Starwood 2008 Annual Report Download - page 161

terrorism. The Company does not anticipate any significant funding under these performance guarantees in 2009. In
connection with the acquisition of the Le Méridien brand in November 2005, the Company assumed the obligation
to guarantee certain performance levels at one Le Méridien managed hotel for the periods 2007 through 2013. This
guarantee is uncapped. However, the Company has estimated its exposure under this guarantee and does not
anticipate that payments made under the guarantee will be significant in any single year. The estimated fair present
value of this guarantee of $7 million is reflected in other liabilities in the accompanying consolidated balance sheet
at December 31, 2008 and 2007. The Company does not anticipate losing a significant number of management or
franchise contracts in 2009.
In connection with the purchase of the Le Méridien brand in November 2005, the Company was indemnified
for certain of Le Méridien’s historical liabilities by the entity that bought Le Méridien’s owned and leased hotel
portfolio. The indemnity is limited to the financial resources of that entity. However, at this time, the Company
believes that it is unlikely that it will have to fund any of these liabilities.
In connection with the sale of 33 hotels to Host in 2006, the Company agreed to indemnify Host for certain
liabilities, including operations and tax liabilities. At this time, the Company believes that it will not have to make
any material payments under such indemnities.
Litigation. The Company is involved in various 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 effect on its
consolidated results of operations, financial position or cash flow. However, depending on the amount and the
timing, an unfavorable resolution of some or all of these matters could materially affect the Company’s future
results of operations or cash flows in a particular period.
Collective Bargaining Agreements. At December 31, 2008, approximately 37% of the Company’s
U.S.-based employees were covered by various collective bargaining agreements providing, generally, for basic
pay rates, working hours, other conditions of employment and orderly settlement of labor disputes. Generally, labor
relations have been maintained in a normal and satisfactory manner, and management believes that the Company’s
employee relations are satisfactory.
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 effect on the operations or financial condition of the Company.
Captive Insurance Company. Estimated insurance claims payable at December 31, 2008 and 2007 were
$83 million and $88 million, respectively. At December 31, 2008 and 2007, standby letters of credit amounting to
$115 million and $101 million, respectively, had been issued to provide collateral for the estimated claims. The
letters of credit are guaranteed by the Company.
ITT Industries. In 1995, the former ITT Corporation, renamed ITT Industries, Inc. (“ITT Industries”),
distributed to its stockholders all of the outstanding shares of common stock of ITT Corporation, then a wholly
owned subsidiary of ITT Industries (the “Distribution”). In connection with this Distribution, ITT Corporation,
which was then named ITT Destinations, Inc., changed its name to ITT Corporation. Subsequent to the acquisition
of ITT Corporation in 1998, the Company changed the name of ITT Corporation to Sheraton Holding Corporation.
For purposes of governing certain of the ongoing relationships between the Company and ITT Industries after
the Distribution and spin-off of ITT Corporation and to provide for an orderly transition, the Company and ITT
Industries have entered into various agreements including a spin-off agreement, Employee Benefits Services and
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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)