Starwood 2006 Annual Report Download - page 45

second transaction, we deposited Treasury securities in an escrow account to cover the debt service payments. As
such, neither debt is reflected on our consolidated balance sheet as of December 31, 2006. In connection with the
defeasance, we incurred early extinguishment of debt costs of approximately $37 million which was recorded in
interest expense in our consolidated statement of income.
In the second quarter of 2006, we gave notice to redeem the $360 million of 3.5% convertible notes, originally
issued in May 2003. Under the terms of the convertible indenture, prior to the redemption date of June 5, 2006, the
note holders had the right to convert their notes into Shares at the stated conversion rate. Under the terms of the
indenture, we settled the conversions by paying the principal portion of the notes in cash and the excess amount by
issuing approximately 3 million Corporation Shares. The notes that were not converted prior to the redemption date
were redeemed at the price of par plus accrued interest, effective June 5, 2006.
In connection with the Host Transaction, a total of $600 million of notes issued by Sheraton Holding were
assumed by the Corporation. On June 2, 2006, we redeemed $150 million in principal amount of these notes which
had a coupon of 7.75% and a maturity in 2025. The stated redemption price for these notes was 103.186%. We
borrowed under the 2006 Facility and used existing unrestricted cash balances to fund the cash portions of these
transactions.
Fiscal 2005 Developments. On October 22, 2004, the President signed the American Jobs Creation Act of
2004 (the “Act”). The Act created 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 corporations. 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 finance the repatriation of
approximately $550 million pursuant to the Act. The majority of these temporary borrowings were repaid in 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.
Other. We have approximately $805 million of outstanding debt maturing in 2007. Based upon the current
level of operations, management believes that our cash flow from operations and asset sales, together with our
significant cash balances (approximately $519 million at December 31, 2006, including $336 million of short-term
and long-term restricted cash), available borrowing capacity under the 2006 Facility (approximately $1.218 billion
at December 31, 2006), available borrowing capacity from international revolving lines of credit (approximately
$131 million at December 31, 2006), and capacity for additional borrowings will be adequate to meet anticipated
requirements for scheduled maturities, dividends, working capital, capital expenditures, marketing and advertising
program expenditures, other discretionary investments, interest and scheduled principal payments for the fore-
seeable 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. In addition, there can be no assurance that our continuing business 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.
We maintain non-U.S.-dollar-denominated debt, which provides a hedge of our international net assets and
operations but also exposes our debt balance to fluctuations in foreign currency exchange rates. During the year
ended December 31, 2006, the effect of changes in foreign currency exchange rates was a net increase in debt of
approximately $32 million compared to a net decrease in debt in 2005 of approximately $23 million. Our debt
balance is also affected by changes in interest rates as a result of our interest rate swap agreements under which we
pay floating rates and receive fixed rates of interest (the “Fair Value Swaps”). The fair market value of the Fair Value
Swaps is recorded as an asset or liability and as the Fair Value Swaps are deemed to be effective, an adjustment is
recorded against the corresponding debt. At December 31, 2006, our debt included a decrease of approximately
$17 million related to the unamortized gains on terminated Fair Value Swaps and the fair market value of current
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