Note 24. Commitments and Contingencies

We had the following contractual obligations outstanding as of December 31, 2015 (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)	$	428	$	106	$	193	$	129	$	—
Other long-term obligations		9		1		2		2		4
Total contractual obligations	$	437	$	107	$	195	$	131	$	4

(a)	Included in these balances are commitments that may be reimbursed or satisfied by our managed and franchised properties.

During the year ended December 31, 2015, we entered into a long-term agreement for the provision of information technology services and support from a third party. While the amounts due under the agreement are variable in nature, we expect to have a future purchase obligation of approximately $331 million over the term of the agreement due as follows: $72 million in 2016; $74 million in 2017; $75 million in 2018; $77 million in 2019; and $33 million in 2020. A portion of these costs are expected to be reimbursed by our managed and franchised properties. In addition, we may terminate this agreement in certain circumstances during the term of the agreement in exchange for a termination fee.

We had the following commercial commitments outstanding as of December 31, 2015 (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

—

Variable Interest Entities. We have determined that we have a variable interest in 22 hotels, generally in the form of investments, loans, guarantees, or equity. We determine if we are the primary beneficiary of these hotels by primarily considering certain qualitative factors. Qualitative factors include evaluating if we have the power to control the VIE and have the obligation to absorb the losses and rights to receive the benefits of the VIE, that could potentially be significant to the VIE. We have determined that we are not the primary beneficiary of these VIEs and therefore, these entities are not consolidated in our financial statements. See Note 8 for the VIEs in which we are deemed the primary beneficiary and have consolidated the entities.

The 22 VIEs associated with our variable interests represent entities that own hotels for which we have entered into management or franchise agreements with the hotel owners. We are 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, 2015, we have approximately $106 million of investments and a loan balance of $1 million associated with these VIEs. The maximum loss under these agreements equals the carrying value because we are not obligated to fund future cash contributions. In addition, we have not contributed amounts to the VIEs in excess of our contractual obligations.

At December 31, 2014, we evaluated the 21 hotels in which we had a variable interest. As of that date, we had approximately $106 million of investments and a loan balance of $2 million associated with those VIEs.

Guaranteed Loans and Commitments. In limited cases, we have made loans to owners of or partners in hotel or resort ventures for which we have a management or franchise agreement. Loans outstanding under this program totaled $39 million, net, at December 31, 2015. We evaluate these loans for impairment, and at December 31, 2015, believe these loans are collectible. Unfunded loan commitments aggregating $61 million were outstanding at December 31, 2015, of which $35 million is expected to be funded in the next twelve months. These loans typically are secured by pledges of project ownership interests and/or mortgages on the projects. We also have $261 million of equity and other potential contributions associated with managed, franchised, or joint venture properties, $93 million of which is expected to be funded in the next twelve months.

Surety bonds issued on our behalf at December 31, 2015 totaled $32 million, as required by state or local governments relating to our vacation ownership operations, certain tax appeals and by our insurers to secure large deductible insurance programs.

To secure management contracts, we may provide performance guarantees to third-party owners. Most of these performance guarantees allow us to terminate the contract rather than fund shortfalls if certain performance levels are not met. In limited cases, we are 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 or terrorism. During the year ended December 31, 2015, we recorded an $11 million reserve for the potential funding of a performance guarantee associated with two hotels in Greece, as a result of the economic crisis in Greece. We do not anticipate any other significant funding under performance guarantees, nor do we anticipate losing a significant number of management or franchise contracts in 2016.

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, which have significantly decreased in recent years. We have received various claims on these historical liabilities. If we have to fund any of these claims, there can be no assurance that we will be able to recover such amounts through the indemnification. During the year ended December 31, 2015, certain employee pension claims were determined to be probable and reasonably estimable, based on the review of additional information provided to us by the plaintiffs, and we recorded a reserve of $6 million associated with these claims.

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. Accruals have been recorded when the outcome is probable and can be reasonably estimated. As of December 31, 2015, certain contingencies have been evaluated as reasonably possible, but not probable, with a range of exposure of $0 to $25 million. While the ultimate results of claims and litigation cannot be determined, we do not expect that the resolution of these 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.

Collective Bargaining Agreements. At December 31, 2015, approximately 24% 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 environmental costs during the ordinary course of operations, we anticipate that such costs will not have a material adverse effect on our operations or financial condition.

Captive Insurance Company. Estimated insurance claims payable at December 31, 2015 and 2014, were $75 million and $73 million, respectively. At December 31, 2015 and 2014, standby letters of credit amounting to $65 million and $60 million, respectively, had been issued to provide collateral for the estimated claims. We guarantee the letters of credit.

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, we changed the name of ITT Corporation to Sheraton Holding Corporation.

For purposes of governing certain of the ongoing relationships between us and ITT Industries after the Distribution and spin-off of ITT Corporation and to provide for an orderly transition, we have entered into various agreements with ITT Industries. These agreements include a spin-off agreement, Employee Benefits Services and Liability Agreement, Tax Allocation Agreement and Intellectual Property Transfer and License Agreements. We may be liable to or due reimbursement from ITT Industries relating to the resolution of certain pre-spin-off matters under these agreements. Based on available information, management does not believe that these matters would have a material impact on our consolidated results of operations, financial position or cash flows. During the year ended December 31, 2013 we recorded a gain, net of tax, in discontinued operations, net of $1 million from a favorable insurance recovery of certain liabilities.