Starwood 2005 Annual Report Download - page 109

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
Starwood Asia PaciÑc Management Pte Ltd and Starwood Hotels and Resorts Worldwide, Inc. are
Defendants in Suit No. 961 of 2002/ C commenced by Asia Hotel Investments Ltd (""AHIL'') in the High
Court of Singapore. In connection with its interest in the acquisition of a majority stake in a hotel in Bangkok,
Thailand, AHIL considered Starwood as a potential operator of the hotel and the parties signed a
ConÑdentiality and Non-Circumvention Agreement (the ""AHIL Agreement'') in December of 2001. The
AHIL Agreement placed certain restrictions on Starwood's dealings as they related to the hotel. AHIL proved
unsuccessful in its acquisition attempt and Starwood was contacted by the successful bidder to manage the
hotel as a Westin and a management contract was signed. AHIL is alleging that the new owner of the majority
stake could not have completed the acquisition of that stake without an agreement by Starwood to operate the
hotel as a Westin and that Starwood's agreement to do so was in violation of the AHIL Agreement.
AHIL brought suit in the trial court in Singapore and claimed loss of proÑts of approximately
US$54 million. However, at the time of the trial AHIL reduced its claim to one of loss of chance and asked
the court to assess damages. Starwood vigorously objected to such claims and put forth a two-fold defense
claiming:
(a) that no breach had been committed; and
(b) that even if a breach had been committed, it was merely technical, that is as AHIL was
unsuccessful in acquiring the majority stake in the hotel, AHIL's loss, if any, was not caused by
Starwood, but by its own inability to consummate the acquisition.
The trial judge agreed with Starwood that the breach was merely technical and awarded AHIL nominal
damages of ten Singapore dollars.
AHIL appealed its case to the Court of Appeal (which is the highest court in the Singapore judicial
system) and in a majority decision of 2-1 (with the Chief Justice strongly dissenting), AHIL's appeal was
allowed. The majority ruled that the matter should be sent for assessment of damages for the court to ascertain
what chance AHIL had to acquire the majority stake in the hotel, and place a value on that chance.
The hearing of the assessment of damages is expected to be completed in the Ñrst quarter of 2006.
Starwood does not expect the resolution of this matter will have a material adverse eÅect on the consolidated
results of operations, Ñnancial position or cash Öows.
The Company is involved in various other legal matters that have arisen in the normal course of business,
some of which include claims for substantial sums. Accruals have been recorded when the outcome is
probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be
determined, the Company does not expect that the resolution of all legal matters will have a material adverse
eÅect on its consolidated results of operations, Ñnancial position or cash Öow. However, depending on the
amount and the timing, an unfavorable resolution of some or all of these matters could materially aÅect the
Company's future results of operations or cash Öows in a particular period.
Environmental Matters. The Company is subject to certain requirements and potential liabilities under
various federal, state and local environmental laws, ordinances and regulations. Such laws often impose
liability without regard to whether the current or previous owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. Although the Company has incurred and expects to incur
remediation and other environmental costs during the ordinary course of operations, management anticipates
that such costs will not have a material adverse eÅect on the operations or Ñnancial condition of the Company.
Captive Insurance Company. Estimated insurance claims payable at December 31, 2005 and 2004 were
$95 million and $106 million, respectively. At December 31, 2005 and 2004, standby letters of credit
amounting to $103 million and $97 million, respectively, had been issued to provide collateral for the
estimated claims. The letters of credit are guaranteed by the Company.
F-46