Starwood 2010 Annual Report Download - page 159

Note 26. Commitments and Contingencies
The Company had the following contractual obligations outstanding as of December 31, 2010 (in millions):
Total
Due in Less
Than 1 Year
Due in
1-3 Years
Due in
3-5 Years
Due After
5 Years
Unconditional purchase obligations
(a)
............. $225 $69 $124 $28 $ 4
Other long-term obligations .................... 3 2 1 — —
Total contractual obligations ................... $228 $71 $125 $28 $ 4
(a) Included in these balances are commitments that may be reimbursed or satisfied by the Company’s managed
and franchised properties.
The Company had the following commercial commitments outstanding as of December 31, 2010 (in millions):
Total
Less Than
1 Year 1-3 Years 3-5 Years
After
5 Years
Amount of Commitment Expiration Per Period
Standby letters of credit .......................... $159 $144 $12 $— $3
Variable Interest Entities. The Company has evaluated hotels in which it has a variable interest, which is
generally in the form of investments, loans, guarantees, or equity. The Company determines if it is the primary
beneficiary of the hotel by primarily considering the qualitative factors. Qualitative factors include evaluating if the
Company has the power to control the VIE and has the obligation to absorb the losses and rights to receive the
benefits of the VIE, that could potentially be significant to the VIE. The Company has determined it is not the
primary beneficiary of these VIEs and therefore these entities are not consolidated in the Company’s financial
statements. See Note 10 for the VIEs in which the Company is deemed the primary beneficiary and has consolidated
the entities.
The 15 VIEs associated with the Company’s variable interests represent entities that own hotels for which the
Company has entered into management or franchise agreements with the hotel owners. The Company is paid a fee
primarily based on financial metrics of the hotel. The hotels are financed by the owners, generally in the form of
working capital, equity, and debt.
At December 31, 2010, the Company has approximately $68 million of investments and a loan balance of
$9 million associated with 12 VIEs. As the Company is not obligated to fund future cash contributions under these
agreements, the maximum loss equals the carrying value. In addition, the Company has not contributed amounts to
the VIEs in excess of their contractual obligations.
Additionally, the Company has approximately $6 million of investments and certain performance guarantees
associated with three VIEs. During 2010, the Company recorded a $3 million charge to selling, general and
administrative expenses, relating to one of these VIEs, for a performance guarantee relating to a hotel managed by
the Company. The maximum remaining exposure of this guarantee is $1 million. The Company’s remaining
performance guarantees have possible cash outlays of up to $68 million, $62 million of which, if required, would be
funded over several years and would be largely offset by management fees received under these contracts.
At December 31, 2009, the Company has approximately $81 million of investments associated with 18 VIEs,
equity investments of $11 million associated with one VIE and a loan balance of $5 million associated with one
VIE.
Guaranteed Loans and Commitments. In limited cases, the Company has made loans to owners of or
partners in hotel or resort ventures for which the Company has a management or franchise agreement. Loans
outstanding under this program totaled $14 million at December 31, 2010. The Company evaluates these loans for
impairment, and at December 31, 2010, believes these loans are collectible. Unfunded loan commitments
F-43
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)