Starwood 2011 Annual Report Download - page 158

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
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 flows and the market value of
the Company’s debt. At December 31, 2011, the Company had six interest rate swap agreements with an
aggregate notional amount of $400 million under which the Company pays floating rates and receives fixed rates
of interest (“Fair Value Swaps”). The Fair Value Swaps hedge the change in fair value of certain fixed rate debt
related to fluctuations in interest rates and mature in 2013 and 2014. The Fair Value Swaps modify the
Company’s interest rate exposure by effectively converting debt with a fixed rate to a floating rate. These interest
rate swaps have been designated and qualify as fair value hedges. During the fourth quarter of 2011, the
Company terminated its 2012 interest rate swap agreements, resulting in a gain of approximately $2 million,
through interest expense.
The counterparties to the Company’s derivative financial instruments are major financial institutions. The
Company evaluates the bond ratings of the financial institutions and believes that credit risk is at an acceptable
level.
The following tables summarize the fair value of the Company’s derivative instruments, the effect of
derivative instruments on its Consolidated Statements of Comprehensive Income, the amounts reclassified from
“Other comprehensive income” and the effect on the Consolidated Statements of Income during the year.
Fair Value of Derivative Instruments
(in millions)
December 31, 2011 December 31, 2010
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Derivatives designated as
hedging instruments
Asset Derivatives
Forward contracts ..... Prepaid and other current assets $ 3 Prepaid and other current assets $—
Interest rate swaps ..... Other assets 12 Other assets 16
Total assets ........ $15 $16
December 31, 2011 December 31, 2010
Balance Sheet
Location
Fair
Value
Balance Sheet
Location
Fair
Value
Derivatives not
designated as hedging
instruments
Asset Derivatives
Forward contracts ..... Prepaid and other current assets $— Prepaid and other current assets $—
Total assets ........ $— $—
Liability Derivatives
Forward contracts ..... Accrued expenses $— Accrued expenses $ 9
Total liabilities ...... $— $ 9
F-41