Host Marriott 2004 Annual Report - Host Hotels & Resorts, Inc

EXPECTED MATURITY DATE
($ IN MILLIONS) 2005 2006 2007 2008 2009 THEREAFTER TOTAL FAIR VALUE
ANTICIPATED TRANSACTIONS AND RELATED DERIVATIVES
Foreign Currency Forward Exchange
Agreements Contract Amount $7 $57 $— $— $— $— $64 $(20)
Average Contractual Exchange Rate 1.57 1.57 — — — —
On August 30, 2001, our Canadian subsidiaries entered
into a mortgage loan pursuant to which they borrowed $96.6 million
(denominated in U.S. dollars) at a variable rate of LIBOR
plus 2.75%. The weighted average interest rate for this mortgage
loan was 4.4% and 4.5%, respectively, for the years ended
December 31, 2004 and 2003. In addition, since the mortgage
loan on these Canadian properties is denominated in U.S.
dollars and the functional currency of the Canadian subsidiaries
is the Canadian dollar, the subsidiaries entered into currency
forward contracts to hedge the currency exposure of converting
Canadian dollars to U.S. dollars on a monthly basis to cover
debt service payments. Up until April 2003, these forward
exchange contracts had been designated as a cash flow hedges
of the debt service payments, and the forward contracts were
recorded at fair value on the balance sheet with offsetting
changes recorded in accumulated other comprehensive income.
In December 2003, we entered into certain transactions which
resulted in the forward contracts no longer qualifying as hedges.
We recognized a loss of approximately $18 million in 2003,
which was previously included in accumulated other comprehensive
income in our consolidated balance sheet. During
2003, we prepaid approximately $39 million of the loan
and terminated the foreign currency contracts equal to the
prepayments for a payment of approximately $8 million.
Accordingly, the change in fair value is recorded in our
consolidated statement of operations each period. For 2004,
we recorded a loss of $7 million. The fair value of the forward
contracts was approximately $(20) million and $(12) million,
respectively, at December 31, 2004 and December 31, 2003.
In January of 2005, we assigned approximately $32 million
notional amount of the forward contracts to a third party for
approximately $8 million, which approximated the fair value
of those contracts on the date of sale. After this sale, our
outstanding notional amount is approximately $20 million
and the fair value of the remaining contracts is approximately
$(8) million.
MANAGEMENT CERTIFICATIONS
On June 16, 2004, we submitted to the New York Stock
Exchange the Chief Executive Officer certification required
by Section 303A.12(a) of the NYSE Corporate Governance
standards, certifying that as of that date he was not aware
of any violation by the company of the NYSE’s Corporate
Governance listing standards. In addition, included as
exhibit 31 to our annual report on Form 10-K filed with
the Securities and Exchange Commission on March 1, 2005
were the Chief Executive Officer and Chief Financial Officer
certifications required by Section 302 of the Sarbanes-Oxley
Act of 2002 regarding our public reporting. A copy of our
annual report on Form 10-K, including these certifications,
is available on our website at: www.hostmarriott.com.
42
HOST MARRIOTT 2004