Starwood 2007 Annual Report Download - page 162

In 2007, the Company had intercompany loans between entities with different foreign currencies. To mitigate
the risk of foreign currency exchange rate movements, the Company utilizes forward contracts as economic hedges
against rate fluctuations. These contracts do not qualify as hedges under SFAS No. 133; accordingly, the changes in
fair value are immediately recognized in the consolidated statement of income. As of December 31, 2007 and 2006,
the fair value of outstanding forward contracts was a net asset of $1 million and $0, respectively.
The counterparties to the Company’s derivative financial instruments are major financial institutions. The
Company does not expect its derivative financial instruments to significantly impact earnings in the next twelve
months.
Note 22. Commitments and Contingencies
The Company had the following contractual obligations outstanding as of December 31, 2007 (in millions):
Total
Due in Less
than 1 Year
Due in
1-3 Years
Due in
3-5 Years
Due After
5 Years
Unconditional purchase obligations
(a)
............. $114 $43 $49 $19 $ 3
Other long-term obligations .................... 4 — — 4 —
Total contractual obligations .................... $118 $43 $49 $23 $ 3
(a) Included in these balances are commitments that may be satisfied by the Company’s managed and franchised
properties.
The Company had the following commercial commitments outstanding as of December 31, 2007 (in millions):
Total
Less Than
1 Year 1-3 Years 3-5 Years
After
5 Years
Amount of Commitment Expiration Per Period
Standby letters of credit .......................... $133 $133 $— $— $—
Variable Interest Entities. Of the over 800 hotels that the Company manages or franchises for third party
owners, the Company has identified approximately 26 hotels that it has a variable interest in. For those ventures in
which the Company holds a variable interest, the Company determined that it was not the primary beneficiary and
such variable interest entities (“VIEs”) should not be consolidated in the Company’s financial statements. The
Company’s outstanding loan balances exposed to losses as a result of its involvement in VIEs totaled $7 million and
$14 million at December 31, 2007 and 2006, respectively. Equity investments and other types of investments related
to VIEs totaled $11 million and $52 million, respectively, at December 31, 2007 and $18 million and $64 million,
respectively, at December 31, 2006.
Guaranteed Loans and Commitments. In limited cases, the Company has made loans to owners of or
partners in hotel or resort ventures for which the Company has a management or franchise agreement. Loans
outstanding under this program, excluding the Westin Boston, Seaport Hotel discussed below, totaled $34 million at
December 31, 2007. The Company evaluates these loans for impairment, and at December 31, 2007, believes these
loans are collectible. Unfunded loan commitments aggregating $69 million were outstanding at December 31,
2007, of which $1 million are expected to be funded in 2008 and $51 million are expected to be funded in total.
These loans typically are secured by pledges of project ownership interests and/or mortgages on the projects. The
Company also has $100 million of equity and other potential contributions associated with managed or joint venture
properties, $28 million of which is expected to be funded in 2008.
During 2004, the Company entered into a long-term management contract to manage the Westin Boston,
Seaport Hotel in Boston, Massachusetts, which opened in June 2006. In connection with this project, the Company
agreed to provide up to $28 million in mezzanine loans and other investments (all of which has been funded) as well
as various guarantees, including a principal repayment guarantee for the term of the senior debt which was capped at
F-42
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)