Starwood 2005 Annual Report Download - page 41

Fiscal 2005 Developments. On November 14, 2005, we entered into a deÑnitive agreement to sell 38
properties to Host for approximately $4.1 billion (based on the closing price of Host's stock immediately prior
to that date) including 133.5 million shares of Host stock and approximately $1,767 million in cash and debt
assumption. As part of this transaction, a subsidiary of Host will be acquiring, among other assets, all the stock
of the Trust in a transaction that will be taxable to shareholders. Starwood's shareholders will receive
0.6122 shares of Host stock and 50.3 cents in cash for each share of Class B stock they own. We will receive
approximately $1,645 million of the proceeds in the form of cash and debt assumption.
Under the terms of the Master Agreement and Plan of Merger (""Merger Agreement'') with Host, we are
required to use commercially reasonable eÅorts and Host is required to cooperate with us in such eÅorts to
receive the consent of the bondholders of the $450 million, 2015 Sheraton Holding Corporation (""SHC'')
bonds to enable these bonds to remain obligations of SHC following the transaction with Host. We and Host
are currently in discussions regarding the form and timing of this consent, including whether to amend the
Merger Agreement such that a consent would not be pursued. In the event the consent is not received or we
and Host agree not to go through the consent process, it is expected that we will seek to retain the debt and, if
retained, will be paid an additional $450 million in cash. In addition, pursuant to the Merger Agreement, Host
has given notice that Host is excluding the $150 million, 2025 SHC bonds as SpeciÑed Indebtedness (as
deÑned in the Merger Agreement), and therefore SHC will not retain this debt. The Company expects that
these bonds will be redeemed.
In May 2003, we issued $360 million of convertible notes. Holders of these notes can force conversion if
the underlying Shares trade at more than 120% of the conversion price for 20 out of 30 trading days ending on
the last trading day of the calendar quarter preceding the calendar quarter in which the conversion occurs.
This conversion right was met in the fourth quarter of 2005 as the share prices closed at over $60 for 20 days.
We expect the principal portion of these notes will be settled in cash with the excess amount settled in shares.
As a result, approximately 400,000 shares are included in our December 31, 2005 diluted shares based on our
closing stock price of $63.86 on December 30, 2005.
On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the ""Act''). The
Act creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by
providing an 85 percent dividends received deduction for certain dividends from controlled foreign corpora-
tions. In order to repatriate funds in accordance with the Act, in October 2005 we increased several existing
bank credit lines available to our wholly owned subsidiary, Starwood Italia, from 129 million euros to
399 million euros, approximately 350 million euros of which was borrowed at that time. These credit lines had
interest rates ranging from Euribor ° 0.50% to Euribor ° 0.85% and maturities ranging from April 1, 2006 to
May 8, 2007. These proceeds, along with approximately 100 million euros which Starwood Italia borrowed
from our Corporate Credit Line (total borrowings of 450 million euros) were used to temporarily Ñnance the
repatriation of approximately $550 million pursuant to the Act. These temporary borrowings are being paid oÅ
with Starwood Italia asset sales, and as of December 31, 2005, approximately 175 million euros had been
repaid. We expect the remainder of these borrowings to be repaid over the course of 2006. In connection with
the repatriation, we recorded a tax liability of approximately $47 million in the third quarter of 2005, when our
Board of Directors adopted the repatriation plan. In accordance with the Act, the repatriated funds were
reinvested pursuant to the terms of a domestic reinvestment plan which was approved by our Board of
Directors.
Fiscal 2004 Developments. In August 2004, we completed a $300 million addition to the term loan
under our existing Senior Credit Facility. The proceeds were used to repay a portion of the existing revolving
credit facility and for general corporate purposes. The existing Senior Credit Facility then consisted of a
$1.0 billion revolving loan and a $600 million term loan. In February 2006, we closed a new Senior Credit
Facility which replaced the existing facility. See further discussion under the subheading Recent Events.
In March 2004, we terminated certain interest rate swap agreements, with a notional amount of
$1 billion, under which we paid Öoating rates and received Ñxed rates of interest (the ""Fair Value Swaps''),
resulting in a $33 million cash payment to us. These proceeds were used for general corporate purposes and
will result in a decrease to interest expense for the corresponding underlying debt (Sheraton Holding Public
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