Starwood 2010 Annual Report Download - page 160

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aggregating $18 million were outstanding at December 31, 2010, $0 million of which is expected to be funded in
2011, with $1 million expected to be funded in total. These loans typically are secured by pledges of project
ownership interests and/or mortgages on the projects. The Company also has $56 million of equity and other
potential contributions associated with managed or joint venture properties, $20 million of which is expected to be
funded in 2011.
Surety bonds issued on behalf of the Company at December 31, 2010 totaled $23 million, the majority of
which were required by state or local governments relating to the Company’s vacation ownership operations and by
its insurers to secure large deductible insurance programs.
To secure management contracts, the Company may provide performance guarantees to third-party owners.
Most of these performance guarantees allow the Company to terminate the contract rather than fund shortfalls if
certain performance levels are not met. In limited cases, the Company is obligated to fund shortfalls in performance
levels through the issuance of loans. 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. The Company does
not anticipate any significant funding under performance guarantees or losing a significant number of management
or franchise contracts in 2011.
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
2014. During the year ended December 31, 2010, the Company reached an agreement with the owner of this
property to fully release the Company of its performance guarantee obligation in return for a payment of
approximately $1 million to the owner. Additionally, in connection with this settlement, the term of the manage-
ment contract was extended by five years. As a result of this settlement, the Company recorded a credit to selling,
general, administrative and other expenses of approximately $8 million for the difference between the carrying
amount of the guarantee liability and the cash payment of $1 million.
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 in 2006, the Company agreed to indemnify the buyer 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, 2010, approximately 34% 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.
F-44
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)