Starwood 2003 Annual Report Download - page 107

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
income. As of December 31, 2003, the Company had two Net Investment Hedges with a U.S. dollar
equivalent of the contractual amount of $227 million that mature in June 2004. The Net Investment Hedges
minimize the eÅect Öuctuations in foreign currency exchange rates have on a portion of the Company's net
investment in certain Euro-denominated subsidiaries (""Euro Net Investment Hedges''). The fair value of the
Euro Net Investment Hedges at December 31, 2003 was a liability of approximately $25 million.
In April 2002, in connection with the sale of $1.5 billion of the Senior Notes, the Company terminated
four interest rate swap agreements (with a notional amount of $850 million) and realized a net loss of
approximately $23 million associated with this early termination. As discussed in Note 2. SigniÑcant
Accounting Policies, the Company early adopted SFAS No. 145 and recorded this charge in interest expense.
In September 2002, the Company terminated certain Fair Value Swaps, resulting in a $78 million cash
payment to the Company. These proceeds were used to pay down the previous revolving credit facility and will
result in a decrease to interest expense on the hedged debt through its maturity in 2007. In order to retain its
Ñxed versus Öoating rate debt position, the Company immediately entered into the current Fair Value Swaps
on the same underlying debt as the terminated swaps.
The counterparties to the Company's derivative Ñnancial instruments are major Ñnancial institutions. The
Company does not expect its derivative Ñnancial instruments to signiÑcantly impact earnings in the next
twelve months.
Note 20. Related Party Transactions
General. Barry S. Sternlicht, Chairman, Chief Executive OÇcer and a Director of the Corporation, and
Chairman, Chief Executive OÇcer and a Trustee of the Trust, controls and has been the President and Chief
Executive OÇcer of Starwood Capital since its formation in 1991.
Trademark License. An aÇliate of Starwood Capital has granted to Starwood, subject to Starwood
Capital's unrestricted right to use such name, an exclusive, non-transferable, royalty-free license to use the
""Starwood'' name and trademarks in connection with the acquisition, ownership, leasing, management,
merchandising, operation and disposition of hotels worldwide, and to use the ""Starwood'' name in its corporate
name worldwide, in perpetuity.
Starwood Capital Noncompete. In connection with a restructuring of the Company in 1995, Starwood
Capital voluntarily agreed that, with certain exceptions, Starwood Capital would not compete directly or
indirectly with the Company within the United States and would present to the Company all opportunities
presented to Starwood Capital to acquire fee interests in hotels in the United States and debt interests in
hotels in the United States where it is anticipated that the equity will be acquired by the debt holder within
one year from the acquisition of such debt (the ""Starwood Capital Noncompete''). During the term of the
Starwood Capital Noncompete, Starwood Capital and aÇliates are not permitted to acquire any such interest,
or any ground lease interest or other equity interest, in hotels in the United States without the consent of the
Board. In addition, the Company's Corporate Opportunity Policy requires that each director and executive
oÇcer submit to the Corporate Governance Committee any opportunity that the director or executive oÇcer
reasonably believes is within the Company's lines of business or in which the Company has an interest.
Therefore, as a matter of practice, all opportunities to purchase hotel-related assets, even those outside of the
United States, that Starwood Capital may pursue are Ñrst presented to the Company. The Starwood Capital
Noncompete continues until no oÇcer, director, general partner or employee of Starwood Capital is on either
the Board of Directors of the Corporation or the Board of Trustees of the Trust (subject to exceptions for
certain restructurings, mergers or other combination transactions with unaÇliated parties). Several properties
owned or managed by the Company, including the Westin Innisbrook Resort (the ""Innisbrook Resort''), the
Westin Mission Hills Resort and the Turnberry Hotel, were opportunities brought to the Company or its
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