Starwood 2004 Annual Report Download - page 107

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
Company's net investments in these subsidiaries. The Company measures the eÅectiveness of derivatives
designated as Net Investment Hedges by using the changes in forward exchange rates because this method
best reÖects the Company's risk management strategies and the economics of those strategies in the Ñnancial
statements. Under this method, the change in fair value of the hedging instrument attributable to the changes
in forward exchange rates is reported in stockholders' equity to oÅset the translation results on the hedged net
investment. The remaining change in fair value of the hedging instrument, if any, is recognized through
income. As of December 31, 2004, the Company had one Net Investment Hedge with a U.S. dollar equivalent
of the contractual amount of $243 million that matures in June 2005. The Net Investment Hedge minimizes
the eÅect Öuctuations in foreign currency exchange rates have on a portion of the Company's net investment
in certain Euro-denominated subsidiaries (""Euro Net Investment Hedges''). The fair value of the Euro Net
Investment Hedges at December 31, 2004 was a liability of approximately $29 million.
In April 2002, in connection with the sale of $1.5 billion of the Senior Notes, the Company terminated
four interest rate swap agreements (with a notional amount of $850 million) and realized a net loss of
approximately $23 million associated with this early termination.
In September 2002, the Company terminated certain Fair Value Swaps, resulting in a $78 million cash
payment to the Company. These proceeds were used to pay down the previous revolving credit facility and will
result in a decrease to interest expense on the hedged debt through its maturity in 2007. In order to retain it's
Ñxed versus Öoating rate debt position, the Company immediately entered into the current Fair Value Swaps
on the same underlying debt as the terminated swaps.
The counterparties to the Company's derivative Ñnancial instruments are major Ñnancial institutions. The
Company does not expect its derivative Ñnancial instruments to signiÑcantly impact earnings in the next
twelve months.
Note 19. Related Party Transactions
General. Barry S. Sternlicht, Executive Chairman and a Director of the Corporation, and Executive
Chairman and a Trustee of the Trust, may be deemed to control and has been and remains the President and
Chief Executive OÇcer of Starwood Capital since its formation in 1991.
Trademark License. An aÇliate of Starwood Capital has granted to the Company, subject to Starwood
Capital's unrestricted right to use such name, an exclusive, non-transferable, royalty-free license to use the
""Starwood'' name and trademarks in connection with the acquisition, ownership, leasing, management,
merchandising, operation and disposition of hotels worldwide, and to use the ""Starwood'' name in its corporate
name worldwide, in perpetuity.
Starwood Capital Noncompete. In connection with a restructuring of the Company in 1995, Starwood
Capital voluntarily agreed that, with certain exceptions, Starwood Capital would not compete directly or
indirectly with the Company within the United States and would present to the Company all opportunities
presented to Starwood Capital to acquire fee interests in hotels in the United States and debt interests in
hotels in the United States where it is anticipated that the equity will be acquired by the debt holder within
one year from the acquisition of such debt (the ""Starwood Capital Noncompete''). During the term of the
Starwood Capital Noncompete, Starwood Capital and its aÇliates are not permitted to acquire any such
interest, or any ground lease interest or other equity interest, in hotels in the United States without the consent
of the Board. In addition, the Company's Corporate Opportunity Policy requires that each executive oÇcer
submit to the Corporate Governance and Nominating Committee (which is currently comprised of Stephen
R. Quazzo, Ambassador Barshefsky and Bruce W. Duncan, the ""Governance Committee'') any opportunity
that the executive oÇcer reasonably believes is within the Company's lines of business or in which the
Company has an interest. Non-employee directors are subject to the same obligations with respect to
opportunities presented to them in their capacity as directors. Therefore, as a matter of practice, all
F-41