Starwood 2005 Annual Report Download - page 44

Interest rate swap agreements are the primary instruments used to manage interest rate risk. At
December 31, 2005, we had two outstanding long-term interest rate swap agreements under which we pay
variable interest rates and receive Ñxed interest rates. At December 31, 2005, we had no interest rate swap
agreements under which we pay a Ñxed rate and receive a variable rate. The following table sets forth the
scheduled maturities and the total fair value of our debt portfolio:
Expected Maturity or Total Fair
Transaction Date Total at Value at
At December 31, December 31, December 31,
2006 2007 2008 2009 2010 Thereafter 2005 2005
Liabilities
Fixed rate (in millions) ÏÏÏÏÏÏÏÏÏÏ $380 $740 $22 $435 $ 7 $1,594 $3,178 $3,466
Average interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏ 6.61%
Floating rate (in millions) ÏÏÏÏÏÏÏÏ $839 $ 85 $ 4 $ 36 $ 3 $ Ì $ 967 $ 967
Average interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏ 4.81%
Interest Rate Swaps
Fixed to variable (in millions)ÏÏÏÏÏ $ Ì $ Ì $Ì $ Ì $Ì $ 300 $ 300
Average pay rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8.77%
Average receive rate ÏÏÏÏÏÏÏÏÏÏÏ 7.88%
We use foreign currency hedging instruments to manage exposure to foreign currency exchange rate
Öuctuations. The gains or losses on the hedging instruments are largely oÅset by gains or losses on the
underlying asset or liability, and consequently, a sudden signiÑcant change in foreign currency exchange rates
would not have a material impact on future net income or cash Öows of the hedged item. We monitor our
foreign currency exposure on a monthly basis to maximize the overall eÅectiveness of our foreign currency
hedge positions. Changes in the fair value of hedging instruments are classiÑed in the same manner as changes
in the underlying assets or liabilities due to Öuctuations in foreign currency exchange rates. At December 31,
2005, the notional amount of our open foreign exchange hedging contracts protecting the value of our foreign
currency denominated assets and liabilities was approximately $162 million. A hypothetical 10% change in the
spot currency exchange rates would result in an increase or decrease of approximately $16 million in the fair
value of the hedges at December 31, 2005, which would be oÅset by an opposite eÅect on the related
underlying net asset or liability.
We enter into a derivative Ñnancial arrangement to the extent it meets the objectives described above,
and we do not engage in such transactions for trading or speculative purposes.
See Note 20. Derivative Financial Instruments in the notes to Ñnancial statements Ñled as part of this
Joint Annual Report and incorporated herein by reference for further description of derivative Ñnancial
instruments.
Item 8. Financial Statements and Supplementary Data.
The Ñnancial statements and supplementary data required by this Item are included in Item 15 of this
Joint 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.
Evaluation of Disclosure Controls and Procedures
The Company's management conducted an evaluation, under the supervision and with the participation
of the Company's Chief Executive OÇcer and Chief Financial OÇcer, of the eÅectiveness of the design and
operation of the Company's disclosure controls and procedures as of December 31, 2005. Based on this
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