Starwood 2004 Annual Report Download - page 39

subordinated debt Ñnancing, if our loan guarantee was to be called, we could take an equity position in this
property at a value signiÑcantly below construction costs.
Additionally, during the second quarter of 2004, we entered into a long-term management contract to
manage the Westin Boston, Seaport Hotel in Boston, Massachusetts, which is under construction and
scheduled to open in 2006. In connection with this agreement, we will provide up to $28 million in mezzanine
loans and other investments ($13 million of which has been funded) as well as various guarantees, including a
principal repayment guarantee for the term of the senior debt (four years with a one-year extension option),
which is capped at $40 million, and a debt service guarantee during the term of the senior debt which is
limited to the interest expense on the amounts drawn under such debt and principal amortization. Any
payments under the debt service guarantee, attributable to principal, will reduce the cap under the principal
repayment guarantee. The fair value of these guarantees of $3 million is reÖected in other liabilities in our
accompanying balance sheet as of December 31, 2004. In addition, we have issued a completion guarantee for
this approximate $200 million project. In the event the completion guarantee is called on, we would have
recourse to a guaranteed maximum price contract from the general contractor, performance bonds from all
major trade contractors and a payment bond from the general contractor. We would only be required to
perform under the completion guaranty in the event of a default by the general contractor that is not cured by
the contractor or the applicable bonds. We do not anticipate that we would be required to perform under these
guarantees.
Surety bonds issued on behalf of us as of December 31, 2004 totaled $38 million, the majority of which
were required by state or local governments relating to our vacation ownership operations and by our insurers
to secure large deductible insurance programs.
To secure management contracts, we may provide performance guarantees to third-party owners. Most of
these performance guarantees allow us to terminate the contract rather than fund shortfalls if certain
performance levels are not met. In limited cases, we are obliged to fund shortfalls in performance levels
through the issuance of loans. As of December 31, 2004, we had nine management contracts with performance
guarantees with possible cash outlays of up to $76 million, $50 million of which, if required, would be funded
over a period of 25 years and would be largely oÅset by management fees received under these contracts.
Many of the performance tests are multi-year tests, are tied to the results of a competitive set of hotels, and
have exclusions for force majeure and acts of war and terrorism. We do not anticipate any signiÑcant funding
under the performance guarantees in 2005. In addition, we have agreed to guarantee certain performance
levels at a managed property that has authorized VOI sales and marketing. The exact amount and nature of
the guaranty is currently under dispute. However, we do not believe that any payments under this guaranty will
be signiÑcant. We do not anticipate losing a signiÑcant number of management or franchise contracts in 2005.
We had the following contractual obligations outstanding as of December 31, 2004 (in millions):
Due in Less
Than Due in Due in Due After
Total 1 Year 1-3 Years 4-5 Years 5 Years
Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $4,440 $619 $1,744 $468 $1,609
Capital lease obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 Ì Ì Ì 2
Operating lease obligationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,133 74 137 122 800
Unconditional purchase obligations(1) ÏÏÏÏÏÏÏÏÏÏÏ 161 50 65 26 20
Other long-term obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 2 Ì Ì Ì
Total contractual obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $5,738 $745 $1,946 $616 $2,431
(1) Included in these balances are commitments that may be satisÑed by our managed and franchised properties.
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