Starwood Hotel & Resorts Worldwide 10-Q 2011 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2011

OR

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from            to            

Commission File Number: 1-7959

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

(Exact name of Registrant as specified in its charter)

Maryland

(State or other jurisdiction

of incorporation or organization)

52-1193298

(I.R.S. employer identification no.)

1111 Westchester Avenue

White Plains, NY 10604

(Address of principal executive

offices, including zip code)

(914) 640-8100

(Registrant’s telephone number,

including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of the issuer’s classes of common stock, as of the latest practicable date:

195,332,051 shares of common stock, par value $0.01 per share, outstanding as of October 21, 2011.

TABLE OF CONTENTS

		Page
PART I. Financial Information
Item1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010		3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2011 and 2010		4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2011 and 2010		5
	Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010		6
	Notes to Consolidated Financial Statements		7
Item2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item3.	Quantitative and Qualitative Disclosures about Market Risk		39
Item4.	Controls and Procedures		39
PART II. Other Information
Item1.	Legal Proceedings		39
Item1A.	Risk Factors		39
Item6.	Exhibits		40

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

The following unaudited consolidated financial statements of Starwood Hotels & Resorts Worldwide, Inc. (the “Company”) are provided pursuant to the requirements of this Item. In the opinion of management, all adjustments necessary for fair presentation, consisting of normal recurring adjustments, have been included. The consolidated financial statements presented herein have been prepared in accordance with the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 filed on February 18, 2011 as amended by the 10-K/A report filed on March 11, 2011. See the notes to consolidated financial statements for the basis of presentation. Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. The consolidated financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this filing. Results for the three and nine months ended September 30, 2011 are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2011.

2

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

	September 30, 2011			December 31, 2010
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	987		$	753
Restricted cash		150			53
Accounts receivable, net of allowance for doubtful accounts of $40 and $45		561			513
Inventories		857			802
Securitized vacation ownership notes receivable, net of allowance for doubtful accounts of $9 and $10		54			59
Prepaid expenses and other		179			126
Total current assets		2,788			2,306
Investments		256			312
Plant, property and equipment, net		3,234			3,323
Assets held for sale		—			—
Goodwill and intangible assets, net		2,055			2,067
Deferred tax assets		801			979
Other assets		478			381
Securitized vacation ownership notes receivable, net		325			408
	$	9,937		$	9,776
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt	$	610		$	9
Accounts payable		125			138
Current maturities of long-term securitized vacation ownership debt		105			127
Accrued expenses		1,251			1,104
Accrued salaries, wages and benefits		345			410
Accrued taxes and other		151			373
Total current liabilities		2,587			2,161
Long-term debt		2,187			2,848
Long-term securitized vacation ownership debt		283			367
Deferred income taxes		52			28
Other liabilities		1,950			1,886
		7,059			7,290
Commitments and contingencies
Stockholders’ equity:
Common stock; $0.01 par value; authorized 1,000,000,000 shares; outstanding 195,342,872 and 192,970,437 shares at September 30, 2011 and December 31, 2010, respectively		2			2
Additional paid-in capital		925			805
Accumulated other comprehensive loss		(319	)		(283	)
Retained earnings		2,269			1,947
Total Starwood stockholders’ equity		2,877			2,471
Noncontrolling interest		1			15
Total equity		2,878			2,486
	$	9,937		$	9,776

The accompanying notes to financial statements are an integral part of the above statements.

3

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per Share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Revenues
Owned, leased and consolidated joint venture hotels	$	441		$	427		$	1,329		$	1,245
Vacation ownership and residential sales and services		140			132			439			402
Management fees, franchise fees and other income		202			173			580			503
Other revenues from managed and franchised properties		589			523			1,745			1,581
		1,372			1,255			4,093			3,731
Costs and Expenses
Owned, leased and consolidated joint venture hotels		361			352			1,103			1,028
Vacation ownership and residential		107			98			330			302
Selling, general, administrative and other		88			90			256			258
Restructuring, goodwill impairment and other special charges (credits), net		—			(1	)		—			(2	)
Depreciation		57			64			177			196
Amortization		8			7			23			24
Other expenses from managed and franchised properties		589			523			1,745			1,581
		1,210			1,133			3,634			3,387
Operating income		162			122			459			344
Equity (losses) earnings and gains and losses from unconsolidated ventures, net		(5	)		(1	)		6			5
Interest expense, net of interest income of $1, $0, $2 and $1		(45	)		(59	)		(151	)		(180	)
Gain (loss) on asset dispositions and impairments, net		45			(56	)		14			(35	)
Income from continuing operations before taxes and noncontrolling interests		157			6			328			134
Income tax benefit (expense)		8			(11	)		14			(32	)
Income (loss) from continuing operations		165			(5	)		342			102
Discontinued operations:
Income (loss) from operations, net of tax (benefit) expense of $(1), $1, $(1) and $1		—			(1	)		—			(2	)
Gain (loss) on dispositions, net of tax (benefit) expense of $2, $0, $4 and $(34)		(2	)		—			(22	)		36
Net income (loss)		163			(6	)		320			136
Net loss (income) attributable to noncontrolling interests		—			—			2			2
Net income (loss) attributable to Starwood	$	163		$	(6	)	$	322		$	138
Earnings (Losses) Per Share – Basic
Continuing operations	$	0.88		$	(0.03	)	$	1.83		$	0.57
Discontinued operations		(0.01	)		0.00			(0.12	)		0.19
Net income (loss)	$	0.87		$	(0.03	)	$	1.71		$	0.76
Earnings (Losses) Per Share – Diluted
Continuing operations	$	0.85		$	(0.03	)	$	1.77		$	0.55
Discontinued operations		(0.01	)		0.00			(0.11	)		0.18
Net income (loss)	$	0.84		$	(0.03	)	$	1.66		$	0.73
Amounts attributable to Starwood’s Common Shareholders
Income (loss) from continuing operations	$	165		$	(5	)	$	344		$	104
Discontinued operations		(2	)		(1	)		(22	)		34
Net income (loss)	$	163		$	(6	)	$	322		$	138
Weighted average number of shares		190			183			189			182
Weighted average number of shares assuming dilution		195			183			195			189

The accompanying notes to financial statements are an integral part of the above statements.

4

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Net income (loss)	$	163		$	(6	)	$	320		$	136
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments		(117	)		95			(38	)		(6	)
Amortization of actuarial (gains) and losses included in net periodic pension cost		—			1			1			1
Change in fair value of derivatives		3			(3	)		—			(2	)
Reclassification adjustments for (gains) losses included in net income		1			2			2			1
Change in fair value of investments		—			—			—			(1	)
Total other comprehensive income (loss), net of taxes		(113	)		95			(35	)		(7	)
Comprehensive income		50			89			285			129
Comprehensive loss attributable to noncontrolling interests		—			—			2			2
Foreign currency translation adjustments attributable to noncontrolling interests		1			—			(1	)		—
Comprehensive income attributable to Starwood	$	51		$	89		$	286		$	131

The accompanying notes to financial statements are an integral part of the above statements.

5

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	Nine Months Ended September 30,
	2011			2010
Operating Activities
Net income	$	320		$	136
Adjustments to net income:
Discontinued operations:
(Gain) loss on dispositions, net		22			(36	)
Depreciation and amortization		—			—
Depreciation and amortization		200			220
Amortization of deferred gains		(64	)		(60	)
Non-cash portion of restructuring and other special charges (credits), net		—			—
(Gain) loss on asset dispositions and impairments, net		(14	)		35
Stock-based compensation expense		56			54
Excess stock-based compensation tax benefit		(19	)		(8	)
Distributions in excess (deficit) of equity earnings		6			4
Non-cash portion of income tax (benefit) expense		56			5
Other non-cash adjustments to net income		44			28
Decrease (increase) in restricted cash		(88	)		3
Other changes in working capital		(77	)		(70	)
Securitized VOI notes receivable activity, net		85			(60	)
Unsecuritized VOI notes receivable activity, net		(107	)		42
Accrued and deferred income taxes and other		(93	)		10
Cash (used for) from operating activities		327			303
Investing Activities
Purchases of plant, property and equipment		(253	)		(119	)
Proceeds from asset sales, net of transaction costs		290			144
(Issuance) collection of notes receivable, net		1			—
Acquisitions, net of acquired cash		(27	)		(18	)
Distributions (contributions) from (to) investments, net		1			(25	)
Other, net		(30	)		9
Cash (used for) from investing activities		(18	)		(9	)
Financing Activities
Revolving credit facility and short-term borrowings (repayments), net		—			(114	)
Long-term debt issued		—			3
Long-term debt repaid		(5	)		(8	)
Long-term securitized debt issued		—			280
Long-term securitized debt repaid		(107	)		(185	)
Dividends paid		(3	)		(37	)
Proceeds from employee stock option exercises		55			56
Excess stock-based compensation tax benefit		19			8
Other, net		(32	)		(28	)
Cash (used for) from financing activities		(73	)		(25	)
Exchange rate effect on cash and cash equivalents		(2	)		1
(Decrease) increase in cash and cash equivalents		234			270
Cash and cash equivalents — beginning of period		753			87
Cash and cash equivalents — end of period	$	987		$	357
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the period for:
Interest	$	114		$	158
Income taxes, net of refunds	$	41		$	44

The accompanying notes to financial statements are an integral part of the above statements.

6

Note Section

Note 1. Basis of Presentation

The accompanying consolidated financial statements represent the consolidated financial position and consolidated results of operations of Starwood Hotels & Resorts Worldwide, Inc. and its subsidiaries (the “Company” or “Starwood”).

The consolidated financial statements include the accounts of the Company and all of its controlled subsidiaries and partnerships. In consolidating, all material intercompany transactions are eliminated. We have evaluated all subsequent events through the date these consolidated financial statements were filed with the Securities and Exchange Commission.

Starwood is one of the world’s largest hotel and leisure companies. The Company’s principal business is hotels and leisure, which is comprised of a worldwide hospitality network of approximately 1,070 full-service hotels, vacation ownership resorts and residential developments primarily serving two markets: luxury and upscale. The principal operations of Starwood Vacation Ownership, Inc. (“SVO”) include the acquisition, development and operation of vacation ownership resorts; marketing and selling vacation ownership interests (“VOIs”) in the resorts; and providing financing to customers who purchase such interests.

Note 2. Recently Issued Accounting Standards

Adopted Accounting Standards

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-16,“Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets”(formerly Statement of Financial Accounting Standards (“SFAS”) No. 166), and ASU No. 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities”(formerly SFAS No. 167).

Beginning January 1, 2010, the Company’s balance sheet and statement of income no longer reflect activity related to its retained economic interests (“Retained Interests”), but instead reflects activity related to its securitized vacation ownership notes receivable and the corresponding securitized debt, including interest income, loan loss provisions, and interest expense.

In October 2009, the FASB issued ASU No. 2009-13 “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements”, which supersedes certain guidance in FASB Accounting Standards Codification (“ASC”) 605-25,Revenue Recognition – Multiple Element Arrangements. This topic requires an entity to allocate arrangement consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. This topic is effective for annual reporting periods beginning after June 15, 2010. The Company adopted this topic on January 1, 2011 and it had no material impact on its consolidated financial statements.

Future Adoption of Accounting Standards

In September 2011, the FASB issued ASU No. 2011-08,“Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment”.This topic permits an entity to assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis to determine whether an additional impairment test is necessary. This topic is for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company plans to early adopt this topic during the fourth quarter of 2011 in conjunction with its annual impairment testing.

In September 2011, the FASB issued ASU No. 2011-09,“Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a Multiemployer Plan”. This subtopic addresses concerns from users of financial statements on the lack of transparency about an employer’s participation in a multiemployer pension plan. The disclosures also will indicate the financial health of all of the significant plans in which the employer participates and assist a financial statement user to access additional information that is available outside of the financial statements. The subtopic is effective for annual reporting periods ending after December 15, 2011. The Company is currently evaluating the impact that this topic will have on its consolidated financial statements.

7

Note 3. Earnings (Losses) per Share

Basic and diluted earnings (losses) per share are calculated using income (loss) from continuing operations attributable to Starwood’s common shareholders (i.e. excluding amounts attributable to noncontrolling interests).

The following is a reconciliation of basic earnings (losses) per share to diluted earnings (losses) per share for income (loss) from continuing operations (in millions, except per share data):

	Three Months Ended September 30,
	2011						2010
	Earnings		Shares		Per Share		Earnings (Losses)			Shares		Per Share
Basic earnings (losses) from continuing operations	$	165		190	$	0.88	$	(5	)		183	$	(0.03	)
Effect of dilutive securities:
Employee stock options and restricted stock awards		—		5				—			—
Diluted earnings (losses) from continuing operations	$	165		195	$	0.85	$	(5	)		183	$	(0.03	)
	Nine Months Ended September 30,
	2011						2010
	Earnings		Shares		Per Share		Earnings			Shares		Per Share
Basic earnings from continuing operations	$	344		189	$	1.83	$	104			182	$	0.57
Effect of dilutive securities:
Employee stock options and restricted stock awards		—		6				—			7
Diluted earnings from continuing operations	$	344		195	$	1.77	$	104			189	$	0.55

Approximately 3 million and 20 million shares for the three months ended September 30, 2011 and 2010, respectively, and 1 million and 5 million shares for the nine months ended September 30, 2011 and 2010, respectively, were excluded from the computation of diluted shares, respectively, as their impact would have been anti-dilutive.

Note 4. Acquisitions

On September 30, 2011, the Company executed a transaction with its former partner in a joint venture that owned three luxury hotels in Austria. In connection with the transaction, the Company acquired substantially the entire interest in two of the hotels in exchange for its interest in the third hotel and a cash payment, by the Company, of approximately $27 million. The Company previously held a 47.4% ownership interest in the hotels. In accordance with ASC 805,“Business Combinations”, the Company accounts for this transaction as a step acquisition, remeasured its previously held investment to fair value and recorded the approximately $48 million difference between fair value and its carrying value as a gain on asset dispositions. The fair values of the assets and liabilities acquired have been recorded in the Company’s consolidated balance sheet, including the resulting goodwill of approximately $27 million. The Company entered into a long-term management contract for the hotel in which it exchanged its minority ownership interest and recorded a deferred gain of approximately $30 million in connection with this exchange.

During the three months ended June 30, 2010, the Company paid approximately $23 million to acquire a controlling interest in a joint venture after one of the Company’s former partners exercised its right to put its interest to the Company in accordance with the terms of the joint venture agreement. This acquisition resulted in a gain of $5 million which was recorded in gain (loss) on asset dispositions and impairments, net. During the three months ended March 31, 2011, the Company acquired the remaining subordinated equity of this joint venture for approximately $1 million which was reflected as a decrease in equity attributable to the Company.

Note 5. Asset Dispositions and Impairments

During the three months ended September 30, 2011, the Company recorded a gain of approximately $45 million, primarily related to the $48 million gain on an acquisition described in Note 4, partially offset by $3 million in losses relating to the impairment of an investment in a management contract that was terminated during the quarter and the impairment of fixed assets at a wholly-owned hotel which is undergoing a significant renovation.

8

During the three months ended June 30, 2011, the Company sold two wholly-owned hotels for cash proceeds of approximately $237 million. These hotels were sold subject to long-term management agreements, and the Company recorded deferred gains of approximately $66 million relating to the sales. The Company also sold its interest in a consolidated joint venture for cash proceeds of approximately $44 million, with the buyer assuming $57 million of the Company’s debt (see Note 9). The Company recognized an after-tax loss in discontinued operations as a result of the sale (see Note 13). Additionally, the Company sold non-core assets for approximately $2 million and recorded a gain of approximately $2 million.

During the three months ended March 31, 2011, the Company recorded an impairment charge of $31 million to write off its noncontrolling interest in a joint venture that owns a hotel in Tokyo, Japan. Due to the earthquake in Japan and the negative impact on the hotel’s operating and financial results, the Company no longer believes that it will recover the carrying amount of its investment in this hotel and has concluded that it is permanently impaired.

During the three months ended September 30, 2010, the Company sold one wholly-owned hotel for cash proceeds of approximately $70 million and recognized a loss of $53 million. This hotel was sold subject to a long-term management contract. Additionally, in the third quarter the Company recorded impairment charges of $3 million related to a vacation ownership property and an investment in a hotel management contract.

During the three months ended June 30, 2010, the Company recorded a gain of approximately $20 million primarily related to insurance proceeds for an owned hotel damaged by a tornado and a gain on an acquisition discussed in Note 4.

During the three months ended March 31, 2010, the Company recorded a net gain of approximately $1 million related to the sale of its noncontrolling interest in a joint venture that owned one hotel and the sale of a non-core asset, partially offset by losses on the termination of two management contracts.

Note 6. Transfers of Financial Assets

The Company has variable interests in the Variable Interest Entities (“VIEs”) associated with its five outstanding securitization transactions. The Company applied the variable interest model and determined it is the primary beneficiary of these VIEs. In making this determination, the Company evaluated the activities that significantly impact the economics of the VIEs, including the management of the securitized notes receivable and any related non-performing loans. The Company also evaluated its retention of the residual economic interests in the related VIEs. The Company is the servicer of the securitized mortgage receivables. The Company also has the option, subject to certain limitations, to repurchase or replace VOI notes receivable, that are in default, at their outstanding principal amounts. Such activity totaled $8 million and $25 million during the three and nine months ended September 30, 2011, respectively compared to $10 million and $30 million during the three and nine months ended September 30, 2010. The Company has been able to resell the VOIs underlying the VOI notes repurchased or replaced under these provisions without incurring significant losses. The Company holds the risk of potential loss (or gain) as the last to be paid out by proceeds of the VIEs under the terms of the agreements. As such, the Company holds both the power to direct the activities of the VIEs and obligation to absorb the losses (or benefits) from the VIEs.

The securitization agreements are without recourse to the Company, except for breaches of representations and warranties. Based on the right of the Company to fund defaults at its option, subject to certain limitations, it intends to do so until the debt is extinguished to maintain the credit rating of the underlying notes.

Upon transfer of vacation ownership notes receivable to the VIEs, the receivables and certain cash flows derived from them become restricted for use in meeting obligations to the VIE creditors. The VIEs utilize trusts which have ownership of cash balances that also have restrictions, the amounts of which are reported in restricted cash. The Company’s interests in trust assets are subordinate to the interests of third-party investors and, as such, may not be realized by the Company if needed to absorb deficiencies in cash flows that are allocated to the investors in the trusts’ debt (see Note 10). The Company is contractually obligated to receive the excess cash flows (spread between the collections on the notes and third party obligations defined in the securitization agreements) from the VIEs. Such activity totaled $10 million and $31 million during the three and nine months ended September 30, 2011, respectively compared to $12 million and $32 million during the three and nine months ended September 30, 2010, and is classified in cash and cash equivalents.

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Note 7. Vacation Ownership Notes Receivable

Notes receivable (net of reserves) related to the Company’s vacation ownership loans consist of the following (in millions):

	September 30, 2011			December 31, 2010
Vacation ownership loans – securitized	$	379		$	467
Vacation ownership loans – unsecuritized		239			152
		618			619
Less: current portion
Vacation ownership loans – securitized		(54	)		(59	)
Vacation ownership loans – unsecuritized		(29	)		(20	)
	$	535		$	540

The current and long-term maturities of unsecuritized VOI notes receivable are included in accounts receivable and other assets, respectively, in the Company’s consolidated balance sheets.

The Company records interest income associated with VOI notes in its vacation ownership and residential sale and services line item in its consolidated statements of income. Interest income related to the Company’s VOI notes receivable was as follows (in millions):

	Three Months  Ended September 30,
	2011		2010
Vacation ownership loans – securitized	$	14	$	17
Vacation ownership loans – unsecuritized		7		4
	$	21	$	21

	Nine Months  Ended September 30,
	2011		2010
Vacation ownership loans – securitized	$	46	$	49
Vacation ownership loans – unsecuritized		18		17
	$	64	$	66

The following tables present future maturities of gross VOI notes receivable and interest rates (in millions):

	Securitized			Unsecuritized			Total
2011	$	15		$	20		$	35
2012		64			27			91
2013		66			27			93
2014		66			27			93
Thereafter		229			220			449
Balance at September 30, 2011	$	440		$	321		$	761
Weighted Average Interest Rates		12.70	%		12.44	%		12.58	%
Range of interest rates		5 to 17	%		5 to 18	%		5 to 18	%

For the vacation ownership and residential segment, the Company records an estimate of expected uncollectibility on its VOI notes receivable as a reduction of revenue at the time it recognizes profit on a timeshare sale. The Company holds large amounts of homogeneous VOI notes receivable and therefore assesses uncollectibility based on pools of receivables. In estimating loss reserves, the Company uses a technique referred to as static pool analysis, which tracks uncollectible notes for each year’s sales over the life of the respective notes and projects an estimated default rate that is used in the determination of its loan loss reserve requirements. As of September 30, 2011, the average estimated default rate for the Company’s pools of receivables was approximately 10%.

10

The activity and balances for the Company’s loan loss reserve are as follows (in millions):

	Securitized			Unsecuritized			Total
Balance at June 30, 2011	$	68		$	80		$	148
Provisions for loan losses		—			7			7
Write-offs of uncollectible receivables		—			(12	)		(12	)
Transfers to and from securitized & unsecuritized, net		(7	)		7			—
Balance at September 30, 2011	$	61		$	82		$	143
Balance at December 31, 2010	$	82		$	79		$	161
Provisions for loan losses		2			20			22
Write-offs of uncollectible receivables		—			(40	)		(40	)
Transfers to and from securitized & unsecuritized, net		(23	)		23			—
Balance at September 30, 2011	$	61		$	82		$	143
Balance at June 30, 2010	$	69		$	96		$	165
Provisions for loan losses		1			10			11
Write-offs of uncollectible receivables		—			(14	)		(14	)
Transfers to and from securitized & unsecuritized, net		18			(18	)		—
Balance at September 30, 2010	$	88		$	74		$	162
Balance at December 31, 2009	$	—		$	94		$	94
Provisions for loan losses		12			24			36
Write-offs of uncollectible receivables		—			(41	)		(41	)
ASU No. 2009-17 implementation		77			(4	)		73
Transfers to and from securitized & unsecuritized, net		(1	)		1			—
Balance at September 30, 2010	$	88		$	74		$	162

The primary credit quality indicator used by the Company to calculate the loan loss reserve for the VOI notes is the origination of the notes by brand (Sheraton, Westin, and Other) as the Company believes there is a relationship between the default behavior of borrowers and the brand associated with the vacation ownership property they have acquired. In addition to quantitatively calculating the loan loss reserve based on its static pool analysis, the Company supplements the process by evaluating certain qualitative data, including the aging of the respective receivables, current default trends by brand and origination year, and the Fair Isaac Corporation (“FICO”) scores of the buyers.

Given the significance of the Company’s respective pools of VOI notes receivable, a change in the projected default rate can have a significant impact to its loan loss reserve requirements, with a 0.1% change estimated to have an impact of approximately $4 million.

The Company considers a VOI note receivable delinquent when it is more than 30 days outstanding. All delinquent loans are placed on nonaccrual status and the Company does not resume interest accrual until payment is made. Upon reaching 120 days outstanding, the loan is considered to be in default and the Company commences the repossession process. Uncollectible VOI notes receivable are charged off when title to the unit is returned to the Company. The Company generally does not modify vacation ownership notes that become delinquent or upon default.

Note 8. Fair Value

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 (in millions):

	Level 1		Level 2		Level 3		Total
Assets:
Forward contracts	$	—	$	18	$	—	$	18
Interest rate swaps		—		16		—		16
	$	—	$	34	$	—	$	34
Liabilities:
Forward contracts	$	—	$	1	$	—	$	1

11

The forward contracts are over-the-counter contracts that do not trade on a public exchange. The fair values of the contracts are based on inputs such as foreign currency spot rates and forward points that are readily available on public markets, and as such, are classified as Level 2. The Company considered both its credit risk, as well as its counterparties’ credit risk in determining fair value and no adjustment was made as it was deemed insignificant based on the short duration of the contracts and the Company’s rate of short-term debt.

The interest rate swaps are valued using an income approach. Expected future cash flows are converted to a present value amount based on market expectations of the yield curve on floating interest rates, which is readily available on public markets.

Note 9. Debt

Long-term debt and short-term borrowings consisted of the following, excluding securitized vacation ownership debt (in millions):

	September  30, 2011			December  31, 2010
Senior Credit Facilities:
Revolving Credit Facility, maturing 2013	$	—		$	—
Senior Notes, interest at 7.875%, maturing 2012		607			609
Senior Notes, interest at 6.25%, maturing 2013		502			504
Senior Notes, interest at 7.875%, maturing 2014		497			490
Senior Notes, interest at 7.375%, maturing 2015		450			450
Senior Notes, interest at 6.75%, maturing 2018		400			400
Senior Notes, interest at 7.15%, maturing 2019		245			245
Mortgages and other, interest rates ranging from 2.79% to 9.00%, various maturities		96			159
		2,797			2,857
Less current maturities		(610	)		(9	)
Long-term debt	$	2,187		$	2,848

During the three months ended June 30, 2011, the Company sold its interest in a consolidated joint venture which resulted in the buyer assuming approximately $57 million of the Company’s mortgage debt.

During the three months ended March 31, 2011, the Company entered into two interest rate swaps with a total notional amount of $100 million, which the Company pays floating and receives fixed interest rates. See Note 12.

Note 10. Securitized Vacation Ownership Debt

As discussed in Note 6, the Company’s VIEs associated with the securitization of its vacation ownership notes receivable are consolidated in the Company’s financial statements. Long-term and short-term securitized vacation ownership debt consisted of the following (in millions):

	September  30, 2011			December  31, 2010
2003 securitization, interest rates ranging from 3.95% to 6.96%, maturing 2018	$	12		$	17
2005 securitization, interest rates ranging from 5.25% to 6.29%, maturing 2018		41			55
2006 securitization, interest rates ranging from 5.28% to 5.85%, maturing 2018		29			39
2009 securitization, interest rate at 5.81%, maturing 2016		101			128
2010 securitization, interest rates ranging from 3.65% to 4.75%, maturing 2021		205			255
		388			494
Less current maturities		(105	)		(127	)
Long-term securitized debt	$	283		$	367

12

Note 11. Other Liabilities

Other liabilities consisted of the following (in millions):

	September  30, 2011		December  31, 2010
Deferred gains on asset sales	$	959	$	930
SPG point liability and other obligations		709		702
Deferred income including VOI and residential sales		19		20
Benefit plan liabilities		56		61
Insurance reserves		46		46
Other		161		127
	$	1,950	$	1,886

The Company defers gains realized in connection with the sale of a property that the Company continues to manage through a long-term management agreement and recognizes the gains over the initial term of the related agreement. As of September 30, 2011 and December 31, 2010, the Company had total deferred gains of approximately $1 billion included in accrued expenses and other liabilities in the Company’s consolidated balance sheets. Amortization of deferred gains is included in management fees, franchise fees and other income in the Company’s consolidated statements of income and totaled approximately $22 million and $64 million in the three and nine months ended September 30, 2011, respectively, and $20 million and $60 million in the three and nine months ended September 30, 2010, respectively.

Note 12. Derivative Financial Instruments

The Company, based on market conditions, enters into forward contracts to manage foreign exchange risk. The Company enters into forward contracts to hedge forecasted transactions based in certain foreign currencies. These forward contracts have been designated and qualify as cash flow hedges, and their change in fair value is recorded as a component of other comprehensive income and reclassified into earnings in the same period or periods in which the forecasted transaction occurs. To qualify as a hedge, the Company needs to formally document, designate and assess the effectiveness of the transactions that receive hedge accounting. The notional dollar amounts of the outstanding Euro and Yen forward contracts at September 30, 2011 are $37 million and $2 million, respectively, with average exchange rates of 1.4 and 83.5, respectively, with terms of primarily less than one year. The Company reviews the effectiveness of its hedging instruments on a quarterly basis and records any ineffectiveness into earnings. The Company discontinues hedge accounting for any hedge that is no longer evaluated to be highly effective. From time to time, the Company may choose to de-designate portions of hedges when changes in estimates of forecasted transactions occur. Each of these hedges was highly effective in offsetting fluctuations in foreign currencies.

The Company also enters into forward contracts to manage foreign exchange risk on intercompany loans that are not deemed permanently invested. These forward contracts are not designated as hedges, and their change in fair value is recorded in the Company’s consolidated statements of income during each reporting period. These forward contracts provide an economic hedge as they largely offset foreign currency exposure on intercompany loans.

The Company enters into interest rate swap agreements to manage interest expense. The Company’s objective is to manage the impact of interest rates on the results of operations, cash flows and the market value of the Company’s debt. At September 30, 2011, the Company has eight interest rate swap agreements with an aggregate notional amount of $600 million under which the Company pays floating rates and receives fixed rates of interest (“Fair Value Swaps”). The Fair Value Swaps hedge the change in fair value of certain fixed rate debt related to fluctuations in interest rates and mature in 2012, 2013 and 2014. The Fair Value Swaps modify the Company’s interest rate exposure by effectively converting debt with a fixed rate to a floating rate. These interest rate swaps have been designated and qualify as fair value hedges and have met the requirements to assume zero ineffectiveness.

The counterparties to the Company’s derivative financial instruments are major financial institutions. The Company evaluates the bond ratings of the financial institutions and believes that credit risk is at an acceptable level.

13

The following tables summarize the fair value of the Company’s derivative instruments, the effect of derivative instruments on our Consolidated Statements of Comprehensive Income, the amounts reclassified from “Other Comprehensive Income” and the effect on the Consolidated Statements of Income during the quarter.

Fair Value of Derivative Instruments

(in millions)

	September 30, 2011			December 31, 2010
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Asset Derivatives
Forward contracts	Prepaid and other current assets	$	2	Prepaid and other current assets	$	—
Interest rate swaps	Prepaid and other current assets		2	Prepaid and other current assets		—
	Other assets		14	Other assets		16
Total assets		$	18		$	16
Liability Derivatives
Forward contracts	Accrued expenses	$	—	Accrued expenses	$	—
Total liabilities		$	—		$	—

	September 30, 2011			December 31, 2010
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives not designated as hedging instruments
Asset Derivatives
Forward contracts	Prepaid and other current assets	$	16	Prepaid and other current assets	$	—
Total assets		$	16		$	—
Liability Derivatives
Forward contracts	Accrued expenses	$	1	Accrued expenses	$	9
Total liabilities		$	1		$	9

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Consolidated Statements of Income and Comprehensive Income

for the Three and Nine Months Ended September 30, 2011 and 2010

(in millions)

Balance at June 30, 2011	$	2
Mark-to-market (gain) loss on forward exchange contracts		(3	)
Reclassification of gain (loss) from OCI to management fees, franchise fees, and other income		(1	)
Balance at September 30, 2011	$	(2	)
Balance at December 31, 2010	$	—
Mark-to-market (gain) loss on forward exchange contracts		—
Reclassification of gain (loss) from OCI to management fees, franchise fees, and other income		(2	)
Balance at September 30, 2011	$	(2	)
Balance at June 30, 2010	$	—
Mark-to-market (gain) loss on forward exchange contracts		3
Reclassification of gain (loss) from OCI to management fees, franchise fees, and other income		(2	)
Balance at September 30, 2010	$	1
Balance at December 31, 2009	$	—
Mark-to-market (gain) loss on forward exchange contracts		2
Reclassification of gain (loss) from OCI to management fees, franchise fees, and other income		(1	)
Balance at September 30, 2010	$	1

15

	in Income on Derivative		in Income on Derivative		in Income on Derivative
Derivatives Not Designated as Hedging         Instruments	Location of Gain or (Loss)  Recognized in Income on Derivative	Amount of Gain or  (Loss) Recognized in Income on Derivative
		Three Months Ended September 30,
		2011		2010
Foreign forward exchange contracts	Interest expense, net	$	16	$	9
Total (loss) gain included in income		$	16	$	9
		Nine Months  Ended September 30,
		2011		2010
Foreign forward exchange contracts	Interest expense, net	$	11	$	(27	)
Total (loss) gain included in income		$	11	$	(27	)

Note 13. Discontinued Operations

During the three and nine months ended September 30, 2011, the Company recorded, net of tax, a $1 million and $19 million loss, respectively, related to the sale of the Company’s interest in a consolidated joint venture (see Note 5). Additionally, during the three and nine months ended September 30, 2011, the Company recorded, net of tax, a $1 million and $3 million loss, respectively, related to accrued interest on an uncertain tax position.

During the nine months ended September 30, 2010, the Company recorded a gain of approximately $36 million, primarily related to a tax benefit in connection with the sale of one hotel for $78 million. The tax benefit was related to the realization of a high tax basis in these hotels that was generated through a previous transaction.

Note 14. Pension and Postretirement Benefit Plans

The following table presents the components of net periodic benefit cost for the three and nine months ended September 30, 2011 and 2010 (in millions):

	Three Months Ended September 30,
	2011							2010
	Pension Benefits		Foreign Pension Benefits			Postretirement Benefits		Pension Benefits		Foreign Pension Benefits			Postretirement Benefits
Service cost	$	—	$	0.1		$	—	$	—	$	—		$	—
Interest cost		0.2		2.4			0.2		0.2		2.6			0.2
Expected return on plan assets		—		(2.9	)		—		—		(2.7	)		(0.1	)
Amortization of actuarial loss		0.1		0.3			—		0.1		0.3			—
Net period benefit cost (income)	$	0.3	$	(0.1	)	$	0.2	$	0.3	$	0.2		$	0.1

	Nine Months Ended September 30,
	2011							2010
	Pension Benefits		Foreign Pension Benefits			Postretirement Benefits		Pension Benefits		Foreign Pension Benefits			Postretirement Benefits
Service cost	$	—	$	0.1		$	—	$	—	$	0.1		$	—
Interest cost		0.7		7.3			0.7		0.7		7.6			0.7
Expected return on plan assets		—		(8.8	)		—		—		(7.9	)		(0.1	)
Amortization of actuarial loss		0.1		1.0			—		0.1		0.9			—
Net period benefit cost	$	0.8	$	(0.4	)	$	0.7	$	0.8	$	0.7		$	0.6

During the three and nine months ended September 30, 2011, the Company contributed approximately $4 million and $8 million, respectively, to its pension and postretirement benefit plans. For the remainder of 2011, the Company expects to contribute approximately $3 million to its pension and postretirement benefit plans. A portion of this funding will be reimbursed for costs related to employees of managed hotels.

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Note 15. Income Taxes

During the third quarter of 2011, the IRS closed its audit with respect to tax years 2004 through 2006 resulting in a refund of previously paid tax, plus interest, of approximately $40 million. As a result of the closing of these years, the Company recognized a tax benefit of approximately $20 million in continuing operations, primarily for the reversal of tax and interest reserves. In addition, the closing of these years resulted in the recognition of previously unrecognized tax benefits of approximately $408 million.

During the third quarter of 2011, the Company recognized a capital gain related to a joint venture interest that was offset by capital losses, which had been fully reserved. As a result, a tax benefit of $8 million was recognized on this capital loss utilization.

The total amount of unrecognized tax benefits as of September 30, 2011, was $134 million, of which $40 million would affect the Company’s effective tax rate if recognized. The Company is continually under audit by various taxing jurisdictions, and as a result, it is possible that the remaining amount of unrecognized tax benefits could change within the next 12 months. An estimate of the range of the possible change cannot be made until tax positions are further developed or examinations close.

The Company recognizes interest and penalties related to unrecognized tax benefits through income tax expense. As of September 30, 2011, the Company had $70 million accrued for the payment of interest and no accrued penalties.

The Company is subject to taxation in the U.S. federal jurisdiction, as well as various state and foreign jurisdictions. As of September 30, 2011, the Company is no longer subject to examination by U.S. federal taxing authorities for years prior to 2007 and to examination by any U.S. state taxing authority prior to 1998. In the significant foreign jurisdictions in which the Company operates, the Company is no longer subject to examination by the relevant taxing authorities for any years prior to 2001.

Note 16. Stockholders’ Equity

The following tables represent changes in stockholders equity that are attributable to Starwood’s stockholders and non-controlling interests for the nine months ended September 30, 2011 (in millions).

	Equity Attributable to Starwood Stockholders
	Common Shares				Additional Paid-in		Accumulated Other Comprehensive			Retained		Equity Attributable to Noncontrolling
	Shares		Amount		Capital		(Loss) Income			Earnings		Interests			Total
Balance at December 31, 2010		193	$	2	$	805	$	(283	)	$	1,947	$	15		$	2,486
Net income (loss)		—		—		—		—			322		(2	)		320
Equity compensation activity and other		2		—		120		—			—		—			120
Dividends		—		—		—		—			—		(1	)		(1	)
Other comprehensive income (loss)		—		—		—		(36	)		—		1			(35	)
Sale of controlling interest		—		—		—		—			—		(13	)		(13	)
Acquisition of controlling interest		—		—		—		—			—		1			1
Balance at September 30, 2011		195	$	2	$	925	$	(319	)	$	2,269	$	1		$	2,878

Share Issuances and Repurchases.During the nine months ended September 30, 2011, the Company issued approximately 1,781,000 common shares as a result of stock option exercises. During the nine months ended September 30, 2011, the Company did not repurchase any shares and no repurchase capacity remained available under the share repurchase authorization previously approved by the Company’s Board of Directors.

Note 17. Stock-Based Compensation

In accordance with the Company’s 2004 Long-Term Incentive Compensation Plan, during the nine months ended September 30, 2011, the Company granted stock options, restricted shares and units to executive officers, Board of Directors and certain employees. The Company granted approximately 301,000 stock options that had a weighted average grant date fair value of $21.84 per option. The weighted average exercise price of these options was $61.28. In addition, the Company granted approximately 1,345,000 restricted shares and units that had a weighted average grant date fair value of $60.90 per share or unit.

17

The Company recorded stock-based employee compensation expense, including the impact of reimbursements from third parties, of $19 million and $56 million, in the three and nine months ended September 30, 2011, respectively, and $19 million and $54 million in the three and nine months ended September 30, 2010, respectively.

As of September 30, 2011, there was approximately $93 million of unrecognized compensation cost, net of estimated forfeitures, including the impact of reimbursements from third parties, which is expected to be recognized over a weighted-average period of 1.57 years on a straight-line basis.

Note 18. Fair Value of Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments (in millions):

	September 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets:
Restricted cash	$	2	$	2	$	10	$	10
Vacation ownership notes receivable		210		248		132		153
Securitized vacation ownership notes receivable		325		393		408		492
Other notes receivable		18		18		19		19
Total financial assets	$	555	$	661	$	569	$	674
Liabilities:
Long-term debt	$	2,187	$	2,348	$	2,848	$	3,120
Long-term securitized vacation ownership debt		283		295		367		373
Total financial liabilities	$	2,470	$	2,643	$	3,215	$	3,493
Off-Balance sheet:
Letters of credit	$	—	$	161	$	—	$	159
Surety bonds		—		23		—		23
Total off-balance sheet	$	—	$	184	$	—	$	182

The Company believes the carrying values of its financial instruments related to current assets and liabilities approximate fair value. The Company records its derivative assets and liabilities at fair value. See Note 8 for recorded amounts and the method and assumptions used to estimate fair value.

The carrying value of the Company’s restricted cash approximates its fair value. The Company estimates the fair value of its VOI notes receivable and securitized VOI notes receivable using assumptions related to current securitization market transactions. To gain additional comfort on the value, the amount is then compared to a discounted expected future cash flow model using a discount rate commensurate with the risk of the underlying notes, primarily determined by the credit worthiness of the borrowers based on their FICO scores. The results of these two methods are then evaluated to conclude on the estimated fair value. The fair value of other notes receivable is estimated based on terms of the instrument and current market conditions. These financial instrument assets are recorded in the other assets line item in the Company’s consolidated balance sheet.

The Company estimates the fair value of its publicly traded debt based on the bid prices in the public debt markets. The carrying amount of its floating rate debt is a reasonable basis of fair value due to the variable nature of the interest rates. The Company’s non-public, securitized debt and fixed rate debt fair value is determined based upon discounted cash flows for the debt rates deemed reasonable for the type of debt, prevailing market conditions and the length to maturity for the debt.

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 arrangements with the issuing financial institutions.

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Note 19. Business Segment Information

The Company has two operating segments: hotels and vacation ownership and residential. The hotel segment generally represents a worldwide network of owned, leased and consolidated joint venture hotels and resorts operated primarily under the Company’s proprietary brand names including St. Regis^®, The Luxury Collection^®, Sheraton^®, Westin^®, W^®, Le Méridien^®, Aloft^®, Element^®, and Four Points^® by Sheraton as well as hotels and resorts which are managed or franchised under these brand names in exchange for fees. The vacation ownership and residential segment includes the development, ownership and operation of vacation ownership resorts, marketing and selling VOIs, providing financing to customers who purchase such interests and the sale of residential units.

The performance of the hotels and vacation ownership and residential segments is evaluated primarily on operating profit before corporate selling, general and administrative expense, interest, gains and losses on the sale of real estate, restructuring and other special (charges) credits, and income taxes. The Company does not allocate these items to its segments.

The following table presents revenues, operating income, capital expenditures and assets for the Company’s reportable segments (in millions):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Revenues:
Hotel	$	1,190		$	1,081		$	3,531		$	3,211
Vacation ownership and residential		182			174			562			520
Total	$	1,372		$	1,255		$	4,093		$	3,731
Operating income:
Hotel	$	173		$	139		$	480		$	384
Vacation ownership and residential		28			27			92			79
Total segment operating income		201			166			572			463
Selling, general, administrative and other		(39	)		(45	)		(113	)		(121	)
Restructuring and other special credits (charges), net		—			1			—			2
Operating income		162			122			459			344
Equity earnings (losses) and gains and (losses) from unconsolidated ventures, net:
Hotel		(5	)		(1	)		4			3
Vacation ownership and residential		—			—			2			2
Interest expense, net		(45	)		(59	)		(151	)		(180	)
Gain (loss) on asset dispositions and impairments, net		45			(56	)		14			(35	)
Income from continuing operations before taxes and noncontrolling interests	$	157		$	6		$	328		$	134
Capital expenditures:
Hotel	$	100		$	36		$	183		$	119
Vacation ownership and residential		42			38			118			108
Corporate		44			9			88			16
Total(c)	$	186		$	83		$	389		$	243

	September 30, 2011		December 31, 2010
Assets:
Hotel(a)	$	6,633	$	6,440
Vacation ownership and residential(b)		2,248		2,139
Corporate		1,056		1,197
Total	$	9,937	$	9,776

(a) Includes $226 million and $285 million of investments in unconsolidated joint ventures at September 30, 2011 and December 31, 2010, respectively.

(b) Includes $30 million and $27 million of investments in unconsolidated joint ventures at September 30, 2011 and December 31, 2010, respectively.

(c) Includes $139 million and $280 million of property, plant, and equipment expenditures for the three and nine months ended September 30, 2011, respectively, and $49 million and $119 million for the three and nine months ended September 30, 2010, respectively. Additional expenditures included in the amounts above consist of vacation ownership inventory and investments in management contracts and hotel joint ventures.

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Note 20. Commitments and Contingencies

Variable Interest Entities.The Company has evaluated hotels in which it has a variable interest, 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 6 for the VIEs in which the Company is deemed the primary beneficiary and has consolidated the entities.

The 17 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 September 30, 2011, the Company has approximately $73 million of investments and a loan balance of $9 million associated with 14 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. The performance guarantees have possible cash outlays of up to $65 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, 2010, the Company had approximately $68 million of investments and a loan balance of $9 million associated with 12 VIEs. Additionally, the Company had approximately $6 million of investments and certain performance guarantees associated with three VIEs.

Guaranteed Loans and Commitments.In limited cases, the Company has made loans to owners or partners in hotel or resort ventures for which the Company has a management or franchise agreement. Loans outstanding under this program totaled $13 million at September 30, 2011. The Company evaluates these loans for impairment, and at September 30, 2011, believes the net carrying value of these loans is collectible. Unfunded loan commitments aggregating $19 million were outstanding at September 30, 2011, none of which is expected to be funded in the future. These loans typically are secured by pledges of project ownership interests and/or mortgages on the projects. The Company also has $95 million of equity and other potential contributions associated with managed or joint venture properties, $53 million of which is expected to be funded in the next twelve months.

Surety bonds issued on behalf of the Company as of September 30, 2011 totaled $23 million, the majority of which were required by state or local governments relating to our vacation ownership operations and by our 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 in 2011.

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 to a third party in 2006, the Company agreed to indemnify the third party for certain pre-disposition liabilities, including operations and tax liabilities. At this time, the Company believes that it will not have to make any significant payments under such indemnities.

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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.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This report includes “forward-looking” statements, as that term is defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules, regulations and releases. Forward-looking statements are any statements other than statements of historical fact, including statements regarding our expectations, beliefs, hopes, intentions or strategies regarding the future. In some cases, forward-looking statements can be identified by the use of words such as “may,” “will,” “expects,” “should,” “believes,” “plans,” “anticipates,” “estimates,” “predicts,” “potential,” “continue,” or other words of similar meaning. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements. Factors that might cause such a difference include, but are not limited to, general economic conditions, our financial and business prospects, our capital requirements, our financing prospects, our relationships with associates and labor unions, and those disclosed as risks in other reports filed by us with the Securities and Exchange Commission, including those described in Part I of our most recently filed Annual Report on Form 10-K. We caution readers that any such statements are based on currently available operational, financial and competitive information, and they should not place undue reliance on these forward-looking statements, which reflect management’s opinion only as of the date on which they were made. Except as required by law, we disclaim any obligation to review or update these forward-looking statements to reflect events or circumstances as they occur.

RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and costs and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those relating to revenue recognition, bad debts, inventories, investments, plant, property and equipment, goodwill and intangible assets, income taxes, financing operations, frequent guest program liability, self-insurance claims payable, restructuring costs, retirement benefits and contingencies and litigation.

We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions and conditions.

CRITICAL ACCOUNTING POLICIES

We believe the following to be our critical accounting policies:

Revenue Recognition.Our revenues are primarily derived from the following sources: (1) hotel and resort revenues at our owned, leased and consolidated joint venture properties; (2) management and franchise revenues; (3) vacation ownership and residential revenues; (4) revenues from managed and franchised properties; and (5) other revenues which are ancillary to our operations. Generally, revenues are recognized when the services have been rendered. The following is a description of the composition of our revenues:

• Owned, Leased and Consolidated Joint Ventures — Represents revenue primarily derived from hotel operations, including the rental of rooms and food and beverage sales from owned, leased or consolidated joint venture hotels and resorts. Revenue is recognized when rooms are occupied and services have been rendered. These revenues are impacted by global economic conditions affecting the travel and hospitality industry as well as relative market share of the local competitive set of hotels. Revenue per available room (“REVPAR”) is a leading indicator of revenue trends at owned, leased and consolidated joint venture hotels as it measures the period-over-period growth in rooms’ revenue for comparable properties.

• Management and Franchise Revenues — Represents fees earned on hotels managed worldwide, usually under long-term contracts, franchise fees received in connection with the franchise of our Sheraton^®, Westin^®, Four Points^® by Sheraton, Le Méridien^®, St. Regis, W^®, Luxury Collection^®, Aloft and

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Element^®brand names, termination fees and the amortization of deferred gains related to sold properties for which we have significant continuing involvement. Management fees are comprised of a base fee, which is generally based on a percentage of gross revenues, and an incentive fee, which is generally based on the property’s profitability. For any time during the year, when the provisions of our management contracts allow receipt of incentive fees upon termination, incentive fees are recognized for the fees due and earned as if the contract was terminated at that date, exclusive of any termination fees due or payable. Therefore, during periods prior to year-end, the incentive fees recorded may not be indicative of the eventual incentive fees that will be recognized at year-end as conditions and incentive hurdle calculations may not be final. Franchise fees are generally based on a percentage of hotel room revenues. As with hotel revenues discussed above, these revenue sources are affected by conditions impacting the travel and hospitality industry as well as competition from other hotel management and franchise companies.

• Vacation Ownership and Residential — We recognize revenue from Vacation Ownership Interests (“VOIs”) sales and financings and the sales of residential units which are typically a component of mixed use projects that include a hotel. Such revenues are impacted by the state of the global economies and, in particular, the U.S. economy, as well as interest rate and other economic conditions affecting the lending market. Revenue is generally recognized upon the buyer’s demonstration of a sufficient level of initial and continuing involvement. We determine the portion of revenues to recognize for sales accounted for under the percentage of completion method based on judgments and estimates including total project costs to complete. Additionally, we record reserves against these revenues based on expected default levels. Changes in costs could lead to adjustments to the percentage of completion status of a project, which may result in differences in the timing and amount of revenues recognized from the projects. We have also entered into licensing agreements with third-party developers to offer consumers branded condominiums or residences. Our fees from these agreements are generally based on the gross sales revenue of units sold. Residential fee revenue is recorded in the period that a purchase and sales agreement exists, delivery of services and obligations has occurred, the fee to the owner is deemed fixed and determinable and collectability of the fees is reasonably assured.

• Revenues From Managed and Franchised Properties — These revenues represent reimbursements of costs incurred on behalf of managed hotel properties and franchisees. These costs relate primarily to payroll costs at managed properties where we are the employer. Since the reimbursements are made based upon the costs incurred with no added margin, these revenues and corresponding expenses have no effect on our operating income or our net income.

Frequent Guest Program.Starwood Preferred Guest (“SPG”) is our frequent guest incentive marketing program. SPG members earn points based on spending at our owned, managed and franchised hotels, as incentives to first-time buyers of VOIs and residences, and through participation in affiliated partners’ programs such as co-branded credit cards. Points can be redeemed at substantially all of our owned, managed and franchised hotels as well as through other redemption opportunities with third parties, such as conversion to airline miles.

We charge our owned, managed and franchised hotels the cost of operating the SPG program, including the estimated cost of our future redemption obligation, based on a percentage of our SPG members’ qualified expenditures. The Company’s management and franchise agreements require that we be reimbursed for the costs of operating the SPG program, including marketing, promotions and communications and performing member services for the SPG members. As points are earned, the Company increases the SPG point liability for the amount of cash it receives from its managed and franchised hotels related to the future redemption obligation. For its owned hotels we record an expense for the amount of our future redemption obligation with the offset to the SPG point liability. When points are redeemed by the SPG members, the hotels recognize revenue and the SPG point liability is reduced.

We, through the services of third-party actuarial analysts, determine the value of the future redemption obligation based on statistical formulas which project the timing of future point redemptions based on historical experience, including an estimate of the “breakage” for points that will never be redeemed, and an estimate of the points that will eventually be redeemed as well as the cost of reimbursing hotels and other third parties in respect of other redemption opportunities for point redemptions.

We consolidate the assets and liabilities of the SPG program including the liability associated with the future redemption obligation which is included in other long-term liabilities and accrued expenses in the accompanying consolidated balance sheets. The total actuarially determined liability as of September 30, 2011 and December 31, 2010 is $807 million and $753 million, respectively, of which $240 million and $225 million, respectively, is included in accrued expenses.

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Long-Lived Assets. We evaluate the carrying value of our long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value of the assets if certain trigger events occur. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value is charged to current earnings. Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals and, if appropriate, current estimated net sales proceeds from pending offers. We evaluate the carrying value of our long-lived assets based on our plans, at the time, for such assets and such qualitative factors as future development in the surrounding area, status of expected local competition and projected incremental income from renovations. Changes to our plans, including a decision to dispose of or change the intended use of an asset, can have a material impact on the carrying value of the asset.

Assets Held for Sale. We consider properties to be assets held for sale when management approves and commits to a formal plan to actively market a property or group of properties for sale and a signed sales contract and significant non-refundable deposit or contract break-up fee exist. Upon designation as an asset held for sale, we record the carrying value of each property or group of properties at the lower of its carrying value which includes allocable segment goodwill or its estimated fair value, less estimated costs to sell, and we stop recording depreciation expense. Any gain realized in connection with the sale of properties for which we have significant continuing involvement (such as through a long-term management agreement) is deferred and recognized over the initial term of the related agreement. The operations of the properties held for sale prior to the sale date are recorded in discontinued operations unless we will have continuing involvement (such as through a management or franchise agreement) after the sale.

Loan Loss Reserves.For the vacation ownership and residential segment, we record an estimate of expected uncollectibility on our VOI notes receivable as a reduction of revenue at the time we recognize a timeshare sale. We hold large amounts of homogeneous VOI notes receivable and therefore assess uncollectibility based on pools of receivables. In estimating loan loss reserves, we use a technique referred to as static pool analysis, which tracks defaults for each year’s mortgage originations over the life of the respective notes and projects an estimated default rate. As of September 30, 2011, the average estimated default rate for our pools of receivables was approximately 10%.

The primary credit quality indicator used by us to calculate the loan loss reserve for the vacation ownership notes is the origination of the notes by brand (Sheraton, Westin, and Other) as we believe there is a relationship between the default behavior of borrowers and the brand associated with the vacation ownership property they have acquired. In addition to quantitatively calculating the loan loss reserve based on its static pool analysis, we supplement the process by evaluating certain qualitative data, including the aging of the respective receivables, current default trends by brand and origination year, and the Fair Isaac Corporation (“FICO”) scores of the buyers.

Given the significance of our respective pools of VOI notes receivable, a change in the projected default rate can have a significant impact to its loan loss reserve requirements, with a 0.1% change estimated to have an impact of approximately $4 million.

We consider a VOI note receivable delinquent when it is more than 30 days outstanding. All delinquent loans are placed on nonaccrual status and we do not resume interest accrual until payment is made. Upon reaching 120 days outstanding, the loan is considered to be in default and we commence the repossession process. Uncollectible VOI notes receivable are charged off when title to the unit is returned to us. We generally do not modify vacation ownership notes that become delinquent or upon default.

For the hotel segment, we measure the impairment of a loan based on the present value of expected future cash flows, discounted at the loan’s original effective interest rate, or the estimated fair value of the collateral. For impaired loans, we establish a specific impairment reserve for the difference between the recorded investment in the loan and the present value of the expected future cash flows or the estimated fair value of the collateral. We apply the loan impairment policy individually to all loans in the portfolio and do not aggregate loans for the purpose of applying such policy. For loans that we have determined to be impaired, we recognize interest income on a cash basis.

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Legal Contingencies.We are subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. An estimated loss from a loss contingency should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. We evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial position or our results of operations.

Income Taxes.We provide for income taxes in accordance with principles contained in FASB ASC 740,Income Taxes. Under these principles, we recognize the amount of income tax payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. We also measure and recognize the amount of tax benefit that should be recorded for financial statement purposes for uncertain tax positions taken or expected to be taken in a tax return. With respect to uncertain tax positions, we evaluate the recognized tax benefits for derecognition, classification, interest and penalties, interim period accounting and disclosure requirements. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. At September 30, 2011, we have approximately $1.0 billion of capital losses that expire at December 31, 2011 and have a full valuation allowance. We are currently considering internal restructurings that may allow us to utilize these tax attributes within the statutory carryforward period.

RESULTS OF OPERATIONS

The following discussion presents an analysis of results of our operations for the three and nine months ended September 30, 2011 and 2010.

After an extremely difficult period in 2008 and 2009, business conditions in the global lodging industry improved significantly in 2010 and that improvement continued in the first nine months of 2011. These improvements have resulted from higher average daily rates and higher occupancy primarily related to our three main classes of customers: business, leisure and group travelers. As corporate profits have continued to rise, our business from business travelers, which accounts for the majority of our revenues, is leading the recovery. In addition, the supply side growth has been lower than recent years which has led us to achieve upper single digit to low double digit REVPAR growth in many of our leading markets. We are the largest operator of upper upscale and luxury hotels in the world and we are seeing luxury travel leading the increases in occupancy. Despite the improvement in revenues, we continue to enforce previously instituted rigorous policies to control costs.

Historically, we have derived the majority of our revenues and operating income from our owned, leased and consolidated joint venture hotels and a significant portion of these results are driven by these hotels in North America. However, since early 2006, we have sold a significant number of hotels in connection with our strategy of reducing our investment in owned real estate and increasing our focus on the management and franchise business. As a result, our primary business objective is to maximize earnings and cash flow by increasing the number of hotel management and franchise agreements. In 2010 and through the third quarter of 2011, we sold four owned hotels, further reducing our revenues and operating income from owned, leased and consolidated joint venture hotels. Three of the hotels were sold subject to a long-term management contract. Total revenues generated from these sold hotels were $0 million and $40 million for the three months ended September 30, 2011 and 2010, respectively, and $42 million and $110 million for the nine months ended September 30, 2011 and 2010, respectively.

To date, where we have sold hotels, we have not provided seller financing or other financial assistance to buyers.

At September 30, 2011, we had approximately 350 hotels in the active pipeline representing approximately 90,000 rooms, driven by strong interest in all Starwood brands. Of these rooms, 74% are in the upper upscale and luxury segments and 81% are outside of North America. During the third quarter of 2011, we signed 24 hotel management and franchise contracts representing approximately 6,300 rooms of which 15 are new builds and nine are conversions from another brand and opened 19 new hotels and resorts representing approximately 4,900 rooms. During the third quarter of 2011, six hotels left the system, representing approximately 1,800 rooms.

An indicator of the performance of our owned, leased and consolidated joint venture hotels is REVPAR, as it measures the period-over-period change in rooms revenue for comparable properties. This is particularly the case in the United States where there is no impact on this measure from foreign exchange rates.

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We continually update and renovate our owned, leased and consolidated joint venture hotels and include these hotels in our Same-Store Owned Hotel results. We also undertake major repositionings of hotels. While undergoing major repositionings, hotels are generally not operating at full capacity and, as such, these repositionings can negatively impact our hotel revenues and are not included in Same-Store Hotel results. We may continue to reposition our owned, leased and consolidated joint venture hotels as we pursue our brand and quality strategies. In addition, several owned hotels are located in regions which are seasonal and therefore, these hotels do not operate at full capacity throughout the year.

The following represents our top five markets in the United States by metropolitan area as a percentage of our total owned, leased and consolidated joint venture revenues for the three and nine months ended September 30, 2011 (with comparable data for 2010):

Top Five Metropolitan Areas in the United States as a % of Total Owned Revenues for the Three Months Ended September 30, 2011 with Comparable Data for the Same Period in 2010(1)
Metropolitan Area	2011 Revenues			2010 Revenues
New York, NY		12.4	%		12.2	%
Hawaii		6.5	%		6.9	%
San Francisco, CA		4.2	%		4.3	%
Chicago, IL		3.1	%		5.2	%
Atlanta, GA		2.9	%		3.2	%

Top Five Metropolitan Areas in the United States as a % of Total Owned Revenues for the Nine Months Ended September 30, 2011 with Comparable Data for the Same Period in 2010(1)
Metropolitan Area	2011 Revenues			2010 Revenues
New York, NY		11.5	%		11.6	%
Hawaii		6.0	%		6.5	%
Phoenix, AZ		5.1	%		5.0	%
San Francisco, CA		4.1	%		4.0	%
Chicago, IL		3.3	%		4.3	%

(1) Includes the revenues of hotels sold for the period prior to their sale.

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The following represents our top five international markets as a percentage of our total owned, leased and consolidated joint venture revenues for the three and nine months ended September 30, 2011 (with comparable data for 2010):

Top Five International Markets as a % of Total Owned Revenues for the Three Months Ended September 30, 2011 with Comparable Data for the Same Period in 2010(1)
International Market	2011 Revenues			2010 Revenues
Canada		11.0	%		10.0	%
Italy		8.7	%		7.5	%
Spain		7.4	%		6.9	%
Australia		4.9	%		3.9	%
United Kingdom		4.3	%		2.3	%

Top Five International Markets as a % of Total Owned Revenues for the Nine Months Ended September 30, 2011 with Comparable Data for the Same Period in 2010(1)
International Market	2011 Revenues			2010 Revenues
Canada		11.0	%		10.9	%
Italy		7.7	%		7.3	%
Spain		6.5	%		5.7	%
Australia		4.7	%		3.9	%
Mexico		4.0	%		4.0	%

(1) Includes the revenues of hotels sold for the period prior to their sale.

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The following table summarizes REVPAR⁽¹⁾, Average Daily Rate (“ADR”) and occupancy for our Same-Store Owned Hotels for the three and nine months ended September 30, 2011 and 2010. The results for the three months ended September 30, 2011 and 2010 represent results for 49 owned, leased and consolidated joint venture hotels (excluding four hotels sold and 11 hotels undergoing significant repositionings or without comparable results in 2011 and 2010). The results for the nine months ended September 30, 2011 and 2010 represent results for 48 owned, leased and consolidated joint venture hotels (excluding five hotels sold and 12 hotels undergoing significant repositionings or without comparable results in 2011 and 2010).

	Three Months Ended September 30,						Variance
	2011			2010
Worldwide(49 hotels with approximately 16,500 rooms)
REVPAR	$	170.10		$	148.45			14.6	%
ADR	$	223.80		$	202.28			10.6	%
Occupancy		76.0	%		73.4	%		2.6
North America (23 hotels with approximately 9,100 rooms)
REVPAR	$	165.15		$	154.99			6.6	%
ADR	$	206.26		$	198.56			3.9	%
Occupancy		80.1	%		78.1	%		2.0
International (26 hotels with approximately 7,400 rooms)
REVPAR	$	176.14		$	140.46			25.4	%
ADR	$	247.94		$	207.51			19.5	%
Occupancy		71.0	%		67.7	%		3.3

		Nine Months Ended September 30,						Variance
		2011			2010
Worldwide (48 hotels with approximately 16,300 rooms)
REVPAR		$	161.01		$	140.77			14.4	%
ADR		$	220.38		$	203.54			8.3	%
Occupancy			73.1	%		69.2	%		3.9
North America (22 hotels with approximately 8,900 rooms)
REVPAR		$	162.63		$	150.54			8.0	%
ADR		$	210.83		$	202.34			4.2	%
Occupancy			77.1	%		74.4	%		2.7
International (26 hotels with approximately 7,400 rooms)
REVPAR	��	$	159.07		$	129.09			23.2	%
ADR		$	233.27		$	205.24			13.7	%
Occupancy			68.2	%		62.9	%		5.3

(1) REVPAR is calculated by dividing room revenue, which is derived from rooms and suites rented or leased, by total room nights available for a given period. REVPAR may not be comparable to similarly titled measures such as revenues.

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The following table summarizes REVPAR, ADR and occupancy for our Same-Store Systemwide Hotels for the three and nine months ended September 30, 2011 and 2010. Same-Store Systemwide Hotels represent results for same store owned, leased, managed and franchised hotels.

	Three Months Ended September 30,						Variance
	2011			2010
Worldwide
REVPAR	$	119.24		$	106.89			11.6	%
ADR	$	168.08		$	155.58			8.0	%
Occupancy		70.9	%		68.7	%		2.2
North America
REVPAR	$	113.18		$	103.98			8.8	%
ADR	$	152.48		$	145.55			4.8	%
Occupancy		74.2	%		71.4	%		2.8
International
REVPAR	$	128.07		$	111.13			15.2	%
ADR	$	193.63		$	171.72			12.8	%
Occupancy		66.1	%		64.7	%		1.4

	Nine Months Ended September 30,						Variance
	2011			2010
Worldwide
REVPAR	$	114.87		$	103.24			11.3	%
ADR	$	167.77		$	156.55			7.2	%
Occupancy		68.5	%		65.9	%		2.6
North America
REVPAR	$	109.41		$	99.72			9.7	%
ADR	$	153.88		$	146.95			4.7	%
Occupancy		71.1	%		67.9	%		3.2
International
REVPAR	$	122.83		$	108.36			13.4	%
ADR	$	190.03		$	171.59			10.7	%
Occupancy		64.6	%		63.2	%		1.4

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Three Months Ended September 30, 2011 Compared with Three Months Ended September 30, 2010

Continuing Operations

	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010		Increase / (decrease) from prior year		Percentage change from prior year
	(in millions)
Owned, Leased and Consolidated Joint Venture Hotels	$	441	$	427	$	14		3.3	%
Management Fees, Franchise Fees and Other Income		202		173		29		16.8	%
Vacation Ownership and Residential		140		132		8		6.1	%
Other Revenues from Managed and Franchised Properties		589		523		66		12.6	%
Total Revenues	$	1,372	$	1,255	$	117		9.3	%

The increase in revenues from owned, leased and consolidated joint venture hotels was primarily due to improved REVPAR at our existing owned, leased and consolidated joint venture hotels, offset in part by lost revenues from four owned hotels that were sold or closed in 2010 and 2011. These sold or closed hotels had revenues of $0 million in the three months ended September 30, 2011 compared to $40 million for the same period in 2010. Revenues at our Same-Store Owned Hotels (49 hotels for the three months ended September 30, 2011 and 2010, excluding the four hotels sold and 11 additional hotels undergoing significant repositionings or without comparable results in 2011 and 2010) increased 13.3%, or $45 million, to $384 million for the three months ended September 30, 2011 when compared to $339 million in the same period of 2010 due primarily to an increase in REVPAR.

REVPAR at our worldwide Same-Store Owned Hotels increased 14.6% to $170.10 for the three months ended September 30, 2011 when compared to the same period in 2010. The increase in REVPAR at these worldwide Same-Store Owned Hotels resulted from an increase in occupancy rates to 76.0% in the three months ended September 30, 2011 when compared to 73.4% in the same period in 2010 as well as a 10.6% increase in ADR to $223.80 for the three months ended September 30, 2011 compared to $202.28 for the same period in 2010. REVPAR at Same-Store Owned Hotels in North America increased 6.6% for the three months ended September 30, 2011 when compared to the same period of 2010. REVPAR growth was particularly strong at our owned hotels in New York, New York, Toronto, Canada and San Francisco, California. REVPAR at our international Same-Store Owned Hotels increased by 25.4% for the three months ended September 30, 2011 when compared to the same period of 2010. REVPAR for Same-Store Owned Hotels internationally increased 13.3% excluding the favorable effects of foreign currency translation.

The increase in management fees, franchise fees and other income was primarily a result of a $27 million increase in management and franchise revenues to $195 million for the three months ended September 30, 2011 compared to $168 million for the same period in 2010. Management fees increased 21.3% to $114 million and franchise fees increased 11.6% to $48 million. These increases were primarily due to growth in REVPAR at existing hotels under management as well as the net addition of 46 managed and franchised hotels to our system since the third quarter of 2010.

Total vacation ownership and residential services revenue increased 6.1% to $140 million compared to the same period in 2010. Vacation ownership revenues for the three months ended September 30, 2011 increased 7.0% to $138 million compared to the same period in 2010. Originated contract sales of VOI inventory increased 3.8% in the three months ended September 30, 2011 when compared to the same period in 2010, primarily due to increased tour flow from new buyers and improved sales performance from existing owner channels. The number of contracts signed increased 8.2% when compared to 2010 and the average price per vacation ownership unit sold decreased 2.7% to approximately $14,000 driven by inventory mix.Vacation ownership and residential sales and services revenue was unfavorably impacted by a $1 million decrease in residential revenue when compared to the same period in 2010. Residential revenue in 2011 included $2 million of license fees in connection with sales at primarily three branded residential properties.

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Other revenues from managed and franchised properties increased primarily due to an increase in payroll costs commensurate with increased occupancy at our existing managed hotels and payroll costs for the new hotels entering the system. These revenues represent reimbursements of costs incurred on behalf of managed hotel and vacation ownership properties and franchisees and relate primarily to payroll costs at managed properties where we are the employer. Since the reimbursements are made based upon the costs incurred with no added margin, these revenues and corresponding expenses have no effect on our operating income and our net income.

		0000000000000		0000000000000		0000000000000			0000000000000
	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010		Increase / (decrease) from prior year			Percentage change from prior year
	(in millions)
Selling, General, Administrative and Other	$	88	$	90	$	(2	)		(2.2	)%

The decrease in selling, general, administrative and other expenses for the three months ended September 30, 2011, when compared to the same period of 2010, was due to lower accruals for incentive compensation and lower legal expenses.

		0000000000000		0000000000000		0000000000000			0000000000000
	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010		Increase / (decrease) from prior year			Percentage change from prior year
	(in millions)
Depreciation and Amortization	$	65	$	71	$	(6	)		(8.5	)%

The decrease in depreciation expense for the three months ended September 30, 2011, when compared to the same period of 2010, was primarily due to reduced depreciation expense from sold hotels and normal retirements, partially offset by additional capital expenditures made in the last twelve months.

		0000000000000		0000000000000		0000000000000		0000000000000
	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010		Increase / (decrease) from prior year		Percentage change from prior year
	(in millions)
Operating Income	$	162	$	122	$	40		32.8	%

The increase in operating income for the three months ended September 30, 2011 when compared to the same period of 2010 was primarily due to continued improvement in results from our owned and leased hotels and the increase in management fees due to the increase in REVPAR and the net addition of 46 managed and franchised hotels to our system since the third quarter of 2010. Results were negatively impacted by political unrest in the Middle East and North Africa, as well as events in Japan.

		0000000000000			0000000000000			0000000000000			0000000000000
	Three Months Ended September 30, 2011			Three Months Ended September 30, 2010			Increase / (decrease) from prior year			Percentage change from prior year
	(in millions)
Equity Earnings (Losses) and Gains and (Losses) from Unconsolidated Ventures, Net	$	(5	)	$	(1	)	$	(4	)		n/m

The decrease in equity earnings and gains and losses from unconsolidated joint ventures for the three months ended September 30, 2011 when compared to the same period of 2010 was primarily due to unfavorable mark-to-market adjustments on US dollar denominated loans at several properties in Latin America.

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	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010		Increase / (decrease) from prior year			Percentage change from prior year
	(in millions)
Net Interest Expense	$	45	$	59	$	(14	)		(23.7	)%

The decrease in net interest expense for the three months ended September 30, 2011 when compared to the same period of 2010 was primarily due to a lower average debt balance and an increase in capitalized interest related to construction projects. Additionally, 2010 included a $5 million charge associated with the early payoff of a debt facility that was secured by vacation ownership notes receivable. Our weighted average interest rate was 6.79% at September 30, 2011 as compared to 6.87% at September 30, 2010.

	Three Months Ended September 30, 2011		Three Months Ended September 30, 2010			Increase / (decrease) from prior year		Percentage change from prior year
	(in millions)
Gain (Loss) on Asset Dispositions and Impairments, Net	$	45	$	(56	)	$	101		n/m

During the three months ended September 30, 2011, we recorded a gain of approximately $45 million primarily relating to a $48 million gain as a result of the write-up to fair value of our previously held non-controlling interest in two hotels in which we obtained a controlling interest during the quarter (see Note 4). This gain was partially offset by $3 million in losses relating to the impairment of an investment in a management contract that was terminated during the quarter and the impairment of fixed assets due to a significant property renovation.

During the three months ended September 30, 2010, we recorded a net loss on dispositions and impairments of approximately $56 million, primarily related to a loss of $53 million on the sale of one wholly-owned hotel and impairment charges of $3 million related to a vacation ownership property and an investment in a hotel management contract.

	Three Months Ended September 30, 2011			Three Months Ended September 30, 2010		Increase / (decrease) from prior year			Percentage change from prior year
	(in millions)
Income Tax (Benefit) Expense	$	(8	)	$	11	$	(19	)		n/m

The decrease in income tax expense for the three months ended September 30, 2011 when compared to the same period of 2010 was primarily a result of a net benefit of approximately $20 million associated with the closing of an IRS audit during the third quarter of 2011. This net tax benefit included a $13 million charge for the adjustment of certain items related to a disposition that occurred during the audit period. Additionally, during the third quarter of 2011, we recorded an $8 million benefit related to the reversal of a valuation allowance due to the utilization of capital losses that were previously reserved. We also recorded a tax benefit of approximately $7 million related to the hotel acquisitions in the third quarter of 2011 previously discussed. Finally, these tax benefits were partially offset by approximately $18 million of incremental tax expense, during the third quarter of 2011 compared to the same period in 2010, due to higher pretax income and a higher effective rate.

Discontinued Operations, Net of Tax

During the three months ended September 30, 2011, we recorded a loss of $2 million in discontinued operations primarily relating to a $1 million loss from the sale of our interest in a consolidated joint venture (see Note 13). Additionally, we recorded a $1 million loss in discontinued operations for accrued interest related to an uncertain tax position.

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Nine Months Ended September 30, 2011 Compared with Nine Months Ended September 30, 2010

Continuing Operations

	Nine Months Ended September 30, 2011		Nine Months Ended September 30, 2010		Increase / (decrease) from prior year		Percentage change from  prior year
	(in millions)
Owned, Leased and Consolidated Joint Venture Hotels	$	1,329	$	1,245	$	84		6.7	%
Management Fees, Franchise Fees and Other Income		580		503		77		15.3	%
Vacation Ownership and Residential		439		402		37		9.2	%
Other Revenues from Managed and Franchised Properties		1,745		1,581		164		10.4	%
Total Revenues	$	4,093	$	3,731	$	362		9.7	%

The increase in revenues from owned, leased and consolidated joint venture hotels was primarily due to improved REVPAR at our existing owned, leased and consolidated joint venture hotels, offset in part by lost revenues from four owned hotels that were sold or closed in 2010 and 2011. These sold or closed hotels had revenues of $42 million in the nine months ended September 30, 2011 compared to $110 million for the same period in 2010. Revenues at our Same-Store Owned Hotels (48 hotels for the nine months ended September 30, 2011 and 2010, excluding the four hotels sold and 12 additional hotels undergoing significant repositionings or without comparable results in 2011 and 2010) increased 11.8%, or $117 million, to $1.106 billion for the nine months ended September 30, 2011 when compared to $989 million in the same period of 2010 due primarily to an increase in REVPAR.

REVPAR at our worldwide Same-Store Owned Hotels increased 14.4% to $161.01 for the nine months ended September 30, 2011 when compared to the same period in 2010. The increase in REVPAR at these worldwide Same-Store Owned Hotels resulted from an increase in occupancy rates to 73.1% in the nine months ended September 30, 2011 when compared to 69.2% in the same period in 2010 as well as a 8.3% increase in ADR to $220.38 for the nine months ended September 30, 2011 compared to $203.54 for the same period in 2010. REVPAR at Same-Store Owned Hotels in North America increased 8.0% for the nine months ended September 30, 2011 when compared to the same period of 2010. REVPAR growth was particularly strong at our owned hotels in New York, New York, Scottsdale, Arizona and Maui, Hawaii. REVPAR at our international Same-Store Owned Hotels increased by 23.2% for the nine months ended September 30, 2011 when compared to the same period of 2010. REVPAR for Same-Store Owned Hotels internationally increased 14.6% excluding the favorable effects of foreign currency translation.

The increase in management fees, franchise fees and other income was primarily a result of a $68 million increase in management and franchise revenues to $558 million for the nine months ended September 30, 2011 compared to $490 million for the same period in 2010. Management fees increased 14.6% to $322 million and franchise fees increased 17.6% to $140 million. These increases were primarily due to growth in REVPAR at existing hotels under management as well as the net addition of 46 managed and franchised hotels to our system since the third quarter of 2010.

Total vacation ownership and residential services revenue increased 9.2% to $439 million compared to the same period in 2010. Vacation ownership revenues for the nine months ended September 30, 2011 increased 9.7% to $429 million compared to the same period in 2010. Originated contract sales of VOI inventory increased 6.1% in the nine months ended September 30, 2011 when compared to the same period in 2010, primarily due to increased tour flow from new buyers and improved sales performance from existing owner channels. The number of contracts signed increased 7.1% when compared to 2010 and the average price per vacation ownership unit sold was relatively unchanged at approximately $15,000. Residential revenue in 2011 included $10 million of license fees in connection with sales at primarily four branded residential properties.

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Other revenues from managed and franchised properties increased primarily due to an increase in payroll costs commensurate with increased occupancy at our existing managed hotels and payroll costs for the new hotels entering the system. These revenues represent reimbursements of costs incurred on behalf of managed hotel and vacation ownership properties and franchisees and relate primarily to payroll costs at managed properties where we are the employer. Since the reimbursements are made based upon the costs incurred with no added margin, these revenues and corresponding expenses have no effect on our operating income and our net income.

	Nine Months Ended September 30, 2011		Nine Months Ended September 30, 2010		Increase / (decrease) from prior year			Percentage change from  prior year
	(in millions)
Selling, General, Administrative and Other	$	256	$	258	$	(2	)		(0.8	)%

Selling, general, administrative and other expenses for the nine months ended September 30, 2011 decreased when compared to the same period of 2010, due to lower accruals for incentive compensation and lower legal expenses.

	Nine Months Ended September 30, 2011		Nine Months Ended September 30, 2010		Increase / (decrease) from prior year			Percentage change from  prior year
	(in millions)
Depreciation and Amortization	$	200	$	220	$	(20	)		(9.1	)%

The decrease in depreciation expense for the nine months ended September 30, 2011, when compared to the same period of 2010, was primarily due to reduced depreciation expense from sold hotels and normal retirements, partially offset by additional capital expenditures made in the last twelve months.

	Nine Months Ended September 30, 2011		Nine Months Ended September 30, 2010		Increase / (decrease) from prior year		Percentage change from  prior year
	(in millions)
Operating Income	$	459	$	344	$	115		33.4	%

The increase in operating income for the nine months ended September 30, 2011 when compared to the same period of 2010 was primarily due to continued improvement in results from our owned and leased hotels and the increase in management fees due to the increase in REVPAR and the net addition of 46 managed and franchised hotels to our system since the third quarter of 2010, as well as the increase in vacation ownership and residential fee revenues as described earlier. Results were negatively impacted by political unrest in the Middle East and North Africa, as well as events in Japan.

	Nine Months Ended September 30, 2011		Nine Months Ended September 30, 2010		Increase / (decrease) from prior year		Percentage change from  prior year
	(in millions)
Equity Earnings (Losses) and Gains and (Losses) from Unconsolidated Ventures, Net	$	6	$	5	$	1		20.0	%

The increase in equity earnings and gains and losses from unconsolidated joint ventures for the nine months ended September 30, 2011 when compared to the same period of 2010 was primarily due to improved operating results at several properties owned by joint ventures in which we hold non-controlling interests, partially offset by unfavorable mark-to-market adjustments on US dollar denominated loans at several properties in Latin America.

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	Nine Months Ended September 30, 2011		Nine Months Ended September 30, 2010		Increase / (decrease) from prior year			Percentage change from  prior year
	(in millions)
Net Interest Expense	$	151	$	180	$	(29	)		(16.1	)%

The decrease in net interest expense for the nine months ended September 30, 2011 when compared to the same period of 2010 was primarily due to a lower average debt balance and an increase in capitalized interest related to construction projects. Additionally, 2010 included a $5 million charge associated with the early payoff of a debt facility that was secured by vacation ownership notes receivable. Our weighted average interest rate was 6.79% at September 30, 2011 as compared to 6.87% at September 30, 2010.

	Nine Months Ended September 30, 2011		Nine Months Ended September 30, 2010			Increase / (decrease) from prior year		Percentage change from  prior year
	(in millions)
Gain (Loss) on Asset Dispositions and Impairments, Net	$	14	$	(35	)	$	49		n/m

During the nine months ended September 30, 2011, we recorded a $14 million gain on dispositions and impairments, net. This gain was primarily related to a $48 million gain as a result of the write-up to fair value of our previously held non-controlling interest in two hotels in which we obtained a controlling interest (see Note 4), partially offset by an impairment charge of $31 million to write-off our noncontrolling interest in a joint venture that owns a hotel in Tokyo, Japan, and $3 million in losses relating to the impairment of an investment in a management contract that was terminated in the period and the impairment of fixed assets due to a significant property renovation.

During the nine months ended September 30, 2010, we recorded a net loss on dispositions of approximately $35 million primarily related to the sale of one wholly-owned hotel (see Note 5). The loss was partially offset by a gain of $14 million from insurance proceeds received for a claim at a wholly-owned hotel that suffered damage in 2008 and a $5 million gain as a result of an acquisition of a controlling interest in a joint venture in which we previously held a non-controlling interest.

	Nine Months Ended September 30, 2011			Nine Months Ended September 30, 2010		Increase / (decrease) from prior year			Percentage change from  prior year
	(in millions)
Income Tax (Benefit) Expense	$	(14	)	$	32	$	(46	)		n/m

The decrease in income tax expense for the nine months ended September 30, 2011 when compared to the same period of 2010 was primarily a result of a $50 million tax benefit related to the sale of two wholly-owned hotels with high tax bases. Additionally, during the nine months ended September 30, 2011, we recorded a net benefit of approximately $20 million associated with the closing of an IRS audit, an $8 million benefit related to the reversal of a valuation allowance and a tax benefit of approximately $12 million related to hotel acquisitions and dispositions. Finally, these tax benefits were partially offset by approximately $47 million of incremental tax expense, during the nine months ended 2011 compared to the same period in 2010, due to higher pretax income and a higher effective rate.

Discontinued Operations, Net of Tax

During the nine months ended September 30, 2011, we recorded a loss of $22 million in discontinued operations primarily related to a $19 million loss relating to the sale of our interest in a consolidated joint venture. Additionally, we recorded a $3 million loss in discontinued operations for accrued interest related to an uncertain tax position (see Note 13).

During the nine months ended September 30, 2010, we recorded a gain of approximately $36 million, primarily related to a tax benefit in connection with the sale of one wholly-owned hotel for $78 million. The tax benefit was related to the realization of a high tax basis in these hotels that was generated through a previous transaction. In addition, there was a $2 million charge related to discontinued operations primarily related to an uncertain tax position.

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SEASONALITY AND DIVERSIFICATION

The hotel and leisure industry is seasonal in nature; however, the periods during which our properties experience higher hotel revenue activities vary from property to property and depend principally upon location. Our revenues historically have generally been lower in the first quarter than in the second, third or fourth quarters.

LIQUIDITY AND CAPITAL RESOURCES

Cash From Operating Activities

Cash flow from operating activities is generated primarily from management and franchise revenues, operating income from our owned hotels and sales of VOIs and residential units. Other sources of cash are distributions from joint ventures, servicing financial assets and interest income. These are the principal sources of cash used to fund our operating expenses, principal and interest payments on debt, capital expenditures, dividend payments, property and income taxes and share repurchases.

The majority of our cash flow is derived from corporate and leisure travelers and is dependent on the supply and demand in the lodging industry. In a recessionary economy, we experience significant declines in business and leisure travel. The impact of declining demand in the industry and higher hotel supply in key markets could have a material impact on our cash flow from operating activities.

State and local regulations governing sales of VOIs and residential properties allow the purchaser of a VOI or property to rescind the sale subsequent to its completion for a pre-specified number of days. In addition, cash payments received from buyers of products under construction are held in escrow during the period prior to obtaining a certificate of occupancy. These payments and the deposits collected from sales during the rescission period are the primary components of our restricted cash balances in our consolidated balance sheets.

During the third quarter of 2011, we received an income tax refund of approximately $40 million as the result of the closing of an IRS audit.

Cash Used for Investing Activities

Gross capital spending during the nine months ended September 30, 2011 was as follows (in millions):

Maintenance Capital Expenditures(1):
Owned, leased and consolidated joint venture hotels	$	82
Corporate and information technology		88
Subtotal		170
Vacation Ownership and Residential Capital Expenditures(2):
Net capital expenditures for inventory (excluding St. Regis Bal Harbour)	$	(33	)
Capital expenditures for inventory — St. Regis Bal Harbour		110
Subtotal		77
Development Capital		142
Total Capital Expenditures	$	389

(1) Maintenance capital expenditures include renovations, asset replacements and improvements that extend the useful life of the asset.

(2) Represents gross inventory capital expenditures of $132 million less cost of sales of $55 million.

Gross capital spending during the nine months ended September 30, 2011 included approximately $170 million of maintenance capital and $142 million of development capital. Investment spending on gross VOI and residential inventory was $132 million, primarily in Bal Harbour, Florida, and Cancun, Mexico. Our capital expenditure program includes both offensive and defensive capital. Defensive spending is related to maintenance and renovations that we believe are necessary to remain competitive in the markets we are in. Other than capital to address fire and life safety issues, we consider defensive capital to be discretionary, although reductions to this capital program could result in decreases to our cash flow from operations, as hotels in certain markets could become less desirable. Offensive capital expenditures, which primarily relate to new projects that we expect will generate a return, are also considered discretionary. We currently anticipate that our defensive capital expenditures

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for the full year 2011 (excluding vacation ownership and residential inventory) will be approximately $250 million for maintenance, renovations, and technology capital. In addition, for the full year 2011, we currently expect to spend approximately $200 million for investment projects, various joint ventures and other investments (excluding construction of the St. Regis Bal Harbour).

In order to secure management or franchise agreements, we have made loans to third-party owners, made non-controlling investments in joint ventures and provided certain guarantees and indemnifications. See Note 20 of the consolidated financial statements for discussion regarding the amount of loans we have outstanding with owners, unfunded loan commitments, equity and other potential contributions, surety bonds outstanding, performance guarantees and indemnifications we are obligated under, and investments in hotels and joint ventures.

We intend to finance the acquisition of additional hotel properties (including equity investments), construction of the St. Regis Bal Harbour, hotel renovations, VOI and residential construction, capital improvements, technology spend and other core and ancillary business acquisitions and investments and provide for general corporate purposes (including dividend payments and share repurchases) from cash on hand, net proceeds from asset dispositions, and cash generated from operations.

We periodically review our business to identify properties or other assets that we believe either are non-core (including hotels where the return on invested capital is not adequate), no longer complement our business, are in markets which may not benefit us as much as other markets during an economic recovery or could be sold at significant premiums. We are focused on enhancing real estate returns and monetizing investments.

Since 2006 and through September 30, 2011, we have sold 65 hotels realizing proceeds of approximately $5.6 billion in numerous transactions. During the nine months ended September 30, 2011, we completed three of these sales resulting in cash proceeds of $280 million and the elimination of $57 million of debt.

There can be no assurance, however, that we will be able to complete future dispositions on commercially reasonable terms or at all.

Cash Used for Financing Activities

The following is a summary of our debt portfolio excluding securitized vacation ownership debt (including capital leases) as of September 30, 2011:

	Amount Outstanding at September 30, 2011(a)			Interest Rate at September 30, 2011			Average Maturity
	(in millions)						(in years)
Floating Rate Debt
Revolving Credit Facilities	$	—			—			2.1
Mortgages and Other		40			5.63	%		1.5
Interest Rate Swaps		600			5.02	%
Total/Average	$	640			5.06	%(b)		1.5
Fixed Rate Debt
Senior Notes	$	2,700			7.26	%		3.4
Mortgages and Other		57			8.55	%		11.1
Interest Rate Swaps		(600	)		7.20	%
Total/Average	$	2,157			7.31	%		3.5
Total Debt
Total Debt and Average Terms	$	2,797			6.79	%		3.5

(a) Excludes approximately $434 million of our share of unconsolidated joint venture debt, all of which is non-recourse.

(b) Includes commitment fees on undrawn revolver.

We have evaluated the commitments of each of the lenders in our Revolving Credit Facilities (the “Facilities”). In addition, we have reviewed our debt covenants and do not anticipate any issues regarding the availability of funds under the Facilities.

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Our debt and net debt for our portfolio and non-recourse securitized debt period-over-period is as follows:

	September 30, 2011			December 31, 2010
	(in millions)
Gross Unsecuritized Debt	$	2,797		$	2,857
less: cash (including restricted cash of $135 million in 2011 and $44 million in 2010)		(1,122	)		(797	)
Net Unsecuritized Debt	$	1,675		$	2,060
Gross Securitized Debt (non-recourse)	$	388		$	494
less: cash restricted for securitized debt repayments (not included above)		(17	)		(19	)
Net Securitized Debt	$	371		$	475
Total Net Debt	$	2,046		$	2,535

Our Facilities are used to fund general corporate cash needs. As of September 30, 2011, we have availability of over $1.5 billion under the Facilities. The Facilities allow for multi-currency borrowing and, if drawn upon, would have an applicable margin, inclusive of the commitment fee, of 2.5% plus the applicable currency LIBOR rate. Our ability to borrow under the Facilities is subject to compliance with the terms and conditions under the Facilities, including certain leverage and coverage covenants.

Based upon the current level of operations, management believes that our cash flow from operations, together with our significant cash balances, available borrowings under the Facilities (approximately $1.5 billion), and our capacity for additional borrowings will be adequate to meet anticipated requirements for scheduled maturities (including $600 million of current maturities of Senior Notes due in May 2012), dividends, working capital, capital expenditures, marketing and advertising program expenditures, other discretionary investments, interest and scheduled principal payments and share repurchases for the foreseeable future. However, there can be no assurance that we will be able to refinance our indebtedness as it becomes due and, if refinanced, on favorable terms. Approximately $264 million, included in our cash balance above, is deemed to be permanently invested in foreign countries and we would be subject to income taxes if we repatriated these amounts. In addition, there can be no assurance that in our continuing business we will generate cash flow at or above historical levels, that currently anticipated results will be achieved or that we will be able to complete dispositions on commercially reasonable terms or at all.

If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to sell additional assets at lower than preferred amounts, reduce capital expenditures, refinance all or a portion of our existing debt or obtain additional financing at unfavorable rates. Our ability to make scheduled principal payments, to pay interest on or to refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the hotel and vacation ownership industries and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

We had the following commercial commitments outstanding as of September 30, 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	$	161	$	146	$	12	$	—	$	3

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We enter into forward contracts to manage foreign exchange risk in forecasted transactions based in foreign currencies and to manage foreign exchange risk on intercompany loans that are not deemed permanently invested We also enter into interest rate swap agreements to hedge interest rate risk (see Note 12).

Item 4. Controls and Procedures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon the foregoing evaluation, our principal executive and principal financial officers concluded that our disclosure controls and procedures were effective and operating to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

We are involved in various claims and lawsuits arising in the ordinary course of business, none of which, in the opinion of management, is expected to have a material adverse effect on our consolidated financial position or results of operations.

Item 1A. Risk Factors.

The discussion of our business and operations should be read together with the risk factors contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the Securities and Exchange Commission, which describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. At September 30, 2011, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2010.

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Item 6. Exhibits.

31.1	Certification Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 – Chief Executive Officer(1)
31.2	Certification Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 – Chief Financial Officer(1)
32.1	Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code – Chief Executive Officer(1)
32.2	Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code – Chief Financial Officer(1)

(1) Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
By:	/s/ Frits van Paasschen
	Frits van Paasschen Chief Executive Officer and Director
By:	/s/ Alan M. Schnaid
	Alan M. Schnaid Senior Vice President, Corporate Controller and Principal Accounting Officer

Date: October 28, 2011