Starwood Hotel & Resorts Worldwide 10-Q 2015 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, 2015

OR

o 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	52-1193298
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

One StarPoint

Stamford, CT 06902

(Address of principal executive offices, including zip code)

(203) 964-6000

(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  o

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  o

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	o
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  o    No  x

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

168,994,501 shares of common stock, par value $0.01 per share, outstanding as of October 23, 2015.

TABLE OF CONTENTS

	PART I.  Financial Information	Page
Item 1.	Financial Statements	2
	Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2015 and 2014	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2015 and 2014	5
	Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	39
	PART II.  Other Information
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6.	Exhibits	42

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements.

The following unaudited consolidated financial statements of Starwood Hotels & Resorts Worldwide, Inc. (“we”, “us” or 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 our Annual Report on Form 10-K for the year ended December 31, 2014 filed on February 25, 2015.  See the notes to consolidated financial statements for the basis of presentation.  Certain reclassifications have been made to the prior year’s 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, 2015 are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2015.

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

	September 30,			December 31,
	2015			2014
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,066		$	935
Restricted cash		27			84
Accounts receivable, net of allowance for doubtful accounts of $85 and $63		660			661
Inventories		256			236
Securitized vacation ownership notes receivable, net of allowance for doubtful    accounts of $3 and $4		33			47
Deferred income taxes		178			199
Prepaid expenses and other		148			159
Total current assets		2,368			2,321
Investments		187			214
Plant, property and equipment, net		2,185			2,634
Goodwill and intangible assets, net		1,894			1,956
Deferred income taxes		592			596
Other assets		805			711
Securitized vacation ownership notes receivable, net		154			227
Total assets	$	8,185		$	8,659
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt	$	299		$	297
Accounts payable		102			101
Current maturities of long-term securitized vacation ownership debt		51			73
Accrued expenses		1,331			1,307
Accrued salaries, wages and benefits		397			416
Accrued taxes and other		299			256
Total current liabilities		2,479			2,450
Long-term debt		1,874			2,398
Long-term securitized vacation ownership debt		137			176
Deferred income taxes		41			38
Other liabilities		2,400			2,069
Total liabilities		6,931			7,131
Commitments and contingencies
Stockholders’ equity:
Common stock; $0.01 par value; authorized 1,000,000,000 shares;    outstanding 169,307,152 and 172,694,299 shares at September 30, 2015 and    December 31, 2014, respectively		2			2
Additional paid-in capital		98			47
Accumulated other comprehensive loss		(636	)		(508	)
Retained earnings		1,787			1,984
Total Starwood stockholders’ equity		1,251			1,525
Noncontrolling interests		3			3
Total equity		1,254			1,528
Total liabilities and equity	$	8,185		$	8,659

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

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Revenues
Owned, leased and consolidated joint venture hotels	$	312		$	393		$	984		$	1,171
Vacation ownership and residential sales and services		173			159			530			504
Management fees, franchise fees and other income		263			255			759			763
Other revenues from managed and franchised properties		686			686			2,057			2,052
		1,434			1,493			4,330			4,490
Costs and Expenses
Owned, leased and consolidated joint venture hotels		241			308			768			923
Vacation ownership and residential sales and services		127			121			390			374
Selling, general, administrative and other		102			96			292			293
Restructuring and other special charges (credits), net		9			—			63			(3	)
Depreciation		62			65			189			188
Amortization		7			7			22			22
Other expenses from managed and franchised properties		686			686			2,057			2,052
		1,234			1,283			3,781			3,849
Operating income		200			210			549			641
Equity earnings and gains from unconsolidated ventures, net		5			3			31			21
Interest expense, net of interest income of $1, $0, $3 and $2		(29	)		(27	)		(87	)		(73	)
Loss on early extinguishment of debt, net		—			(1	)		—			(1	)
Loss on asset dispositions and impairments, net		(46	)		(22	)		(32	)		(55	)
Income from continuing operations before taxes and noncontrolling    interests		130			163			461			533
Income tax expense		(42	)		(54	)		(138	)		(135	)
Income from continuing operations		88			109			323			398
Discontinued operations:
Gain on dispositions, net of tax expense (benefit) of $0, $0, $0 and    $(1)		—			—			—			1
Net income attributable to Starwood	$	88		$	109		$	323		$	399
Earnings Per Share – Basic
Continuing operations	$	0.53		$	0.60		$	1.91		$	2.12
Discontinued operations		—			—			—			0.01
Net income	$	0.53		$	0.60		$	1.91		$	2.13
Earnings Per Share – Diluted
Continuing operations	$	0.53		$	0.59		$	1.90		$	2.10
Discontinued operations		—			—			—			0.01
Net income	$	0.53		$	0.59		$	1.90		$	2.11
Weighted average number of shares		168			185			169			188
Weighted average number of shares assuming dilution		169			186			170			190
Dividends declared per share	$	0.375		$	1.00		$	1.125		$	3.00

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

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Net income	$	88		$	109		$	323		$	399
Other comprehensive income, net of taxes:
Foreign currency translation adjustments		(38	)		(88	)		(127	)		(84	)
Defined benefit pension and postretirement plans activity		1			—			2			1
Hedging activities		(1	)		1			(3	)		1
Total other comprehensive income (loss), net of taxes		(38	)		(87	)		(128	)		(82	)
Total comprehensive income		50			22			195			317
Comprehensive income attributable to noncontrolling    interests		—			—			—			—
Foreign currency translation adjustments attributable to    noncontrolling interests		—			—			—			—
Comprehensive income attributable to Starwood	$	50		$	22		$	195		$	317

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

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	Nine Months Ended
	September 30,
	2015			2014
Operating Activities
Net income	$	323		$	399
Adjustments to net income:
Discontinued operations:
Gain on dispositions, net		—			(1	)
Depreciation and amortization		211			210
Amortization of deferred gains		(67	)		(65	)
Non-cash portion of restructuring and other special charges (credits), net		9			(3	)
Loss on debt extinguishment, net		—			1
Loss on asset dispositions and impairments, net		32			55
Stock-based compensation expense		39			38
Excess stock-based compensation tax benefit		(12	)		(9	)
Distributions in excess (deficit) of equity earnings		(9	)		1
Deferred income tax expense		21			10
Other non-cash adjustments to net income		24			39
Decrease (increase) in restricted cash		70			(21	)
Other changes in working capital		(23	)		15
Securitized VOI notes receivable activity, net		54			76
Unsecuritized VOI notes receivable activity, net		(67	)		(82	)
Accrued income taxes and other		86			30
Cash from operating activities		691			693
Investing Activities
Purchases of plant, property and equipment		(170	)		(237	)
Proceeds from asset sales, net of transaction costs		767			225
Acquisitions, net of acquired cash		(40	)		(24	)
Issuance of notes receivable, net		(26	)		—
Distributions from investments, net		37			4
Other, net		1			(2	)
Cash from (used for) investing activities		569			(34	)
Financing Activities
Commercial paper, net		(536	)		106
Revolving credit facility and short-term borrowings, net		(4	)		—
Decrease in restricted cash		—			94
Long-term debt issued		10			656
Long-term debt repaid		(3	)		(3	)
Long-term securitized debt repaid		(61	)		(83	)
Dividends paid		(196	)		(562	)
Proceeds from employee stock option exercises		13			24
Excess stock-based compensation tax benefit		12			9
Share repurchases		(328	)		(1,027	)
Other, net		(22	)		(27	)
Cash used for financing activities		(1,115	)		(813	)
Exchange rate effect on cash and cash equivalents		(14	)		(8	)
Increase (decrease) in cash and cash equivalents		131			(162	)
Cash and cash equivalents - beginning of period		935			616
Cash and cash equivalents - end of period	$	1,066		$	454
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest	$	73		$	51
Income taxes, net of refunds	$	82		$	112
Non-cash capital lease obligation	$	—		$	153

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

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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 our subsidiaries.  We are one of the world’s largest hotel and leisure companies.  Our principal business is hotels and leisure, which is comprised of a worldwide hospitality network of 1,271 full-service hotels, vacation ownership resorts and residential developments primarily serving two markets:  luxury and upper-upscale. The principal operations of Starwood Vacation Ownership, Inc. (SVO) include the development and operation of vacation ownership resorts and marketing, selling and financing of vacation ownership interests (VOIs) in the resorts.

The consolidated financial statements include our assets, liabilities, revenues and expenses and those of our controlled subsidiaries and partnerships.  In consolidating, all material intercompany transactions are eliminated.  We have evaluated all subsequent events through the date the consolidated financial statements were filed with the Securities and Exchange Commission.

Following the guidance for noncontrolling interests in Accounting Standards Codification (ASC) Topic 810, Consolidation, references in this report to our earnings per share, net income and stockholders’ equity attributable to Starwood’s common stockholders do not include amounts attributable to noncontrolling interests.

Note 2. Recently Issued Accounting Standards

Future Accounting Standards

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).”  This topic provides for five principles which should be followed to determine the appropriate amount and timing of revenue recognition for the transfer of goods and services to customers.  The principles in this ASU should be applied to all contracts with customers regardless of industry, with two transition methods of adoption allowed. In July 2015, the FASB approved a one-year deferral of this standard, with a revised effective date for reporting periods beginning after December 15, 2017. Early adoption is permitted for annual periods beginning after December 16, 2016.  We plan to adopt this ASU on January 1, 2018.  We are still evaluating the financial statement impacts of the guidance in this ASU and determining which transition method we will utilize.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements- Going Concern (Subtopic 205-40) Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.”  This update provides guidance on management’s responsibility to evaluate whether there is substantial doubt about the ability to continue as a going concern and to provide related interim and annual footnote disclosures.  The amendments in this ASU are effective for reporting periods ending after December 15, 2016, and we plan to adopt this ASU for the annual period ending on December 31, 2016.  We do not believe the adoption of this update will have a material impact on our financial statements.

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810) Amendments to the Consolidation Analysis.”  The amendments in this update are intended to improve and simplify targeted areas of the consolidation guidance and are effective for annual and interim periods beginning after December 15, 2015 with early adoption permitted.  We plan to adopt this ASU on January 1, 2016.  We do not believe the adoption of this update will have a material impact on our financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Interest- Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs.”  The amendments in this topic are intended to simplify the presentation of debt issuance costs and are effective for annual and interim periods beginning after December 15, 2015 with early adoption permitted.  We plan to adopt this ASU on January 1, 2016.  We do not believe the adoption of this update will have a material impact on our financial statements.

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles- Goodwill and Other- Internal – Use Software (Subtopic 350-40) Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.”  The amendments in this topic are intended to provide guidance about whether a cloud computing arrangement includes a software license.  This update is effective for annual and interim periods beginning after December 15, 2015 with early adoption permitted.  We plan to adopt this ASU prospectively on January 1, 2016.  We do not believe the adoption of this update will have a material impact on our financial statements.

Adopted Accounting Standards

In January 2015, the FASB issued ASU No. 2015-01, “Income Statement- Extraordinary and Unusual Items (Subtopic 225-20) Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.”  This topic eliminates from U.S. generally accepted accounting principles (GAAP) the concept of extraordinary items.  This update is effective for annual and interim

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periods beginning after December 15, 2015 with early adoption permitted, and we adopted this ASU on a prospective basis on January 1, 2015.  The adoption of this update did not have a material impact on our financial statements.

In January 2014, the FASB issued ASU No. 2014-04, “Receivables- Troubled Debt Restructurings by Creditors (Subtopic 310-40) Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.”  This topic clarifies when an in-substance repossession or foreclosure occurs and requires certain additional interim and annual disclosures related to such activity.  The amendments in this ASU are effective for reporting periods beginning after December 15, 2014, and we adopted this ASU on a prospective basis on January 1, 2015.  The adoption of this update did not have a material impact on our financial statements.

Note 3. Earnings per Share

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
Income from continuing operations	$	88	$	109	$	323	$	398
Weighted average common shares for basic earnings per share		168		185		169		188
Effect of dilutive stock options and restricted stock awards		1		1		1		2
Weighted average common shares for diluted earnings per share		169		186		170		190
Basic earnings per share	$	0.53	$	0.60	$	1.91	$	2.12
Diluted earnings per share	$	0.53	$	0.59	$	1.90	$	2.10

Approximately 0.8 million shares for the three months ended September 30, 2015, an insignificant amount of shares for the three months ended September 30, 2014, and 0.7 million shares and 0.4 million shares for the nine months ended September 30, 2015 and 2014, respectively, were excluded from the computation of diluted shares, as their impact would have been anti-dilutive.

Note 4. Asset Dispositions and Impairments

During the three months ended September 30, 2015, we sold one wholly-owned hotel for cash proceeds net of closing costs of approximately $240 million.  The hotel was sold subject to a long-term management agreement that resulted in a pre-tax gain of approximately $128 million, which we deferred and are recognizing into management fees, franchise fees and other income over the initial term of the management agreement.  Additionally, during the three months ended September 30, 2015, we recognized an impairment charge of $31 million, related to one owned hotel in the Americas, whose book value exceeded its fair value.  The fair value of the hotel was estimated using the income approach via the use of discounted cash flows models.  The impairment charge was recorded to the gain (loss) on asset dispositions and impairments, net line item.  Further, during the three months ended September 30, 2015, we recorded a $12 million charge to the gain (loss) on asset dispositions and impairments, net line item related to an obligation associated with a previous disposition.

Additionally, during the nine months ended September 30, 2015, we sold three wholly-owned hotels for cash proceeds net of closing costs of approximately $527 million.  Two of these hotels were sold subject to long-term management agreements.  The sale of these hotels resulted in pre-tax gains of approximately $240 million, which we deferred and are recognizing into management fees, franchise fees and other income over the initial term of the management agreements.  The other hotel was sold subject to a long-term franchise agreement and resulted in a pre-tax gain of approximately $4 million, which we recorded in the gain (loss) on asset dispositions and impairments, net line item.

Further, during the nine months ended September 30, 2015, we recorded a $17 million gain related to the sale of a minority partnership interest in a hotel.  These gains were partially offset by a loss of $7 million primarily related to asset dispositions and impairments associated with certain hotel renovations.

During the three months ended September 30, 2014, we terminated our leasehold interest in a hotel and entered into a long-term franchise agreement with the hotel’s owner.  In connection with the termination, we recognized a pre-tax loss of $7 million, which was recorded to the gain (loss) on asset dispositions and impairments, net line item.

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Additionally, during the three months ended September 30, 2014, we recognized an impairment charge of $13 million, related to one owned hotel in the Americas, whose book value exceeded its fair value.  The impairment charge was recorded to the gain (loss) on asset dispositions and impairments, net line item.

During the nine months ended September 30, 2014, we sold two wholly-owned hotels for cash proceeds net of closing costs of approximately $223 million.  One of these hotels was sold subject to a long-term management agreement.  The sale of this hotel resulted in a pre-tax gain of approximately $91 million, which we deferred and are recognizing into management fees, franchise fees and other income over the initial term of the management agreement.  The other hotel was sold subject to a long-term franchise agreement and resulted in a pre-tax loss of $6 million, which was recorded to the gain (loss) on asset dispositions and impairments, net line item.  During the nine months ended September 30, 2014, we also recorded a $7 million impairment associated with one of our foreign unconsolidated joint ventures, which we recorded to the gain (loss) on asset dispositions and impairments, net line item.

Additionally, during the nine months ended September 30, 2014, we converted a leased hotel to a managed hotel, subject to a long-term management agreement, and recognized a pre-tax loss of $21 million, which was recorded to the gain (loss) on asset dispositions and impairments, net line item.  We provided financing to the hotel owner in the form of a note receivable to fund the transaction price.  We will provide additional financing over the next few years to fund a significant renovation of the hotel.

Note 5. Transfers of Financial Assets

We have variable interests in the entities associated with our three outstanding securitization transactions.  As these securitizations consist of similar, homogenous loans, they have been aggregated for disclosure purposes.  We applied the variable interest model and determined we are the primary beneficiary of these variable interest entities (VIEs).  In making this determination, we 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.  We are the servicer of the securitized mortgage receivables.  We also have 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 $2 million and $8 million and during the three and nine months ended September 30, 2015, respectively, compared to $4 million and $13 million during the three and nine months ended September 30, 2014.  We have been able to resell the VOIs underlying the VOI notes repurchased or replaced under these provisions without incurring significant losses.  We hold 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, we hold 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 us, except for breaches of representations and warranties.  We have the right to fund defaults at our option, subject to certain limitations, and we intend to do so until the debt is extinguished to maintain the credit rating of the underlying notes.

Upon transfer of VOI 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.  Our interests in trust assets are subordinate to the interests of third-party investors and, as such, may not be realized by us if needed to absorb deficiencies in cash flows that are allocated to the investors in the trusts’ debt (see Note 8).  We are 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 $7 million and $23 million during the three and nine months ended September 30, 2015, respectively, compared to $9 million and $30 million during the three and nine months ended September 30, 2014, respectively, and is classified in cash and cash equivalents.

During the three months ended September 30, 2015, we terminated the securitization originally completed in 2009 (the 2009 Securitization) including pay down of all principal and interest due.  The termination required a $3 million pay down of debt and resulted in the release of $35 million of previously securitized vacation ownership notes receivable, net to unsecuritized notes receivable.

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Note 6. Vacation Ownership Notes Receivable 

Notes receivable (net of reserves) related to our vacation ownership loans consisted of the following (in millions):

	September 30,			December 31,
	2015			2014
Vacation ownership loans – securitized	$	187		$	274
Vacation ownership loans – unsecuritized		415			331
		602			605
Less: current portion
Vacation ownership loans – securitized		(33	)		(47	)
Vacation ownership loans – unsecuritized		(49	)		(36	)
	$	520		$	522

We include the current and long-term maturities of unsecuritized VOI notes receivable in accounts receivable and other assets, respectively, in our consolidated balance sheets.

We record interest income associated with VOI notes in our vacation ownership and residential sales and services line item in our consolidated statements of income.  Interest income related to our VOI notes receivable was as follows (in millions):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
Vacation ownership loans – securitized	$	7	$	11	$	25	$	35
Vacation ownership loans – unsecuritized		13		10		36		27
	$	20	$	21	$	61	$	62

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

	Securitized			Unsecuritized			Total
2015	$	9		$	26		$	35
2016		36			43			79
2017		35			45			80
2018		31			45			76
2019		29			45			74
Thereafter		63			286			349
Balance at September 30, 2015	$	203		$	490		$	693
Weighted average interest rates at September 30, 2015		13.18	%		13.01	%		13.06	%
Range of interest rates	6.0% to 17.0%			5.0% to 17.0%			5.0% to 17.0%

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 profit on a timeshare sale.  We hold large amounts of homogeneous VOI notes receivable and, therefore, assess uncollectibility based on pools of receivables.  In estimating loss reserves, we use 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 our loan loss reserve requirements.  As of September 30, 2015 and December 31, 2014, the average estimated default rate for our pools of receivables was approximately 9.1% and 9.2%, respectively.

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The activity and balances for our loan loss reserve were as follows (in millions):

	Securitized			Unsecuritized			Total
Balance at June 30, 2015	$	21		$	69		$	90
Provisions for loan losses		(1	)		9			8
Write-offs		—			(7	)		(7	)
Other		(4	)		4			—
Balance at September 30, 2015	$	16		$	75		$	91
Balance at December 31, 2014	$	28		$	68		$	96
Provisions for loan losses		(2	)		18			16
Write-offs		—			(21	)		(21	)
Other		(10	)		10			—
Balance at September 30, 2015	$	16		$	75		$	91
Balance at June 30, 2014	$	33		$	67		$	100
Provisions for loan losses		1			8			9
Write-offs		—			(8	)		(8	)
Other		(3	)		3			—
Balance at September 30, 2014	$	31		$	70		$	101
Balance at December 31, 2013	$	43		$	60		$	103
Provisions for loan losses		(1	)		18			17
Write-offs		—			(19	)		(19	)
Other		(11	)		11			—
Balance at September 30, 2014	$	31		$	70		$	101

We use the origination of the notes by brand (Sheraton, Westin, and Other) and the Fair Isaac Corporation (FICO) scores of the buyers as the primary credit quality indicators to calculate the loan loss reserve for the vacation ownership notes, 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, supplemented by the FICO scores of the buyers.  In addition to quantitatively calculating the loan loss reserve based on our static pool analysis, we supplement the process by evaluating certain qualitative data, including the aging of the respective receivables and current default trends by brand and origination year.

Balances of our VOI notes receivable by brand and by FICO score were as follows (in millions):

	As of September 30, 2015
	700+		600-699		<600		No Score		Total
Sheraton	$	161	$	142	$	14	$	59	$	376
Westin		178		89		5		31		303
Other		8		2		—		4		14
	$	347	$	233	$	19	$	94	$	693
	As of December 31, 2014
	700+		600-699		<600		No Score		Total
Sheraton	$	157	$	134	$	15	$	62	$	368
Westin		186		88		6		36		316
Other		9		2		—		6		17
	$	352	$	224	$	21	$	104	$	701

Given the significance of our pools of VOI notes receivable, a change in the projected default rate can have a significant impact to our loan loss reserve requirements, with a 0.1% change estimated to have an impact of approximately $5 million.

We consider a VOI note receivable delinquent when it is more than 30 days outstanding.  Delinquent notes receivable amounted to $41 million and $42 million as of September 30, 2015 and December 31, 2014, respectively.  All delinquent loans are placed on nonaccrual status, and we do not resume interest accrual until payment is made.  We consider loans to be in default upon reaching 120

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days outstanding, at which point, we generally 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.

Past due balances of VOI notes receivable were as follows (in millions):

	Total				Delinquent
	Receivables		Current		30-59 Days		60-89 Days		>90 Days		Total
As of September 30, 2015	$	693	$	652	$	10	$	5	$	26	$	41
As of December 31, 2014	$	701	$	659	$	9	$	4	$	29	$	42

Note 7. Debt

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

	September 30,			December 31,
	2015			2014
Senior Credit Facility:
Revolving Credit Facility, maturing 2020	$	—		$	5
Senior Notes, interest at 7.375%, maturing 2015		294			294
Senior Notes, interest at 6.75%, maturing 2018		374			372
Senior Notes, interest at 7.15%, maturing 2019		211			209
Senior Notes, interest at 3.125%, maturing 2023		349			349
Senior Notes, interest at 3.75%, maturing 2025		347			346
Senior Notes, interest at 4.50%, maturing 2034		292			291
Capital lease obligations		169			156
Commercial paper, weighted average interest at 0.363% at September 30, 2015		98			634
Mortgages and other, interest rates ranging from non-interest bearing to    3.65%, various maturities		39			39
		2,173			2,695
Less current maturities		(299	)		(297	)
Long-term debt	$	1,874		$	2,398

Note 8. Securitized Vacation Ownership Debt

As discussed in Note 5, our VIEs associated with the securitization of our VOI notes receivable are consolidated in our financial statements.  Long-term and short-term securitized vacation ownership debt consisted of the following (in millions):

	September 30,			December 31,
	2015			2014
2009 securitization, terminated 2015 (1)	$	—		$	13
2010 securitization, interest rates ranging from 3.65% to 4.75%, maturing 2021		54			72
2011 securitization, interest rates ranging from 3.67% to 4.82%, maturing 2025		66			81
2012 securitization, interest rates ranging from 2.00% to 2.76%, maturing 2023		68			83
		188			249
Less current maturities		(51	)		(73	)
Long-term securitized debt	$	137		$	176

(1) During the three months ended September 30, 2015, we terminated the 2009 Securitization, including pay down of all principal and interest due (see Note 5).

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Note 9. Other Liabilities 

Other liabilities consisted of the following (in millions):

	September 30,		December 31,
	2015		2014
Deferred gains on asset sales	$	1,362	$	1,079
Starwood Preferred Guest point liability (a)		785		721
Deferred revenue including VOI sales		43		52
Benefit plan liabilities		47		53
Deferred rent		27		30
Insurance reserves		46		44
Other		90		90
	$	2,400	$	2,069

(a) Includes the actuarially determined liability and certain deferred revenues related to the Starwood Preferred Guest program.

Deferred Gains.We defer gains realized in connection with the sale of a property that we continue to manage through a long-term management agreement and recognize the gains over the initial term of the related agreement (see Note 4).  As of September 30, 2015 and December 31, 2014, we had total deferred gains of approximately $1,449 million and $1,168 million, respectively, included in accrued expenses and other liabilities in our consolidated balance sheets.  Amortization of deferred gains is included in management fees, franchise fees and other income in our consolidated statements of income and totaled approximately $23 million and $67 million in the three and nine months ended September 30, 2015, respectively, compared to $22 million and $65 million in the three and nine months ended September 30, 2014, respectively.

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 and airline travel.  Points can be redeemed at substantially all of our owned, leased, managed and franchised hotels as well as through other redemption opportunities with third parties, such as conversion to airline miles.

We charge our owned, leased, 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.  Our management and franchise agreements require that we are 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, we increase the SPG point liability for the amount of cash we receive from our managed and franchised hotels related to the future redemption obligation.  For our 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.

Through the services of third-party actuarial analysts, we 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 for other point redemption opportunities.

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 consolidated balance sheets.  The total actuarially determined liability as of September 30, 2015 and December 31, 2014 was $1,154 million and $1,115 million, respectively, of which $465 million and $453 million, respectively, was included in accrued expenses.

Note 10. Restructuring and Other Special Charges (Credits), Net

During the three and nine months ended September 30, 2015, we recorded restructuring and other special charges (credits), net of $9 million and $63 million, respectively, compared to none and credits of $3 million for the three and nine months ended September 30, 2014, respectively.  These net charges (credits) are not recorded in our reportable segment earnings.

During the three months ended September 30, 2015, we recorded a net credit of $4 million in restructuring and $13 million of other special charges.  The restructuring credit is primarily related to the reversal of an $8 million reserve as a result of the favorable resolution of a funding commitment associated with a vacation ownership project, partially offset by $3 million of costs associated

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with our previously announced cost savings initiatives.  Other special charges primarily related to costs associated with the planned spin-off of our vacation ownership business.

Additionally, during the nine months ended September 30, 2015, we recorded $21 million in net restructuring charges primarily associated with severance costs as a result of our previously announced cost savings initiatives and $33 million of other special charges.  Other special charges primarily consist of $16 million of costs primarily associated with professional fees for the planned spin-off of our vacation ownership business (see Note 19), a $7 million severance charge associated with the resignation of our prior President and Chief Executive Officer, a $6 million charge for technology related costs and expenses that we no longer deem recoverable and the establishment of $6 million of reserves related to potential liabilities assumed in connection with the Le Méridien acquisition (see Note 18), partially offset by the reversal of $5 million of reserves as a result of the favorable resolution of an exposure from a previous disposition and a dispute with a foreign taxing authority.

During the nine months ended September 30, 2014, we reversed a $3 million reserve related to a note receivable associated with a previous disposition, as the entire balance was collected during 2014.

As of September 30, 2015, we had remaining restructuring accruals of $13 million, of which $6 million is recorded in accrued expenses and the remainder is recorded in other liabilities.  As of December 31, 2014, we had remaining restructuring accruals of $15 million, which were primarily recorded in other liabilities.  The following table summarizes activity in the restructuring related accruals during the nine months ended September 30, 2015 (in millions):

	December 31,		Expenses/			Payments			Non-Cash			September 30,
	2014		Reversals						Other			2015
Severance costs related to cost savings initiatives	$	—	$	17		$	(13	)	$	—		$	4
Impairments		—		4			—			(4	)		—
Vacation ownership exit cost from ceased projects		14		(8	)		—			(1	)		5
Other		1		4			(2	)		1			4
Total	$	15	$	17		$	(15	)	$	(4	)	$	13

Note 11. Derivative Financial Instruments

We enter into forward contracts to manage foreign exchange risk based on market conditions and to hedge certain forecasted transactions.  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, we need to formally document, designate and assess the effectiveness of the transactions that receive hedge accounting.  The notional dollar amount of the outstanding Euro forward contracts at September 30, 2015 was $29 million, with an average exchange rate of 1.16, generally with terms of less than one year.  We review the effectiveness of our hedging instruments on a quarterly basis and record any ineffectiveness into earnings.  We discontinue hedge accounting for any hedge that is no longer evaluated to be highly effective.  From time to time, we may choose to de-designate portions of hedges when changes in estimates of forecasted transactions occur.  For the three and nine months ended September 30, 2015, each of these hedges was highly effective in offsetting fluctuations in foreign currencies.  An insignificant amount of gain due to ineffectiveness was recorded in the consolidated statements of income during 2015.

We also enter into forward contracts to manage foreign exchange risk on intercompany loans that are not deemed long-term investment nature.  These forward contracts are not designated as hedges, and their change in fair value is recorded in our consolidated statements of income during each reporting period.  The notional dollar amount of these outstanding forward contracts at September 30, 2015 was $857 million, with terms of primarily less than one year.  These forward contracts provide an economic hedge, as they largely offset foreign currency exposures on intercompany loans.

We enter into net investment agreements to manage foreign exchange risk on non-U.S. operations.  Our objective is to manage the net investment against variability in the foreign currency risk associated with changes in the exchange rate.  These agreements have been designated and qualify as net investment hedges and their change in fair value is recorded as a component of other comprehensive income.  At September 30, 2015, we had one net investment hedge with a notional amount of $129 million.

We enter into interest rate swap agreements to manage interest expense.  The swaps qualify as fair value swaps and modify our interest rate exposure by effectively converting debt with a fixed rate to a floating rate.  Our objective is to manage the impact of interest rates on the results of operations, cash flows and the market value of our debt.  At September 30, 2015, we had five interest rate swap agreements with an aggregate notional amount of $250 million under which we pay floating rates and receive 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

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interest rates and mature in 2018 and 2019.  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 our derivative financial instruments are major financial institutions.  We evaluate the credit ratings of the financial institutions and believe that credit risk is at an acceptable level.

The following tables summarize the fair value of our derivative instruments (in millions):

	September 30,			December 31,
	2015			2014
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Asset Derivatives
Interest rate swaps	Other assets	$	7	Other assets	$	4
Forward contracts	Prepaidexpenses and other	$	1	Prepaid expenses and other	$	1
Net investment hedges	Prepaid expenses and other	$	1	Prepaid expenses and other	$	—

	September 30,			December 31,
	2015			2014
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives not designated as hedging instruments
Asset Derivatives
Forward contracts	Prepaidexpenses and other	$	2	Prepaidexpenses and other	$	9
Liability Derivatives
Forward contracts	Accruedexpenses	$	2	Accruedexpenses	$	20

The following table presents the effect of our derivatives on our consolidated statements of income (in millions):

Derivatives not designated as hedging instruments	Location of Gain Recognized in Income on Derivative	Amount of Gain Recognized in Income on Derivative
		Three Months Ended
		September 30,
		2015			2014
Foreign forward exchange contracts	Interest expense, net	$	6		$	5
Derivatives not designated as hedging instruments	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized in Income on Derivative
		Nine Months Ended
		September 30,
		2015			2014
Foreign forward exchange contracts	Interest expense, net	$	(18	)	$	7

The interest rate swaps, forward contracts and net investment hedges are financial assets and liabilities measured at fair value on a recurring basis.

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 are readily available on public markets, and as such, are classified as Level 2.

The forward contracts and net investment hedges are over-the-counter contracts that do not trade on a public exchange.  The fair values of these 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.  We consider both our credit risk, as well as our counterparties’ credit risk, in determining fair value, and we did not make an adjustment as it was deemed insignificant based on the short duration of the contracts and our rate of short-term debt.

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Note 12. Pension and Postretirement Benefit Plans

We sponsor, or have previously sponsored, numerous funded and unfunded domestic and foreign pension and postretirement benefit plans.  The net periodic benefit cost for our domestic pension benefits, foreign pension benefits and postretirement benefits amounted to less than $1 million for the three months ended September 30, 2015 and 2014 and less than $1 million for the nine months ended September 30, 2015 and 2014.  Additionally, the net actuarial losses reclassified from accumulated other comprehensive income for our domestic, pension benefits, foreign pension benefits and postretirement benefits amounted to approximately $1 and $2 million for the three and nine months ended September 30, 2015, respectively, and approximately $1 million for the three and nine months ended September 30, 2014.

During the three and nine months ended September 30, 2015, we contributed approximately $4 million and $8 million, respectively, to our pension and postretirement benefit plans.  For the remainder of 2015, we expect to contribute approximately $4 million to our pension and postretirement benefit plans.  A significant portion of the contributions relates to the foreign pension plans, for which we are reimbursed by our managed hotels.

Note 13. Income Taxes

The total amount of unrecognized tax benefits as of September 30, 2015, was $297 million, of which $96 million would affect our effective tax rate if recognized.  It is reasonably possible that approximately $10 million of our unrecognized tax benefits as of September 30, 2015 will reverse within the next twelve months.

We recognize interest and penalties related to unrecognized tax benefits through income tax expense.  As of September 30, 2015, we had $18 million accrued for the payment of interest and $3 million accrued for the payment of penalties.

During the nine months ended September 30, 2014, we resolved a previous dispute related to foreign operating losses, which resulted in a tax benefit of $52 million.  The tax benefit included the recognition of a previously unrecognized tax benefit of $21 million, the $2 million reversal of interest accruals, net of tax, and the recognition of a $29 million deferred tax asset relating to net operating losses.

We are subject to taxation in the U.S. federal jurisdiction, as well as various state and foreign jurisdictions.  As of September 30, 2015, we are no longer subject to examination by U.S. federal taxing authorities for years prior to 2007 or to examination by any U.S. state taxing authority prior to 2006.  All subsequent periods remain eligible for examination.  In the significant foreign jurisdictions in which we operate, we are no longer subject to examination by the relevant taxing authorities for any years prior to 2007.

We are under regular audit by the Internal Revenue Service (IRS).  We have received certain Notices of Proposed Adjustment from the IRS for years 2007 through 2009; however, we disagree with the IRS on certain of these adjustments and have filed a formal appeals protest to dispute them.  We intend to vigorously contest these adjustments, including pursuing litigation, if necessary.  If upheld, these unagreed adjustments would result in a significant cash tax and interest payment.  More than half of this amount would not affect the effective tax rate due to the timing nature of certain issues.  We believe we will prevail in the eventual resolution of these matters and have not adjusted our results of operations to the extent we believe it is more likely than not that we will ultimately prevail.

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Note 14. Stockholders’ Equity 

The following tables represent changes in stockholders’ equity that are attributable to our stockholders and non-controlling interests for the three and nine months ended September 30, 2015 (in millions):

				Equity Attributable to Starwood Stockholders
						Additional		Accumulated Other						Equity Attributable to
	Total			Common Shares		Paid-in Capital		Comprehensive Loss			Retained Earnings			Noncontrolling Interests
Balance at June 30, 2015	$	1,344		$	2	$	74	$	(598	)	$	1,863		$	3
Net income		88			—		—		—			88			—
Equity compensation activity and other		24			—		24		—			—			—
Dividends		(64	)		—		—		—			(64	)		—
Share repurchases		(100	)		—		—		—			(100	)		—
Other comprehensive income		(38	)		—		—		(38	)		—			—
Balance at September 30, 2015	$	1,254		$	2	$	98	$	(636	)	$	1,787		$	3

				Equity Attributable to Starwood Stockholders
						Additional		Accumulated Other						Equity Attributable to
	Total			Common Shares		Paid-in Capital		Comprehensive Loss			Retained Earnings			Noncontrolling Interests
Balance at December 31, 2014	$	1,528		$	2	$	47	$	(508	)	$	1,984		$	3
Net income		323			—		—		—			323			—
Equity compensation activity and other		51			—		51		—			—			—
Dividends		(192	)		—		—		—			(192	)		—
Share repurchases		(328	)		—		—		—			(328	)		—
Other comprehensive income		(128	)		—		—		(128	)		—			—
Balance at September 30, 2015	$	1,254		$	2	$	98	$	(636	)	$	1,787		$	3

Share Issuances and Repurchases.  During the three and nine months ended September 30, 2015, we issued less than 0.1 million and approximately 0.3 million of our common shares, respectively, as a result of stock option exercises.

In the first quarter of 2015, our Board of Directors authorized a $750 million increase to the share repurchase program.  During the three months ended September 30, 2015, we repurchased 1.3 million common shares at a weighted average price of $76.64 per share for a total cost of approximately $100 million.  During the nine months ended September 30, 2015, we repurchased 4.1 million common shares at a weighted average price of $79.55 per share for a total cost of approximately $328 million.  As of September 30, 2015, $501 million remained available under the share repurchase authorization approved by our Board of Directors.

Dividends.  In September 2015, we paid approximately $64 million of dividends, or $0.375 per share to stockholders of record as of September 11, 2015.  For the nine months ended September 30, 2015, we paid approximately $192 million of dividends, or $1.125 per share.

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Accumulated Other Comprehensive Loss.  The following table presents the changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2015 (in millions):

	For the Nine Months Ended September 30, 2015 (a)
	Cash Flow Hedges (b)			Net Investment Hedges			DefinedBenefit Pension and Postretirement Benefit Plans (c)			Foreign Currency Translation Adjustments (d)			Total
Balance at December 31, 2014	$	2		$	1		$	(77	)	$	(434	)	$	(508	)
Other comprehensive income (loss) before reclassifications		4			(3	)		—			(127	)		(126	)
Amounts reclassified from accumulated other    comprehensive income (loss)		(4	)		—			2			—			(2	)
Total before tax		—			(3	)		2			(127	)		(128	)
Tax (expense) benefit		(1	)		1			—			—			—
Net current year other comprehensive income (loss)		(1	)		(2	)		2			(127	)		(128	)
Balance at September 30, 2015	$	1		$	(1	)	$	(75	)	$	(561	)	$	(636	)

(a) Amounts in parentheses indicate debits.

(b) Pretax gains and losses on forward contract cash flow hedges are reclassified to management fees, franchise fees and other income.

(c) Pretax amortization of defined benefit pension and postretirement benefit plans is reclassified to selling, general, administrative and other.

(d) Gains of $41 million related to intra-entity foreign currency transactions that are of a long-term investment nature are included in other comprehensive loss in the nine months ended September 30, 2015.

Note 15. Stock-Based Compensation

In accordance with our 2013 Long-Term Incentive Compensation Plan (the 2013 LTIP), during the nine months ended September 30, 2015, we granted restricted stock, restricted stock units and performance shares to executive officers, members of the Board of Directors and certain employees.

In February 2015, a target number of contingent performance shares, which contain a market condition, were awarded to certain executives.  Vesting of the performance shares is dependent upon a market condition and three years of continuous service beginning at date of grant, subject to a prorated adjustment for employees who are terminated under certain circumstances or who retire.  The market condition is based on our total stockholder return relative to the total stockholder return of a specified group of peer companies at the end of a three-calendar-year performance period beginning January 1, 2015 and ending December 31, 2017.  The number of performance shares earned is determined based on our percentile ranking among these companies.  The performance shares are entitled to any dividends made during the performance period in the same proportion as the number of performance shares that vest.  Dividends will be paid at the end of the service period.

We classified the performance shares as a share-based equity award, and as such, compensation expense related to these shares is based on the grant-date fair value, which will be recognized ratably over the requisite service period.  We determined the fair value of the performance shares using a Monte Carlo simulation valuation model.  The Monte Carlo simulation estimates the fair value of our performance awards primarily based on the terms associated with the grant and public information that is readily available.  The underlying principles in the Monte Carlo simulation are that publicly traded stocks are fairly priced and the future returns of a stock may be estimated primarily by the stock’s assumed volatility.  During the nine months ended September 30, 2015, we granted approximately 124,000 performance shares with a grant date fair value of $90.03 per share.  In addition, we granted approximately 946,000 shares of restricted stock and restricted stock units that had a weighted average grant date fair value of $80.22 per share or unit.

We recorded stock-based employee compensation expense, including the impact of reimbursements from third parties, of $13 million and $39 million in the three and nine months ended September 30, 2015, respectively, compared to $14 million and $38 million, in the three and nine months ended September 30, 2014, respectively.

As of September 30, 2015, there was approximately $72 million of unrecognized compensation cost, net of estimated forfeitures, including the impact of reimbursements from third parties, which is expected to be recognized on a straight-line basis over a weighted-average period of 1.5 years.

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Note 16. Fair Value 

We believe the carrying values of our financial instruments related to current assets and current liabilities approximate fair value.  The following table presents the carrying amounts and estimated fair values of our long-term financial instruments (in millions):

		September 30, 2015				December 31, 2014
	Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets:
Restricted cash	1	$	3	$	3	$	3	$	3
VOI notes receivable	3		366		455		295		369
Securitized vacation ownership notes receivable	3		154		193		227		287
Other notes receivable	3		60		60		51		51
Total financial assets		$	583	$	711	$	576	$	710
Liabilities:
Long-term debt	1	$	1,874	$	1,903	$	2,398	$	2,503
Long-term securitized debt	3		137		142		176		182
Total financial liabilities		$	2,011	$	2,045	$	2,574	$	2,685
Off-Balance sheet:
Letters of credit	2	$	—	$	73	$	—	$	83
Surety bonds	2		—		20		—		27
Total off-balance sheet		$	—	$	93	$	—	$	110

The carrying value of our restricted cash approximates its fair value.  We estimate the fair value of our VOI notes receivable and securitized VOI notes receivable using assumptions related to current or recent securitization market transactions.  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 determine the estimated fair value.  The fair value of other notes receivable is estimated based on the terms of the instrument and current market conditions.  These financial instrument assets are recorded in the other assets line item in our consolidated balance sheet.

We estimate the fair value of our publicly traded debt based on the bid prices in the public debt markets.  The carrying amount of our floating rate debt is a reasonable basis of fair value due to the variable nature of the interest rates.  Our 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 our letters of credit and surety bonds are estimated to be the same as the contract values based on the nature of the fee arrangements with the issuing financial institutions.

Note 17. Segment Information

Our hotel business is segregated into three separate hotel segments: (i) the Americas, (ii) Europe, Africa and the Middle East (EAME), and (iii) Asia Pacific.  The vacation ownership and residential business is a separate segment.

Our reportable segments each have a division president who is responsible for the management of the division.  Each division president reports directly to our Chief Executive Officer who is also the Chief Operating Decision Maker (CODM).  Financial information for each reportable segment is reviewed by the CODM to assess performance and make decisions regarding the allocation of resources.

Each hotel segment generates its earnings through a network of owned, leased, consolidated and unconsolidated joint venture hotels and resorts operated primarily under our proprietary brand names including St. Regis®, The Luxury Collection®, W®, Westin®, Le Méridien®, Sheraton®, Four Points® by Sheraton, Aloft®, Element®, and Tribute Portfolio^TM, as well as hotels and resorts which are managed or franchised under these brand names in exchange for fees.

The management of our vacation ownership and residential sales business is conducted by the vacation ownership and residential segment.  The vacation ownership and residential segment generates its earnings through the acquisition, development and operation of vacation ownership resorts, marketing and selling of VOIs and residential units, and providing financing to customers

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who purchase such interests.  See Note 19, Planned Reverse Morris Trust Transaction, for a discussion of our plans for a spin-off of our vacation ownership business and its subsequent merger with a wholly-owned subsidiary of Interval Leisure Group, Inc. (Interval).

The CODM primarily evaluates the operating performance of a segment based on segment earnings.  We define segment earnings as net income attributable to our common stockholders before interest expense, taxes, depreciation and amortization, as well as our share of interest, depreciation and amortization associated with our unconsolidated joint ventures, excluding certain recurring and nonrecurring items, such as restructuring and other special charges (credits), loss on early extinguishment of debt, and gains (losses) on asset dispositions and impairments.  Residential revenue generated at hotel properties is recorded in the corresponding geographic hotel segment.  General, administrative and other expenses directly related to the segments are included in the calculation of segment earnings, whereas corporate general, administrative, and other expenses are not included in the segment earnings calculation.  In addition to revenues recorded within our four segments, we also have other revenues from managed and franchised properties, which represent the reimbursement of costs incurred on behalf of managed and franchised property owners.  These revenues, together with the corresponding expenses, are not recorded within our segments.  Other corporate unallocated revenues and earnings primarily relate to other license fee income and are also reported outside of segment revenues.

The following tables present revenues and segment earnings for our reportable segments (in millions):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
Revenues:
Americas	$	345	$	372	$	1,098	$	1,159
EAME		135		162		366		453
Asia Pacific		71		92		203		257
Vacation ownership and residential		169		157		525		497
Total segment revenues		720		783		2,192		2,366
Other revenues from managed and franchised hotels		686		686		2,057		2,052
Other corporate revenues – unallocated		28		24		81		72
	$	1,434	$	1,493	$	4,330	$	4,490

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Segment Earnings:
Americas	$	160		$	156		$	509		$	512
EAME		50			65			130			158
Asia Pacific		46			54			136			159
Vacation ownership and residential		43			37			136			125
Total segment earnings		299			312			911			954
Other corporate unallocated		29			25			84			73
Corporate selling, general, administrative and    other – unallocated		(34	)		(40	)		(116	)		(125	)
Loss on asset dispositions and impairments, net		(46	)		(22	)		(32	)		(55	)
Restructuring and other special (charges) credits		(9	)		—			(63	)		3
Adjustments to equity earnings (a)		(10	)		(12	)		(22	)		(31	)
Interest expense		(30	)		(27	)		(90	)		(75	)
Loss on early extinguishment of debt, net		—			(1	)		—			(1	)
Depreciation and amortization		(69	)		(72	)		(211	)		(210	)
Discontinued operations		—			—			—			1
Income tax expense		(42	)		(54	)		(138	)		(135	)
Net income attributable to Starwood	$	88		$	109		$	323		$	399

(a) Includes impairment losses, certain gains on hotel sales, interest expense, depreciation and amortization expense related to equity earnings not allocated to segment earnings.

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Note 18. Commitments and Contingencies 

Variable Interest Entities. We have determined that we have a variable interest in 21 hotels, generally in the form of investments, loans, guarantees, or equity. We determine if we are the primary beneficiary of these hotels by primarily considering the qualitative factors.  Qualitative factors include evaluating if we have the power to control the VIE and have the obligation to absorb the losses and rights to receive the benefits of the VIE, that could potentially be significant to the VIE.  We have determined that we are not the primary beneficiary of these VIEs and therefore, these entities are not consolidated in our financial statements.  See Note 5 for the VIEs in which we are deemed the primary beneficiary and have consolidated the entities.

The 21 VIEs associated with our variable interests represent entities that own hotels for which we have entered into management or franchise agreements with the hotel owners. We are paid a fee primarily based on financial metrics of the hotel.  The hotels are financed by the owners, generally in the form of working capital, equity and debt.

At September 30, 2015, we have approximately $100 million of investments and a loan balance of $2 million associated with these VIEs.  The maximum loss under these agreements equals the carrying value because we are not obligated to fund future cash contributions.  In addition, we have not contributed amounts to the VIEs in excess of our contractual obligations.

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

Guaranteed Loans and Commitments. In limited cases, we have made loans to owners of or partners in hotel or resort ventures for which we have a management or franchise agreement. Loans outstanding under this program totaled $33 million at September 30, 2015.  We evaluate these loans for impairment, and at September 30, 2015, we believe these loans are collectible. Unfunded loan commitments aggregating to $73 million were outstanding at September 30, 2015, of which $38 million is expected to be funded in the next twelve months. These loans typically are secured by pledges of project ownership interests and/or mortgages on the projects.  We also have $206 million of equity and other potential contributions associated with managed, franchised, or joint venture properties, $73 million of which is expected to be funded in the next twelve months.

Surety bonds issued on our behalf as of September 30, 2015 totaled $20 million. Surety bonds may be 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, we may provide performance guarantees to third-party owners.  Most of these performance guarantees allow us to terminate the contract rather than fund shortfalls if certain performance levels are not met.  In limited cases, we are obligated to fund shortfalls in performance levels through the issuance of loans.  Many of the performance tests are multi-year tests, tied to the results of a competitive set of hotels and have exclusions for force majeure and acts of war or terrorism.  During the three months ended September 30, 2015, we recorded an $11 million reserve for the potential funding of a performance guarantee associated with two hotels in Greece. While we currently expect to fund this obligation, we are in active discussions with the owner of the hotels since the performance failures are primarily due to the economic crisis in Greece.  We do not anticipate any other significant funding under performance guarantees, nor do we anticipate losing a significant number of management or franchise contracts in 2015.

In connection with the purchase of the Le Méridien brand in November 2005, we were indemnified for certain of Le Méridien’s historical liabilities by the entity that bought Le Méridien’s owned and leased hotel portfolio.  The indemnity is limited to the financial resources of that entity, which have significantly decreased in recent years.  We have received various claims on these historical liabilities. If we have to fund any of these claims, there can be no assurance that we will be able to recover such amounts through the indemnification. During the nine months ended September 30, 2015, certain employee pension claims were determined to be probable and reasonably estimable, based on the review of additional information provided to us by the plaintiffs, and we recorded a reserve of $6 million associated with these claims.

Litigation. We are involved in various legal matters that have arisen in the normal course of business, some of which include claims for substantial sums. Accruals have been recorded when the outcome is probable and can be reasonably estimated. As of September 30, 2015, certain contingencies have been evaluated as reasonably possible, but not probable, with a range of exposure of $0 to $22 million. While the ultimate results of claims and litigation cannot be determined, we do not believe that the resolution of these legal matters will have a material adverse effect on our consolidated results of operations, financial position or cash flow. However, depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect our future results of operations or cash flows in a particular period.

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Note 19. Planned Reverse Morris Trust Transaction 

On February 10, 2015, we announced plans to spin-off our vacation ownership business to stockholders as a separate publicly traded company, Vistana Signature Experiences, Inc. (Vistana).During the three and nine months ended September 30, 2015, we recorded approximately $10 million and $26 million of costs, respectively, primarily associated with professional fees for the planned spin-off.

On October 28, 2015, we announced that we had entered into an agreement with Interval and Vistana through a Reverse Morris Trust transaction pursuant to which, subject to the terms and conditions of certain definitive agreements, (1) we will transfer our vacation ownership business and five hotels to be converted to vacation ownership properties to Vistana, (2) after which, we will distribute to our stockholders on a pro rata basis all of the issued and outstanding shares of Vistana held by us (the “Distribution”) and (3) immediately after the Distribution, a wholly-owned subsidiary of Interval will acquire and then merge with and into Vistana (the “Merger”). When the Merger is completed, Vistana will be a wholly-owned subsidiary of Interval and our stockholders will own approximately 55% of the outstanding shares of Interval on a fully-diluted basis and the existing shareholders of Interval will own approximately 45% of Interval on a fully-diluted basis. Both the Distribution and Merger are expected to qualify as tax-free transactions to Starwood stockholders. The transaction values Vistana at approximately $1.5 billion based on Interval’s 20-day volume weighted price as of October 26, 2015, including an estimated $132 million cash distribution to be funded in connection with the Merger.  The transaction is subject to customary closing conditions, including regulatory and Interval shareholder approvals.  The transaction will not require a vote of our stockholders. Upon the closing of the Merger, Interval’s Board of Directors will consist of 13 directors, comprising nine current Interval directors and four of our director appointees.

The transaction is expected to close in the second quarter of 2016 but there can be no assurance regarding the ultimate timing of the transaction or that the transaction will ultimately be completed.

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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 our 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, our ability to consummate potential acquisitions or dispositions or the spin-off of our vacation ownership business and subsequent merger of our vacation ownership business with a wholly-owned subsidiary of Interval Leisure Group, Inc. (Interval) or realize the anticipated benefits of the spin-off, 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.

INTRODUCTION

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.

This MD&A includes discussion of our consolidated operating results, as well as discussion about each of our four segments.  Additionally, Note 17 to the consolidated financial statements presents further information about our segments.

RESULTS OF OPERATIONS

The following discussion presents an analysis of results of our operations for the three and nine months ended September 30, 2015 and 2014.

For the three and nine months ended September 30, 2015, we saw strong results in the Americas, while our international results were negatively impacted by foreign exchange rates.  Worldwide Systemwide Same-Store REVPAR for the Americas segment increased 3.0% and 4.1% for the three and nine months ended September 30, 2015, respectively, compared to the prior year while the EAME and Asia Pacific segments experienced declines due to the unfavorable impact of foreign currency exchange rates.  Occupancies in every segment continued to rise.

At September 30, 2015, we had approximately 510 hotels in the active pipeline representing approximately 113,000 rooms, driven by strong interest in all Starwood brands.  Of these rooms, 56% are in the upper upscale and luxury segments and 74% are outside of North America.  During the third quarter of 2015, we signed 44 hotel management and franchise contracts, representing approximately 8,600 rooms, of which 32 are new builds and 12 are conversions from other brands.  We also opened 27 new hotels and resorts representing approximately 4,800 rooms.  During the third quarter of 2015, five hotels left the system, representing approximately 900 rooms.

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In addition to our active pipeline, we have a 74% equity interest in Design Hotels AG (Design Hotels), a company that represents and markets a distinct selection of over 280 independent hotels with approximately 22,000 rooms globally.  Starwood and Design Hotels entered into an agreement in 2014 that allows greater coordination and cooperation between the companies.  Our REVPAR metrics do not include revenue from Design Hotels and, at this stage, Design Hotel’s operating results are inconsequential to our results.

On April 16, 2015, we introduced Tribute Portfolio™, our 10^th brand and second collection of independent hotels, which is comprised of independent, upper upscale properties.

An indicator of the performance of our hotels is REVPAR, as it measures the period-over-period change in rooms revenue for comparable properties.  Along with REVPAR, we also evaluate our hotels by measuring the change in Average Daily Rate (ADR) and occupancy.  This is particularly the case in the United States, where there is no impact on this measure from foreign currency exchange rates.

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 Owned Hotel results.

Our SPG guest loyalty program continues to be an industry leader and innovator.  The enhancements to the program in recent years, coupled with the introduction of programs like SPG Pro, help us to attract the next wave of global, elite travelers and continue to drive SPG occupancy rates to record levels.  We continue to focus on digital innovation and personalization, which helps us better connect with guests and customers, sell through our own channels and deliver more personalized service, all while enhancing our brands.

On October 28, 2015, we announced that we had entered into definitive agreements with Interval pursuant to which our vacation ownership business will be spun-off to our stockholders and immediately thereafter will merge with a wholly-owned subsidiary of Interval. Please see Note 19 of the consolidated financial statements for additional information.

During the three and nine months ended September 30, 2015 and 2014, we earned revenues at our owned, leased and consolidated joint venture hotels by geographic area as follows ⁽¹⁾:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
United States		38	%		35	%		44	%		38	%
Europe		25	%		24	%		26	%		24	%
Americas (Latin America & Canada) *		30	%		31	%		25	%		28	%
Asia Pacific		7	%		10	%		5	%		10	%
Total		100	%		100	%		100	%		100	%

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

*Includes U.S. territories

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Three Months Ended September 30, 2015 Compared with Three Months Ended September 30, 2014

Consolidated Results

	Three Months		Three Months		Increase /			Percentage
	Ended		Ended		(decrease)			change
	September 30,		September 30,		from prior			from prior
	2015		2014		year			year
	(in millions)
Owned, Leased and Consolidated Joint Venture Hotels	$	312	$	393	$	(81	)		(20.6	)%
Management Fees, Franchise Fees and Other Income		263		255		8			3.1	%
Vacation Ownership and Residential Sales and Services		173		159		14			8.8	%
Other Revenues from Managed and Franchised    Properties		686		686		—			—
Total Revenues	$	1,434	$	1,493	$	(59	)		(4.0	)%

The decrease in revenues from owned, leased and consolidated joint venture hotels was primarily due to lost revenues from 12 owned hotels that were sold or closed and two leased hotels converted to managed and franchised hotels in 2015 and 2014.  These sold, closed or converted hotels had revenues of $8 million in the three months ended September 30, 2015 compared to $72 million for the corresponding period in 2014.  Revenues at our Same-Store Owned Hotels (29 hotels for the three months ended September 30, 2015 and 2014, excluding 12 hotels sold or closed, two converted to managed or franchised and three additional hotels undergoing significant repositionings or without comparable results in 2015 and 2014) decreased 2.8%, or $8 million, to $268 million for the three months ended September 30, 2015 compared to $276 million in the corresponding period of 2014.  Additionally, the three hotels undergoing significant repositionings or without comparable results had revenues of $31 million in the three months ended September 30, 2015, compared to $39 million for the corresponding period in 2014.

REVPAR at our worldwide Same-Store Owned Hotels decreased 2.6% to $198.16 for the three months ended September 30, 2015 compared to the corresponding period in 2014.  The decrease in REVPAR at these worldwide Same-Store Owned Hotels resulted from a decrease of 3.9% in ADR to $252.42 for the three months ended September 30, 2015 compared to $262.79 for the corresponding period in 2014, partially offset by an increase in occupancy rates to 78.5% for the three months ended September 30, 2015, compared to 77.5% in the corresponding period in 2014.  The decline in REVPAR was primarily driven by the negative impact of foreign exchange rates.  Growth in REVPAR was particularly strong in Mexico and in the United States in the South and West.

The increase in management fees, franchise fees and other income was primarily a result of a $4 million increase in core fees (total management and franchise fees) to $210 million for the three months ended September 30, 2015, compared to $206 million for the corresponding period in 2014.  The increase was primarily due to fees from the net addition of 74 managed or franchised hotels to our system since September 30, 2014, partially offset by a 0.3% decrease in Same-Store Worldwide Systemwide REVPAR compared to the same period in 2014.  As of September 30, 2015, we had 593 managed properties and 631 franchised properties with approximately 343,000 rooms.

Total vacation ownership and residential sales and services revenue increased $14 million to $173 million for the three months ended September 30, 2015, compared to the corresponding period in 2014.  Originated contract sales of vacation ownership intervals increased $8 million for the three months ended September 30, 2015, compared to the corresponding period in 2014, as the average price per vacation ownership unit increased 7.0% to $14,600 and the number of contracts signed increased by 3.5%.  In addition, revenues from resort operations increased by $8 million, partially offset by a $4 million decrease in revenues recognized under the percentage of completion method and other deferrals.

Other revenues from managed and franchised properties remained consistent, compared to the corresponding period in 2014.  These revenues represent reimbursements of costs incurred on behalf of managed hotels, 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 or our net income.

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	ThreeMonths		ThreeMonths		Increase /		Percentage
	Ended		Ended		(decrease)		change
	September 30,		September 30,		from prior		from prior
	2015		2014		year		year
	(in millions)
Selling, General, Administrative and Other	$	102	$	96	$	6		6.3	%

During the third quarter of 2015, selling, general, administrative and other expenses increased 6.3% to $102 million, compared to $96 million in 2014, primarily due to an $11 million reserve for the potential funding of a performance guarantee at two hotels in Greece as a result of the economic crisis in Greece, partially offset by savings associated with our previously announced cost savings initiatives and the timing of expenses.

	ThreeMonths		ThreeMonths		Increase /		Percentage
	Ended		Ended		(decrease)		change
	September 30,		September 30,		from prior		from prior
	2015		2014		year		year
	(in millions)
Restructuring and Other Special Charges (Credits), Net	$	9	$	—	$	9	n/m
n/m = not meaningful

Restructuring and other special charges (credits), net during the three months ended September 30, 2015 include $13 million of other special charges primarily related to the planned spin-off of our vacation ownership business and a net credit of $4 million in restructuring.  The restructuring credit primarily relates to the reversal of an $8 million reserve as a result of the favorable resolution of a funding commitment associated with a vacation ownership project, partially offset by charges related to our previously announced cost savings initiatives.

	ThreeMonths		ThreeMonths		Increase /			Percentage
	Ended		Ended		(decrease)			change
	September 30,		September 30,		from prior			from prior
	2015		2014		year			year
	(in millions)
Depreciation and Amortization	$	69	$	72	$	(3	)		(4.2	)%

The decrease in depreciation and amortization expense for the three months ended September 30, 2015, compared to the corresponding period of 2014, was primarily due to decreased depreciation expense related to sold hotels, partially offset by additional depreciation related to information technology capital expenditures in 2014 and 2015.

	ThreeMonths		ThreeMonths		Increase /			Percentage
	Ended		Ended		(decrease)			change
	September 30,		September 30,		from prior			from prior
	2015		2014		year			year
	(in millions)
Operating Income	$	200	$	210	$	(10	)		(4.8	)%

The decrease in operating income for the three months ended September 30, 2015, compared to the corresponding period of 2014, was primarily due to a $14 million decrease in operations (revenues less expenses) related to our owned, leased and consolidated joint venture hotels, an unfavorable variance in restructuring and other special charges (credits), net of $9 million and an increase in selling, general, administrative and other expenses of $6 million, partially offset by an increase in operations (revenues less expenses) from our vacation ownership and residential sales of $8 million, an $8 million increase in management fees, franchise fees and other income and a $3 million decrease in depreciation and amortization.

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	ThreeMonths		ThreeMonths		Increase /		Percentage
	Ended		Ended		(decrease)		change
	September 30,		September 30,		from prior		from prior
	2015		2014		year		year
	(in millions)
Equity Earnings and Gains from Unconsolidated    Ventures, Net	$	5	$	3	$	2		66.7	%

Equity earnings and gains from unconsolidated joint ventures, net increased $2 million for the three months ended September 30, 2015, compared to the corresponding period in 2014, primarily due to an improvement in the performance of the hotels owned by the joint ventures.

	ThreeMonths		ThreeMonths		Increase /		Percentage
	Ended		Ended		(decrease)		change
	September 30,		September 30,		from prior		from prior
	2015		2014		year		year
	(in millions)
Net Interest Expense	$	29	$	27	$	2		7.4	%

Net interest expense increased $2 million for the three months ended September 30, 2015, compared to the same period of 2014, primarily due to an increase in our debt balance associated with borrowings late in the third quarter of 2014, including the issuance of $650 million of senior notes.

Our weighted average interest rate was approximately 4.81% at both September 30, 2015 and 2014.

	ThreeMonths			ThreeMonths			Increase /			Percentage
	Ended			Ended			(decrease)			change
	September 30,			September 30,			from prior			from prior
	2015			2014			year			year
	(in millions)
Loss on Asset Dispositions and Impairments, Net	$	(46	)	$	(22	)	$	(24	)	n/m

During the three months ended September 30, 2015, we recorded a net loss of $46 million, primarily related to a $31 million impairment charge on one owned hotel whose book value exceeded its fair value and a $12 million charge related to an obligation associated with a previous disposition.

During the three months ended September 30, 2014, we recorded a loss of $22 million, primarily due to a $13 million impairment charge on one owned hotel whose book value exceeded its fair value, and a loss of $7 million associated with the termination of our leasehold interest in a hotel which was converted to a franchised hotel.

	ThreeMonths		ThreeMonths		Increase /			Percentage
	Ended		Ended		(decrease)			change
	September 30,		September 30,		from prior			from prior
	2015		2014		year			year
	(in millions)
Income Tax Expense	$	42	$	54	$	(12	)		(22.2	)%

The decrease in income tax expense for the three months ended September 30, 2015, compared to the same period in 2014, was primarily due to lower pretax income and a lower overall effective tax rate resulting in a $19 million decrease to our income tax expense.  This was partially offset by a $6 million increase in our income tax expense related to incremental tax effects from hotels and investments that were sold or impaired during the three months ended September 30, 2015, compared to the same period in 2014.

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Segment Results

The following table summarizes REVPAR, ADR and occupancy for our Same-Store Systemwide Hotels for the three months ended September 30, 2015 and 2014.  Same-Store Systemwide Hotels represent results for same-store owned, leased, managed and franchised hotels.

	Three Months Ended
	September 30,
	2015			2014			Variance
Worldwide (1,079 hotels with approximately 312,900 rooms)
REVPAR (1)	$	126.32		$	126.71			(0.3	)%
ADR	$	171.56		$	176.86			(3.0	)%
Occupancy		73.6	%		71.6	%		2.0
Americas (614 hotels with approximately 176,100 rooms)
REVPAR (1)	$	133.75		$	129.84			3.0	%
ADR	$	173.65		$	171.80			1.1	%
Occupancy		77.0	%		75.6	%		1.4
EAME (215 hotels with approximately 55,700 rooms)
REVPAR (1)	$	147.55		$	157.02			(6.0	)%
ADR	$	209.05		$	232.14			(9.9	)%
Occupancy		70.6	%		67.6	%		3.0
Asia Pacific (250 hotels with approximately 81,100 rooms)
REVPAR (1)	$	95.64		$	99.19			(3.6	)%
ADR	$	139.87		$	150.56			(7.1	)%
Occupancy		68.4	%		65.9	%		2.5

The following table summarizes REVPAR, ADR and occupancy for our Same-Store Owned Hotels for the three months ended September 30, 2015 and 2014.  The results for the three months ended September 30, 2015 and 2014 represent results for 29 owned, leased and consolidated joint venture hotels (excluding 12 hotels sold or closed, two hotels converted to managed or franchised and three hotels undergoing significant repositionings or without comparable results in 2015 and 2014).

	Three Months Ended
	September 30,
	2015			2014			Variance
Worldwide (29 hotels with approximately 10,000 rooms)
REVPAR (1)	$	198.16		$	203.53			(2.6	)%
ADR	$	252.42		$	262.79			(3.9	)%
Occupancy		78.5	%		77.5	%		1.0
Americas (16 hotels with approximately 7,500 rooms)
REVPAR (1)	$	166.24		$	171.11			(2.8	)%
ADR	$	221.15		$	226.98			(2.6	)%
Occupancy		75.2	%		75.4	%		(0.2	)
EAME (10 hotels with approximately 1,800 rooms)
REVPAR (1)	$	336.61		$	354.35			(5.0	)%
ADR	$	378.68		$	416.18			(9.0	)%
Occupancy		88.9	%		85.1	%		3.8
Asia Pacific (3 hotels with approximately 700 rooms)
REVPAR (1)	$	191.38		$	171.18			11.8	%
ADR	$	217.59		$	213.41			2.0	%
Occupancy		88.0	%		80.2	%		7.8

(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.

28

The following tables summarize segment revenues and segment earnings for the three months ended September 30, 2015 and 2014.

	ThreeMonths		ThreeMonths		Increase /			Percentage
	Ended		Ended		(decrease)			change
	September 30,		September 30,		from prior			from prior
	2015		2014		year			year
	(in millions)
Segment Revenues
Americas	$	345	$	372	$	(27	)		(7.3	)%
EAME		135		162		(27	)		(16.7	)%
Asia Pacific		71		92		(21	)		(22.8	)%
Vacation ownership and residential		169		157		12			7.6	%
Total segment revenues	$	720	$	783	$	(63	)		(8.0	)%

	ThreeMonths		ThreeMonths		Increase /			Percentage
	Ended		Ended		(decrease)			change
	September 30,		September 30,		from prior			from prior
	2015		2014		year			year
	(in millions)
Segment Earnings
Americas	$	160	$	156	$	4			2.6	%
EAME		50		65		(15	)		(23.1	)%
Asia Pacific		46		54		(8	)		(14.8	)%
Vacation ownership and residential		43		37		6			16.2	%
Total segment earnings	$	299	$	312	$	(13	)		(4.2	)%

We primarily evaluate the operating performance of a segment based on segment earnings.  We define segment earnings as net income attributable to our common stockholders before interest expense, taxes, depreciation and amortization, as well as our share of interest, depreciation and amortization associated with our unconsolidated joint ventures, excluding certain recurring and nonrecurring items, such as restructuring and other special charges (credits), loss on early extinguishment of debt and gains (losses) on asset dispositions and impairments.  Residential revenue generated at hotel properties is recorded in the corresponding geographic hotel segment.  General, administrative and other expenses directly related to the segments are included in the calculation of segment earnings, whereas corporate general, administrative, and other expenses are not included in the segment earnings calculation.  In addition to revenues recorded within our four segments, we also have other revenues from managed and franchised properties, which represent the reimbursement of costs incurred on behalf of managed and franchised property owners.  These revenues, together with the corresponding expenses, are not recorded within our segments.  Other corporate unallocated revenues and earnings primarily relate to other license fee income and are also reported outside of segment revenues.  Note 17 to the consolidated financial statements presents further information about our segments.

The Americas

Segment revenues decreased $27 million in the three months ended September 30, 2015, compared to the corresponding period in 2014.  The decrease in revenues was primarily related to a $33 million decrease in revenues from our owned, leased and consolidated joint venture hotels, partially offset by a $5 million increase in management fees, franchise fees and other income.

The decrease in revenues from our owned, leased and consolidated joint venture hotels was primarily due to lost revenues from seven owned hotels that were sold in 2015 or 2014.  These sold hotels had no revenues for the three months ended September 30, 2015 compared to $22 million for the corresponding period in 2014.  Additionally, revenues from three owned hotels without comparable results in 2014 and 2015 decreased by $8 million and Same-Store Owned Hotel revenues decreased $3 million due to a decrease in REVPAR of 2.8% to $166.24 for the three months ended September 30, 2015 compared to the corresponding period in 2014.

The increase in management fees, franchise fees and other income for the three months ended September 30, 2015, compared to the same period in 2014, was due to fees from the net addition of 32 managed and franchised hotels since September 30, 2014 and a 3.0% increase in Same-Store Systemwide REVPAR compared to the same period in 2014.  As of September 30, 2015, the Americas segment had 159 managed properties and 515 franchised properties with approximately 186,100 rooms.

29

Segment earnings increased $4 million in the three months ended September 30, 2015, compared to the corresponding period in 2014, primarily due to the increase in management fees, franchise fees and other income discussed above.

EAME

Segment revenues decreased $27 million in the three months ended September 30, 2015, compared to the corresponding period in 2014.  The decrease in revenues was primarily related to a $27 million decrease in revenues from our owned, leased and consolidated joint venture hotels.

The $27 million decrease in revenues from our owned, leased and consolidated joint venture hotels was primarily due to a $22 million decrease in revenues from four hotels that were sold or closed and two leased hotels that were converted to managed or franchised hotels during 2015 and 2014 and a $5 million decrease in Same-Store Owned Hotel revenues due to a decrease in REVPAR of 5.0% to $336.61 for the three months ended September 30, 2015 compared to the corresponding period in 2014.

Management fees, franchise fees and other income remained flat for the three months ended September 30, 2015 compared to the corresponding period in 2014.  Fees from the net addition of 16 managed or franchised hotels since September 30, 2014 were offset by a decrease in Same-Store Systemwide REVPAR of 6.0% to $147.55 for the three months ended September 30, 2015 compared to the corresponding period in 2014.  REVPAR throughout EAME was negatively affected by the unfavorable impact of foreign exchange rates during the three months ended September 30, 2015, compared to the corresponding period in 2014.  As of September 30, 2015, the EAME segment had 188 managed properties and 62 franchised properties with approximately 62,800 rooms.

Segment earnings decreased $15 million in the three months ended September 30, 2015, compared to the corresponding period in 2014, primarily due to a $10 million increase in division overhead expenses and a $5 million decrease in operations (revenues less expenses) related to our owned, leased and consolidated joint venture hotels.  The increase in division overhead expenses was primarily due to an $11 million reserve for the potential funding of a performance guarantee at two hotels in Greece as a result of the economic crisis in Greece.

Asia Pacific

Segment revenues decreased $21 million in the three months ended September 30, 2015, compared to the corresponding period in 2014.  The decrease in revenues was primarily related to a $20 million decrease in our owned, leased and consolidated joint venture hotels due to lost revenues from one owned hotel that was sold in late 2014.

Management fees, franchise fees and other income remained flat for the three months ended September 30, 2015, compared to the same period of 2014.  Fees from the net addition of 26 managed or franchised hotels since September 30, 2014 were offset by a decrease in Same-Store Systemwide REVPAR of 3.6% to $95.64 for the three months ended September 30, 2015 compared to the corresponding period in 2014.  REVPAR throughout Asia Pacific was negatively affected by the unfavorable impact of foreign exchange rates during the three months ended September 30, 2015, compared to the corresponding period in 2014.  As of September 30, 2015, the Asia Pacific segment had 246 managed properties and 54 franchised properties with approximately 93,700 rooms.

Segment earnings decreased $8 million in the three months ended September 30, 2015, compared to the corresponding period in 2014, primarily driven by a $7 million decrease in operations (revenues less expenses) related to our owned, leased and consolidated joint venture hotels.

Vacation ownership and residential

Total vacation ownership and residential segment revenue increased $12 million to $169 million for the three months ended September 30, 2015 compared to the corresponding period in 2014, primarily due to an $8 million increase in originated contract sales of vacation ownership intervals and an $8 million increase in revenues from resort operations, partially offset by an increase in deferrals under the percentage of completion method.  Segment earnings increased $6 million in the three months ended September 30, 2015, compared to the corresponding period in 2014, primarily driven by the above noted increases in revenues, partially offset by an increase in sales and marketing expense.

30

Nine Months Ended September 30, 2015 Compared with Nine Months Ended September 30, 2014

Consolidated Results

	Nine Months		Nine Months		Increase /			Percentage
	Ended		Ended		(decrease)			change
	September 30,		September 30,		from prior			from prior
	2015		2014		year			year
	(in millions)
Owned, Leased and Consolidated Joint Venture Hotels	$	984	$	1,171	$	(187	)		(16.0	)%
Management Fees, Franchise Fees and Other Income		759		763		(4	)		(0.5	)%
Vacation Ownership and Residential Sales and Services		530		504		26			5.2	%
Other Revenues from Managed and Franchised    Properties		2,057		2,052		5			0.2	%
Total Revenues	$	4,330	$	4,490	$	(160	)		(3.6	)%

The decrease in revenues from owned, leased and consolidated joint venture hotels was primarily due to lost revenues from 13 owned hotels that were sold or closed and two leased hotels converted to managed and franchised hotels in 2015 and 2014.  These sold, closed or converted hotels had revenues of $108 million in the nine months ended September 30, 2015 compared to $274 million for the corresponding period in 2014.  Revenues at our Same-Store Owned Hotels (28 hotels for the nine months ended September 30, 2015 and 2014, excluding 13 hotels sold or closed, two hotels converted to managed or franchised, and four additional hotels undergoing significant repositionings or without comparable results in 2015 and 2014) increased 0.4%, or $3 million, to $745 million for the nine months ended September 30, 2015 compared to $742 million in the corresponding period of 2014.

REVPAR at our worldwide Same-Store Owned Hotels increased 0.3% to $183.87 for the nine months ended September 30, 2015 compared to the corresponding period in 2014.  The increase in REVPAR at these worldwide Same-Store Owned Hotels resulted from an increase in occupancy rates to 76.0% for the nine months ended September 30, 2015, compared to 72.9% in the corresponding period in 2014, partially offset by a decrease of 3.8% in ADR to $241.88 for the nine months ended September 30, 2015 compared to $251.40 for the corresponding period in 2014.  REVPAR and ADR were negatively affected by the unfavorable impact of foreign exchange rates.  Growth in REVPAR was particularly strong in Mexico and in the United States in the South and West.

The decrease in management fees, franchise fees and other income was primarily due to the inclusion in 2014 of significant termination fees associated with the exit of certain managed and franchised hotels from the system and the negative impact of foreign exchange rates.  For the nine months ended September 30, 2014, other management and franchise revenues included approximately $25 million of fees associated with the termination of certain management and franchise contracts compared to $4 million for the same period in 2015.  Core fees (total management and franchise fees), which were negatively impacted by foreign exchange rates, increased $5 million to $607 million for the nine months ended September 30, 2015 compared to $602 million for the corresponding period in 2014.  These increases included fees from the net addition of 74 managed or franchised hotels to our system since September 30, 2014 while Same-Store Worldwide Systemwide REVPAR remained flat compared to the same period in 2014.

Total vacation ownership and residential sales and services revenue increased $26 million to $530 million for the nine months ended September 30, 2015, compared to the corresponding period in 2014, primarily due to a $25 million increase in revenues from resort operations, an increase in revenues recognized under the percentage of completion method and other deferrals of $14 million and an increase in originated contract sales of vacation ownership intervals of $7 million for the nine months ended September 30, 2015 compared to the corresponding period in 2014, as the average price per vacation ownership unit increased 0.8% to $15,200 and the number of contracts signed increased by 2.3%.  These amounts were partially offset by a $22 million reduction in residential sales and services revenue, primarily due to the sellout of Bal Harbour in early 2014.

Other revenues from managed and franchised properties remained consistent, compared to the corresponding period in 2014.  These revenues represent reimbursements of costs incurred on behalf of managed hotels, 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 or our net income.

31

	Nine Months		Nine Months		Increase /			Percentage
	Ended		Ended		(decrease)			change
	September 30,		September 30,		from prior			from prior
	2015		2014		year			year
	(in millions)
Selling, General, Administrative and Other	$	292	$	293	$	(1	)		(0.3	)%

During the nine months ended September 30, 2015, selling, general, administrative and other expenses decreased 0.3% to $292 million compared to $293 million, primarily due to our previously announced cost savings initiatives and the timing of expenses, partially offset by an $11 million reserve for the potential funding of a performance guarantee at two hotels in Greece as a result of the economic crisis in Greece.

	Nine Months		Nine Months			Increase /		Percentage
	Ended		Ended			(decrease)		change
	September 30,		September 30,			from prior		from prior
	2015		2014			year		year
	(in millions)
Restructuring and Other Special Charges (Credits), Net	$	63	$	(3	)	$	66	n/m

The restructuring and other special charges (credits), net during the nine months ended September 30, 2015 include $17 million in net restructuring charges and $46 million of other special charges (credits).  The restructuring charges are primarily related to costs associated with our previously announced cost savings initiatives, partially offset by the reversal of an $8 million reserve as a result of the favorable resolution of a funding commitment associated with a vacation ownership project. Other special charges primarily consist of $26 million of costs associated with professional fees for the planned spin-off of our vacation ownership business, a $7 million severance charge associated with the resignation of our prior President and Chief Executive Officer, a $7 million charge for technology related costs and expenses that we no longer deem recoverable and the establishment of $6 million of reserves related to potential liabilities assumed in connection with the Le Méridien acquisition.

During the nine months ended September 30, 2014, we reversed a $3 million reserve related to a note receivable, associated with a previous disposition, which was collected.

	Nine Months		Nine Months		Increase /		Percentage
	Ended		Ended		(decrease)		change
	September 30,		September 30,		from prior		from prior
	2015		2014		year		year
	(in millions)
Depreciation and Amortization	$	211	$	210	$	1		0.5	%

The increase in depreciation and amortization expense for the nine months ended September 30, 2015, compared to the corresponding period of 2014, was primarily due to additional depreciation related to information technology capital expenditures in 2014 and 2015, partially offset by decreased depreciation expense related to sold hotels.

	Nine Months		Nine Months		Increase /			Percentage
	Ended		Ended		(decrease)			change
	September 30,		September 30,		from prior			from prior
	2015		2014		year			year
	(in millions)
Operating Income	$	549	$	641	$	(92	)		(14.4	)%

The decrease in operating income for the nine months ended September 30, 2015, compared to the corresponding period of 2014, was primarily due to an unfavorable variance in restructuring and other special charges (credits), net of $66 million, a $32 million decrease in operations (revenues less expenses) related to our owned, leased and consolidated joint venture hotels, and a $4 million decrease in management fees, franchise fees and other income, partially offset by an increase in operations (revenues less expenses) from our vacation ownership and residential sales of $10 million.

32

	Nine Months		Nine Months		Increase /		Percentage
	Ended		Ended		(decrease)		change
	September 30,		September 30,		from prior		from prior
	2015		2014		year		year
	(in millions)
Equity Earnings and Gains from Unconsolidated    Ventures, Net	$	31	$	21	$	10		47.6	%

Equity earnings and gains from unconsolidated joint ventures, net increased $10 million for the nine months ended September 30, 2015, compared to the corresponding period in 2014, primarily related to a $4 million gain on the sale of a joint venture hotel and due to an improvement in the performance of the hotels owned by the joint ventures.

	Nine Months		Nine Months		Increase /		Percentage
	Ended		Ended		(decrease)		change
	September 30,		September 30,		from prior		from prior
	2015		2014		year		year
	(in millions)
Net Interest Expense	$	87	$	73	$	14		19.2	%

Net interest expense increased $14 million for the nine months ended September 30, 2015, compared to the same period of 2014, primarily due to an increase in our debt balance associated with borrowings in the second half of 2014, including the issuance of $650 million of senior notes.

Our weighted average interest rate was approximately 4.81% at both September 30, 2015 and 2014.

	Nine Months			Nine Months			Increase /		Percentage
	Ended			Ended			(decrease)		change
	September 30,			September 30,			from prior		from prior
	2015			2014			year		year
	(in millions)
Loss on Asset Dispositions and    Impairments, Net	$	(32	)	$	(55	)	$	23		41.8	%

During the nine months ended September 30, 2015, we recorded a net loss of $32 million, primarily related to a $31 million impairment charge on one owned hotel, whose book value exceeded its fair value, a $12 million charge related to an obligation associated with a previous disposition and a loss of $7 million, primarily related to asset dispositions and impairments associated with certain hotel renovations, partially offset by a $17 million gain on the sale of a minority partnership interest in a hotel and a gain of $4 million associated with the sale of one hotel sold subject to a long-term franchise agreement.

During the nine months ended September 30, 2014, we recorded a loss of $55 million, primarily due to a $21 million loss associated with the conversion of a leased hotel to a managed hotel, a $13 million impairment charge on one owned hotel, whose book value exceeded its fair value, a loss of $7 million associated with the termination of our leasehold interest in a hotel which was converted to a franchised hotel, a $7 million impairment associated with one of our foreign unconsolidated joint ventures and a loss of $6 million related to the sale of an owned hotel, which was sold subject to a long-term franchise agreement.

	Nine Months		Nine Months		Increase /		Percentage
	Ended		Ended		(decrease)		change
	September 30,		September 30,		from prior		from prior
	2015		2014		year		year
	(in millions)
Income Tax Expense	$	138	$	135	$	3		2.2	%

The increase in income tax expense for the nine months ended September 30, 2015, compared to the same period in 2014, was primarily the result of the favorable resolution of a previous dispute related to foreign operating losses, during the nine months ended September 30, 2014, which resulted in a tax benefit of $52 million.  This was partially offset by a $39 million decrease in our income tax expense due to lower pretax income and a lower overall effective tax rate and a $7 million decrease in income tax expense related to incremental tax effects from hotels and investments that were sold or impaired during the nine months ended September 30, 2015, compared to the same period in 2014.

33

Segment Results

The following table summarizes REVPAR, ADR and occupancy for our Same-Store Systemwide Hotels for the nine months ended September 30, 2015 and 2014.  Same-Store Systemwide Hotels represent results for same-store owned, leased, managed and franchised hotels.

	Nine Months Ended
	September 30,
	2015			2014			Variance
Worldwide (1,015 hotels with approximately 296,000 rooms)
REVPAR (1)	$	122.45		$	122.41			—
ADR	$	172.39		$	176.67			(2.4	)%
Occupancy		71.0	%		69.3	%		1.7
Americas (575 hotels with approximately 165,500 rooms)
REVPAR (1)	$	131.34		$	126.20			4.1	%
ADR	$	175.60		$	172.11			2.0	%
Occupancy		74.8	%		73.3	%		1.5
EAME (203 hotels with approximately 52,600 rooms)
REVPAR (1)	$	134.74		$	147.97			(8.9	)%
ADR	$	199.22		$	224.09			(11.1	)%
Occupancy		67.6	%		66.0	%		1.6
Asia Pacific (237 hotels with approximately 77,900 rooms)
REVPAR (1)	$	95.41		$	97.42			(2.1	)%
ADR	$	146.08		$	154.90			(5.7	)%
Occupancy		65.3	%		62.9	%		2.4

The following table summarizes REVPAR, ADR and occupancy for our Same-Store Owned Hotels for the nine months ended September 30, 2015 and 2014.  The results for the nine months ended September 30, 2015 and 2014 represent results for 28 owned, leased and consolidated joint venture hotels (excluding 13 hotels sold or closed, two hotels converted to managed or franchised and four hotels undergoing significant repositionings or without comparable results in 2015 and 2014).

	Nine Months Ended
	September 30,
	2015			2014			Variance
Worldwide (32 hotels with approximately 12,300 rooms)
REVPAR (1)	$	183.87		$	183.32			0.3	%
ADR	$	241.88		$	251.40			(3.8	)%
Occupancy		76.0	%		72.9	%		3.1
Americas (19 hotels with approximately 9,800 rooms)
REVPAR (1)	$	166.13		$	162.85			2.0	%
ADR	$	222.78		$	225.78			(1.3	)%
Occupancy		74.6	%		72.1	%		2.5
EAME (10 hotels with approximately 1,800 rooms)
REVPAR (1)	$	277.20		$	296.05			(6.4	)%
ADR	$	343.98		$	387.08			(11.1	)%
Occupancy		80.6	%		76.5	%		4.1
Asia Pacific (3 hotels with approximately 700 rooms)
REVPAR (1)	$	158.63		$	142.48			11.3	%
ADR	$	196.15		$	194.73			0.7	%
Occupancy		80.9	%		73.2	%		7.7

(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.

34

The following tables summarize segment revenues and segment earnings for the nine months ended September 30, 2015 and 2014.

	Nine Months		Nine Months		Increase /			Percentage
	Ended		Ended		(decrease)			change
	September 30,		September 30,		from prior			from prior
	2015		2014		year			year
	(in millions)
Segment Revenues
Americas	$	1,098	$	1,159	$	(61	)		(5.3	)%
EAME		366		453		(87	)		(19.2	)%
Asia Pacific		203		257		(54	)		(21.0	)%
Vacation ownership and residential		525		497		28			5.6	%
Total segment revenues	$	2,192	$	2,366	$	(174	)		(7.4	)%

	Nine Months		Nine Months		Increase /			Percentage
	Ended		Ended		(decrease)			change
	September 30,		September 30,		from prior			from prior
	2015		2014		year			year
	(in millions)
Segment Earnings
Americas	$	509	$	512	$	(3	)		(0.6	)%
EAME		130		158		(28	)		(17.7	)%
Asia Pacific		136		159		(23	)		(14.5	)%
Vacation ownership and residential		136		125		11			8.8	%
Total segment earnings	$	911	$	954	$	(43	)		(4.5	)%

The Americas

Segment revenues decreased $61 million in the nine months ended September 30, 2015, compared to the corresponding period in 2014.  The decrease in revenues was primarily related to a $44 million decrease in revenues from our owned, leased and consolidated joint venture hotels and an $11 million decrease in management fees, franchise fees and other income.

The decrease in revenues from our owned, leased and consolidated joint venture hotels was primarily due to lost revenues from eight owned hotels that were sold in 2015 or 2014.  These sold hotels had $75 million in revenues in the nine months ended September 30, 2015 compared to $115 million for the corresponding period in 2014.  Additionally, there was an $18 million decrease in revenues from three owned hotels without comparable results in 2015 and 2014, offset by a $14 million increase in Same-Store Owned Hotel revenues due to an increase in REVPAR of 2.0% to $166.13 for the nine months ended September 30, 2015 compared to the corresponding period in 2014.

The decrease in management fees, franchise fees and other income for the nine months ended September 30, 2015, compared to the same period in 2014, was primarily due to the inclusion in 2014 of significant termination fees associated with the termination of certain management and franchise contracts.  This decrease was partially offset by fees from the net addition of 32 managed and franchised hotels since September 30, 2014 and a 4.1% increase in Same-Store Systemwide REVPAR compared to the same period in 2014.

Segment earnings decreased $3 million in the nine months ended September 30, 2015, compared to the corresponding period in 2014, primarily due to the decrease in management fees, franchise fees and other income discussed above, partially offset by an increase of $8 million in unconsolidated joint venture earnings, primarily due to a $4 million gain on the sale of a joint venture hotel and an improvement in the performance of the hotels owned by the joint ventures.

EAME

Segment revenues decreased $87 million in the nine months ended September 30, 2015, compared to the corresponding period in 2014.  The decrease in revenues was primarily related to a $78 million decrease in revenues from our owned, leased and consolidated joint venture hotels and a $7 million decrease in management fees, franchise fees and other income, compared to the corresponding period in 2014.

35

The $78 million decrease in revenues from our owned, leased and consolidated joint venture hotels was primarily due to a $67 million decrease in revenues from four hotels that were sold or closed and two leased hotels that were converted to managed or franchised hotels during 2015 and 2014 and an $11 million decrease in Same-Store Owned Hotel revenues due to a decrease in REVPAR of 6.4% to $277.20 for the nine months ended September 30, 2015 compared to the corresponding period in 2014.

The decrease in management fees, franchise fees and other income was due to an 8.9% decrease in Same-Store Systemwide REVPAR to $134.74 for the nine months ended September 30, 2015 compared to the corresponding period in 2014.  REVPAR throughout EAME was negatively affected by the unfavorable impact of foreign exchange rates during the nine months ended September 30, 2015, compared to the corresponding period in 2014.

Segment earnings decreased $28 million in the nine months ended September 30, 2015, compared to the corresponding period in 2014, primarily due to a $12 million decrease in operations (revenues less expenses) related to our owned, leased, and consolidated joint venture properties, a $9 million increase in division overhead expenses and the decrease in management fees, franchise fees and other income discussed above.  The increase in division overhead expenses is primarily due to an $11 million reserve for the potential funding of a performance guarantee at two hotels in Greece as a result of the economic crisis in Greece.

Asia Pacific

Segment revenues decreased $54 million in the nine months ended September 30, 2015, compared to the corresponding period in 2014.  The decrease in revenues was primarily related to a $58 million decrease in revenues from our owned, leased and consolidated joint venture hotels due to lost revenues from one owned hotel that was sold in late 2014, partially offset by a $6 million increase in management fees, franchise fees and other income, compared to the corresponding period in 2014.

The increase in management fees, franchise fees and other income for the nine months ended September 30, 2015, compared to the same period in 2014, was primarily due to fees from the net addition of 26 managed or franchised hotels since September 30, 2014 partially offset by a decrease in Same-Store Systemwide REVPAR of 2.1% to $95.41 for the nine months ended September 30, 2015 compared to the corresponding period in 2014.  REVPAR throughout Asia Pacific was negatively impacted by foreign exchange rates during the nine months ended September 30, 2015, compared to the corresponding period in 2014.

Segment earnings decreased $23 million in the nine months ended September 30, 2015, compared to the corresponding period in 2014, primarily driven by a decrease in operations (revenues less expenses) related to our owned, leased and consolidated joint venture hotels.

Vacation ownership and residential

Total vacation ownership and residential segment revenue increased $28 million to $525 million for the nine months ended September 30, 2015 compared to the corresponding period in 2014, primarily due to a $25 million increase in revenues from resort operations, an increase of $14 million in revenues recognized under the percentage of completion method and a $7 million increase in originated contract sales of vacation ownership intervals, partially offset by a reduction in residential sales due to the sellout of Bal Harbour in early 2014.  Segment earnings increased $11 million in the nine months ended September 30, 2015, compared to the corresponding period in 2014, primarily driven by the above noted increases in revenues, partially offset by an increase in sales and marketing expenses.

LIQUIDITY AND CAPITAL RESOURCES

Cash From Operating Activities

Cash from operating activities was $691 million for the nine months ended September 30, 2015, compared to $693 million for the nine months ended September 30, 2014. We generate cash flows from operations primarily from management and franchise revenues, operating income from our owned hotels and resorts and sales of vacation ownership interests (VOIs).  Other sources of cash are distributions from joint ventures, servicing of financial assets and interest income.  We use cash principally to fund our operating expenses, dividend payments, share repurchases, interest payments on debt, capital expenditures, and property and income taxes.  We believe that our cash from operations and our existing borrowing availability together with capacity for additional borrowings will be adequate to meet all funding requirements for our operating expenses, dividend payments, share repurchases, principal and interest payments on debt, capital expenditures, and property and income taxes.

The ratio of our current assets to current liabilities was 0.96 and 0.95 as of September 30, 2015 and December 31, 2014, respectively.  Consistent with industry practice, we sweep the majority of the cash at our owned hotels, in the same jurisdictions, on a

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daily basis and fund payables as needed through cash on hand, by drawing down on our existing revolving credit facility or issuing commercial paper.

Cash From Investing Activities

Gross capital spending during the nine months ended September 30, 2015 was as follows (in millions):

Maintenance Capital Expenditures (1):
Owned, leased and consolidated joint venture hotels	$	41
Corporate and information technology		68
Subtotal		109
Net Capital Expenditures for Vacation Ownership Inventory (2):		34
Development Capital		110
Total Capital Expenditures	$	253

(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 $86 million less cost of sales of $52 million.

Gross capital spending during the nine months ended September 30, 2015 included approximately $109 million of maintenance capital and $110 million of development capital.  Investment spending on vacation ownership inventory was $86 million, primarily at the Westin Nanea Ocean Villas in Maui, Hawaii, Westin St. John in the U.S. Virgin Islands, and the Westin Desert Willow in Palm Desert, California.  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 in which we operate.  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 for the full year 2015 (excluding vacation ownership inventory) will be approximately $175 million for maintenance, renovations, and technology capital.  In addition, for the full year 2015, we currently expect to spend approximately $175 million for investment projects, various joint ventures and other investments.

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 18 of the consolidated financial statements for our 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 under which we are obligated, and investments in hotels and joint ventures.

We intend to finance the acquisition of additional hotel properties (including equity investments), hotel renovations, VOI 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, no longer complement our business, or could be sold at significant premiums. As part of our asset-light strategy, we are focused on reducing our investment in owned real estate, enhancing our real estate returns and monetizing investments.

Since 2006 and through September 30, 2015, we have sold 91 hotels realizing cash proceeds of approximately $7.8 billion in numerous transactions, including cash proceeds net of closing costs of approximately $767 million from the sale of four hotels during the nine months ended September 30, 2015 (see Note 4).  To date, where we have sold hotels, we typically have not provided significant seller financing or other financial assistance to buyers.  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

In September 2015, we paid a quarterly dividend of approximately $64 million, or $0.375 per share.  For the nine months ended September 30, 2015, we paid approximately $192 million of dividends, or $1.125 per share.  During the nine months ended September 30, 2015, we repurchased 4.1 million common shares at a weighted average price of $79.55 for a total cost of

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approximately $328 million.  As of September 30, 2015, $501 million remained available under the share repurchase authorization approved by our Board of Directors (see Note 14).

The following is a summary of our debt portfolio excluding securitized vacation ownership debt and capital leases as of September 30, 2015:

				Weighted
	Amount			Average			Weighted
	Outstanding at			Interest Rate at			Average
	September 30,			September 30,			Remaining
	2015 (a)			2015			Term
	(in millions)						(In years)
Floating Rate Debt
Revolving Credit	$	—			—			4.4
Commercial Paper		98			0.36	%		4.4
Mortgages and Other		31			3.65	%		1.2
Interest Rate Swaps		250			5.25	%		3.2
Total/Average	$	379			3.88	%		3.4
Fixed Rate Debt
Senior Notes	$	1,867			5.30	%		7.2
Mortgages and Other		8			2.26	%		9.7
Interest Rate Swaps		(250	)		6.91	%		3.2
Total/Average	$	1,625			5.03	%		7.8
Total Debt
Total Debt and Weighted Average Terms	$	2,004			4.81	%		7.0

(a) Excludes approximately $197 million of our share of unconsolidated joint venture debt, $169 million of capital lease obligations, and securitized vacation ownership debt of $188 million, all of which is non-recourse.

Our Revolving Credit Facility (the Facility) is used to fund general corporate cash needs.  As of September 30, 2015, we have availability of approximately $1.65 billion under the Facility.  The Facility allows for multi-currency borrowing and, when drawn upon, has an applicable margin, inclusive of the commitment fee, of 1.2% plus the applicable currency LIBOR rate.

We have evaluated the commitments of each of the lenders in the Facility, and we have reviewed our debt covenants.  We do not anticipate any issues regarding the availability of funds under the Facility.  The cost of borrowing of the Facility is determined by a combination of our leverage ratios and credit ratings.  Changes in our credit ratings may result in changes in our borrowing costs.  Downgrades in our credit ratings would likely increase the relative costs of borrowing and reduce our ability to issue-long-term debt, whereas upgrades would likely reduce costs and increase our ability to issue long-term debt.

The following is a summary of our unsecuritized and securitized debt less cash as of September 30, 2015 and December 31, 2014:

	September 30,			December 31,
	2015			2014
	(in millions)
Gross Unsecuritized Debt	$	2,173		$	2,695
less:  cash (including restricted cash of $22 million in 2015 and $76 million in 2014)		(1,088	)		(1,011	)
Net Unsecuritized Debt	$	1,085		$	1,684
Gross Securitized Debt (non-recourse)	$	188		$	249
less:  cash restricted for securitized debt repayments (not included above)		(8	)		(11	)
Net Securitized Debt	$	180			238
Total Net Debt	$	1,265		$	1,922

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 Facility, issuance of Commercial Paper and potential additional borrowings will be adequate to meet anticipated requirements for dividend payments, working capital, capital expenditures, marketing and advertising program expenditures, other discretionary investments, interest and scheduled principal payments and share repurchases

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for the foreseeable future.  However, there can be no assurance that we will be able to refinance our indebtedness as it becomes due or on favorable terms.  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.  As of September 30, 2015, approximately $1,040 million, included in our cash balance above, resided in foreign countries.  The offshore cash, if repatriated, could be subject to income taxes.

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, 2015 (in millions):

			AmountofCommitmentExpirationPerPeriod
	Total		Lessthan 1 Year		1-3 Years		3-5 Years		After 5 Years
Standby letters of credit	$	73	$	70	$	—	$	—	$	3

Contractual Obligations

During the nine months ended September 30, 2015, we entered into a long-term agreement for the provision of information technology services and support from a third party.  While the amounts due under the agreement are variable in nature, we expect to have a future purchase obligation of approximately $349 million over the term of the agreement due as follows: $18 million in 2015; $72 million in 2016; $74 million in 2017; $75 million in 2018; $77 million in 2019; and $33 million in 2020.  A portion of these costs are expected to be reimbursed by our managed and franchised properties.  In addition, we may terminate this agreement in certain circumstances during the term of the agreement in exchange for a termination fee.

CRITICAL ACCOUNTING POLICIES

Our preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures.  Those estimates and assumptions that we believe are critical and require the use of complex judgment in their application are included in our 2014 Form 10-K.  Since the date of our 2014 Form 10-K, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them.

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 currency exchange risk on intercompany loans that are not deemed long-term investment nature.  We enter into interest rate swap agreements to manage interest expense. We also enter into net investment agreements to manage foreign exchange risk on non-U.S. operations (see Note 11).

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 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (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.

During the quarter, we engaged with an external service provider to simplify and standardize various accounting processes and focus on developing scalable, transactional accounting activities.  We transitioned some of our accounting and transactional processing activities to this external service provider.  Pursuant to our service agreements, certain of the controls previously

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established around these accounting functions will be maintained by our service provider while others will be retained by us.  We added additional governance controls to monitor the outsourced work and maintain appropriate internal controls over financial reporting.

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

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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 results of operations, financial position or cash flow.

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, 2014, 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, 2015, 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, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

	Total Number of Shares Purchased		Weighted Average PricePaid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans		MaximumNumber (or Approximate Dollar Value) of Shares that May Yet BePurchased Under the Program (in millions)
July 1 to July 31, 2015		367,300	$	82.76		367,300	$	571
August 1 to August 31, 2015		509,471	$	76.17		509,471	$	532
September 1 to September 30, 2015		439,091	$	72.07		439,091	$	501
Total		1,315,862	$	76.64		1,315,862

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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)
101	The following materials from Starwood Hotels & Resorts Worldwide, Inc's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 formatted in XBRL (eXtensible Business Reporting Language):  (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Condensed Statements of Cash Flows, and (v) notes to the consolidated financial statements.

(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/ Adam M. Aron
	Adam M. Aron Chief Executive Officer
By:	/s/ Thomas B. Mangas
	Thomas B. Mangas Chief Financial Officer

Date: October 28, 2015

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