Starwood 2004 Annual Report Download - page 106

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
2002 Employee Stock Purchase Plan
In April 2002, the Board of Directors adopted (and in May 2002 the shareholders approved) the
Company's 2002 Employee Stock Purchase Plan (the ""ESPP'') to provide employees of the Company with
an opportunity to purchase common stock through payroll deductions and reserved 10,000,000 Shares for
issuance under the ESPP. The ESPP commenced in October 2002.
All full-time regular employees who have completed 30 days of continuous service and who are employed
by the Company 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 oÅering period) that may be purchased by any participant in a calendar year is limited to
$25,000. Participants may withdraw their contributions at any time before Shares are purchased.
The purchase price is equal to 85% of the lower of (a) the fair market value of Shares on the day of the
beginning of the oÅering period or (b) the fair market value of Shares on the date of purchase. Approximately
334,000 Shares were issued under the ESPP during the year ended December 31, 2004 at purchase prices
ranging from $29.66 to $37.91. Approximately 350,000 Shares were issued under the ESPP during the year
ended December 31, 2003 at purchase prices ranging from $19.13 to $28.73.
Note 18. Derivative Financial Instruments
The Company enters into interest rate swap agreements to manage interest expense. The Company's
objective is to manage the impact of interest rates on the results of operations, cash Öows and the market value
of the Company's debt. At December 31, 2004, the Company had no outstanding interest rate swap
agreements under which the Company pays a Ñxed rate and receives a variable rate of interest.
In March 2004, the Company terminated certain interest rate swap agreements, with a notional amount
of $1 billion under which the Company was paying Öoating rates and receiving Ñxed rates of interest (""Fair
Value Swaps''), resulting in a $33 million cash payment to the Company. The proceeds were used for general
corporate purposes and will result in a reduction of the interest expense on the corresponding underlying debt
(Sheraton Holding Public Debt and Senior Notes) through 2007, the scheduled maturity of the terminated
Fair Value Swaps. In order to adjust its Ñxed versus Öoating rate debt position, the Company immediately
entered into two new Fair Value Swaps with an aggregate notional amount of $300 million.
The new Fair Value Swaps hedge the change in fair value of certain Ñxed rate debt related to Öuctuations
in interest rates and mature in 2012. The aggregate notional amount of the Fair Value Swaps was $300 million
at December 31, 2004. The Fair Value Swaps modify the Company's interest rate exposure by eÅectively
converting debt with a Ñxed rate to a Öoating rate. The fair value of the Fair Value Swaps was a liability of
approximately $14.8 million at December 31, 2004.
From time to time, the Company uses various hedging instruments to manage the foreign currency
exposure associated with the Company's foreign currency denominated assets and liabilities (""Foreign
Currency Hedges''). At December 31, 2004, the Company had two Foreign Currency Hedges outstanding
with a U.S dollar equivalent of the contractual amount of the contracts of approximately $319 million. These
contracts hedge certain Euro-denominated assets and mature through May 2005. Changes in the fair value of
the hedging instruments are classiÑed in the same manner as changes in the underlying asset due to
Öuctuations in foreign currency exchange rates. The fair value of the Foreign Currency Hedges at
December 31, 2004 was a liability of approximately $19.5 million.
Periodically, the Company hedges the net assets of certain international subsidiaries (""Net Investment
Hedges'') using various hedging instruments to manage the translation and economic exposures related to the
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