Starwood 2011 Annual Report Download - page 161

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
The fair values of the Company’s letters of credit and surety bonds are estimated to be the same as the
contract values based on the nature of the fee arrangements with the issuing financial institutions.
Note 25. Commitments and Contingencies
The Company had the following contractual obligations outstanding as of December 31, 2011 (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) ............. $174 $66 $93 $15 $—
Other long-term obligations ..................... 1 1 — — —
Total contractual obligations .................... $175 $67 $93 $15 $—
(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, 2011 (in
millions):
Amount of Commitment Expiration Per Period
Total
Less Than
1 Year 1-3 Years 3-5 Years
After
5 Years
Standby letters of credit ........................... $171 $168 $— $— $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 9 for the VIEs in which the Company is deemed the primary beneficiary and has consolidated the entities.
The 18 VIEs associated with the Company’s variable interests represents 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, 2011, the Company has approximately $83 million of investments and a loan balance of
$9 million associated with 16 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 $5 million of investments and certain performance
guarantees associated with two VIEs. During the year ended December 31, 2011 and 2010, respectively, the
Company recorded a $1 million and $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 funding exposure of this guarantee is $1 million. The Company’s remaining performance guarantees
have possible cash outlays of up to $63 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.
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
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