Starwood 2012 Annual Report Download - page 202

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
Additionally, in connection with this settlement, the term of the management contract was extended by five
years. As a result of this settlement, we 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, we were 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, we believe that
it is unlikely that we will have to fund any of these liabilities.
In connection with the sale of 33 hotels in 2006, we agreed to indemnify the buyer for certain liabilities,
including operations and tax liabilities. At this time, we believe that we will not have to make any material
payments under such indemnities.
Litigation. We are involved in various legal matters that have arisen in the normal course of business,
some of which include claims for substantial sums. We review these matters and loss contingencies each
reporting period to evaluate the degree of probability of an unfavorable outcome and our ability to make a
reasonable estimate of any associated loss. Accruals have been recorded when the outcome is probable and can
be reasonably estimated. As of December 31, 2012, certain contingencies have been evaluated as reasonably
possible, but not probable, with a range of exposure of $0 to $27 million. While the ultimate results of claims and
litigation cannot be determined, we do not expect that the resolution of all legal matters will have a material
adverse effect on our 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 our
future results of operations or cash flows in a particular period.
In August 2009, Sheraton Operating Corporation (“Sheraton”) filed a lawsuit as plaintiff in the Supreme
Court of the State of New York (the “Court”) against Castillo Grand LLC (“Castillo”) asserting claims arising
out of a dispute over a hotel development contract. Two earlier lawsuits arising out of the same hotel
development contract filed by Castillo against Sheraton in federal court had been dismissed for lack of subject
matter jurisdiction. Castillo filed counterclaims in the state court action alleging, among other things, that
Sheraton’s breach of contract resulted in design changes and construction delays. The matter was tried before the
Court and, on November 18, 2011, the Court issued its Post Trial Decision ruling in favor of Castillo on some
claims and counterclaims and in favor of Sheraton on others. Overall, the Court’s decision is unfavorable to
Sheraton. During the year ended December 31, 2011, as a result of this decision, we recorded a reserve for this
matter resulting in a pretax charge of $70 million.
During the year ended December 31, 2012, the Court issued its decision on Castillo’s claim for attorney’s
fees and expenses. Based on the Court’s favorable decision, we recorded an adjustment of $11 million to reverse
a portion of our litigation reserve related to this matter. As of December 31, 2012, Sheraton and Castillo had filed
appeals to the Appellate Division of the Supreme Court of the State of New York.
Collective Bargaining Agreements. At December 31, 2012, approximately 27% of our U.S.-based
employees were covered by various collective bargaining agreements, generally providing 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 we believe that our employee relations
are satisfactory.
Environmental Matters. We are 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 we have incurred and expect to incur remediation and other
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