 10.68 to the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2003).
*
10.25 Letter Agreement, dated August 14, 2007, between the Company and Vasant Prabhu (incorporated by
reference to Exhibit 10.3 to the Companys Current Report on Form 8-K filed with the SEC on August
17, 2007 (the August 17 Form 8-K)).
*
10.26 Amendment, dated as of December 30, 2008, to employment agreement between the Company and
Vasant Prabhu (incorporated by reference to Exhibit 10.34 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2008 (the 2008 Form 10-K)).
*
10.27 Employment Agreement, dated as of September 25, 2000, between the Company and Kenneth Siegel
(incorporated by reference to Exhibit 10.57 to the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2000).
*
10.28 Letter Agreement, dated July 22, 2004 between the Company and Kenneth Siegel (incorporated by
reference to Exhibit 10.73 to the 2004 Form 10-K).
*
Kenneth S. Siegel (incorporated by reference to Exhibit 10.43 to the 2008 Form 10-K).
*
10.30 Employment Agreement, dated as of August 2, 2007, between the Company and Bruce W. Duncan
(incorporated by reference to Exhibit 10.5 to the Companys Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2007).
*
10.31 Form of Restricted Stock Unit Agreement between the Company and Bruce W. Duncan pursuant to
the 2004 LTIP (incorporated by reference to Exhibit 10.4 to the Companys Quarterly Report on
Form 10-Q for the period ended March 31, 2007).
*
10.32 Amended and Restated Employment Agreement, dated as of December 30, 2008, between the
Company and Frits van Paasschen (incorporated by reference to Exhibit 10.52 to the 2008
Form 10-K).
*
10.33 Form of Non-Qualified Stock Option Agreement between the Company and Frits van Paasschen
pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.5 to the Companys Quarterly
Report on Form 10-Q for the period ended September 30, 2007 (the 2007 Form 10-Q3)).
*
10.34 Form of Restricted Stock Unit Agreement between the Company and Frits van Paasschen pursuant to
the 2004 LTIP (incorporated by reference to Exhibit 10.6 to the 2007 Form 10-Q3).
*
10.35 Form of Restricted Stock Grant between the Company and Frits van Paasschen pursuant to the 2004
LTIP (incorporated by reference to Exhibit 10.7 to the 2007 Form 10-Q3).
*
10.36 Form of Severance Agreement between the Company and each of Messrs. Siegel and Prabhu
(incorporated by reference to Exhibit 10.57 to the 2008 Form 10-K).
*
56
Exhibit
10.37 Letter Agreement, dated August 22, 2008, between the Company and Matthew Avril (incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2009 (the 2009 Form 10-Q1).
*
Matthew Avril (incorporated by reference to Exhibit 10.2 to the 2009 Form 10-Q1).
*
Matthew Avril (incorporated by reference to Exhibit 10.41 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2011).
*
10.40 Amended and Restated Severance Agreement, dated as of December 30, 2008, between the Company
and Matthew Avril (incorporated by reference to Exhibit 10.3 to the 2009 Form 10-Q1).
*
10.41 Retirement Agreement and Mutual General Release of Claims by and between Starwood International
Licensing Company, S.A.R.L., Starwood Hotels & Resorts Worldwide, Inc. and Matthew E. Avril,
dated as of April 12, 2012 (incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed with the SEC April 16, 2012).
*
10.42 Letter Agreement, dated April 15, 2008, between the Company and Simon Turner (incorporated by
reference to Exhibit 10.7 to the 2009 Form 10-Q1).
*
Simon Turner (incorporated by reference to Exhibit 10.8 to the 2009 Form 10-Q1).
*
10.44 Amended and Restated Severance Agreement, dated as of December 30, 2008, between the Company
and Simon Turner (incorporated by reference to Exhibit 10.9 to the 2009 Form 10-Q1).
*
12.1 Calculation of Ratio of Earnings to Total Fixed Charges.
+
21.1 List of our Subsidiaries.
+
23.1 Consent of Ernst & Young LLP.
+
31.1 Certification Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 Chief Executive
Officer.
+
31.2 Certification Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 Chief Financial
Officer.
+
32.1 Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code Chief
Executive Officer.
+
32.2 Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code Chief
Financial Officer.
+
101 The following materials from Starwood Hotels & Resorts Worldwide, Inc.s Annual Report on
Form 10-K for the year ended December 31, 2012 formatted in XBRL (eXtensible Business Reporting
Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the
Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Equity,
(v) the Consolidated Statements of Cash Flows, and (vi) notes to the consolidated financial
statements.
+
+ Filed herewith.
* Indicates management contract or compensatory plan or arrangement
57
SIGNATURES
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.
By:
/s/ FRITS VAN PAASSCHEN
Frits van Paasschen
Chief Executive Officer and Director
Date: February 21, 2013
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.
Signature Title Date
/s/ FRITS VAN PAASSCHEN
Chief Executive Officer and Director February 21, 2013
Frits van Paasschen
/s/ BRUCE W. DUNCAN
Chairman and Director February 21, 2013
Bruce W. Duncan
/s/ VASANT M. PRABHU
Executive Vice President and Chief February 21, 2013
Vasant M. Prabhu Financial Officer (Principal Financial
Officer)
/s/ ALAN M. SCHNAID
Senior Vice President, Corporate February 21, 2013
Alan M. Schnaid Controller and Principal Accounting
Officer
/s/ ADAM M. ARON
Director February 21, 2013
Adam M. Aron
/s/ CHARLENE BARSHEFSKY
Charlene Barshefsky
/s/ THOMAS E. CLARKE
Thomas E. Clarke
/s/ CLAYTON C. DALEY, JR.
Clayton C. Daley, Jr.
/s/ LIZANNE GALBREATH
Lizanne Galbreath
/s/ ERIC HIPPEAU
Eric Hippeau
/s/ AYLWIN B. LEWIS
Aylwin B. Lewis
/s/ STEPHEN R. QUAZZO
Stephen R. Quazzo
/s/ THOMAS O. RYDER
Thomas O. Ryder
58
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Page
Managements Report on Internal Control over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Balance Sheets as of December 31, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Income for the Years Ended December 31, 2012, 2011 and 2010 . . . . . . . . . . . F-6
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012, 2011 and
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Consolidated Statements of Equity for the Years Ended December 31, 2012, 2011 and 2010 . . . . . . . . . . . F-8
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010 . . . . . . . F-9
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10
Schedule:
Schedule II Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
F-1
Managements Report on Internal Control over Financial Reporting
Management of Starwood Hotels & Resorts Worldwide, Inc. and its subsidiaries (Company) 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).
Our management assessed the effectiveness of the Companys internal controls over financial reporting as
of December 31, 2012. In making this assessment, the Companys management used the criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on assessment and those criteria, management believes that, as of December 31,
2012, the Companys 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 Companys internal
control over financial reporting. The report is included herein.
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Starwood Hotels & Resorts Worldwide, Inc.
We have audited Starwood Hotels & Resorts Worldwide, Inc.s (the Company) internal control over
financial reporting as of December 31, 2012, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). The Companys 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 Managements Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Companys 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 companys 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 companys 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
companys 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, 2012 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, 2012 and 2011 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, 2012 of the Company and our report dated February 21, 2013, expressed
an unqualified opinion thereon.
/s/ Ernst & Young LLP
New York, New York
February 21, 2013
F-3
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders 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, 2012 and 2011, 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,
2012. 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 Companys 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, 2012 and 2011, and the consolidated results of
its operations and its cash flows for each of the three years in the period ended December 31, 2012, 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.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Companys internal control over financial reporting as of December 31, 2012, 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 21, 2013 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
New York, New York
February 21, 2013
F-4
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
December 31,
2012 2011
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 305 $ 454
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 232
Accounts receivable, net of allowance for doubtful accounts of $59 and $46 . . . . . . . . . . . . . 586 569
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361 812
Securitized vacation ownership notes receivable, net of allowance for doubtful accounts of
$9 and $10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 64
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320 278
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 125
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,919 2,534
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 259
Plant, property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,162 3,232
Assets held for sale, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 42
Goodwill and intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,025 2,053
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 636 639
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385 355
Securitized vacation ownership notes receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438 446
$8,861 $9,560
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . $ 2 $ 3
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 144
Current maturities of long-term securitized vacation ownership debt . . . . . . . . . . . . . . . . . . . 150 130
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,074 1,177
Accrued salaries, wages and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395 375
Accrued taxes and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287 163
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,029 1,992
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,273 2,194
Long-term securitized vacation ownership debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383 402
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 46
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,956 1,971
5,719 6,605
Commitments and contingencies
Stockholders equity:
Common stock; $0.01 par value; authorized 1,000,000,000 shares; outstanding 193,121,094
and 195,913,400 shares at December 31, 2012 and 2011, respectively . . . . . . . . . . . . . . . . 2 2
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 816 963
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (338) (348)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,657 2,337
Total Starwood stockholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,137 2,954
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,142 2,955
$8,861 $9,560
The accompanying notes to financial statements are an integral part of the above statements.
F-5
CONSOLIDATED STATEMENTS OF INCOME
2012 2011 2010
Revenues
Owned, leased and consolidated joint venture hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,698 $ 1,768 $ 1,704
Vacation ownership and residential sales and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,287 703 538
Management fees, franchise fees and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 888 814 712
Other revenues from managed and franchised properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,448 2,339 2,117
6,321 5,624 5,071
Costs and Expenses
Owned, leased and consolidated joint venture hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,391 1,449 1,395
Vacation ownership and residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 961 521 405
Selling, general, administrative and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370 352 344
Restructuring and other special charges (credits), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12) 68 (75)
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 235 252
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 30 33
Other expenses from managed and franchised properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,448 2,339 2,117
5,409 4,994 4,471
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 912 630 600
Equity earnings (losses) and gains and losses from unconsolidated ventures, net . . . . . . . . . . . . 25 11 10
Interest expense, net of interest income of $2, $3 and $2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (170) (200) (235)
Loss on early extinguishment of debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (128) (16) (1)
Gain (loss) on asset dispositions and impairments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21) (39)
Income (loss) from continuing operations before taxes and noncontrolling interests . . . . . . . . . . 618 425 335
Income tax benefit (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (148) 75 (27)
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470 500 308
Discontinued operations:
Income (loss) from operations, net of tax (benefit) expense of $0, $0 and $0 . . . . . . . . . . . . . . (1)
Gain (loss) on dispositions, net of tax (benefit) expense of $87, $(5) and $(166) . . . . . . . . . . . 92 (13) 168
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562 487 475
Net (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2
Net income attributable to Starwood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 562 $ 489 $ 477
Earnings (Losses) Per Share Basic
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.44 $ 2.65 $ 1.70
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.48 (0.07) 0.91
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.92 $ 2.58 $ 2.61
Earnings (Losses) Per Share Diluted
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.39 $ 2.57 $ 1.63
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.47 (0.06) 0.88
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.86 $ 2.51 $ 2.51
Amounts attributable to Starwoods Common Shareholders
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 470 $ 502 $ 310
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 (13) 167
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 562 $ 489 $ 477
Weighted average number of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 189 183
Weighted average number of shares assuming dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 195 190
Dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.25 $ 0.50 $ 0.30
F-6
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
2012 2011 2010
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $562 $487 $475
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (48) 3
Defined benefit pension and postretirement benefit plans net gains (losses) arising
during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13) (20) (4)
Amortization of actuarial gains and losses included in net periodic pension cost . . . 2 1 1
Change in fair value of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 (1)
Reclassification adjustments for losses (gains) included in net income . . . . . . . . . . . . . (4) 2 1
Change in fair value of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
10 (64) (1)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 572 423 474
Comprehensive (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . 2 2
Foreign currency translation adjustments attributable to noncontrolling interests . . . . . (1) 1
Comprehensive income attributable to Starwood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $572 $424 $477
F-7
CONSOLIDATED STATEMENTS OF EQUITY
Equity Attributable to Starwood Stockholders
Shares
Additional
Paid-in
Capital
(1)
Accumulated
Other
Comprehensive
(Loss)
Income
(2)
Retained
Earnings
Equity
Attributable to
Noncontrolling
Interests Total Shares Amount
(in millions)
Balance at December 31, 2009 . . 187 $ 2 $ 552 $(283) $1,553 $ 21 $1,845
Net income (loss) . . . . . . . . . . . . . 477 (2) 475
Stock option and restricted stock
award transactions, net . . . . . . . 6 248 248
ESPP stock issuances . . . . . . . . . . 5 5
Impact of adoption of ASU
No. 2009-17 . . . . . . . . . . . . . . . (26) (26)
Other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . (1) (1)
Dividends declared . . . . . . . . . . . (57) (3) (60)
Balance at December 31, 2010 . . 193 2 805 (283) 1,947 15 2,486
Net income (loss) . . . . . . . . . . . . . 489 (2) 487
(loss) . . . . . . . . . . . . . . . . . . . . (65) 1 (64)
Dividends declared . . . . . . . . . . . (99) (1) (100)
Sale of controlling interest . . . . . . (13) (13)
Other . . . . . . . . . . . . . . . . . . . . . . (1) 1
Balance at December 31, 2011 . . 196 2 963 (348) 2,337 1 2,955
Net income (loss) . . . . . . . . . . . . . 562 562
Share repurchases . . . . . . . . . . . . (6) (320) (320)
(loss) . . . . . . . . . . . . . . . . . . . . 10 10
Dividends declared . . . . . . . . . . . (242) (242)
Sale of controlling interest . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . 4 4
Balance at December 31, 2012 . . 193 $ 2 $ 816 $(338) $2,657 $ 5 $3,142
(1) Stock option and restricted stock award transactions are net of a tax (expense) benefit of $72 million, $26 million and $28 million in
2012, 2011, and 2010 respectively.
(2) As of December 31, 2012, this balance is comprised of $251 million of cumulative translation adjustments, $86 million of net
unrecognized actuarial losses, and $1 million of unrecognized losses on forward contracts.
F-8
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
2012 2011 2010
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 562 $ 487 $ 475
Adjustments to net income:
Discontinued operations:
(Gain) loss on dispositions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (92) 13 (168)
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 75 72
Excess stock-based compensation tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (72) (26) (28)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 265 285
Amortization of deferred loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 11 13
Non-cash portion of restructuring and other special charges (credits), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7)
Non-cash foreign currency (gains) losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) 12 (39)
Amortization of deferred gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (87) (87) (81)
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 31 55
Distributions in excess (deficit) of equity earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3
Loss (gain) on asset dispositions and impairments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 39
Non-cash portion of income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20) 63 16
Changes in working capital:
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (27) 9
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (45) (22)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448 (14) (110)
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) (15) 1
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 78 13
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 (195) 200
Securitized VOI notes receivable activity, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 (45) (29)
VOI notes receivable activity, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24) 12 1
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 41 66
Cash (used for) from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,184 641 764
Investing Activities
Purchases of plant, property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (362) (385) (227)
Proceeds from asset sales, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 528 290 148
Issuance of notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) (10) (1)
Collection of notes receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 7 2
Acquisitions, net of acquired cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (28) (18)
Purchases of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (8) (32)
Proceeds from investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4 49
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41) (46) 8
Cash (used for) from investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 (176) (71)
Financing Activities
Revolving credit facility and short-term borrowings (repayments), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (114)
Long-term debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358 47 3
Long-term debt repaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,409) (650) (9)
Long-term securitized debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 200 280
Long-term securitized debt repaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (165) (162) (224)
(Increase) decrease in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 (144)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (242) (99) (93)
Proceeds from stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 70 141
Excess stock-based compensation tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 26 28
Share repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (320)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (59) (43) (38)
Cash (used for) from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,456) (755) (26)
Exchange rate effect on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (9) (1)
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (149) (299) 666
Cash and cash equivalents beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454 753 87
Cash and cash equivalents end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 305 $ 454 $ 753
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170 $ 188 $ 244
Income taxes, net of refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103 $ 42 $(171)
Non-cash acquisition of Hotel Imperial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 57 $
F-9
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying consolidated financial statements represent the consolidated financial position and
consolidated results of operations of Starwood Hotels & Resorts Worldwide, Inc. and its subsidiaries. We are one
of the worlds largest hotel and leisure companies. Our principal business is hotels and leisure, which is
comprised of a worldwide hospitality network of approximately 1,100 full-service hotels, vacation ownership
resorts and residential developments primarily serving two markets: luxury and upscale. The principal operations
of Starwood Vacation Ownership, Inc. (SVO) include the development and operation of vacation ownership
resorts; and marketing, selling and financing of vacation ownership interests (VOIs) in the resorts.
The consolidated financial statements include our assets, liabilities, revenues and expenses and those of our
controlled subsidiaries and partnerships. In consolidating, all material intercompany transactions are eliminated.
We have evaluated all subsequent events through the date the consolidated financial statements were filed.
Following the guidance for noncontrolling interests in Accounting Standards Codification (ASC) Topic
810, Consolidation, references in this report to our earnings per share, net income, and shareholders equity
attributable to Starwoods common shareholders do not include amounts attributable to noncontrolling interests.
reorganization, these results are now segregated into three separate hotel segments: (i) the Americas, (ii) Europe,
Africa and the Middle East (EAME), and (iii) Asia Pacific. The vacation ownership and residential business
remains a separate segment. Our consolidated financial statements were unaffected by this internal
reorganization; however, certain prior period footnote data has been restated to be consistent with the current
year presentation. Note 26 to the consolidated financial statements presents further information about our
reportable segments.
Note 2. Significant Accounting Policies
Cash and Cash Equivalents. We consider all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Restricted Cash. The majority of our restricted cash relates to cash used as collateral to reduce fees on
letters of credit. Restricted cash also consists of deposits received on sales of VOIs and residential properties that
are held in escrow until a certificate of occupancy is obtained, the legal rescission period has expired and the
deed of trust has been recorded in governmental property ownership records.
Inventories. Inventories are comprised principally of VOIs of $220 million and $261 million as of
December 31, 2012 and 2011, respectively, residential inventory of $112 million and $521 million at
December 31, 2012 and 2011, respectively, and hotel inventory. VOI and residential inventory, which has an
operating cycle that generally exceeds 12 months, is classified as a current asset consistent with recognized
industry practice. VOIs and residential inventory is carried at the lower of cost or net realizable value and
includes $37 million and $29 million of capitalized interest incurred in 2011 and 2010, respectively. Capitalized
interest incurred in 2012 was de minimis. Hotel inventory includes operating supplies and food and beverage
inventory items which are generally valued at the lower of FIFO cost (first-in, first-out) or market.
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 years mortgage originations over the life of the respective
notes and projects an estimated default rate. As of December 31, 2012, the average estimated default rate of our
pools of receivables was 9.7%.
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current default trends by brand and origination year, and the Fair Isaac Corporation (FICO) scores of the
buyers.
loans are placed on nonaccrual status, and we do not resume interest accrual until payment is received. 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 upon default or that become delinquent.
For the hotel segments, we measure the impairment of a loan based on the present value of expected future
cash flows, discounted at the loans 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 exists. 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 (See Note 12). The operations of the properties held for sale prior to the
sale date are recorded in discontinued operations unless we will have significant continuing involvement (such as
through a management or franchise agreement) after the sale.
Investments. Investments in joint ventures are generally accounted for under the equity method of
accounting when we have a 20% to 50% ownership interest or exercise significant influence over the venture. If
our interest exceeds 50% or, if we have the power to direct the economic activities of the entity and the
obligation to absorb losses, then the results of the joint venture are consolidated herein. All other investments are
generally accounted for under the cost method.
The fair market value of investments is based on the market prices for the last day of the period if the
investment trades on quoted exchanges. For non-traded investments, fair value is estimated based on the
underlying value of the investment, which is dependent on the performance of the investment as well as the
volatility inherent in external markets. In assessing potential impairment for an investment, we will consider
these factors as well as the forecasted financial performance of the investment. If the forecast is not met, we may
have to record an impairment charge.
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Plant, Property and Equipment. Plant, property and equipment are recorded at cost. We recorded
capitalized interest of $7 million, $5 million and $2 million incurred in 2012, 2011 and 2010, respectively. The
cost of improvements that extend the life of plant, property and equipment, such as structural improvements,
equipment and fixtures, are capitalized. Costs for normal repairs and maintenance are expensed as incurred.
Depreciation is recorded on a straight-line basis over the estimated useful economic lives of 15 to 40 years for
buildings and improvements; 3 to 10 years for furniture, fixtures and equipment; 3 to 20 years for information
technology software and equipment; and the lesser of the lease term or the economic useful life for leasehold
improvements. Gains or losses on the sale or retirement of assets are included in income when the assets are
retired or sold provided there is reasonable assurance of the collectability of the sales price and any future
activities to be performed by us relating to the assets sold are insignificant.
We evaluate the carrying value of our assets for impairment in accordance with ASC Topic 360, Property
Plant, and Equipment. When a trigger event occurs for assets in use, we compare the expected undiscounted
future cash flows of the assets to the net book value of the assets. If the expected undiscounted future cash flows
are less than the net book value of the assets, we charge the excess of the net book value over the estimated fair
value to current earnings. Fair value is based upon the discounted cash flows of the assets at rates deemed
reasonable for the type of asset and prevailing market conditions, comparative sales for similar assets, appraisals
and, if appropriate, current estimated net sales proceeds from pending offers.
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 over their respective useful lives. In accordance
with ASC Topic 350, Intangibles Goodwill and Other, we review all goodwill and intangible assets for
impairment annually, or upon the occurrence of a trigger event. ASC Topic 350 permits us to assess qualitative
factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its
carrying amount as a basis to determine whether the two-step impairment test is necessary. We also have the
option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to
performing the first step of the two-step goodwill impairment test. Impairment charges, if any, are recognized in
operating results.
Frequent Guest Program. Starwood Preferred Guest
(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 (see Note 17). Points may be redeemed at substantially all of our owned, leased,
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. Our management and franchise agreements require that we are 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, we increase the SPG point liability for the amount of cash
we receive from our managed and franchised hotels related to the future redemption obligation. For our 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.
Through the services of third-party actuarial analysts, we determine the value of the future redemption
obligation. This value is 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
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estimate of the points that will eventually be redeemed as well as the cost of reimbursing hotels and other third-
parties for other point redemption opportunities.
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 17), as of
December 31, 2012 and 2011, is $922 million and $844 million, respectively, of which $275 million and $251
million, respectively, is included in accrued expenses.
Legal Contingencies. We are subject to various legal proceedings and claims, the outcomes of which are
subject to significant uncertainty. ASC Topic 450, Contingencies requires that an estimated loss from a loss
contingency be accrued with a corresponding 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. Disclosure of a contingency
is required if there is at least a reasonable possibility that a loss has been incurred. 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 the loss. Changes in these factors could materially impact our financial position or our results of
operations.
Fair Value of Financial Instruments. Fair value is defined as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. The fair value
hierarchy prioritizes the inputs to valuation methodologies used to measure fair value as follows;
Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets
or liabilities.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant
to the fair value of the assets or liabilities.
Derivative Financial Instruments. We periodically enter into interest rate swap agreements, based on
market conditions, to manage interest rate exposure. The net settlements paid or received under these agreements
are accrued consistent with the terms of the agreements and are recognized in interest expense over the term of
the related debt.
We enter into forward contracts to manage exposure to foreign currency fluctuations. All foreign currency
hedging instruments have an inverse correlation to the hedged assets or liabilities. Changes in the fair value of
the derivative instruments are classified in the same manner as the classification of the changes in the underlying
assets or liabilities due to fluctuations in foreign currency exchange rates. These forward contracts do not qualify
as hedges.
We periodically enter into forward contracts to manage foreign exchange risk based on market conditions.
We enter into forward contracts to hedge fluctuations in forecasted transactions based on foreign currencies that
are billed in United States dollars. These forward contracts have been designated as cash flow hedges, and their
change in fair value is recorded as a component of other comprehensive income. As a forecasted transaction
occurs, the gain or loss is reclassified from other comprehensive income to management fees, franchise fees and
other income.
We do not enter into derivative financial instruments for trading or speculative purposes, and we monitor
the financial stability and credit standing of our counterparties in these transactions.
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Foreign Currency Translation. Balance sheet accounts are translated at the exchange rates in effect at
each period end and income and expense accounts are translated at the average rates of exchange prevailing
during the year. The national currencies of foreign operations are generally the functional currencies. Gains and
losses from foreign exchange and the effect of exchange rate changes on intercompany transactions long-term in
nature are generally included in other comprehensive income. Gains and losses from foreign exchange rate
changes related to intercompany receivables and payables that are not of a long-term investment nature are
reported currently in costs and expenses and amounted to a net gain of $5 million in 2012, a net loss of $12
million in 2011 and a net gain of $39 million in 2010.
Income Taxes. We provide for income taxes in accordance with principles contained in ASC Topic 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.
Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in earnings in the period when the new rate is enacted. Deferred tax assets are
evaluated for future realization and reduced by a valuation allowance if we believe a portion will not be realized.
We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including
our recent cumulative earnings experience and expectations of future available taxable income by taxing
jurisdiction, the carry-back and carry-forward periods available to us for tax reporting purposes and tax
attributes.
We 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.
Stock-Based Compensation. We calculate the fair value of share-based awards on the date of grant.
Restricted stock awards are valued based on the share price. We have determined that a lattice valuation model
provides a better estimate of the fair value of options granted under our long-term incentive plans than a Black-
Scholes model. The lattice valuation option pricing model requires that we estimate key assumptions such as
expected life, volatility, risk-free interest rates and dividend yield to determine the fair value of share-based
awards, based on both historical information and management decision regarding market factors and trends. We
amortize the share-based compensation expense over the period that the awards are expected to vest, net of
estimated forfeitures. If the actual forfeitures differ from management estimates, additional adjustments to
compensation expense are recorded. Please refer to Note 22, Stock-Based Compensation.
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) management fees and franchise fees;
(3) vacation ownership and residential sales; (4) other revenues from managed and franchised properties.
Generally, revenues are recognized when services are rendered. Taxes collected from customers and submitted to
taxing authorities are not recorded in revenue. The following is a description of the composition of our revenues:
Owned, Leased and Consolidated Joint Ventures Represents revenue primarily derived from hotel
operations, including the rental of rooms and food and beverage sales, from owned, leased or
consolidated joint venture hotels and resorts. Revenue is recognized when rooms are occupied and
services have been rendered. These revenues are impacted by global economic conditions affecting the
travel and hospitality industry as well as relative market share of the local competitive set of hotels.
Revenue per available room (REVPAR), is a leading indicator of revenue trends at owned, leased and
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consolidated joint venture hotels as it measures the period-over-period growth in rooms revenue for
comparable properties.
Management fees and Franchise Fees Represents fees earned on hotels and resorts managed
worldwide, usually under long-term contracts, franchise fees received in connection with the franchise of
our Luxury Collection, Westin, Le Mridien, Sheraton, Four Points by Sheraton, Aloft and Element brand
names, termination fees and the amortization of deferred gains related to sold properties for which we
have significant continuing involvement. Management fees are comprised of a base fee, which is
generally based on a percentage of gross revenues, and an incentive fee, which is generally based on the
propertys profitability. For any time during the year, when the provisions of our management contracts
allow receipt of incentive fees upon termination, incentive fees are recognized for the fees due and earned
as if the contract was terminated at that date, exclusive of any termination fees due or payable. Therefore,
during periods prior to year-end, the incentive fees recorded may not be indicative of the eventual
incentive fees that will be recognized at year-end as conditions and incentive hurdle calculations may not
be final. Franchise fees are generally based on a percentage of hotel room revenues. As with our owned,
leased and consolidated joint venture hotel revenues discussed above, these revenue sources are affected
by conditions impacting the travel and hospitality industry as well as competition from other hotel
management and franchise companies.
Vacation Ownership and Residential Sales We recognize revenue from VOI sales and financings and
the sales of residential units which are typically a component of mixed use projects that include a hotel.
Such revenues are impacted by the state of the global economy and, in particular, the U.S. economy, as
well as interest rates and other economic conditions affecting the lending market. Revenue is generally
recognized upon the buyer demonstrating a sufficient level of initial and continuing investment when the
period of cancellation with refund has expired and receivables are deemed collectible. We determine the
portion of revenues to recognize for sales accounted for under the percentage of completion method based
on judgments and estimates including total project costs to complete. Additionally, we record reserves
against these revenues based on expected default levels. Changes in costs could lead to adjustments to the
percentage of completion status of a project, which may result in differences in the timing and amount of
revenues recognized from the projects. We have also entered into licensing agreements with third-party
developers to offer consumers branded condominiums or residences. Our fees from these agreements are
generally based on the gross sales revenue of units sold. Residential fee revenue is recorded in the period
that a purchase and sales agreement exists, delivery of services and obligations has occurred, the fee to
the owner is deemed fixed and determinable and collectability of the fees is reasonably assured.
Residential revenue on whole ownership units is generally recorded using the completed contract method,
whereby revenue is recognized only when a sales contract is completed or substantially completed.
During the performance period, costs and deposits are recorded on the balance sheet.
Other Revenues from Managed and Franchised Properties These revenues represent reimbursements
of costs incurred by managed hotel properties and franchisees. These costs 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 or net income.
Insurance Retention. Through our captive insurance company, we provide insurance coverage for
workers compensation, employment practices liability, auto liability and physical damage, property and general
liability claims arising at hotel properties owned or managed by us through policies written directly and through
reinsurance arrangements. Estimated insurance claims payable represent expected settlement of outstanding
claims and a provision for claims that have been incurred but not reported. These estimates are based on our
assessment of potential liability using an analysis of available information including pending claims, historical
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experience and current cost trends. The amount of the ultimate liability may vary from these estimates. Estimated
costs of these self-insurance programs are accrued, based on the analysis of third-party actuaries.
Costs Incurred to Sell VOIs. We capitalize direct costs attributable to the sale of VOIs until the sales are
recognized. Selling costs capitalized under this methodology were approximately $4 million as of December 31,
2012 and 2011, and all such capitalized costs are included in prepaid expenses and other assets in the
accompanying consolidated balance sheets. Costs eligible for capitalization follow the guidelines of ASC Topic
978, Real Estate Time Sharing Activities. If a contract is cancelled, we charge the unrecoverable direct selling
costs to expense and record forfeited deposits as income.
VOI and Residential Inventory Costs. Real estate and development costs are valued at the lower of cost or
net realizable value. Development costs include both hard and soft construction costs and together with real
estate costs are allocated to VOIs and residential units on the relative sales value method. Interest, property taxes
and certain other carrying costs incurred during the construction process are capitalized as incurred. Such costs
associated with completed VOI and residential units are expensed as incurred.
Advertising Costs. We enter into multi-media advertising campaigns, including television, radio, internet,
print advertisements and other promotional activities. Costs associated with these campaigns, including
communication and production costs, are aggregated and expensed the first time that the advertising takes place.
If it becomes apparent that the media campaign will not take place, then all costs are expensed at that time.
During the years ended December 31, 2012, 2011 and 2010, we incurred approximately $154 million, $149
million and $132 million of advertising expense and other promotional activities, respectively, a significant
portion of which was reimbursed by managed and franchised hotels.
Use of Estimates. The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications. Certain reclassifications have been made to the prior years financial statements to
conform to the current year presentation.
Impact of Recently Issued Accounting Standards.
Adopted Accounting Standards
In July 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets
for Impairment. This topic permits an entity to assess qualitative factors to determine whether it is more likely
than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount as a basis to
determine whether an additional impairment test is necessary. This topic is for annual and interim impairment
tests performed for fiscal years beginning after September 15, 2012 with early adoption allowed. We adopted this
topic during the fourth quarter of 2012 and it had no impact on our consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350):
Testing Goodwill for Impairment. This topic permits an entity to assess qualitative factors to determine whether
it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis to
determine whether an additional impairment test is necessary. This topic is for annual and interim goodwill
impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption allowed. We
early adopted this topic during the fourth quarter of 2011 in conjunction with our annual impairment testing and
it had no impact on our consolidated financial statements.
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In September 2011, the FASB issued ASU No. 2011-09, Compensation-Retirement Benefits-
Multiemployer Plans (Subtopic 715-80): Disclosures about an Employers Participation in a Multiemployer
Plan. This subtopic addresses concerns from users of financial statements on the lack of transparency about an
employers participation in a multiemployer pension plan. The disclosures also will indicate the financial health
of all of the significant plans in which the employer participates and assist a financial statement user to access
additional information that is available outside of the financial statements. The subtopic is effective for annual
reporting periods ending after December 15, 2011. We adopted this topic as of December 31, 2011 (see Note 19).
In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurements (Topic 820): Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This topic
clarifies the application of existing fair value measurements and disclosure requirements and certain changes to
principles and requirements for measuring fair value. This update is to be applied prospectively and is effective
during interim and annual periods beginning after December 15, 2011. We adopted this ASU on January 1, 2012
(see Note 24).
On January 1, 2010, we adopted ASU No. 2009-17, Consolidations (Topic 810): Improvements to
Financial Reporting by Enterprises Involved with Variable Interest Entities, and we concluded we are the
primary beneficiary of the qualifying special purpose entities (QSPEs) used in our securitization transactions.
Accordingly, we began consolidating the QSPEs on January 1, 2010 and recorded the assets and liabilities of the
QSPEs, a $26 million (net of tax) decrease in beginning retained earnings and a $1 million decrease to
stockholders equity.
Note 3. Earnings (Losses) per Share
The following is a reconciliation of basic earnings per share to diluted earnings per share for income from
continuing operations attributable to Starwoods common shareholders (in millions, except per share data):
2012 2011 2010
Earnings Shares
Per
Share Earnings Shares
Per
Share Earnings Shares
Per
Share
Basic earnings from continuing operations
attributable to Starwoods common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . $470 193 $2.44 $502 189 $2.65 $310 183 $1.70
Effect of dilutive securities:
Employee options and restricted stock
awards . . . . . . . . . . . . . . . . . . . . . . . . . . 4 6 7
Diluted earnings from continuing operations
attributable to Starwoods common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . $470 197 $2.39 $502 195 $2.57 $310 190 $1.63
Approximately 1.3 million shares, 1.2 million shares and 4.8 million shares were excluded from the
computation of diluted shares in 2012, 2011 and 2010, respectively, as their impact would have been anti-
dilutive.
Note 4. Significant Acquisitions
During the year ended December 31, 2011, we executed a transaction with our former partner in a joint
venture that owned three luxury hotels in Austria. In connection with the transaction, we acquired substantially
the entire interest in two of the hotels in exchange for our interest in the third hotel and a cash payment of
approximately $27 million by us. We previously held a 47.4% ownership interest in the hotels. In accordance
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with ASC Topic 805, Business Combinations, we accounted for this transaction as a step acquisition, remeasured
our previously held investment to fair value and recorded the approximately $50 million difference between fair
value and our carrying value to the gain (loss) on asset dispositions and impairments, net, line item. The fair
values of the assets and liabilities acquired have been recorded in our consolidated balance sheet, including the
resulting goodwill of approximately $26 million. We entered into a long-term management contract for the hotel
in which we exchanged our minority ownership interest and recorded a deferred gain of approximately $30
million in connection with this exchange.
During the year ended December 31, 2010, we paid approximately $23 million to acquire a controlling
interest in a joint venture, in the Americas, in which we had previously held a non-controlling interest. The
primary business of the joint venture is to develop, license and manage restaurant concepts. The acquisition took
place after one of our former partners exercised its right to put its interest to us in accordance with the terms of
the joint venture agreement. In accordance with ASC Topic 805, Business Combinations, we accounted for this
transaction as a step acquisition, remeasured our previously held investment to fair value and recorded the
approximately $5 million difference between fair value and its carrying value to the gain (loss) on asset
dispositions and impairments, net, line item. The fair values of the assets and liabilities acquired were recorded in
our consolidated balance sheet, including goodwill of approximately $26 million. The results of operations going
forward from the acquisition date have been included in our consolidated statements of income.
Note 5. Asset Dispositions and Impairments
During the year ended December 31, 2012, we sold one wholly-owned hotel for gross cash proceeds of
approximately $16 million and recognized a pre-tax loss of $7 million in the gain (loss) on asset dispositions and
impairments, net, line item. The hotel was sold subject to a long-term franchise agreement. Also during the year
ended December 31, 2012, we sold two wholly-owned hotels, subject to long-term management agreements, for
gross cash proceeds of approximately $251 million. We recorded deferred gains of approximately $100 million
in connection with these sales. The deferred gains will be amortized into the management fees, franchise fees and
other income line over the initial terms of the management agreements, which are 20 years.
Additionally, during the year ended December 31, 2012, we recorded a loss of $9 million related to the
other-than-temporary impairment of our investment in an unconsolidated joint venture.
Finally, during the year ended December 31, 2012, we sold five wholly-owned hotels, unencumbered by
management or franchise agreements, for gross cash proceeds of approximately $275 million. In connection with
the sales, we recognized a gain of approximately $78 million (net of tax), partially offset by an impairment
charge of $5 million (net of tax) recorded in discontinued operations, net (see Note 18).
During the year ended December 31, 2011, we sold two wholly-owned hotels for cash proceeds of
approximately $237 million. These hotels were sold subject to long-term management agreements and we recorded
deferred gains of approximately $66 million relating to the sales. The deferred gains will be amortized into the
management fees, franchise fees and other income line over the initial terms of the management agreements. Also
during the year ended December 31, 2011, we sold our interest in a consolidated joint venture for cash proceeds of
approximately $44 million, with the buyer assuming $57 million of our debt (see Note 15). We recognized a pretax
loss of $18 million in discontinued operations as a result of the sale (see Note 18).
Additionally, during the year ended December 31, 2011, we recorded an impairment charge of $31 million
to write-off our noncontrolling interest in a joint venture that owns a hotel in Tokyo, Japan and a $9 million loss
due to the impairment of fixed assets that were written down in connection with significant renovations and
related asset retirements at two properties. These amounts were partially offset by a $50 million gain as a result
of remeasuring the fair value of our previously held noncontrolling interest in two hotels in which we obtained a
controlling interest (see Note 4).
F-18
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 subject to a long-term
management contract and a $4 million impairment of fixed assets that are being retired in connection with a
significant renovation of a wholly-owned hotel. 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, 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 years ended December 31, 2012, 2011 and 2010, we reviewed the recoverability of the carrying
values of our owned hotels and determined that certain hotels or hotel assets were impaired. The fair values of
the hotels were estimated primarily from discounted cash flows models. Impairment charges totaling $2 million,
$7 million and $2 million, relating to two, six and one hotels, were recorded in the years ended December 31,
2012, 2011 and 2010, respectively, and to the following segment asset groups (in millions):
2012 2011 2010
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $5 $ 2
EAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2 $7 $ 2
Note 6. Assets Held for Sale
During the year ended December 31, 2012, we entered into a purchase and sale agreement for the sale of
certain wholly-owned hotels. We received a non-refundable deposit during the fourth quarter of 2012, and the
hotels and estimated goodwill of $4 million expected to be allocated to these assets have been reclassified as
assets held for sale as of December 31, 2012 and 2011. In connection with the anticipated sales, we recognized
an impairment charge of $4 million recorded to the gain (loss) on asset dispositions and impairments, net, line
item to reflect the fair market value of the properties based on the current market price less costs to sell. The sales
of these hotels, which are encumbered by franchise agreements, closed in January 2013, and we received gross
cash proceeds of approximately $36 million.
Note 7. Plant, Property and Equipment
Plant, property and equipment consisted of the following (in millions):
December 31,
2012 2011
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 554 $ 612
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,985 3,031
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,876 1,852
Construction work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 244
5,584 5,739
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . (2,422) (2,507)
$ 3,162 $ 3,232
F-19
The above balances include unamortized capitalized computer software costs of $108 million and $155
million at December 31, 2012 and 2011 respectively. Amortization of capitalized computer software costs was
$33 million, $32 million and $36 million for the years ended December 31, 2012, 2011 and 2010, respectively.
Note 8. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the years ended December 31, 2012 and 2011 is as
follows (in millions):
Americas
Segment
EAME
Segment
Asia
Pacific
Segment
Vacation
Ownership
and
Residential
Segment Total
Balance at January 1, 2011 . . . . . . . . . . . . . . . $819 $242 $283 $151 $1,495
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . 26 26
Currency translation adjustment . . . . . . . . . . . (11) (11)
Asset dispositions . . . . . . . . . . . . . . . . . . . . . . (33) (33)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (1)
Balance at December 31, 2011 . . . . . . . . . . . . $786 $256 $283 $151 $1,476
Balance at January 1, 2012 . . . . . . . . . . . . . . . $786 $256 $283 $151 $1,476
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6
Currency translation adjustment . . . . . . . . . . . 3 3
Asset dispositions . . . . . . . . . . . . . . . . . . . . . . (58) (58)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2012 . . . . . . . . . . . . $728 $265 $283 $151 $1,427
In 2012, we changed our reportable segments and have reclassified the above table to be consistent with our
new reportable segments (see Note 26).
As previously discussed in Note 6, Assets Held for Sale, we included approximately $4 million of goodwill
in assets held for sale, which represented the goodwill we allocated to the sale of wholly-owned hotels that took
place in January 2013. The goodwill balances as of December 31, 2011 have been reclassified to be consistent
with the current year presentation.
At October 31, 2012, the date of our annual impairment valuation, the vacation ownership and residential
segments fair value significantly exceeded its book value. The fair value was determined primarily from a
discounted cash flow model, in which the underlying cash flows were derived from our current financial
projections. The two key assumptions used in the fair value calculation are the discount rate and the
capitalization rate in the terminal period, which were 10% and 2%, respectively. Based on the results of the
discounted cash flow model and the comparison of the segments fair value to its book value, we determined
goodwill was not impaired.
At October 31, 2012, the date of our annual impairment valuation, we evaluated the goodwill for the hotel
segments and determined that, for each of the hotel segments, the fair value significantly exceeded the book
value. We used a market approach to determine the fair value of the reporting units. We utilized earnings
multiples from various independent, third party investment firms and applied those earnings multiples to the
respective earnings streams (owned hotels, management and franchise fees and other) generated by each of our
hotel segments to determine the fair value for each of the hotel segments.
F-20
In 2011, we early adopted ASU 2011-08 to consider impairment for our two reporting units at that time,
hotels and vacation ownership. The ASU allows companies to perform a qualitative assessment of goodwill, to
determine if the two-step goodwill impairment test is necessary. In 2011, the internal and external factors
affecting the segments were evaluated, and we concluded the two-step goodwill impairment tests were not
required for either segment; thus, no impairment existed.
Intangible assets consisted of the following (in millions):
December 31,
2012 2011
Trademarks and trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 314 $ 313
Management and franchise agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456 412
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16
785 741
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (187) (164)
$ 598 $ 577
The intangible assets related to management and franchise agreements have finite lives, and accordingly, we
recorded amortization expense of $24 million, $29 million, and $33 million, respectively, during the years ended
December 31, 2012, 2011 and 2010. The other intangible assets noted above have indefinite lives.
Amortization expense relating to intangible assets with finite lives for each of the years ended December 31,
is expected to be as follows (in millions):
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Note 9. Other Assets
Other assets include the following (in millions):
December 31,
2012 2011
VOI notes receivable, net of allowance of $39 and $46 . . . . . . . . . . . . . . . . . . . . . . . . . $ 92 $ 93
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 104
Deposits and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 158
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $385 $355
See Note 11 for discussion relating to VOI notes receivable.
Note 10. Transfers of Financial Assets
We have variable interests in the entities associated with our six outstanding securitization transactions. As
these securitizations consist of similar, homogenous loans, they have been aggregated for disclosure purposes.
We applied the variable interest model and determined we are the primary beneficiary of these VIEs. In making
F-21
this determination, we evaluated the activities that significantly impact the economics of the VIEs, including the
management of the securitized notes receivable and any related non-performing loans. We are the servicer of the
securitized mortgage receivables. We also have the option, subject to certain limitations, to repurchase or replace
VOI notes receivable, that are in default, at their outstanding principal amounts. Such activity totaled $28 million
and $31 million during 2012 and 2011, respectively. We have been able to resell the VOIs underlying the VOI
notes repurchased or replaced under these provisions without incurring significant losses. We hold the risk of
potential loss (or gain), as the last to be paid out by proceeds of the VIEs under the terms of the agreements. As
such, we hold both the power to direct the activities of the VIEs and obligation to absorb the losses (or benefits)
from the VIEs.
The securitization agreements are without recourse to us, except for breaches of representations and
warranties. We have the right to fund defaults at our option, subject to certain limitations, and we intend to do so
until the debt is extinguished to maintain the credit rating of the underlying notes.
Upon transfer of VOI notes receivable to the VIEs, the receivables and certain cash flows derived from them
become restricted for use in meeting obligations to the VIE creditors. The VIEs utilize trusts which have
ownership of cash balances that also have restrictions, the amounts of which are reported in restricted cash. Our
interest in trust assets are subordinate to the interests of third-party investors and, as such, may not be realized by
us if needed to absorb deficiencies in cash flows that are allocated to the investors in the trusts debt (see Note
16). We are contractually obligated to receive the excess cash flows (spread between the collections on the notes
and third party obligations defined in the securitization agreements) from the VIEs. Such activity totaled
$49 million, $44 million and $43 million during 2012, 2011, and 2010, respectively, and is classified in cash and
cash equivalents.
$174 million securitized in 2012, $155 million was previously unsecuritized and approximately $19 million
related to the 2005 securitization for which the termination was prefunded. The net cash proceeds from the
securitization, after the amount pre-funded for the future termination of the 2005 securitization and associated
deal costs, were approximately $140 million. The pre-funded amount of $18 million is included in restricted cash
until the 2005 securitization is terminated, which is expected to occur in 2013.
$210 million securitized in 2011, $200 million was previously unsecuritized and approximately $10 million came
from the terminated 2003 securitization. The 2003 securitization was terminated, including pay-down of all
outstanding principal and interest due. The net cash proceeds from the securitization after termination of the 2003
securitization and associated deal costs were approximately $177 million.
purposes and, accordingly, no gain or loss was recognized. Approximately $93 million of proceeds from this
transaction were used to terminate the securitization completed in June 2009 by repaying the outstanding
principal and interest on the securitized debt. In connection with the termination, a charge of $5 million was
recorded to interest expense, relating to the settlement of a balance guarantee interest rate swap and the write-off
of deferred financing costs. The net cash proceeds from the securitization after termination of the 2009
securitization and associated deal costs were approximately $180 million
F-22
See Note 11 for disclosures and amounts related to the securitized vacation ownership notes receivable
consolidated on our balance sheets as of December 31, 2012 and 2011.
Note 11. Notes Receivable
Notes receivable (net of reserves) related to our vacation ownership loans consist of the following (in
millions):
December 31,
2012 2011
Vacation ownership loans securitized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $503 $510
Vacation ownership loans unsecuritized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 113
614 623
Less: current portion
Vacation ownership loans securitized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (65) (64)
Vacation ownership loans unsecuritized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19) (20)
$530 $539
We include the current and long-term maturities of unsecuritized VOI notes receivable in accounts
receivable and other assets, respectively, in our consolidated balance sheets.
We record interest income associated with VOI notes in our vacation ownership and residential sale and
services line item in our consolidated statements of income. Interest income related to our VOI notes receivable
was as follows (in millions):
Year Ended
December 31,
2012 2011 2010
Vacation ownership loans securitized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $69 $64 $66
Vacation ownership loans unsecuritized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 21 21
$84 $85 $87
The following tables present future maturities of gross VOI notes receivable (in millions) and interest rates:
Securitized Unsecuritized Total
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 74 $ 28 $ 102
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 11 87
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 12 89
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 12 87
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 96 370
Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . $ 576 $ 159 $ 735
Weighted Average Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . 12.97% 12.13% 12.75%
Range of interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 to 17% 6 to 17% 5 to 17%
F-23
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 profit on a timeshare sale. We hold
large amounts of homogeneous VOI notes receivable and therefore, assess uncollectibility based on pools of
receivables. In estimating loss reserves, we use a technique referred to as static pool analysis, which tracks
uncollectible notes for each years sales over the life of the respective notes and projects an estimated default rate
that is used in the determination of our loan loss reserve requirements. As of December 31, 2012, the average
estimated default rate for our pools of receivables was 9.7%.
The activity and balances for our loan loss reserve are as follows (in millions):
Securitized Unsecuritized Total
Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 94 $ 94
Provisions for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 32 46
Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (52) (52)
Adoption of ASU No. 2009-17 . . . . . . . . . . . . . . . . . . . . . . . . . . 77 (4) 73
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9) 9
Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 79 161
Provisions for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 27 29
Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (54) (54)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) 4
Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 56 136
Provisions for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 26
Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41) (41)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) 7
Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $73 $ 48 $121
current default trends by brand and origination year, and the FICO scores of the buyers.
loans are placed on nonaccrual status, and we do not resume interest accrual until payment is made. We consider
loans to be in default upon reaching 120 days outstanding, at which point, we generally 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.
F-24
Past due balances of VOI notes receivable by credit quality indicators are as follows (in millions):
30-59 Days 60-89 Days >90 Days Total Past Total
Past Due Past Due Past Due Due Current Receivables
As of December 31, 2012
Sheraton . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4 $ 3 $20 $27 $331 $358
Westin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 10 15 334 349
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7 21 28
$ 7 $ 5 $37 $49 $686 $735
As of December 31, 2011
Sheraton . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5 $ 3 $26 $34 $321 $355
Westin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 17 22 345 367
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 4 6 31 37
$ 9 $ 6 $47 $62 $697 $759
Note 12. Deferred Gains
We defer gains realized in connection with the sale of a property for which we continue to manage through a
long-term management agreement and recognize the gains over the initial term of the related agreement. As of
December 31, 2012 and 2011, we had total deferred gains of $1.035 billion and $1.018 billion, respectively,
included in accrued expenses and other liabilities in our consolidated balance sheets. Amortization of deferred
gains is included in management fees, franchise fees and other income in our consolidated statements of income
and totaled approximately $87 million, $87 million and $81 million in 2012, 2011 and 2010, respectively.
Note 13. Restructuring and Other Special Charges (Credits), Net
Restructuring and other special charges (credits), net were $(12) million, $68 million and $(75) million for
the years ended December 31, 2012, 2011 and 2010, respectively. These net charges (credits) are not recorded in
our reportable segment earnings.
As a result of a court ruling during the year ended December 31, 2012, we recorded a favorable adjustment
of $11 million to reverse a portion of a litigation reserve that we recorded in 2011.
During the year ended December 31, 2011, we recorded a charge of $70 million related to an unfavorable
decision in a lawsuit (see Note 25), offset by a credit of $2 million to adjust previously recorded reserves to the
amounts we expected to pay.
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 the restructuring and other special charges (credits) line item.
Additionally, we recorded a credit of $8 million, as a liability associated with an acquisition in 1998 was no
longer deemed necessary (see Note 25).
We had remaining restructuring accruals of $78 million and $89 million as of December 31, 2012 and 2011,
respectively, primarily recorded in accrued expenses.
F-25
Note 14. Income Taxes
Income tax data from our continuing operations is as follows (in millions):
2012 2011 2010
Pretax income
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $356 $ 165 $ 85
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 260 250
$618 $ 425 $335
Provision (benefit) for income tax
Current:
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26 $(215) $ (61)
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 (21) 18
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 88 43
166 (148)
Deferred:
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25) 62 22
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (11) (7)
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 22 12
(18) 73 27
$148 $ (75) $ 27
No provision has been made for U.S. taxes payable on undistributed foreign earnings amounting to
approximately $2.9 billion as of December 31, 2012 since these amounts are permanently reinvested. If such
earnings were repatriated, additional tax expense may result, although the calculation of such additional taxes is
not practicable.
Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets
and liabilities plus carryforward items. The composition of net deferred tax balances were as follows (in
millions):
December 31,
2012 2011
Current deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $320 $278
Long-term deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 636 639
Current deferred tax liabilities
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40) (7)
Long-term deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (78) (46)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $838 $864
(1) Included in the accrued taxes and other line item in the consolidated balance sheets.
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The tax effect of the temporary differences and carryforward items that give rise to deferred taxes were as
follows (in millions):
December 31,
2012 2011
Plant, property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (43) $ (23)
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (70) (11)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 118
Deferred gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366 350
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208 133
Receivables (net of reserves) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 9
Accrued expenses and other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 201
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 61
Net operating loss, capital loss and tax credit carryforwards . . . . . . . . . . . . . . . . . . 223 257
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3
1,089 1,098
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (251) (234)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 838 $ 864
At December 31, 2012, we had federal net operating losses, which have varying expiration dates extending
through 2030, of approximately $9 million. We expect to realize substantially all of the tax benefit associated
with these attributes.
At December 31, 2012, we had state net operating losses, which have varying expiration dates extending
through 2032, of approximately $1.4 billion. We also had state tax credit carryforwards of $22 million which are
indefinite or will fully expire by 2026. We have established a valuation allowance against the majority of these
attributes as it is unlikely that the tax benefit of these attributes will be realized prior to expiration.
At December 31, 2012, we had foreign net operating losses, capital losses and other attributes, which are
indefinite or have varying expiration dates extending through 2031, of approximately $250 million, $19 million
and $14 million, respectively. We also had tax credit carryforwards of approximately $23 million in foreign
jurisdictions. The tax credit carryforwards available in foreign jurisdictions are indefinite or will fully expire by
2031. We have established a valuation allowance against the majority of these attributes as it is unlikely that the
tax benefit of these attributes will be realized prior to expiration.
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A reconciliation of our tax provision at the U.S. statutory rate to the provision for income tax as reported is
as follows (in millions):
2012 2011 2010
Tax provision at U.S. statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $216 $ 149 $ 117
U.S. state and local income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 (19) (2)
Tax on repatriation of foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 25 (19)
Effect of foreign operations and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (74) (94) (108)
Foreign withholding tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 22 16
Tax/(benefit) on capital gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) 334 99
Change in asset basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13) (130)
Change in uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 22 23
Tax settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (25) (42)
Tax/(benefit) on asset dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41) (51) 4
Change in valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 (304) (99)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17) (4) 38
Provision for income tax (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $148 $ (75) $ 27
The effect of foreign operations and other reconciling item includes the difference between the U.S.
statutory tax rate and the local country statutory tax rate, impacts of tax holidays and tax exempt income.
In 2011, we completed transactions that involved certain domestic and foreign subsidiaries. These
transactions generated capital gains, increased the tax basis in subsidiaries including U.S. partnerships and
resulted in the inclusion of foreign earnings for U.S. tax purposes. The capital gains were largely reduced by the
utilization of capital losses. Due to the uncertainty regarding our ability to generate capital gain income, the
deferred tax asset associated with these capital losses was offset by a full valuation allowance prior to these
transactions.
During 2011, the IRS closed its audit with respect to tax years 2004 through 2006 resulting in a $25 million
tax benefit primarily related to the reversal of tax and interest reserves. During 2010, the IRS closed its audit with
respect to tax years 1998 through 2003 and we recognized a $42 million tax benefit in continuing operations
primarily associated with the refund of interest on taxes previously paid. Also in 2010, as a result of the 1998
through 2003 audit closure, we recognized a $134 million tax benefit in discontinued operations primarily related
to the portion of the tax no longer due.
As of December 31, 2012, we had approximately $191 million of total unrecognized tax benefits, of which
$52 million would affect our effective tax rate if recognized. A reconciliation of the beginning and ending
balance of unrecognized tax benefits is as follows (in millions):
2012 2011 2010
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $153 $ 510 $ 999
Additions based on tax positions related to the current year . . . . . . . . . . . 19 24 29
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . 27 36 18
Settlements with tax authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) (407) (499)
Reductions for tax positions in prior years . . . . . . . . . . . . . . . . . . . . . . . . . (3) (6) (5)
Reductions due to the lapse of applicable statutes of limitations . . . . . . . . (1) (4) (32)
End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $191 $ 153 $ 510
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It is reasonably possible that approximately $51 million of our unrecognized tax benefits as of
December 31, 2012 will reverse within the next twelve months, the majority of which will not impact the
effective tax rate.
We recognize interest and penalties related to unrecognized tax benefits through income tax expense. We
had $80 million and $74 million accrued for the payment of interest as of December 31, 2012 and December 31,
2011, respectively. We did not have any reserves for penalties as of December 31, 2012 and 2011.
We are subject to taxation in the U.S. federal jurisdiction, as well as various state and foreign jurisdictions.
As of December 31, 2012, we are no longer subject to examination by U.S. federal taxing authorities for years
prior to 2007 and to examination by any U.S. state taxing authority prior to 1998. All subsequent periods remain
eligible for examination. In the significant foreign jurisdictions in which we operate, we are no longer subject to
examination by the relevant taxing authorities for any years prior to 2001.
Note 15. Debt
Long-term debt and short-term borrowings consisted of the following (in millions):
December 31,
2012 2011
Senior Credit Facility:
Revolving Credit Facility, maturing 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $
Senior Notes, interest at 6.25%, redeemed in 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500
Senior Notes, interest at 7.875%, redeemed in 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 497
Senior Notes, interest at 7.375%, maturing 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 450
Senior Notes, interest at 6.75%, maturing 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371 400
Senior Notes, interest at 7.15%, maturing 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 245
Senior Notes, interest at 3.125%, maturing 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
Mortgages and other, interest rates ranging from 1.00% to 9.00%, various maturities . . . . . . . . 55 105
1,275 2,197
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (3)
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,273 $2,194
Aggregate debt maturities for each of the years ending December 31 are as follows (in millions):
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 937
$1,275
We maintain lines of credit under which bank loans and other short-term debt can be drawn on. In addition,
smaller credit lines are maintained by our foreign subsidiaries. In November 2012, we closed on a new $1.75
billion senior credit facility (the New Facility) to replace the existing $1.5 billion credit agreement (the
Existing Facility). The New Facility matures in February 2018, whereas the Existing Facility was scheduled to
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mature in November 2013. The New Facility is a multi-currency revolving loan commitment and is expected to
be used for general corporate purposes. We had approximately $1.75 billion of available borrowing capacity
under our domestic and foreign lines of credit as of December 31, 2012. The short-term borrowings under these
lines of credit at December 31, 2012 and 2011 were de minimis.
On December 5, 2012, we issued $350 million of 3.125% senior notes. Interest on the notes is payable semi-
annually on February 15 and August 15 of each year, beginning on August 15, 2013, and the notes will mature on
February 15, 2023. The notes rank pari passu with all of our other unsecured and unsubordinated obligations. We
may redeem all or a portion of the notes at our option at any time prior to November 15, 2022 at the make-whole
redemption price equal to the greater of (1) 100% of the aggregate principal amount of the notes being redeemed,
plus accrued and unpaid interest to, but excluding, the redemption date, and (2) the sum, as determined by an
independent investment banker, of the present values of the remaining scheduled payments of principal and
interest in respect of the notes being redeemed (exclusive of any interest accrued to the date of redemption)
discounted to the redemption date on a semi-annual basis at the treasury rate plus 25 basis points, plus accrued
and unpaid interest to, but excluding, the redemption date. At any time on or after November 15, 2022, we may
redeem all or a portion of the notes at a redemption price equal to 100% of the principal amount plus accrued and
unpaid interest to, but excluding, the redemption date. We used the net proceeds from the offering, together with
cash on hand, to finance the 2012 redemptions discussed below.
During the year ended December 31, 2012, we completed a tender offer to purchase four different series of
senior notes. The offer to purchase resulted in principal tenders of $321 million of our 7.875% Senior Notes due
2014, $156 million of our 7.375% Senior Notes due 2015, $29 million of our 6.75% Senior Notes due 2018 and $40
million of our 7.15% Senior Notes due 2019. Subsequent to the tender offer, we exercised our option to redeem the
remaining $179 million 7.875% Senior Notes due 2014. We paid $833 million in connection with these
redemptions. We recorded a charge of approximately $113 million in the loss on early extinguishment of debt, net,
line item in our statements of income, which primarily relates to $85 million of tender premiums, $23 million of
make-whole premiums related to our redemption exercise, $11 million to write-off unamortized deferred financing
costs, and unamortized issuance discounts, partially offset by favorable swap settlements of $6 million.
During the year ended December 31, 2012, we also exercised our option to redeem all of our outstanding
6.25% Senior Notes due 2013, which had a principal amount of approximately $495 million. We paid
approximately $513 million in connection with this redemption. As a result of the early redemption of the 6.25%
Senior Notes, we recorded a net charge of approximately $15 million in the loss on early extinguishment of debt,
net, line item in our statements of income, which represents $18 million in tender premiums and other
redemption costs, partially offset by favorable swap settlements of $3 million.
Also during the year ended December 31, 2012, we prepaid $52 million of third party debt previously
secured by one owned hotel.
We are subject to certain restrictive debt covenants under our short-term borrowing and long-term debt
obligations including a financial maintenance covenant, limitations on incurring additional debt, restrictions on
liens, limitations on ability to pay dividends, escrow account funding requirements for debt service, capital
expenditures, tax payments and insurance premiums, among other restrictions. We were in compliance with all of
the short-term and long-term debt covenants at December 31, 2012.
During the year ended December 31, 2011, we entered into a credit agreement which provided a loan of
approximately $38 million, which is due in 2016 and is secured by one of our owned hotels. Proceeds from this
loan were used to pay off an existing credit agreement that was due in 2012.
During the year ended December 31, 2011, we redeemed all of the outstanding 7.875% Senior Notes due 2012,
which had a principal amount of approximately $605 million. In connection with this transaction, we terminated
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two interest rate swaps related to the 7.875% Senior Notes, which had notional amounts totaling $200 million (see
Note 23). As a result of the early redemption of the 7.875% Senior Notes, we recorded a net charge of
approximately $16 million in in the loss on early extinguishment of debt, net, line item in our statements of income,
representing the redemption premiums, swap settlements and other related redemption costs.
During the year ended December 31, 2011, we sold our interest in a consolidated joint venture which
resulted in the buyer assuming approximately $57 million of our mortgage debt.
During the year ended December 31, 2011, we entered into two interest rate swaps with a total notional
amount of $100 million, where we pay floating and receive fixed interest rates. These two interest rates swaps
were terminated in 2012 (see Note 23).
Note 16. Securitized Vacation Ownership Debt
Long-term and short-term securitized vacation ownership debt consisted of the following (in millions):
December 31,
2012 2011
2005 securitization, interest rates ranging from 5.25% to 6.29%, maturing 2013 . . . . $ 22 $ 37
2006 securitization, interest rates ranging from 5.28% to 5.85%, maturing 2018 . . . . 18 27
2009 securitization, interest rate at 5.81%, maturing 2015 . . . . . . . . . . . . . . . . . . . . . 63 92
2012 securitization, interest rates ranging from 2.00% to 2.76%, maturing 2024 . . . . 155
533 532
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (150) (130)
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 383 $ 402
vacation ownership notes receivable (see Note 10).
During the years ended December 31, 2012 and 2011, interest expense associated with securitized vacation
ownership debt was $22 million.
Note 17. Other Liabilities
Other liabilities consisted of the following (in millions):
December 31,
2012 2011
Deferred gains on asset sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 944 $ 933
SPG point liability
(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733 724
Deferred revenue including VOI and residential sales . . . . . . . . . . . . . . . . . . . . . . . 33 17
Benefit plan liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 74
Insurance reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 47
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 176
$1,956 $1,971
(a) Includes the actuarially determined liability related to the SPG program and the liability associated with the
American Express transaction discussed below.
F-31
During the year ended December 31, 2009, we entered into an amendment to our existing co-branded credit
card agreement (Amendment) with American Express and extended the term of our co-branding agreement to
June 15, 2015. In connection with the Amendment in July 2009, we received $250 million in cash toward the
purchase of future SPG points by American Express. In accordance with ASC Topic 470, Debt, we have recorded
this transaction as a financing arrangement with an implicit interest rate of 4.5%. The Amendment requires a
fixed amount of $50 million per year to be deducted from the $250 million advance over the five-year period
regardless of the total amount of points purchased. As a result, the liability associated with this financing
arrangement is being reduced ratably over a five-year period beginning in October 2009. The terms of the
Amendment state that if we fail to comply with certain financial covenants, we would have to repay the
remaining balance of the liability, and, if we do not pay such liability, then we are required to pledge certain
receivables as collateral for the remaining balance of the liability. As of December 31, 2012 and 2011, the
liability related to the Amendment was $28 million and $72 million, respectively, and was recorded in other
liabilities.
Note 18. Discontinued Operations
Summary of financial information for discontinued operations is as follows (in millions):
2012 2011 2010
Income Statement Data
Gain (loss) on disposition, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $92 $(13) $168
Income (loss) from operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ (1)
During the year ended December 31, 2012, the gain of $92 million (net of tax) was primarily related to the
gain of $78 million (net of tax) on the sale of one wholly owned hotel, which was sold unencumbered by a
management or franchise agreement. Additionally, a gain of $23 million (net of tax) resulted from the favorable
settlement of certain liabilities associated with a former subsidiary of ITT Corporation, which we acquired in
1998. These gains were partially offset by a loss of $5 million (net of tax) related to the loss on the sale of four
wholly-owned hotels and a loss of $5 million (net of tax) for accrued interest related to an uncertain tax position
associated with a previous disposition.
During the year ended December 31, 2011, we recorded a loss of $13 million, including an $18 million
pretax loss from the sale of our interest in a consolidated joint venture, offset by a $10 million income tax benefit
on the sale. Additionally, we recorded a $5 million charge related to interest on an uncertain tax position
associated with a disposition in a prior year.
During the year ended December 31, 2010, we recorded a tax benefit of $134 million related to the final
settlement with the IRS regarding a disposition in a prior year (see Note 14) and a pretax gain of approximately
$3 million ($36 million after tax) related to the sale of one wholly-owned hotel for $78 million. The tax benefit
was related to the realization of a high tax basis in this hotel that was generated through a previous transaction.
Note 19. Employee Benefit Plan
During the year ended December 31, 2012, we recorded net actuarial losses of $13 million (net of tax)
related to various employee benefit plans. These losses were recorded in other comprehensive income. The
amortization of the net actuarial loss, a component of other comprehensive income, for the year ended
December 31, 2012 was $2 million (net of tax).
Included in accumulated other comprehensive (loss) income at December 31, 2012 are unrecognized net
actuarial losses of $98 million ($86 million, net of tax) that have not yet been recognized in net periodic pension
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cost. The actuarial loss included in accumulated other comprehensive (loss) income that is expected to be
recognized in net periodic pension cost during the year ended December 31, 2013 is $3 million ($2 million, net of
tax).
Defined Benefit and Postretirement Benefit Plans. We sponsor or previously sponsored numerous
funded and unfunded domestic and international pension plans. All defined benefit plans covering U.S.
employees are frozen. Certain plans covering non-U.S. employees remain active.
We also sponsor the Starwood Hotels & Resorts Worldwide, Inc. Retiree Welfare Program. This plan
provides health care and life insurance benefits for certain eligible retired employees. We have prefunded a
portion of the life insurance obligations through trust funds where such prefunding can be accomplished on a tax
effective basis. We also fund this program on a pay-as-you-go basis.
The following table sets forth the benefit obligation, fair value of plan assets, the funded status and the
accumulated benefit obligation of our defined benefit pension and postretirement benefit plans at December 31
(in millions):
Domestic
Pension Benefits
Foreign
Pension Benefits
Postretirement
Benefits
2012 2011 2012 2011 2012 2011
Change in Benefit Obligation
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 20 $ 19 $206 $183 $ 20 $ 20
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 10 10 1 1
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1 19 18 1
Effect of foreign exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (1)
Plan participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (1) (7) (5) (2) (3)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23 $ 20 $232 $206 $ 20 $ 20
Change in Plan Assets
Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . $ $ $190 $176 $ $ 1
Actual return on plan assets, net of expenses . . . . . . . . . . . . . . . . . . 19 12
Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 11 8 1 1
Plan participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1
Effect of foreign exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 (1)
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (1) (7) (5) (2) (3)
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $217 $190 $ $
Unfunded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(23) $(20) $ (14) $ (16) $(20) $(20)
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23 $ 20 $229 $205 n/a n/a
F-33
Domestic
Pension Benefits
Foreign
Pension Benefits
Postretirement
Benefits
2012 2011 2012 2011 2012 2011
Plans with Accumulated Benefit Obligations in excess of Plan
Assets
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23 $ 20 $158 $140 n/a n/a
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23 $ 20 $157 $140 n/a n/a
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $121 $105 n/a n/a
The net underfunded status of the plans at December 31, 2012 was $57 million, of which $76 million is
recorded in other liabilities, $3 million is recorded in accrued expenses and $22 million is recorded in other
assets in the accompanying balance sheet.
All domestic pension plans are frozen plans, whereby employees do not accrue additional benefits.
Therefore, at December 31, 2012 and 2011, the projected benefit obligation is equal to the accumulated benefit
obligation.
The following table presents the components of net periodic benefit cost for the years ended December 31
(in millions):
Domestic
Pension Benefits
Foreign
Pension Benefits
Postretirement
Benefits
2012 2011 2010 2012 2011 2010 2012 2011 2010
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $ $ $ $ $ $
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 1 10 10 10 1 1 1
Expected return on plan assets . . . . . . . . . . (12) (12) (10)
Amortization of net actuarial loss . . . . . . . . 2 1 1
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Settlement and curtailment (gain) loss . . . .
Net periodic benefit cost . . . . . . . . . . . . . . . $ 1 $ 1 $ 1 $ $ $ 1 $ 1 $ 1 $ 1
For measurement purposes, a 9% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2013, gradually decreasing to 5% in 2020. A one-percentage point change in assumed
health care cost trend rates would have approximately a $1 million effect on the postretirement obligation and a
nominal impact on the total of service and interest cost components of net periodic benefit cost. The majority of
participants in the Foreign Pension Plans are employees of managed hotels, for which we are reimbursed for
costs related to their benefits. The impact of these reimbursements is not reflected above.
The weighted average assumptions used to determine benefit obligations at December 31 were as follows:
Domestic
Pension Benefits
Foreign Pension
Benefits
Postretirement
Benefits
2012 2011 2012 2011 2012 2011
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50% 4.25% 4.01% 4.68% 3.50% 4.00%
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . n/a n/a 3.03% 3.26% n/a n/a
F-34
The weighted average assumptions used to determine net periodic benefit cost for the years ended
December 31 were as follows:
Domestic
Pension Benefits
Foreign Pension
Benefits
Postretirement
Benefits
2012 2011 2010 2012 2011 2010 2012 2011 2010
Discount rate . . . . . . . . . . . . . . . . . . . . . 4.25% 5.00% 5.51% 4.68% 5.34% 5.93% 4.00% 4.75% 5.50%
Rate of compensation increase . . . . . . . . n/a n/a n/a 3.26% 3.64% 3.50% n/a n/a n/a
Expected return on plan assets . . . . . . . . n/a n/a n/a 6.31% 6.52% 6.56% 0.00% 7.10% 7.10%
Our investment objectives are to minimize the volatility of the value of the assets and to ensure the assets
are sufficient to pay plan benefits. The target asset allocation is 63% debt securities and 36% equity securities
and 1% other.
A number of factors were considered in the determination of the expected return on plan assets. These
factors included current and expected allocation of plan assets, the investment strategy, historical rates of return
and our expectations, as well as investment expert expectations, for investment performance over approximately
a ten year period.
The following table presents our fair value hierarchy of the plan assets measured at fair value on a recurring
basis as of December 31, 2012 (in millions):
Level 1 Level 2 Level 3 Total
Assets:
Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $61 $ $ $ 61
Collective Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6
Equity Index Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 75
Money Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1
Bond Index Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 74
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $62 $155 $ $217
The following table presents our fair value hierarchy of the plan assets measured at fair value on a recurring
basis as of December 31, 2011 (in millions):
Assets:
Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55 $ $ $ 55
Collective Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5
Equity Index Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 67
Bond Index Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 63
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55 $135 $ $190
All assets are valued using quoted market prices in active markets.
F-35
The following table represents our expected pension and postretirement benefit plan payments for the next
five years and the five years thereafter (in millions):
Domestic
Pension Benefits
Foreign Pension
Benefits
Postretirement
Benefits
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1 $ 8 $2
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 9 2
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 1
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 10 1
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 10 1
2018-2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 58 6
We expect to contribute $14 million to the plans during 2013. A significant portion of the contributions
relate to the Foreign Pension Plans, for which we are reimbursed.
Defined Contribution Plans. We sponsor various defined contribution plans, including the Starwood
Hotels & Resorts Worldwide, Inc. Savings and Retirement Plan, which is a 401(k) plan. The plan allows
participation by employees on U.S. payroll who are at least age 21. Each participant may contribute on a pretax
basis between 1% and 50% of his or her eligible compensation to the plan subject to certain maximum limits.
Eligible employees are automatically enrolled after 90 days (unless they opt out). A company-paid matching
contribution is provided to participants who have completed at least one year of service. The amount of expense
for matching contributions totaled $16 million in 2012, $15 million in 2011, and $13 million in 2010. The plan
includes our publicly traded common stock as an investment choice. The balances held in Starwoods stock were
$69 million and $67 million at December 31, 2012 and 2011, respectively.
Multi-Employer Pension Plans. Certain employees are covered by union sponsored multi-employer
pension plans pursuant to agreements between us and various unions. Our participation in these plans is outlined
in the table below (in millions):
Pension Fund
EIN/ Pension Plan
Number
Pension Protection Act
Zone Status Contributions
2012 2011 2012 2011 2010
New York Hotel Trades Council and Hotel
Association of New York City, Inc.
Pension Fund . . . . . . . . . . . . . . . . . . . . . . . 13-1764242/001 Yellow
(a)
Yellow
(b)
$4 $4 $4
Other Funds . . . . . . . . . . . . . . . . . . . . . . . . . . Various 5 5 5
Total Contributions . . . . . . . . . . . . . . . . . . . . $9 $9 $9
(a) As of January 1, 2012
(b) As of January 1, 2011
Eligible employees at our owned hotels in New York City participate in the New York Hotel Trades Council
and Hotel Association of New York City, Inc. Pension Fund. Our contributions are based on a percentage of all
union employee wages as dictated by the collective bargaining agreement that expires on June 30, 2019. Our
contributions did not exceed 5% of the total contributions to the pension fund in 2012, 2011 or 2010. The pension
fund has implemented a funding improvement plan and we have not paid a surcharge.
Multi-Employer Health Plans. Certain employees are covered by union sponsored multi-employer health
plans pursuant to agreements between us and various unions. The plan benefits can include medical, dental and
F-36
life insurance for eligible participants and retirees. Our contributions to these plans, which were charged to
expense during 2012, 2011 and 2010, were approximately $24 million, $26 million and $27 million, respectively.
Note 20. Leases and Rentals
We lease certain equipment for the hotels operations under various lease agreements. The leases extend for
varying periods through 2017 and generally are for a fixed amount each month. In addition, several of our hotels
are subject to leases of land or building facilities from third parties, which extend for varying periods through
2096 and generally contain fixed and variable components. The variable components of leases of land or building
facilities are primarily based on the operating profit or revenues of the related hotels.
Our minimum future rents at December 31, 2012 payable under non-cancelable operating leases with third
parties are as follows (in millions):
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 95
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 969
Rent expense under non-cancelable operating leases consisted of the following (in millions):
2012 2011 2010
Minimum rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $102 $108 $91
Contingent rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 9 6
Sublease rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (4) (5)
$108 $113 $92
Note 21. Stockholders Equity
Share Repurchases During the year ended December 31, 2012, our Board of Directors authorized a
$250 million increase to the share repurchase program, and we repurchased approximately 6.3 million common
shares at an average price of $50.83 for a total cost of approximately $320 million. As of December 31, 2012,
$180 million remained available under the share repurchase authorization.
Note 22. Stock-Based Compensation
In 2004, we adopted the 2004 Long-Term Incentive Compensation Plan (2004 LTIP), which superseded
the 2002 Long-Term Incentive Compensation Plan (2002 LTIP) and provides the terms of equity award grants
to directors, officers, employees, consultants and advisors. Although no additional awards will be granted under
the 2002 LTIP, our 1999 Long-Term Incentive Compensation Plan or our 1995 Share Option Plan, the provisions
under each of the previous plans will continue to govern awards that have been granted and remain outstanding
under those plans. The aggregate award pool for non-qualified or incentive stock options, performance shares,
restricted stock and units or any combination of the foregoing which are available to be granted under the 2004
LTIP at December 31, 2012 was approximately 57.3 million.
F-37
Compensation expense, net of reimbursements during 2012, 2011 and 2010 was approximately $63 million,
$75 million and $72 million, respectively, resulting in tax benefits of $24 million, $29 million and $28 million,
respectively. As of December 31, 2012, there was approximately $69 million of unrecognized compensation cost,
net of estimated forfeitures, including the impact of reimbursement from third parties, which is expected to be
recognized over a weighted-average period of 1.5 years on a straight-line basis.
We utilize the Lattice model to calculate the fair value of option grants. The weighted average assumptions
used to determine the fair value of option grants were as follows:
2012 2011 2010
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.25% 0.75% 0.75%
Volatility:
Near term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.0% 36.0% 37.0%
Long term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46.0% 44.0% 45.0%
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 yrs. 6 yrs. 6 yrs.
Yield curve:
6 month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.14% 0.18% 0.19%
1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.18% 0.25% 0.32%
3 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.41% 1.18% 1.36%
5 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.84% 2.13% 2.30%
10 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.94% 3.42% 3.61%
The dividend yield is estimated based on the current expected annualized dividend payment and the average
expected price of our common shares during the same periods.
The estimated volatility is based on a combination of historical share price volatility as well as implied
volatility based on market analysis. The historical share price volatility was measured over an 8-year period,
which is equal to the contractual term of the options. The weighted average volatility for 2012 grants was 40.6%.
The expected life represents the period that our stock-based awards are expected to be outstanding and was
determined based on an actuarial calculation using historical experience, giving consideration to the contractual
terms of the stock-based awards and vesting schedules.
The yield curve (risk-free interest rate) is based on the implied zero-coupon yield from the U.S. Treasury
yield curve over the expected term of the option.
The following table summarizes our stock option activity during 2012:
Options
(In Millions)
Weighted Average
Exercise
Price Per Share
Outstanding at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 $30.70
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 55.06
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.8) 26.38
Forfeited, Canceled or Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.1) 28.61
Outstanding at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 $35.72
Exercisable at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 $40.06
F-38
As of December 31, 2012 and 2011, we had non-vested options totaling 1.7 million and 3.1 million,
respectively, with a weighted average grant date fair value of $10.85 and $7.94, respectively. During the year
ended December 31, 2012, 1.7 million options vested with a weighted average grant date fair value of $7.41.
The weighted-average fair value per option for options granted during 2012, 2011 and 2010 was $18.62,
$21.84, and $14.73, respectively, and the service period is typically four years. The total intrinsic value of
options exercised during 2012, 2011 and 2010 was approximately $84 million, $62 million and $115 million,
respectively, resulting in tax benefits of approximately $32 million, $23 million and $44 million, respectively.
The aggregate intrinsic value of outstanding options as of December 31, 2012 was $96 million. The
aggregate intrinsic value of exercisable options as of December 31, 2012 was $47 million. The weighted-average
contractual life was 4.0 years for outstanding options and 3.2 years for exercisable options as of December 31,
2012.
We recognize compensation expense, equal to the fair market value of the stock on the date of grant for
restricted stock and unit grants, over the service period. The weighted-average fair value per restricted stock or
unit granted during 2012, 2011 and 2010 was $54.96, $60.77 and $37.33, respectively. The service period is
typically three years except in the case of restricted stock and units issued in lieu of a portion of an annual cash
bonus where the restriction period is typically in equal installments over a two year period, or in equal
installments on the first, second and third fiscal year ends following grant date with distribution at the end of the
third fiscal year.
The fair value of restricted stock and units for which the restrictions lapsed during 2012, 2011 and 2010 was
approximately $237 million, $154 million and $62 million, respectively.
The following table summarizes our restricted stock and units activity during 2012:
Number of
Restricted
Stock and Units
Weighted Average
Grant Date Value
Per Share
(In Millions)
Outstanding at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 $29.54
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 54.96
Lapse of restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4.3) 18.82
Forfeited or Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.3) 49.06
Outstanding at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 $50.49
2002 Employee Stock Purchase Plan
In April 2002, the Board of Directors adopted (and in May 2002 the shareholders approved) our 2002
Employee Stock Purchase Plan (the ESPP) to provide our employees with an opportunity to purchase shares
through payroll deductions and we reserved approximately 12.0 million shares for issuance under the ESPP. The
ESPP commenced in October 2002.
All full-time employees who have completed 30 days of continuous service and who are employed by us on
U.S. payrolls are eligible to participate in the ESPP. Eligible employees may contribute up to 20% of their total
cash compensation to the ESPP. Amounts withheld are applied at the end of every three-month accumulation
period to purchase shares. The value of the shares (determined as of the beginning of the offering period) that
may be purchased by any participant in a calendar year is limited to $25,000. The purchase price to employees is
equal to 95% of the fair market value of shares at the end of each period. Participants may withdraw their
contributions at any time before shares are purchased.
F-39
Approximately 0.1 million shares were issued under the ESPP during the year ended December 31, 2012 at
purchase prices ranging from $50.21 to $52.37. Approximately 0.1 million shares were issued under the ESPP
during the year ended December 31, 2011 at purchase prices ranging from $42.33 to $58.05.
Note 23. Derivative Financial Instruments
We enter into forward contracts to manage foreign exchange risk based on market conditions. We enter into
forward contracts to hedge forecasted transactions based in certain foreign currencies, including Euro, Canadian
Dollar and Yen. These forward contracts have been designated and qualify as cash flow hedges, and their change
in fair value is recorded as a component of other comprehensive income and reclassified into earnings in the
same period or periods in which the forecasted transaction occurs. To qualify as a hedge, we need to formally
document, designate and assess the effectiveness of the transactions that receive hedge accounting. The notional
dollar amount of the outstanding Euro forward contracts at December 31, 2012 are $40 million, with average
exchange rates of 1.29, with terms of primarily less than one year. We review the effectiveness of our hedging
instruments on a quarterly basis and record any ineffectiveness into earnings. We discontinue hedge accounting
for any hedge that is no longer evaluated to be highly effective. From time to time, we may choose to de-
designate portions of hedges when changes in estimates of forecasted transactions occur. Each of these hedges
was highly effective in offsetting fluctuations in foreign currencies.
We also enter into forward contracts to manage foreign exchange risk on intercompany loans that are not
deemed permanently invested. These forward contracts are not designated as hedges, and their change in fair
value is recorded in our consolidated statements of income during each reporting period.
From time to time, we enter into interest rate swap agreements to manage interest expense. The swaps
typically qualify as fair value swaps and modify our interest rate exposure by effectively converting debt with a
fixed rate to a floating rate. Our objective is to manage the impact of interest rates on the results of operations,
cash flows and the market value of our debt. At December 31, 2012, we had no interest rate swap agreements
outstanding. During the year ended December 31, 2012, in connection with the redemptions of our 6.25% Senior
Notes due 2013 and our 7.875% Senior Notes due 2014, we terminated our 2013 and 2014 interest rate swap
agreements with a total notional amount of $400 million, resulting in a gain of approximately $9 million recorded
in the loss on early extinguishment of debt, net, line item in our consolidated statements of income.
The counterparties to our derivative financial instruments are major financial institutions. We evaluate the
credit ratings of the financial institutions and believe that credit risk is at an acceptable level.
The following tables summarize the fair value of our derivative instruments, the effect of derivative
instruments on our Consolidated Statements of Comprehensive Income, the amounts reclassified from Other
comprehensive income and the effect on the Consolidated Statements of Income during the year.
F-40
Fair Value of Derivative Instruments
(in millions)
December 31, 2012 December 31, 2011
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Derivatives designated as
hedging instruments
Asset Derivatives
Forward contracts . . . . . Prepaid expenses and other $ Prepaid expenses and other $ 3
Interest rate swaps . . . . . Other assets Other assets 12
Total assets . . . . . . . . $ $15
Liability Derivatives
Forward contracts . . . . . Accrued expenses $ 1 Accrued expenses $
Total liabilities . . . . . . . . $ 1 $
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Derivatives not
designated as hedging
instruments
Asset Derivatives
Forward contracts . . . . . Prepaid expenses and other $2 Prepaid expenses and other $
Total assets . . . . . . . . $2 $
Consolidated Statements of Income and Comprehensive Income
For the Years Ended December 31, 2012, 2011 and 2010
(in millions)
Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Mark-to-market loss (gain) on forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Reclassification of gain (loss) from OCI to management fees, franchise fees, and other
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
Mark-to-market loss (gain) on forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2)
Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3)
F-41
Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3)
Mark-to-market loss (gain) on forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1
Derivatives Not Designated as Hedging
Instruments
Location of Gain or (Loss) Recognized
in Income on Derivative
Amount of Gain or
(Loss) Recognized in
Income on Derivative
Year Ended
December 31,
2012 2011 2010
Foreign forward exchange contracts . . . . . . . Interest expense, net $(1) $5 $(45)
Total (loss) gain included in income . . . . . . . $(1) $5 $(45)
Note 24. Fair Value of Financial Instruments
The following table presents our fair value hierarchy for our financial assets and liabilities measured at fair
value on a recurring basis as of December 31, 2012 (in millions):
Assets:
Forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $2 $ $2
Liabilities:
Forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $1 $ $1
The forward contracts are over the counter contracts that do not trade on a public exchange. The fair values
of the contracts are classified as Level 2 since they are based on inputs such as foreign currency spot rates and
forward points that are readily available on public markets. We consider both our credit risk, as well as our
counterparties credit risk in determining fair value and we did not make an adjustment as it was deemed
insignificant based on the short duration of the contracts and our rate of short-term debt.
We believe the carrying values of our financial instruments related to current assets and liabilities
approximate fair value. The following table presents the carrying amounts and estimated fair values of our long-
term financial instruments (in millions):
Hierarchy
Level
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Assets:
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . 1 $ 6 $ 6 $ 2 $ 2
VOI notes receivable . . . . . . . . . . . . . . . . . . 3 92 113 93 109
Securitized vacation ownership notes
receivable . . . . . . . . . . . . . . . . . . . . . . . . . 3 438 558 446 551
Other notes receivable . . . . . . . . . . . . . . . . . 3 11 11 26 26
Total financial assets . . . . . . . . . . . . . . . . $ 547 $ 688 $ 567 $ 688
Liabilities:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 1 $1,273 $1,447 $2,194 $2,442
Long-term securitized debt . . . . . . . . . . . . . 3 383 402 402 412
Total financial liabilities . . . . . . . . . . . . . $1,656 $1,849 $2,596 $2,854
F-42
Hierarchy
Level
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Off-Balance sheet:
Letters of credit . . . . . . . . . . . . . . . . . . . . . . 2 $ $ 117 $ $ 171
Surety bonds . . . . . . . . . . . . . . . . . . . . . . . . . 2 80 21
Total off-balance sheet . . . . . . . . . . . . . . . $ $ 197 $ $ 192
As previously discussed, on January 1, 2012, we adopted ASU No. 2011-04. As a result, we have disclosed
on a prospective basis the financial hierarchy that prioritizes inputs to valuation techniques as described in ASC
Topic 820, Fair Value Measurements and Disclosures.
The carrying value of our restricted cash approximates its fair value. We estimate the fair value of our VOI
notes receivable and securitized VOI notes receivable using assumptions related to current securitization market
transactions. The amount is then compared to a discounted expected future cash flow model using a discount rate
commensurate with the risk of the underlying notes, primarily determined by the credit worthiness of the
borrowers based on their FICO scores. The results of these two methods are then evaluated to determine the
estimated fair value. The fair value of other notes receivable is estimated based on terms of the instrument and
current market conditions. These financial instrument assets are recorded in the other assets line item in our
consolidated balance sheet.
We estimate the fair value of our publicly traded debt based on the bid prices in the public debt markets.
The carrying amount of our floating rate debt is a reasonable basis of fair value due to the variable nature of the
interest rates. Our non-public, securitized debt, and fixed rate debt fair value is determined based upon
discounted cash flows for the debt rates deemed reasonable for the type of debt, prevailing market conditions and
the length to maturity for the debt.
The fair values of our letters of credit and surety bonds are estimated to be the same as the contract values
based on the nature of the fee arrangements with the issuing financial institutions.
Note 25. Commitments and Contingencies
We had the following contractual obligations outstanding as of December 31, 2012 (in millions):
Total
Due in Less
Than 1 Year
Due in
1-3 Years
Due in
3-5 Years
Due After
5 Years
Unconditional purchase obligations
(a)
. . . . . . . . . . . . . $143 $76 $62 $5 $
Other long-term obligations . . . . . . . . . . . . . . . . . . . . . 16 1 3 4 8
Total contractual obligations . . . . . . . . . . . . . . . . . . . . $159 $77 $65 $9 $ 8
(a) Included in these balances are commitments that may be reimbursed or satisfied by our managed and
franchised properties.
We had the following commercial commitments outstanding as of December 31, 2012 (in millions):
Amount of Commitment Expiration Per Period
Total
Less Than
1 Year 1-3 Years 3-5 Years
After
5 Years
Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . $117 $94 $19 $ $4
F-43
Variable Interest Entities. We have determined that we have a variable interest in 23 hotels, generally in
the form of investments, loans, guarantees, or equity. We determine if we are the primary beneficiary of these
hotels by primarily considering certain qualitative factors. Qualitative factors include evaluating if we have the
power to control the VIE and have the obligation to absorb the losses and rights to receive the benefits of the
VIE, that could potentially be significant to the VIE. We have determined that we are not the primary beneficiary
of these VIEs and therefore, these entities are not consolidated in our financial statements. See Note 10 for the
VIEs in which we are deemed the primary beneficiary and have consolidated the entities.
The 23 VIEs associated with our variable interests represent entities that own hotels for which we have
entered into management or franchise agreements with the hotel owners. We are paid a fee primarily based on
financial metrics of the hotel. The hotels are financed by the owners, generally in the form of working capital,
equity, and debt.
At December 31, 2012, we have approximately $109 million of investments associated with 21 of the
23 VIEs. The maximum loss under these agreements equals the carrying value because we are not obligated to
fund future cash contributions. In addition, we have not contributed amounts to the VIEs in excess of our
contractual obligations.
We also have approximately $5 million of investments and certain performance guarantees associated with
the remaining two VIEs. During the year ended December 31, 2011 and 2010, respectively, we recorded a
$1 million and $3 million charge to selling, general and administrative expenses, related to one of these VIEs, for
a performance guarantee related to a hotel managed by us. After these charges, we have no remaining funding
exposure for this guarantee related to this VIE. Our remaining performance guarantee has a possible cash outlay
of up to $62 million of which, if required, would be funded over several years and would be largely offset by
management fees received under this contract.
Guaranteed Loans and Commitments. In limited cases, we have made loans to owners of or partners in
hotel or resort ventures for which we have a management or franchise agreement. Loans outstanding under this
program totaled $3 million at December 31, 2012. We evaluate these loans for impairment, and at December 31,
2012, believes these loans are collectible. Unfunded loan commitments aggregating $18 million were outstanding
at December 31, 2012, none of which is expected to be funded in the future. These loans typically are secured by
pledges of project ownership interests and/or mortgages on the projects. We also have $86 million of equity and
other potential contributions associated with managed or joint venture properties, $41 million of which is
expected to be funded in 2013.
Surety bonds issued on our behalf at December 31, 2012 totaled $80 million, primarily related to an appeal
of certain litigation, requirements by state or local governments relating to our vacation ownership operations and
by our insurers to secure large deductible insurance programs.
To secure management contracts, we may provide performance guarantees to third-party owners. Most of
these performance guarantees allow us to terminate the contract rather than fund shortfalls if certain performance
levels are not met. In limited cases, we are obligated to fund shortfalls in performance levels through the issuance
of loans. Many of the performance tests are multi-year tests, are tied to the results of a competitive set of hotels,
and have exclusions for force majeure and acts of war and terrorism. We do not anticipate any significant
funding under performance guarantees, nor do we anticipate losing a significant number of management or
franchise contracts in 2013.
In connection with the acquisition of the Le Mridien brand in November 2005, we assumed the obligation
to guarantee certain performance levels at one Le Mridien managed hotel for the periods 2007 through 2014.
During the year ended December 31, 2010, we reached an agreement with the owner of this property to fully
release our performance guarantee obligation in return for a payment of approximately $1 million to the owner.
F-44
Additionally, in connection with this settlement, the term of the management contract was extended by five
years. As a result of this settlement, we recorded a credit to selling, general, administrative and other expenses of
approximately $8 million for the difference between the carrying amount of the guarantee liability and the cash
payment of $1 million.
In connection with the purchase of the Le Mridien brand in November 2005, we were indemnified for
certain of Le Mridiens historical liabilities by the entity that bought Le Mridiens owned and leased hotel
portfolio. The indemnity is limited to the financial resources of that entity. However, at this time, we believe that
it is unlikely that we will have to fund any of these liabilities.
In connection with the sale of 33 hotels in 2006, we agreed to indemnify the buyer for certain liabilities,
including operations and tax liabilities. At this time, we believe that we will not have to make any material
payments under such indemnities.
Litigation. We are involved in various legal matters that have arisen in the normal course of business,
some of which include claims for substantial sums. We review these matters and loss contingencies each
reporting period to evaluate the degree of probability of an unfavorable outcome and our ability to make a
reasonable estimate of any associated loss. Accruals have been recorded when the outcome is probable and can
be reasonably estimated. As of December 31, 2012, certain contingencies have been evaluated as reasonably
possible, but not probable, with a range of exposure of $0 to $27 million. While the ultimate results of claims and
litigation cannot be determined, we do not expect that the resolution of all legal matters will have a material
adverse effect on our consolidated results of operations, financial position or cash flow. However, depending on
the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect our
future results of operations or cash flows in a particular period.
In August 2009, Sheraton Operating Corporation (Sheraton) filed a lawsuit as plaintiff in the Supreme
Court of the State of New York (the Court) against Castillo Grand LLC (Castillo) asserting claims arising
out of a dispute over a hotel development contract. Two earlier lawsuits arising out of the same hotel
development contract filed by Castillo against Sheraton in federal court had been dismissed for lack of subject
matter jurisdiction. Castillo filed counterclaims in the state court action alleging, among other things, that
Sheratons breach of contract resulted in design changes and construction delays. The matter was tried before the
Court and, on November 18, 2011, the Court issued its Post Trial Decision ruling in favor of Castillo on some
claims and counterclaims and in favor of Sheraton on others. Overall, the Courts decision is unfavorable to
Sheraton. During the year ended December 31, 2011, as a result of this decision, we recorded a reserve for this
matter resulting in a pretax charge of $70 million.
During the year ended December 31, 2012, the Court issued its decision on Castillos claim for attorneys
fees and expenses. Based on the Courts favorable decision, we recorded an adjustment of $11 million to reverse
a portion of our litigation reserve related to this matter. As of December 31, 2012, Sheraton and Castillo had filed
appeals to the Appellate Division of the Supreme Court of the State of New York.
Collective Bargaining Agreements. At December 31, 2012, approximately 27% of our U.S.-based
employees were covered by various collective bargaining agreements, generally providing 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 we believe that our employee relations
are satisfactory.
Environmental Matters. We are subject to certain requirements and potential liabilities under various
federal, state and local environmental laws, ordinances and regulations. Such laws often impose liability without
regard to whether the current or previous owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. Although we have incurred and expect to incur remediation and other
F-45
environmental costs during the ordinary course of operations, we anticipate that such costs will not have a
material adverse effect on our operations or financial condition.
Captive Insurance Company. Estimated insurance claims payable at December 31, 2012 and 2011 were
$68 million and $70 million, respectively. At December 31, 2012 and 2011, standby letters of credit amounting
to $59 million and $60 million, respectively, had been issued to provide collateral for the estimated claims. We
guarantee the letters of credit.
ITT Industries. In 1995, the former ITT Corporation, renamed ITT Industries, Inc. (ITT Industries),
distributed to its stockholders all of the outstanding shares of common stock of ITT Corporation, then a wholly
owned subsidiary of ITT Industries (the Distribution). In connection with this Distribution, ITT Corporation,
which was then named ITT Destinations, Inc., changed its name to ITT Corporation. Subsequent to the
acquisition of ITT Corporation in 1998, we changed the name of ITT Corporation to Sheraton Holding
Corporation.
For purposes of governing certain of the ongoing relationships between us and ITT Industries after the
Distribution and spin-off of ITT Corporation and to provide for an orderly transition, we have entered into
various agreements with ITT Industries. These agreements include a spin-off agreement, Employee Benefits
Services and Liability Agreement, Tax Allocation Agreement and Intellectual Property Transfer and License
Agreements. We may be liable to or due reimbursement from ITT Industries relating to the resolution of certain
pre-spin-off matters under these agreements. Based on available information, management does not believe that
these matters would have a material impact on our consolidated results of operations, financial position or cash
flows. During the year ended December 31, 2012, we recorded a gain in discontinued operations, net of
$23 million (net of tax) from the favorable settlement of certain liabilities associated with a former subsidiary of
ITT Corporation (see Note 18). During the year ended December 31, 2010, we reversed a liability related to the
1998 acquisition (see Note 13).
Note 26. Business Segment Information
reorganization, these results are now segregated into three separate hotel segments: (i) the Americas, (ii) EAME,
and (iii) Asia Pacific. The vacation ownership and residential business remains a separate segment. Prior period
data was restated to be consistent with the current year presentation.
Our reportable segments each have a division president who is responsible for the management of the
division. Each division president reports directly to our Chief Executive Officer who is also the Chief Operating
Decision Maker (CODM). Financial information for each reportable segment is reviewed by the CODM to
assess performance and make decisions regarding the allocation of resources.
Each hotel segment generates its earnings through a network of owned, leased, consolidated and
unconsolidated joint venture hotels and resorts operated primarily under our proprietary brand names including
St. Regis
, The Luxury Collection
, W
, Westin
, Le Mridien
, Sheraton
, Four Points
by Sheraton, Aloft
,
and Element
, and as well as hotels and resorts which are managed or franchised under these brand names in
exchange for fees.
The management of our vacation ownership and residential sales business is conducted by the vacation
ownership and residential segment. The vacation ownership and residential segment generates its earnings
through the acquisition, development and operation of vacation ownership resorts, marketing and selling of
VOIs, and providing financing to customers who purchase such interests.
F-46
The CODM primarily evaluates the operating performance of a segment based on segment earnings. We
define segment earnings as net income attributable to our common stockholders before interest expense, taxes,
depreciation and amortization, as well as our share of interest, depreciation and amortization associated with our
unconsolidated joint ventures. Segment earnings also excludes certain recurring and nonrecurring items, such as
restructuring costs, goodwill impairment and other special charges, gains and (losses) on debt extinguishment
and gains (losses) on asset dispositions and impairments. General, administrative and other expenses directly
related to the segments are included in the calculation of segment earnings, whereas corporate general,
administrative, and other expenses are not included in the segment earnings calculation. In addition to revenues
recorded within our four segments, we also have other revenues from managed and franchised properties, which
primarily represent the reimbursement of costs incurred on behalf of managed property owners. These revenues,
together with the corresponding expenses, are not recorded within the segments. Other corporate unallocated
revenues and earnings primarily relate to other license fee income and are also reported outside of segment
revenues.
The following tables present revenues, segment earnings, earnings from unconsolidated ventures, capital
expenditures, total assets, and investments in unconsolidated ventures for our reportable segments. Prior periods
have been restated to reflect the current period presentation (in millions):
2012 2011 2010
Revenues:
Americas
(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,627 $1,630 $1,597
EAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 550 592 529
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337 303 235
Vacation ownership and residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,271 688 526
Total segment revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,785 3,213 2,887
Other revenues from managed and franchised hotels . . . . . . . . . . . . . . . . . . . . . . . . . . 2,448 2,339 2,117
Other corporate revenues unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 72 67
$6,321 $5,624 $5,071
(a) Includes revenues of $1.1 billion for the years ended 2012, 2011 and 2010, respectively, from hotels located
in the United States. No other country contributed more than 10% of our total revenues.
F-47
2012 2011 2010
Segment earnings:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 581 $ 555 $ 484
EAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 204 191
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 186 165
Vacation ownership and residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312 170 123
Total segment earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,290 1,115 963
Other corporate unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 74 67
Corporate selling, general, administrative and other unallocated . . . . . . . . . . . . . . . . (158) (156) (151)
Gain (loss) on asset dispositions and impairments, net . . . . . . . . . . . . . . . . . . . . . . . . . . (21) (39)
Restructuring and other special (charges) credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 (68) 75
Adjustments to equity earnings
(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42) (54) (56)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (172) (203) (237)
Loss on early extinguishment of debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (128) (16) (1)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (251) (265) (285)
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 (13) 168
Income tax benefit (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (148) 75 (27)
Net income attributable to Starwood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 562 $ 489 $ 477
(a) Includes interest expense, depreciation, and amortization expense related to equity earnings not allocated to
segment earnings.
2012 2011 2010
Earnings from unconsolidated ventures:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27 $29 $29
EAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1 2
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 32 33
Vacation ownership and residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3 2
Total earnings from unconsolidated ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . $67 $65 $66
2012 2011 2010
Capital expenditures:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $202 $174 $155
EAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 100 23
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 9 6
(a)(b)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 146 151
Total segment capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329 429 335
Other corporate unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 124 42
$406 $553 $377
F-48
(a) Represents gross inventory capital expenditures less cost of sales of $(11) million, $90 million and
$112 million for the years ended 2012, 2011 and 2010, respectively. Additionally, includes development
capital of $24 million, $56 million and $39 million for the years ended 2012, 2011 and 2010, respectively.
(b) Amounts presented for the years ended 2012 and 2011 exclude costs of sales of Bal Harbour of $440 million
and $76 million, respectively.
December 31,
2012 2011 2010
Assets:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,229 $2,307 $2,543
EAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 911 830 882
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 574 610 594
Vacation ownership and residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,445 2,056 1,989
Total segment assets
(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,159 5,803 6,008
Other corporate assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,702 3,757 3,768
$8,861 $9,560 $9,776
(a) Includes long-lived assets of $1.6 billion, $1.8 billion and $2.0 billion at December 31, 2012, 2011 and
2010, respectively, located in the United States. As well, includes long-lived assets of $366 million, $330
million and $324 million at December 31, 2012, 2011 and 2010, respectively, located in Italy. No other
country contributed more than 10% of our total long-lived assets.
December 31,
2012 2011 2010
Investments in unconsolidated ventures:
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71 $ 70 $ 77
EAME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 22 37
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 137 171
Vacation ownership and residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 30 27
Total investments in unconsolidated ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $260 $259 $312
F-49
Note 27. Quarterly Results (Unaudited)
Three Months Ended
March 31 June 30 September 30 December 31 Year
2012
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,715 $1,618 $1,455 $1,533 $6,321
Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,488 $1,376 $1,255 $1,290 $5,409
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . $ 129 $ 129 $ 147 $ 65 $ 470
Net (income) loss from continuing operations attributable to
noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $ $
Income (loss) from continuing operations attributable to
Starwoods common shareholders . . . . . . . . . . . . . . . . . . . . . $ 129 $ 129 $ 147 $ 65 $ 470
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1) $ (7) $ 23 $ 77 $ 92
Net income attributable to Starwood . . . . . . . . . . . . . . . . . . . . . . $ 128 $ 122 $ 170 $ 142 $ 562
Earnings per share
(a)
Basic
Income (loss) from continuing operations . . . . . . . . . . . . . . . $ 0.67 $ 0.67 $ 0.76 $ 0.34 $ 2.44
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.00 $ (0.04) $ 0.12 $ 0.40 $ 0.48
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.67 $ 0.63 $ 0.88 $ 0.74 $ 2.92
Diluted
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.00 $ (0.04) $ 0.12 $ 0.39 $ 0.47
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.65 $ 0.62 $ 0.87 $ 0.72 $ 2.86
2011
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,295 $1,426 $1,372 $1,531 $5,624
Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,175 $1,249 $1,210 $1,360 $4,994
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . $ 27 $ 150 $ 165 $ 158 $ 500
Net (income) loss from continuing operations attributable to
noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2 $ $ $ $ 2
Income (loss) from continuing operations attributable to
Starwoods common shareholders . . . . . . . . . . . . . . . . . . . . . $ 29 $ 150 $ 165 $ 158 $ 502
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1) $ (19) $ (2) $ 9 $ (13)
Net income attributable to Starwood . . . . . . . . . . . . . . . . . . . . . . $ 28 $ 131 $ 163 $ 167 $ 489
Earnings per share
(a)
Basic
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.01) $ (0.10) $ (0.01) $ 0.05 $ (0.07)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.15 $ 0.69 $ 0.87 $ 0.87 $ 2.58
Diluted
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.01) $ (0.09) $ (0.01) $ 0.05 $ (0.06)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.14 $ 0.68 $ 0.84 $ 0.85 $ 2.51
(a) Amounts presented are attributable to Starwoods common shareholders.
F-50
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Additions (Deductions)
Balance
January 1,
Charged
to/reversed
from
Expenses
Charged
to/from Other
Accounts
(a)
Payments/
Other
Balance
December 31,
2012
Trade receivables allowance for doubtful
accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29 $ 7 $ 7 $ (3) $ 40
Notes receivable allowance for doubtful
accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $175 $ 26 $ $(42) $159
Reserves included in accrued and other liabilities:
Restructuring and other special charges . . . . . . . $ 89 $(12) $ 3 $ (2) $ 78
2011
accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32 $ 5 $ (1) $ (7) $ 29
accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $202 $ 28 $ $(55) $175
Restructuring and other special charges . . . . . . . $ 29 $ 68 $ (7) $ (1) $ 89
2010
accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33 $ 15 $ (3) $(13) $ 32
accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $139 $ 36 $78 $(51) $202
Restructuring and other special charges . . . . . . . $ 34 $(75) $ 8 $ 62 $ 29
(a) Charged to/from other accounts:
Description of
Charged to/from
Other Accounts
2012
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Total charged to/from other accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10
2011
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7)
Total charged to/from other accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (8)
2010
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3)
Accrued salaries, wages and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Impact of ASU No. 2009-17 (see Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Total charged to/from other accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $83
S-1
Note: This Annual Report contains forward-looking statements within the meaning of federal securities regulations. Forward-looking statements are not guarantees of future performance and
involve risks and uncertainties and other factors that may cause actual results to differ materially from those anticipated at the time the forward-looking statements are made. Further results,
performance and achievements may be affected by general economic conditions including the timing and robustness of the recovery from the recent global economic downturn, the impact of
war and terrorist activity, business and nancing conditions, foreign exchange uctuations, cyclicality of the real estate, including the sale of residential units, and the hotel and vacation ownership
businesses, operating risks associated with the sale of residential units, hotel and vacation ownership businesses, relationships with associates, customers and property owners, the impact of the
Internet reservation channels, our reliance on technology, domestic and international political and geopolitical conditions, competition, governmental and regulatory actions (including the impact of
changes in U.S. and foreign tax laws and their interpretation), travelers fears of exposure to contagious diseases, risk associated with the level of our indebtedness, risk associated with potential
acquisitions and dispositions, and other circumstances and uncertainties. These risks and uncertainties are presented in detail in our lings with the Securities and Exchange Commission. Although
we believe the expectations reected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that results
will not materially differ. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
2013 Starwood Hotels & Resorts Worldwide, Inc.
STARWOOD
HOTELS & RESORTS
WORLDWIDE, INC.
CORPORATE HEADQUARTERS
Starwood Hotels & Resorts Worldwide, Inc.
One StarPoint
Stamford, CT 06902
203 964 6000
starwoodhotels.com
INVESTOR RELATIONS
Starwood Hotels & Resorts Worldwide, Inc.
One StarPoint
Stamford, CT 06902
203 351 3500
ir@starwoodhotels.com
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP, New York, NY
STOCK REGISTRAR AND TRANSFER AGENT
Regi stered sharehol ders wi th questi ons about
stock certificates, account information, dividend
payments or stock transfers should contact the
Companys transfer agent at:
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
800 350 6202
amstock.com
info@amstock.com
REQUEST ELECTRONIC OR
PRINT COPY OF ANNUAL REPORT
A copy of the Annual Report of Starwood
Hotels & Resorts Worldwide, Inc., and Form
10-K filed with the Securities and Exchange
Commission may be obtained on the Companys
website at starwoodhotels.com or by emailing
ir@starwoodhotels.com
PICTURED FROM TOP LEFT
THE ST. REGIS BAL HARBOUR RESORT, FLORIDA, UNITED STATES // KERATON AT THE PLAZA, A LUXURY COLLECTION HOTEL, JAKARTA, INDONESIA // W SINGAPORE - SENTOSA COVE, SINGAPORE
LE MERIDIEN ISTANBUL ETILER, TURKEY // THE WESTIN LAKE LAS VEGAS RESORT & SPA, NEVADA, UNITED STATES // SHERATON HUZHOU HOT SPRING RESORT, CHINA // ALOFT ASHEVILLE
DOWNTOWN, NORTH CAROLINA, UNITED STATES // ELEMENT MIAMI INTERNATIONAL AIRPORT, FLORIDA, UNITED STATES // FOUR POINTS BY SHERATON SHENZHOU PENINSULA RESORT, CHINA

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2013 PROXY STATEMENT & 2012 ANNUAL REPORT

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