10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2010

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
(State or other jurisdiction
of incorporation or organization)

52-1193298
(I.R.S. employer identification no.)

1111 Westchester Avenue
White Plains, NY 10604
(Address of principal executive
offices, including zip code)

(914) 640-8100
(Registrant’s telephone number,
including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ      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 þ      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 þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a 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 þ

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

     190,125,186 shares of common stock, par value $0.01 per share, outstanding as of July 22, 2010.

TABLE OF CONTENTS

	Page
PART I. Financial Information
Item 1. Financial Statements		2
Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009		3
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2010 and 2009		4
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2010 and 2009		5
Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009		6
Notes to Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3. Quantitative and Qualitative Disclosures about Market Risk		38
Item 4. Controls and Procedures		38
PART II. Other Information
Item 1. Legal Proceedings		39
Item 1A. Risk Factors		39
Item 6. Exhibits		39
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

     The following unaudited consolidated financial statements of Starwood Hotels & Resorts Worldwide, Inc. (the “Company”) are provided pursuant to the requirements of this Item. In the opinion of management, all adjustments necessary for fair presentation, consisting of normal recurring adjustments, have been included. The consolidated financial statements presented herein have been prepared in accordance with the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 filed on February 25, 2010. See the notes to consolidated financial statements for the basis of presentation. Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. The consolidated financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this filing. Results for the three and six months ended June 30, 2010 are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2010.

2

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED BALANCE SHEETS
(In millions, except share data)

	June 30,			December 31,
	2010			2009
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	90		$	87
Restricted cash		64			47
Accounts receivable, net of allowance for doubtful accounts of $50 and $54		521			447
Securitized vacation ownership notes receivable, net of allowance for doubtful accounts of $9 and $0		49			—
Inventories		749			783
Prepaid expenses and other		146			127
Total current assets		1,619			1,491
Investments		308			344
Plant, property and equipment, net		3,312			3,350
Assets held for sale		—			71
Goodwill and intangible assets, net		2,064			2,063
Deferred tax assets		971			982
Other assets		493			460
Securitized vacation ownership notes receivable		346			—
	$	9,113		$	8,761
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt	$	7		$	5
Current maturities of long-term securitized vacation ownership debt		108			—
Accounts payable		142			139
Accrued expenses		1,118			1,212
Accrued salaries, wages and benefits		326			303
Accrued taxes and other		317			368
Total current liabilities		2,018			2,027
Long-term debt		2,972			2,955
Long-term securitized vacation ownership debt		267			—
Deferred income taxes		30			31
Other liabilities		1,875			1,903
		7,162			6,916
Commitments and contingencies
Stockholders’ equity:
Common stock; $0.01 par value; authorized 1,000,000,000 shares; outstanding 190,215,688 and 186,785,068 shares at June 30, 2010 and December 31, 2009, respectively		2			2
Additional paid-in capital		647			552
Accumulated other comprehensive loss		(385	)		(283	)
Retained earnings		1,671			1,553
Total Starwood stockholders’ equity		1,935			1,824
Noncontrolling interest		16			21
Total equity		1,951			1,845
	$	9,113		$	8,761

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

3

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per Share data)
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Revenues
Owned, leased and consolidated joint venture hotels	$	437		$	386		$	818		$	766
Vacation ownership and residential sales and services		137			126			270			261
Management fees, franchise fees and other income		177			166			330			310
Other revenues from managed and franchised properties		538			489			1,058			957
		1,289			1,167			2,476			2,294
Costs and Expenses
Owned, leased and consolidated joint venture hotels		347			322			676			649
Vacation ownership and residential		103			98			204			204
Selling, general, administrative and other		92			78			168			151
Restructuring, goodwill impairment and other special charges (credits), net		(1	)		5			(1	)		22
Depreciation		66			69			132			137
Amortization		7			7			17			14
Other expenses from managed and franchised properties		538			489			1,058			957
		1,152			1,068			2,254			2,134
Operating income		137			99			222			160
Equity (losses) earnings and gains and losses from unconsolidated ventures, net		3			3			6			(2	)
Interest expense, net of interest income of $0, $2, $1 and $2		(59	)		(53	)		(121	)		(96	)
Gain (loss) on asset dispositions and impairments, net		20			(21	)		21			(26	)
Income from continuing operations before taxes and noncontrolling interests		101			28			128			36
Income tax benefit (expense)		(22	)		112			(21	)		111
Income (loss) from continuing operations		79			140			107			147
Discontinued operations:
Income (loss) from operations, net of tax (benefit) expense of $0, $0, $0 and $0		(1	)		1			(1	)		(1	)
Gain (loss) on dispositions, net of tax (benefit) expense of $(34), $(6), $(34) and $(5)		36			(7	)		36			(8	)
Net income		114			134			142			138
Net loss (income) attributable to noncontrolling interests		—			—			2			2
Net income attributable to Starwood	$	114		$	134		$	144		$	140
Earnings (Loss) Per Share – Basic
Continuing operations	$	0.44		$	0.79		$	0.60		$	0.83
Discontinued operations		0.19			(0.04	)		0.19			(0.05	)
Net income	$	0.63		$	0.75		$	0.79		$	0.78
Earnings (Loss) per Share – Diluted
Continuing operations	$	0.42		$	0.78		$	0.58		$	0.82
Discontinued operations		0.19			(0.04	)		0.19			(0.05	)
Net income	$	0.61		$	0.74		$	0.77		$	0.77
Amounts attributable to Starwood’s Common Shareholders
Continuing operations	$	79		$	140		$	109		$	149
Discontinued operations		35			(6	)		35			(9	)
Net income	$	114		$	134		$	144		$	140
Weighted average number of shares		182			180			182			179
Weighted average number of shares assuming dilution		189			183			188			182

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

4

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Net income	$	114		$	134		$	142		$	138
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments		(77	)		81			(101	)		35
Less: Recognition of accumulated foreign currency translation adjustments on sold hotels		—			—			—			(13	)
Change in fair value of derivatives		—			(1	)		1			1
Reclassification adjustments for gains included in net income		(1	)		(2	)		(1	)		(3	)
Defined benefit pension plans net gain		—			11			—			11
Amortization of actuarial losses included in net income		—			2			—			2
Change in fair value of investments		—			—			(1	)		—
Reclassification for gains and amortization included in net income		—			1			—			1
		(78	)		92			(102	)		34
Comprehensive income		36			226			40			172
Comprehensive loss attributable to noncontrolling interests		—			—			2			2
Comprehensive income attributable to Starwood	$	36		$	226		$	42		$	174

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

5

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

	Six Months Ended
	June 30,
	2010			2009
Operating Activities
Net income	$	142		$	138
Adjustments to net income:
Discontinued operations:
(Gain) loss on dispositions, net		(36	)		8
Depreciation and amortization		—			5
Depreciation and amortization		149			151
Amortization of deferred gains		(40	)		(40	)
Non-cash portion of restructuring and other special charges (credits), net		—			1
(Gain) loss on asset dispositions and impairments, net		(21	)		26
Stock-based compensation expense		35			26
Excess stock-based compensation tax benefit		(6	)		—
Distributions in excess (deficit) of equity earnings		—			18
(Gain) loss on the sale of VOI notes receivable		—			(1	)
Non-cash portion of income tax (benefit) expense		5			(118	)
Other non-cash adjustments to net income		2			32
Decrease (increase) in restricted cash		—			53
Other changes in working capital		(160	)		(132	)
Securitized VOI notes receivable activity, net		45			—
Unsecuritized VOI notes receivable activity, net		(50	)		82
Accrued and deferred income taxes and other		28			(25	)
Cash (used for) from operating activities		93			224
Investing Activities
Purchases of plant, property and equipment		(70	)		(112	)
Proceeds from asset sales, net of transaction costs		76			4
(Issuance) collection of notes receivable, net		(1	)		—
Acquisitions, net of acquired cash		(18	)		—
Distributions (contributions) from (to) investments, net		(25	)		20
Other, net		12			(7	)
Cash (used for) from investing activities		(26	)		(95	)
Financing Activities
Revolving credit facility and short-term borrowings (repayments), net		17			(58	)
Long-term debt issued		—			482
Long-term debt repaid		(6	)		(677	)
Long-term securitized debt repaid		(63	)		—
Dividends paid		(37	)		(164	)
Proceeds from employee stock option exercises		46			—
Excess stock-based compensation tax benefit		6			—
Other, net		(22	)		(25	)
Cash (used for) from financing activities		(59	)		(442	)
Exchange rate effect on cash and cash equivalents		(5	)		3
(Decrease) increase in cash and cash equivalents		3			(310	)
Cash and cash equivalents — beginning of period		87			389
Cash and cash equivalents — end of period	$	90		$	79
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the period for:
Interest	$	148		$	88
Income taxes, net of refunds	$	29		$	(15	)

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

6

Note 1. Basis of Presentation

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

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

     Starwood is one of the world’s largest hotel and leisure companies. The Company’s principal business is hotels and leisure, which is comprised of a worldwide hospitality network of approximately 1,000 full-service hotels, vacation ownership resorts and residential developments primarily serving two markets: luxury and upscale. The principal operations of Starwood Vacation Ownership, Inc. (“SVO”) include the acquisition, development and operation of vacation ownership resorts; marketing and selling vacation ownership interests (“VOIs”) in the resorts; and providing financing to customers who purchase such interests.

Note 2. Recently Issued Accounting Standards

     Adopted Accounting Standards

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

     ASU No. 2009-16 amended the accounting for transfers of financial assets. Under ASU No. 2009-16, the qualifying special purpose entities (“QSPEs”) used in the Company’s securitization transactions are no longer exempt from consolidation. ASU No. 2009-17 prescribes an ongoing assessment of the Company’s involvement in the activities of the QSPEs and the Company’s rights or obligations to receive benefits or absorb losses of the trusts that could be potentially significant in order to determine whether those variable interest entities (“VIEs”) will be required to be consolidated in the Company’s financial statements. In accordance with ASU No. 2009-17, the Company concluded it is the primary beneficiary of the QSPEs and accordingly, the Company began consolidating the QSPEs on January 1, 2010 (see Notes 7 and 10). Using the carrying amounts of the assets and liabilities of the QSPEs as prescribed by ASU No. 2009-17 and any corresponding elimination of activity between the QSPEs and the Company resulting from the consolidation on January 1, 2010, the Company recorded a $417 million increase in total assets, a $444 million increase in total liabilities, a $26 million (net of tax) decrease in beginning retained earnings and a $1 million decrease to stockholders equity. The Company has additional VIEs whereby the Company was determined not to be the primary beneficiary (see Note 21).

     Beginning January 1, 2010, the Company’s balance sheet and statement of income no longer reflect activity related to its retained economic interests (“Retained Interests”), but instead reflects activity related to its securitized vacation ownership notes receivable and the corresponding securitized debt, including interest income, loan loss provisions, and interest expense. Interest income and loan loss provisions associated with the securitized vacation ownership notes receivable are included in the vacation ownership and residential sales and services line item resulting in an increase of $11 million in the six months ended June 30, 2010 as compared to the same period in 2009. Interest expense of $10 million was recorded in the six months ended June 30, 2010. The cash flows from borrowings and repayments associated with the securitized vacation ownership debt are now presented as cash flows from financing activities. The Company does not expect to recognize gains or losses from future securitizations as a result of the adoption of this new guidance.

     The Company’s statement of income for the three and six months ended June 30, 2009 and its balance sheet as of December 31, 2009 have not been retrospectively adjusted to reflect the adoption of ASU Nos. 2009-16 and 2009-17. Therefore, current period results and balances will not be comparable to prior period amounts, particularly with regards to:

• Restricted cash

• Other assets

• Investments

• Vacation ownership and residential sales and services

• Interest expense

7

     In January 2010, the FASB issued ASU No. 2010-06 “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements”, which amends certain guidance of FASB Accounting Standards Codification (“ASC”) 820. The amendment requires enhanced disclosures about valuation techniques and inputs to fair value measurements. This topic is effective for interim and annual reporting periods beginning after December 15, 2009. The Company adopted this topic on January 1, 2010 and it had no material impact on the Company’s consolidated financial statements.

     In February 2010, the FASB issued ASU No. 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements.” The amendments remove the requirement for a Securities and Exchange Commission (“SEC”) registrant to disclose the date through which subsequent events were evaluated as this requirement would have potentially conflicted with SEC reporting requirements. Removal of the disclosure requirement did not affect the nature or timing of subsequent events evaluations performed by the Company. The ASU became effective upon issuance.

     Future Adoption of Accounting Standards

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

Note 3. Earnings Per Share

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

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

	Three Months Ended June 30,
	2010							2009
					Per							Per
	Earnings		Shares		Share			Earnings		Shares		Share
Basic earnings from continuing operations	$	79		182	$	0.44		$	140		180	$	0.79
Effect of dilutive securities:
Stock options and restricted stock and unit awards		—		7		(0.02	)		—		3		(0.01	)
Diluted earnings from continuing operations	$	79		189	$	0.42		$	140		183	$	0.78

	Six Months Ended June 30,
	2010							2009
					Per							Per
	Earnings		Shares		Share			Earnings		Shares		Share
Basic earnings from continuing operations	$	109		182	$	0.60		$	149		179	$	0.83
Effect of dilutive securities:
Stock options and restricted stock and unit awards		—		6		(0.02	)		—		3		(0.01	)
Diluted earnings from continuing operations	$	109		188	$	0.58		$	149		182	$	0.82

     Approximately 5,111,000 and 9,694,000 shares for the three months ended June 30, 2010 and 2009, respectively, and 5,185,000 and 10,782,000 shares for the six months ended June 30, 2010 and 2009, respectively, were excluded from the computation of diluted shares, respectively, as their impact would have been anti-dilutive.

8

Note 4. Acquisitions

     During the second quarter of 2010, the Company paid approximately $23 million to acquire a controlling interest in a joint venture in which it had previously held a non-controlling interest. The primary business of the joint venture is to develop, license and manage restaurant concepts. The acquisition took place after one of the Company’s former partners exercised its right to put its interest to the Company in accordance with the terms of the joint venture agreement. In accordance with ASC 805, Business Combinations, when an acquirer obtains a controlling position as a result of a step acquisition, the acquirer is required to remeasure its previously held investment to fair value and record the difference between fair value and its carrying value in the statement of income. This acquisition resulted in a gain of $5 million which was recorded in the gain (loss) on asset dispositions and impairments, net line item. The fair values of the assets and liabilities acquired have been recorded in Starwood’s consolidated balance sheet, including the resulting goodwill of approximately $26 million. The results of operations going forward from the acquisition date have been included in Starwood’s consolidated statements of income.

Note 5. Dispositions

     During the second quarter of 2010, the Company completed the sale of two wholly-owned hotels in New York for approximately $78 million and recognized a pre-tax gain of $3 million ($37 million gain after tax) in discontinued operations.

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

     During the second quarter of 2009, the Company sold a hotel in Minneapolis for cash proceeds of approximately $4 million and terminated the lease of a hotel prior to its original term. As a result, the Company recorded a pre-tax loss of $13 million ($7 million loss after-tax) to discontinued operations in connection with these transactions.

     During the first quarter of 2009, the Company sold a wholly-owned hotel in exchange for a long-term agreement to manage the hotel. The Company recorded a loss on the sale of $5 million which was recorded in the gain/loss on asset dispositions and impairments, net line item of the Company’s consolidated statements of income.

Note 6. Other Assets

     Other assets include the following (in millions):

	June 30,		December 31,
	2010		2009
VOI notes receivable, net	$	199	$	222
Other notes receivable, net		42		34
Prepaid taxes		109		103
Deposits and other		143		101
	$	493	$	460

     The weighted average interest rate of the VOI notes receivable at June 30, 2010 and December 31, 2009 was 12.08% and 11.77%, respectively.

Note 7. Securitized Vacation Ownership Notes Receivable

     The Company has variable interests in the QSPEs associated with its five outstanding securitization transactions. The Company applied the variable interest model and determined it is the primary beneficiary of these VIEs. In making this determination, the Company evaluated the activities that significantly impact the economics of the VIEs, including the management of the securitized notes receivable and any related non-performing loans. The Company also evaluated its retention of the residual economic interests in the related QSPEs. The Company is the servicer of the securitized mortgage receivables. The Company also has the option, subject to certain limitations, to repurchase or replace VOI notes receivable, that are in default, at their outstanding principal amounts. Such activity totaled $12 million and $20 million during the three and six months ended June 30, 2010, respectively compared to $6 million and $13 million during the three and six months ended June 30, 2009. The Company has been able to resell the VOIs underlying the VOI notes repurchased or replaced under these provisions without incurring significant losses. The Company holds the risk of potential loss (or gain) as the last to be paid out by proceeds of the VIEs under the terms of the agreements. As such, the Company holds both the power to direct the activities of the VIEs and obligation to absorb the losses (or benefits) from the VIEs.

9

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

     Upon transfer of vacation ownership notes receivable to the VIEs, the receivables and certain cash flows derived from them become restricted for use in meeting obligations to the VIE creditors. The VIEs utilize trusts which have ownership of cash balances that also have restrictions, the amounts of which are reported in restricted cash. With the exception of the seller’s interest in trust receivables, the Company’s interests in trust assets are subordinate to the interests of third-party investors and, as such, may not be realized by the Company if needed to absorb deficiencies in cash flows that are allocated to the investors in the trusts’ debt (see Note 10). The Company is contractually obligated to receive the excess cash flows (spread between the collections on the notes and third party obligations defined in the securitization agreements) from the QSPEs. Such activity totaled $10 million and $20 million during the three and six months ended June 30, 2010, respectively, and is classified in cash and cash equivalents when received.

     The carrying values of the securitized vacation ownership notes receivable consolidated on the Company’s balance sheets as of June 30, 2010 relating to securitization activities, are as follows (in millions):

Securitized vacation ownership notes receivables	$	464
Allowance for loan losses		(69	)
Net notes receivable		395
Less: current notes receivable		(49	)
Carrying value of long-term securitized vacation ownership notes receivable	$	346

     The weighted average interest rate of the securitized vacation ownership notes receivable at June 30, 2010 and December 31, 2009 was 12.77% and 12.80%, respectively.

     Additionally, restricted cash of $17 million and deferred financing fees net of $7 million related to its VIEs are recorded as restricted cash and other assets, respectively, on the Company’s balance sheet.

     With respect to balances outstanding at December 31, 2009 and activity for the three and six months ended June 30, 2009, prior to the adoption of ASU Nos. 2009-16 and 2009-17, the Company’s Retained Interests had the following impacts on the financial statements:

     Gross credit losses for all VOI notes receivable that have been securitized totaled $9 million and $18 million during the three and six months ended June 30, 2009, respectively.

     The Company received aggregate cash proceeds of $5 million and $11 million from the Retained Interests during the three and six months ended June 30, 2009, respectively, and aggregate servicing fees of $1 million and $2 million related to these VOI notes receivable in the three and six months ended June 30, 2009, respectively.

     As of December 31, 2009, the aggregate net present value and carrying value of the Retained Interests for the Company’s five outstanding note securitizations was approximately $25 million, with the following key assumptions used in measuring the fair value: an average discount rate of 7.8%, an average expected annual prepayment rate including defaults of 15.8%, and an expected weighted average remaining life of prepayable notes receivable of 86 months.

Note 8. Fair Value

     The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2010 (in millions):

	Level 1		Level 2		Level 3		Total
Assets:
Forward contracts	$	—	$	1	$	—	$	1
Interest rate swaps		—		17		—		17
	$	—	$	18	$	—	$	18
Liabilities:
Interest rate swaps	$	—	$	4	$	—	$	4

10

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

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

     The following table presents a reconciliation of the Company’s Retained Interests measured at fair value on a recurring basis using significant unobservable inputs (Level 3) from December 31, 2009 to June 30, 2010 (in millions):

Balance at December 31, 2009	$	25
Adoption of ASU No. 2009-17		(25	)
Balance at June 30, 2010	$	—

Note 9. Debt

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

	June 30,			December 31,
	2010			2009
Revolving Credit Facility, interest rates ranging from 3.13% to 4.40% at June 30, 2010, maturing 2013	$	127		$	—
Revolving Credit Facility		—			114
Senior Notes, interest at 7.875%, maturing 2012		610			608
Senior Notes, interest at 6.25%, maturing 2013		504			498
Senior Notes, interest at 7.875%, maturing 2014		489			485
Senior Notes, interest at 7.375%, maturing 2015		449			449
Senior Notes, interest at 6.75%, maturing 2018		400			400
Senior Notes, interest at 7.15%, maturing 2019		244			244
Mortgages and other, interest rates ranging from 6.0% to 9.00%, various maturities		156			162
		2,979			2,960
Less current maturities		(7	)		(5	)
Long-term debt	$	2,972		$	2,955

     On April 20, 2010, the Company entered into a new $1.5 billion senior credit facility (“New Facility”). The New Facility matures on November 15, 2013 and replaced the former $1.875 billion revolving credit agreement, which would have matured on February 11, 2011.

Note 10. Securitized Vacation Ownership Debt

     As discussed in Note 7, the Company’s VIEs associated with the securitization of its vacation ownership notes receivable were consolidated following the adoption of ASU Nos. 2009-16 and 2009-17. As of June 30, 2010, long-term and short-term securitized vacation ownership debt consisted of the following (in millions):

2003 securitization, interest rates ranging from 3.95% to 6.96%, maturing 2019	$	22
2005 securitization, interest rates ranging from 5.25% to 6.29%, maturing 2023		66
2006 securitization, interest rates ranging from 5.28% to 5.85%, maturing 2019		47
2009 securitizations, interest rates ranging from 5.28% to 5.81%, maturing 2014 and 2016		240
		375
Less current maturities		(108	)
Long-term debt	$	267

11

Note 11. Deferred Gains

     The Company defers gains realized in connection with the sale of a property that the Company continues to manage through a long-term management agreement and recognizes the gains over the initial term of the related agreement. As of June 30, 2010 and December 31, 2009, the Company had total deferred gains of approximately $1.0 billion and $1.1 billion, respectively, included in accrued expenses and other liabilities in the Company’s consolidated balance sheets. Amortization of deferred gains is included in management fees, franchise fees and other income in the Company’s consolidated statements of income and totaled approximately $20 million and $40 million for the three and six months ended June 30, 2010 and 2009, respectively.

Note 12. Restructuring and Other Special Charges (Credits), Net

     During the three and six months ended June 30, 2010, the Company recorded restructuring credits of $1 million associated with the reversal of previous restructuring reserves no longer deemed necessary. During the three and six months ended June 30, 2009, the Company recorded restructuring charges of $5 million and $22 million, respectively in connection with its previous initiative of rationalizing its cost structure in light of the decline in growth in its business units.

     Restructuring costs and other special charges (credits), net, by segment are as follows: (in millions):

	Three Months					Six Months
	Ended					Ended
	June 30,					June 30,
	2010			2009		2010			2009
Hotel	$	(1	)	$	4	$	(1	)	$	13
Vacation Ownership & Residential		—			1		—			9
Total	$	(1	)	$	5	$	(1	)	$	22

     The Company had remaining accruals of $22 million and $26 million as of June 30, 2010 and December 31, 2009, respectively, which are primarily related to long-term liabilities for certain obligations in the vacation ownership business that are expected to be paid out in future years.

Note 13. Derivative Financial Instruments

     The Company, based on market conditions, enters into forward contracts to manage foreign exchange risk. The Company enters into forward contracts to hedge forecasted transactions based in certain foreign currencies, including the Euro, Canadian Dollar and Yen. These forward contracts have been designated and qualify as cash flow hedges, and their change in fair value is recorded as a component of other comprehensive income and reclassified into earnings in the same period or periods in which the forecasted transaction occurs. To qualify as a hedge, the Company needs to formally document, designate and assess the effectiveness of the transactions that receive hedge accounting. The notional dollar amounts of the outstanding Euro and Yen forward contracts at June 30, 2010 are $10 million and $3 million, respectively, with average exchange rates of 1.4 and 90.4, respectively, with terms of less than one year. The Company reviews the effectiveness of its hedging instruments on a quarterly basis and records any ineffectiveness into earnings. The Company discontinues hedge accounting for any hedge that is no longer evaluated to be highly effective. From time to time, the Company may choose to de-designate portions of hedges when changes in estimates of forecasted transactions occur. Each of these hedges was highly effective in offsetting fluctuations in foreign currencies.

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

     The Company enters into interest rate swap agreements to manage interest expense. The Company’s objective is to manage the impact of interest rates on the results of operations, cash flows and the market value of the Company’s debt. At June 30, 2010, the Company has six interest rate swap agreements with an aggregate notional amount of $500 million under which the Company pays floating rates and receives fixed rates of interest (“Fair Value Swaps”). The Fair Value Swaps hedge the change in fair value of certain fixed rate debt related to fluctuations in interest rates and mature in 2012, 2013 and 2014. The Fair Value Swaps modify the Company’s interest rate exposure by effectively converting debt with a fixed rate to a floating rate. These interest rate swaps have been designated and qualify as fair value hedges and have met the requirements to assume zero ineffectiveness.

12

     As a result of the adoption of ASU No. 2009-17 (see Note 2) the Company was required to consolidate a balance guarantee interest rate swap derivative that was executed by the QSPE in connection with the Company’s June 2009 securitization transaction. The purpose of the swap is to mitigate the variability in cash flows associated with the underlying variable interest rate debt. In connection with the adoption of ASU No. 2009-17, at January 1, 2010, the fair value of the derivative was recorded as a reduction to beginning retained earnings and a liability on the Company’s consolidated balance sheet. This interest rate swap is designated as a cash flow hedge.

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

     The following tables summarize the fair value of our derivative instruments, the effect of derivative instruments on our consolidated statements of comprehensive income, the amounts reclassified from other comprehensive income and the effect on the consolidated statements of income during the quarter.

Fair Value of Derivative Instruments
(in millions)

	June 30,			December 31,
	2010			2009
	Balance Sheet	Fair		Balance Sheet	Fair
	Location	Value		Location	Value
Derivatives designated as hedging instruments
Asset Derivatives
Forward contracts	Prepaid and other current assets	$	1	Prepaid and other current assets	$	—
Interest rate swaps	Other assets		17	Other assets		7
Total assets		$	18		$	7
Liability Derivatives
Interest rate swaps	Other liabilities	$	4	Other liabilities	$	—
Total liabilities		$	4		$	—

	June 30,			December 31,
	2010			2009
	Balance Sheet	Fair		Balance Sheet	Fair
	Location	Value		Location	Value
Derivatives not designated as hedging instruments
Asset Derivatives
Forward contracts	Prepaid and other current assets	$	—	Prepaid and other current assets	$	—
Total assets		$	—		$	—
Liability Derivatives
Forward contracts	Accrued expenses	$	—	Accrued expenses	$	7
Total liabilities		$	—		$	7

13

Consolidated Statements of Income and Comprehensive Income
for the Three and Six Months Ended June 30, 2010 and 2009
(in millions)

Balance at March 31, 2010	$	(1	)
Mark-to-market loss (gain) on forward exchange contracts		—
Reclassification of gain from OCI to management fees, franchise fees, and other income		1
Balance at June 30, 2010	$	—
Balance at December 31, 2009	$	—
Mark-to-market loss (gain) on forward exchange contracts		(1	)
Reclassification of gain from OCI to management fees, franchise fees, and other income		1
Balance at June 30, 2010	$	—
Balance at March 31, 2009	$	(7	)
Mark-to-market loss (gain) on forward exchange contracts		1
Reclassification of gain from OCI to management fees, franchise fees, and other income		2
Balance at June 30, 2009	$	(4	)
Balance at December 31, 2008	$	(6	)
Mark-to-market loss (gain) on forward exchange contracts		(1	)
Reclassification of gain from OCI to management fees, franchise fees, and other income		3
Balance at June 30, 2009	$	(4	)

14

Derivatives Not	Location of Gain	Amount of Gain
Designated as Hedging	or (Loss) Recognized	or (Loss) Recognized
Instruments	in Income on Derivative	in Income on Derivative
		Three Months Ended
		June 30,
		2010			2009
Foreign forward exchange contracts	Interest expense, net	$	(17	)	$	3
Total (loss) gain included in income		$	(17	)	$	3
		Six Months Ended
		June 30,
		2010			2009
Foreign forward exchange contracts	Interest expense, net	$	(35	)	$	(7	)
Total loss included in income		$	(35	)	$	(7	)

Note 14. Discontinued Operations

     During the three and six months ended June 30, 2010, the Company recorded a gain of approximately $36 million, primarily related to a tax benefit in connection with the sale of two hotels for $78 million (see Note 5). The tax benefit was related to the realization of a high tax basis in these hotels that was generated through a previous transaction.

     During the three and six months ended June 30, 2009, the loss of $7 million and $8 million, respectively, primarily relates to the loss on disposition of two hotels, partially offset by a tax benefit for a settlement of an uncertain tax position related to the sale of an entity several years ago.

Note 15. Pension and Postretirement Benefit Plans

     The following table presents the components of net period benefit cost for the three and six months ended June 30, 2010 and 2009 (in millions):

	Three Months Ended June 30,
	2010							2009
			Foreign							Foreign
	Pension		Pension			Postretirement		Pension		Pension			Postretirement
	Benefits		Benefits			Benefits		Benefits		Benefits			Benefits
Service cost	$	—	$	0.1		$	—	$	—	$	1.2		$	—
Interest cost		0.3		2.5			0.3		0.2		3.2			0.3
Expected return on plan assets		—		(2.6	)		—		—		(2.7	)		—
Amortization of:
Actuarial loss		—		0.3			—		—		1.0			—
Prior service credit		—		—			—		—		(0.1	)		—
Net period benefit cost	$	0.3	$	0.3		$	0.3	$	0.2	$	2.6		$	0.3

	Six Months Ended June 30,
	2010							2009
			Foreign							Foreign
	Pension		Pension			Postretirement		Pension		Pension			Postretirement
	Benefits		Benefits			Benefits		Benefits		Benefits			Benefits
Service cost	$	—	$	0.1		$	—	$	—	$	2.4		$	—
Interest cost		0.5		5.0			0.5		0.5		6.3			0.5
Expected return on plan assets		—		(5.2	)		—		—		(5.0	)		(0.1	)
Amortization of:
Actuarial loss		—		0.6			—		—		2.4			—
Prior service credit		—		—			—		—		(0.1	)		—
Net period benefit cost	$	0.5	$	0.5		$	0.5	$	0.5	$	6.0		$	0.4

     During the six months ended June 30, 2010, the Company contributed approximately $11 million to its pension and postretirement benefit plans. For the remainder of 2010, the Company expects to contribute approximately $4 million to its pension and postretirement benefit plans. A portion of this funding will be reimbursed for costs related to employees of managed hotels.

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Note 16. Income Taxes

     The total amount of unrecognized tax benefits as of June 30, 2010, was $998 million, of which $75 million would affect the Company’s effective tax rate if recognized. The amount of unrecognized tax benefits includes approximately $499 million related to the February 1998 disposition of ITT World Directories which the Company strongly believes was completed on a tax deferred basis. In 2002, the IRS proposed an adjustment to tax the gain on disposition in 1998, and the issue has progressed to litigation in United States Tax Court. In January 2009, the Company and the IRS reached an agreement in principle to settle the litigation pertaining to the tax treatment of this transaction. In 2010, the Company expects to finalize the details of the agreement and obtain a refund of approximately $200 million for previously paid tax. As a result, the Company expects to decrease its unrecognized tax benefits by approximately $499 million within the next 12 months. It is reasonably possible that zero to substantially all of the Company’s other remaining unrecognized tax benefits will reverse within the next twelve months.

     The Company recognizes interest and penalties related to unrecognized tax benefits through income tax expense. As of June 30, 2010, the Company had $239 million accrued for the payment of interest and no accrued penalties.

     The Company is subject to taxation in the U.S. federal jurisdiction, as well as various state and foreign jurisdictions. As of June 30, 2010, the Company is no longer subject to examination by U.S. federal taxing authorities for years prior to 2004 and to examination by any U.S. state taxing authority prior to 1998. All subsequent periods remain eligible for examination. In the significant foreign jurisdictions in which the Company operates, the Company is no longer subject to examination by the relevant taxing authorities for any years prior to 2001.

Note 17. Stockholder’s Equity

     The following table represents changes in stockholders equity that are attributable to Starwood’s stockholders and non-controlling interests.

	Equity Attributable to Starwood Stockholders
							Accumulated						Equity
	Common				Additional		Other						Attributable to
	Shares				Paid-in		Comprehensive			Retained			Noncontrolling
	Shares		Amount		Capital		Loss			Earnings			Interests			Total
Balance at December 31, 2009		187	$	2	$	552	$	(283	)	$	1,553		$	21		$	1,845
Adoption of ASU No. 2009-17		—		—		—		—			(26	)		—			(26	)
Net income (loss)		—		—		—		—			144			(2	)		142
Stock option and restricted stock award transactions, net		3		—		92		—			—			—			92
ESPP stock issuances		—		—		3		—			—			—			3
Dividends		—		—		—		—			—			(3	)		(3	)
Other comprehensive loss		—		—		—		(102	)		—			—			(102	)
Balance at June 30, 2010		190	$	2	$	647	$	(385	)	$	1,671		$	16		$	1,951

     Share Issuances and Repurchases. During the six months ended June 30, 2010, the Company issued approximately 2 million Company common shares as a result of stock option exercises. Additionally, restricted stock grants and restricted unit vestings, net of cancellations, resulted in the issuance of approximately 1 million Company common shares. During the six months ended June 30, 2010, the Company did not repurchase any shares and no repurchase capacity remained available under the Share Repurchase Authorization.

     Dividends. On January 14, 2010, the Company paid a dividend of $0.20 per share to shareholders of record on December 31, 2009.

Note 18. Stock-Based Compensation

     In accordance with the Company’s 2004 Long-Term Incentive Compensation Plan, during the six month period ended June 30, 2010, the Company granted stock options, restricted stock and units to executive officers, members of the Board of Directors and certain employees. The Company granted approximately 562,000 stock options that had a weighted average grant date fair value of $14.73 per option. The weighted average exercise price of these options was $38.24. In addition, the Company granted approximately 2,000,000 restricted stock and units that had a weighted average grant date fair value of $37.28.

16

     The Company recorded stock-based employee compensation expense, including the estimated impact of reimbursements from third parties, of $18 million and $35 million, in the three and six months ended June 30, 2010, respectively, and $15 million and $26 million in the three and six months ended June 30, 2009, respectively.

     As of June 30, 2010, there was approximately $25 million of unrecognized compensation cost, net of estimated forfeitures, related to non-vested options, which is expected to be recognized over a weighted-average period of 1.62 years on a straight-line basis.

     As of June 30, 2010, there was approximately $101 million of unrecognized compensation cost, net of estimated forfeitures, related to restricted stock and units, which is expected to be recognized over a weighted-average period of 1.53 years on a straight-line basis.

Note 19. Fair Value of Financial Instruments

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

	June 30, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Assets:
Restricted cash	$	8	$	8	$	7	$	7
VOI notes receivable		199		228		222		253
Other notes receivable		44		44		36		36
Securitized vacation ownership notes receivable		346		408		—		—
Total financial assets	$	597	$	688	$	265	$	296
Liabilities:
Long-term debt	$	2,972	$	3,112	$	2,955	$	3,071
Long-term securitized vacation ownership debt		267		279		—		—
Other long-term liabilities		9		9		8		8
Total financial liabilities	$	3,248	$	3,400	$	2,963	$	3,079
Off-Balance sheet:
Letters of credit	$	—	$	153	$	—	$	168
Surety bonds		—		22		—		21
Total off-balance sheet	$	—	$	175	$	—	$	189

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

     The carrying value of the Company’s restricted cash approximates its fair value. The Company estimates the fair value of its VOI notes receivable and securitized VOI notes receivable using assumptions related to current securitization market transactions. 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 Fair Isaac Corporation (“FICO”) scores. The results of these two methods are then evaluated to conclude on the estimated fair value. The fair value of other notes receivable is estimated based on terms of the instrument and current market conditions. These financial instrument assets are recorded in the other assets line item in the Company’s consolidated balance sheet.

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

17

     The fair values of the Company’s letters of credit and surety bonds are estimated to be the same as the contract values based on the nature of the fee arrangements with the issuing financial institutions.

Note 20. Business Segment Information

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

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

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Revenues:
Hotel	$	1,114		$	1,003		$	2,130		$	1,958
Vacation ownership and residential		175			164			346			336
Total	$	1,289		$	1,167		$	2,476		$	2,294
Operating income:
Hotel	$	151		$	112		$	245		$	199
Vacation ownership and residential		27			22			52			43
Total segment operating income		178			134			297			242
Selling, general, administrative and other		(42	)		(30	)		(76	)		(60	)
Restructuring and other special credits (charges), net		1			(5	)		1			(22	)
Operating income		137			99			222			160
Equity earnings (losses) and gains and (losses) from unconsolidated ventures, net:
Hotel		2			2			5			(3	)
Vacation ownership and residential		1			1			1			1
Interest expense, net		(59	)		(53	)		(121	)		(96	)
Gain (loss) on asset dispositions and impairments, net		20			(21	)		21			(26	)
Income from continuing operations before taxes and noncontrolling interests	$	101		$	28		$	128		$	36
Capital expenditures:
Hotel	$	34		$	35		$	51		$	72
Vacation ownership and residential		8			9			12			27
Corporate		4			6			7			13
Total	$	46		$	50		$	70		$	112

	June 30,		December 31,
	2010		2009
Assets:
Hotel(a)	$	5,845	$	5,924
Vacation ownership and residential(b)		2,084		1,639
Corporate		1,184		1,198
Total	$	9,113	$	8,761

(a)	Includes $282 million and $294 million of investments in unconsolidated joint ventures at June 30, 2010 and December 31, 2009, respectively.
(b)	Includes $27 million and $25 million of investments in unconsolidated joint ventures at June 30, 2010 and December 31, 2009, respectively.

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Note 21. Commitments and Contingencies

     Variable Interest Entities. The Company has evaluated hotels in which it has a variable interest, generally in the form of investments, loans, guarantees, or equity. The Company determines if it is the primary beneficiary of the hotel by primarily considering the qualitative factors. Qualitative factors include evaluating if the Company has the power to control the VIE and has the obligation to absorb the losses and rights to receive the benefits of the VIE, that could potentially be significant to the VIE. The Company has determined it is not the primary beneficiary of these VIEs and therefore these entities are not consolidated in the Company’s financial statements. See Note 7 for the VIEs in which the Company is deemed the primary beneficiary and has consolidated the entities.

     The 15 VIEs associated with the Company’s variable interests are hotels for which the Company has entered into management or franchise agreements with the hotel owners. The Company is paid a fee primarily based on financial metrics of the hotel. The hotels are financed by the owners, generally in the form of working capital, equity, and debt.

     At June 30, 2010, the Company has approximately $71 million of investments and a loan balance of $9 million associated with 12 VIEs. As the Company is not obligated to fund future cash contributions under these agreements, the maximum loss equals the carrying value. In addition, the Company has not contributed amounts to the VIEs in excess of their contractual obligations.

     Additionally, the Company has approximately $6 million of investments and certain performance guarantees associated with three VIEs. The performance guarantees have possible cash outlays of up to $68 million, $53 million of which, if required, would be funded over several years and would be largely offset by management fees received under these contracts.

     At December 31, 2009, the Company had approximately $81 million of investments associated with 18 VIEs, equity investments of $11 million associated with one VIE, and a loan balance of $5 million associated with one VIE.

     Guaranteed Loans and Commitments. In limited cases, the Company has made loans to owners of or partners in hotel or resort ventures for which the Company has a management or franchise agreement. Loans outstanding under this program totaled $38 million at June 30, 2010. The Company evaluates these loans for impairment, and at June 30, 2010, believes the net carrying value of these loans is collectible. Unfunded loan commitments aggregating $18 million were outstanding at June 30, 2010, $1 million of which is expected to be funded in the next twelve months and in total. These loans typically are secured by pledges of project ownership interests and/or mortgages on the projects. The Company also has $52 million of equity and other potential contributions associated with managed or joint venture properties, $16 million of which is expected to be funded in the next twelve months.

     Surety bonds issued on behalf of the Company as of June 30, 2010 totaled $22 million, the majority of which were required by state or local governments relating to our vacation ownership operations and by our insurers to secure large deductible insurance programs.

     To secure management contracts, the Company may provide performance guarantees to third-party owners. Most of these performance guarantees allow the Company to terminate the contract rather than fund shortfalls if certain performance levels are not met. In limited cases, the Company is obligated to fund shortfalls in performance levels through the issuance of loans. Many of the performance tests are multi-year tests, are tied to the results of a competitive set of hotels, and have exclusions for force majeure and acts of war and terrorism. In the second quarter of 2010, the Company, at its option, agreed to cure a failed performance test for one of its managed hotels. As a result, the Company recorded a reserve for this performance guarantee of approximately $3 million, which is included in selling, general, administrative and other expenses. The Company does not anticipate any significant funding under performance guarantees in 2010.

     In connection with the acquisition of the Le Méridien brand in November 2005, the Company assumed the obligation to guarantee certain performance levels at one Le Méridien managed hotel for the periods 2007 through

19

2014. This guarantee is uncapped; however, the Company has estimated its exposure under this guarantee and does not anticipate that payments made under the guarantee will be significant in any single year. The Company has recorded a loss contingency for this guarantee of $9 million and $8 million, respectively, reflected in other liabilities in the accompanying consolidated balance sheets at June 30, 2010 and December 31, 2009, respectively. The Company does not anticipate losing a significant number of management or franchise contracts in 2010.

     In connection with the purchase of the Le Méridien brand in November 2005, the Company was indemnified for certain of Le Méridien’s historical liabilities by the entity that bought Le Méridien’s owned and leased hotel portfolio. The indemnity is limited to the financial resources of that entity. However, at this time, the Company believes that it is unlikely that it will have to fund any of these liabilities.

     In connection with the sale of 33 hotels to a third party in 2006, the Company agreed to indemnify the third party for certain pre-disposition liabilities, including operations and tax liabilities. At this time, the Company believes that it will not have to make any significant payments under such indemnities.

     Litigation. The Company is involved in various legal matters that have arisen in the normal course of business, some of which include claims for substantial sums. Accruals have been recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be determined, the Company does not expect that the resolution of all legal matters will have a material adverse effect on its consolidated results of operations, financial position or cash flow. However depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect the Company’s future results of operations or cash flows in a particular period.

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

Forward-Looking Statements

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

RESULTS OF OPERATIONS

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

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

CRITICAL ACCOUNTING POLICIES

     We believe the following to be our critical accounting policies:

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

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

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• Management and Franchise Revenues — Represents fees earned on hotels managed worldwide, usually under long-term contracts, franchise fees received in connection with the franchise of our Sheraton, Westin, Four Points by Sheraton, Le Méridien, St. Regis, W, Luxury Collection, Aloft and Element brand names, termination fees and the amortization of deferred gains related to sold properties for which we have significant continuing involvement. Management fees are comprised of a base fee, which is generally based on a percentage of gross revenues, and an incentive fee, which is generally based on the property’s profitability. For any time during the year, when the provisions of our management contracts allow receipt of incentive fees upon termination, incentive fees are recognized for the fees due and earned as if the contract was terminated at that date, exclusive of any termination fees due or payable. Therefore, during periods prior to year-end, the incentive fees recorded may not be indicative of the eventual incentive fees that will be recognized at year-end as conditions and incentive hurdle calculations may not be final. Franchise fees are generally based on a percentage of hotel room revenues. As with hotel revenues discussed above, these revenue sources are affected by conditions impacting the travel and hospitality industry as well as competition from other hotel management and franchise companies.

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

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

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

     We charge our owned, managed and franchised hotels the cost of operating the SPG program, including the estimated cost of our future redemption obligation, based on a percentage of our SPG members’ qualified expenditures. Our management and franchise agreements require that we be reimbursed for the costs of operating the SPG program, including marketing, promotion, communications with, 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.

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

     We consolidate the assets and liabilities of the SPG program including the liability associated with the future redemption obligation which is included in other long-term liabilities and accrued expenses in the accompanying consolidated balance sheets. The total actuarially determined liability as of June 30, 2010 and December 31, 2009 is $701 million and $689 million, respectively, of which $210 million and $244 million, respectively, is included in accrued expenses. A 10% reduction in the “breakage” of points would result in an estimated increase of $88 million to the liability at June 30, 2010.

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

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

     Loan Loss Reserves. For the vacation ownership and residential segment, we record an estimate of expected uncollectibility on our VOI notes receivable as a reduction of revenue at the time we recognize profit on a sale of a vacation ownership interest. We hold large amounts of homogeneous VOI notes receivable and therefore assess uncollectibility based on pools of receivables. In estimating our 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 June 30, 2010, the average estimated default rate for our pools of receivables was 9.9%. Given the significance of our respective 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 $3 million.

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

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

     Income Taxes. We provide for income taxes in accordance with principles contained in FASB ASC 740, Income Taxes. Under these principles, we recognize the amount of income tax payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. We also measure and recognize the amount of tax benefit that should be recorded for financial statement purposes for uncertain tax positions taken or expected to be taken in a tax return. With respect to uncertain tax positions, we evaluate the recognized tax benefits for derecognition, classification, interest and penalties, interim period accounting and disclosure requirements. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns.

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RESULTS OF OPERATIONS

     The following discussion presents an analysis of results of our operations for the three and six months ended June 30, 2010 and 2009.

     As discussed in Note 2 of the financial statements, following the adoption of ASU Nos. 2009-16 and 2009-17 on January 1, 2010, our statement of income beginning with the three months ended March 31, 2010 no longer reflects securitization income, but instead reports interest income, net charge-offs and certain other income associated with all securitized loan receivables, and interest expense associated with debt issued from the trusts to third-party investors in the same line items in our statement of income as debt. Additionally, we will no longer record initial gains or losses on new securitization activity since securitized vacation ownership notes receivable no longer receive sale accounting treatment. Finally, we no longer recognize gains or losses on the revaluation of the interest-only strip receivable as that asset is not recognized in a transaction accounted for as a secured borrowing.

     Our statement of income for the three and six months ended June 30, 2009 and our balance sheet as of December 31, 2009 have not been retrospectively adjusted to reflect the adoption of ASU Nos. 2009-16 and 2009-17. Therefore, current period results will not be comparable to prior period amounts, particularly with regards to:

• Vacation ownership and residential sales and services

• Interest expense

     Business conditions in the global lodging industry remain difficult. However, after several challenging quarters, 2010 has offered some relief. REVPAR has begun to increase year-over-year with the second quarter of 2010 being stronger than the first quarter of 2010. These improvements have resulted from better than expected occupancy primarily related to our three main classes of customers: business, leisure and group travelers. As the largest operator of upper upscale and luxury hotels in the world, we believe luxury travel is leading the increases in occupancy. In the second quarter of 2010 we also experienced slight increases in average daily rates when compared to the same period of 2009. While the increases in average daily rate were modest compared to the occupancy gains, as the global economy strengthens, we expect pricing to eventually follow the strong growth in occupancy. We have also instituted rigorous policies to control costs.

     Historically, we have derived the majority of our revenues and operating income from our owned, leased and consolidated joint venture hotels and a significant portion of these results are driven by these hotels in North America. However, since early 2006, we have sold a significant number of hotels in connection with our strategy of reducing our investment in owned real estate and increasing our focus on the management and franchise business. As a result, our primary business objective is to maximize earnings and cash flow by increasing the number of hotel management and franchise agreements. Since the beginning of 2009, we sold or closed eight owned hotels, further reducing our revenues and operating income from owned, leased and consolidated joint venture hotels. Three of these hotels were sold subject to long-term management or franchise contracts. Total revenues generated from these sold hotels were $0 million and $16 million for the three months ended June 30, 2010 and 2009, respectively, and $0 million and $37 million for the six months ended June 30, 2010 and 2009, respectively.

     Beginning in the latter part of 2008, we have had less success in selling assets at acceptable prices, primarily due to depressed market conditions and the inability of potential buyers to obtain financing. To date, where we have sold hotels, we have not provided seller financing or other financial assistance to buyers.

     At June 30, 2010, we had approximately 350 hotels in the active pipeline representing approximately 85,000 rooms, driven by strong interest in all Starwood brands. Of these rooms, 69% are in the upper upscale and luxury segments and 71% are outside of North America. During the second quarter of 2010, we signed 25 hotel management and franchise contracts representing approximately 6,400 rooms of which 18 are new builds and seven are conversions from another brand and opened 18 new hotels and resorts representing approximately 4,100 rooms. During the second quarter of 2010, six hotels left the system, representing approximately 1,600 rooms.

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

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

     The following represents our top five markets in the United States by metropolitan area as a percentage of our total owned, leased and consolidated joint venture revenues for the three and six months ended June 30, 2010 (with comparable data for 2009):

Top Five Metropolitan Areas in the United States as a % of Total Owned
Revenues for the Three Months Ended June 30, 2010
with Comparable Data for the Same Period in 2009⁽¹⁾

	2010			2009
Metropolitan Area	Revenues			Revenues
New York, NY		12.3	%		14.1	%
Hawaii		5.5	%		6.0	%
Boston, MA		5.2	%		5.3	%
Chicago, IL		4.9	%		4.3	%
Phoenix, AZ		4.6	%		5.4	%

Top Five Metropolitan Areas in the United States as a % of Total Owned
Revenues for the Six Months Ended June 30, 2010
with Comparable Data for the Same Period in 2009⁽¹⁾

	2010			2009
Metropolitan Area	Revenues			Revenues
New York, NY		12.2	%		13.2	%
Hawaii		6.2	%		6.5	%
Phoenix, AZ		6.1	%		6.2	%
Boston, MA		4.2	%		4.5	%
Atlanta, GA		4.1	%		4.0	%

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

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     The following represents our top five international markets as a percentage of our total owned, leased and consolidated joint venture revenues for the three and six months ended June 30, 2010 (with comparable data for 2009):

Top Five International Markets as a % of Total Owned Revenues for
the Three Months Ended June 30, 2010
with Comparable Data for the Same Period in 2009⁽¹⁾

	2010			2009
International Market	Revenues			Revenues
Canada		12.4	%		9.0	%
Italy		8.6	%		9.5	%
Spain		6.0	%		2.6	%
Mexico		3.9	%		3.5	%
Argentina		3.6	%		2.3	%

Top Five International Markets as a % of Total Owned Revenues for
the Six Months Ended June 30, 2010
with Comparable Data for the Same Period in 2009⁽¹⁾

	2010			2009
International Market	Revenues			Revenues
Canada		11.3	%		9.0	%
Italy		7.2	%		7.5	%
Spain		5.0	%		2.2	%
Mexico		4.4	%		5.2	%
Australia		3.9	%		4.7	%

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

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     The following table summarizes REVPAR⁽¹⁾, average daily rate (“ADR”) and occupancy for our Same-Store Owned Hotels for the three and six months ended June 30, 2010 and 2009. The results for the three and six months ended June 30, 2010 and 2009 represent results for 58 and 57, respectively, owned, leased and consolidated joint venture hotels (excluding eight hotels sold or closed and four and five, respectively, hotels undergoing significant repositionings or without comparable results in 2010 and 2009).

	Three Months Ended
	June 30,
	2010			2009			Variance
Worldwide (58 hotels with approximately 19,000 rooms)
REVPAR	$	143.09		$	121.43			17.8	%
ADR	$	201.77		$	195.67			3.1	%
Occupancy		70.9	%		62.1	%		8.8
North America (31 hotels with approximately 12,000 rooms)
REVPAR	$	149.40		$	124.57			19.9	%
ADR	$	198.30		$	184.82			7.3	%
Occupancy		75.3	%		67.4	%		7.9
International (27 hotels with approximately 7,000 rooms)
REVPAR	$	133.06		$	116.44			14.3	%
ADR	$	208.26		$	217.41			(4.2	)%
Occupancy		63.9	%		53.6	%		10.3

	Six Months Ended
	June 30,
	2010			2009			Variance
Worldwide (57 hotels with approximately 19,000 rooms)
REVPAR	$	133.19		$	119.37			11.6	%
ADR	$	198.42		$	196.36			1.0	%
Occupancy		67.1	%		60.8	%		6.3
North America (30 hotels with approximately 12,000 rooms)
REVPAR	$	140.09		$	125.37			11.7	%
ADR	$	196.55		$	193.04			1.8	%
Occupancy		71.3	%		64.9	%		6.4
International (27 hotels with approximately 7,000 rooms)
REVPAR	$	122.55		$	110.12			11.3	%
ADR	$	201.81		$	202.47			(0.3	)%
Occupancy		60.7	%		54.4	%		6.3

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

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     The following table summarizes REVPAR, ADR and occupancy for our Same-Store Systemwide Hotels for the three and six months ended June 30, 2010 and 2009. Same-Store Systemwide Hotels represent results for same store owned, leased, managed and franchised hotels.

	Three Months Ended
	June 30,
	2010			2009			Variance
Worldwide
REVPAR	$	109.07		$	96.42			13.1	%
ADR	$	158.54		$	156.08			1.6	%
Occupancy		68.8	%		61.8	%		7.0
North America
REVPAR	$	105.76		$	94.46			12.0	%
ADR	$	148.41		$	146.28			1.5	%
Occupancy		71.3	%		64.6	%		6.7
International
REVPAR	$	113.65		$	99.13			14.6	%
ADR	$	173.82		$	171.19			1.5	%
Occupancy		65.4	%		57.9	%		7.5

	Six Months Ended
	June 30,
	2010			2009			Variance
Worldwide
REVPAR	$	103.61		$	94.58			9.5	%
ADR	$	158.47		$	159.28			(0.5	)%
Occupancy		65.4	%		59.4	%		6.0
North America
REVPAR	$	98.41		$	91.80			7.2	%
ADR	$	147.67		$	150.34			(1.8	)%
Occupancy		66.6	%		61.1	%		5.5
International
REVPAR	$	110.73		$	98.37			12.6	%
ADR	$	173.93		$	172.33			0.9	%
Occupancy		63.7	%		57.1	%		6.6

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Three Months Ended June 30, 2010 Compared with Three Months Ended June 30, 2009
Continuing Operations

	Three Months		Three Months		Increase /		Percentage
	Ended		Ended		(decrease)		change
	June 30,		June 30,		from prior		from prior
	2010		2009		year		year
	(in millions)
Owned, Leased and Consolidated Joint Venture Hotels		$   437		$   386		$  51		13.2	%
Management Fees, Franchise Fees and Other Income		177		166		11		6.6	%
Vacation Ownership and Residential		137		126		11		8.7	%
Other Revenues from Managed and Franchised Properties		538		489		49		10.0	%
Total Revenues		$1,289		$1,167		$122		10.5	%

     The increase in revenues from owned, leased and consolidated joint venture hotels was primarily due to improved REVPAR (as discussed below) at our existing owned, leased and consolidated joint venture hotels, offset in part by lost revenues from eight owned hotels that were sold or closed in 2009 and 2010. These sold or closed hotels had revenues of $0 million in the three months ended June 30, 2010 compared to $16 million in the three months ended June 30, 2009. Revenues at our Same-Store Owned Hotels (58 hotels for the three months ended June 30, 2010 and 2009, excluding the eight hotels sold or closed and four additional hotels undergoing significant repositionings or without comparable results in 2010 and 2009) increased 15%, or $51 million, to $391 million for the three months ended June 30, 2010 when compared to $340 million in the same period of 2009 due primarily to an increase in REVPAR.

     REVPAR at our worldwide Same-Store Owned Hotels increased 17.8% to $143.09 for the three months ended June 30, 2010 when compared to the corresponding 2009 period. The increase in REVPAR at these worldwide Same-Store Owned Hotels resulted from an increase in occupancy rates to 70.9% in the three months ended June 30, 2010 when compared to 62.1% in the same period in 2009 and a 3.1% increase in ADR to $201.77 for the three months ended June 30, 2010 compared to $195.67 for the corresponding 2009 period. REVPAR at Same-Store Owned Hotels in North America increased 19.9% for the three months ended June 30, 2010 when compared to the same period of 2009. REVPAR growth was particularly strong at our owned hotels in New York, New York, Chicago, Illinois and Toronto, Canada. REVPAR at our international Same-Store Owned Hotels increased by 14.3% for the three months ended June 30, 2010 when compared to the same period of 2009. REVPAR for Same-Store Owned Hotels internationally increased 14.7% excluding the effects of foreign currency translation.

     The increase in management fees, franchise fees and other income was primarily a result of a $21 million increase in management and franchise revenues to $171 million for the three months ended June 30, 2010 compared to $150 million in 2009. Management fees increased $14 million, or 16.3% and franchise fees increased $7 million, or 20.6% as compared to the second quarter of 2009. These increases were due to growth in REVPAR of existing hotels under management as well as the net addition of 50 managed and franchised hotels to our system since the second quarter of 2009.

     The increase in vacation ownership and residential sales and services revenue primarily relates to adopting ASU No. 2009-17 beginning on January 1, 2010 and the favorable impact from the recognition of deferred revenue compared to the three months ended June 30, 2009. This increase is partially offset by lower originated contract sales of VOI inventory and timing of adjustments for percentage of completion accounting. Originated contract sales of VOI inventory decreased 1.3% in the three months ended June 30, 2010 when compared to the same period in 2009. This decline is primarily driven by a 7.5% decrease in the average contract amount per vacation ownership unit sold to approximately $15,000 in the three months ended June 30, 2010 when compared to the corresponding period in 2009. The average contract amount per vacation ownership unit sold decreased primarily as a result of price reductions and inventory mix. The number of contracts signed increased 5.9% when compared to the three months ended June 30, 2009 due to higher closing efficiency partially offset by lower tour flow. Residential revenue in the second quarter of 2010 included $4 million of marketing and license fees associated with a new hotel and residential project in Guangzhou, China, and $2 million of marketing and license fees in connection with 14 properties.

     Other revenues from managed and franchised properties increased to $538 million for the three months ended June 30, 2010 compared to $489 million in 2009, primarily due to an increase in the number of managed and franchised hotels. These revenues represent reimbursements of costs incurred on behalf of managed hotel and vacation ownership properties and franchisees and relate primarily to payroll costs at managed properties where we are the employer. Since the reimbursements are made based upon the costs incurred with no added margin, these revenues and corresponding expenses have no effect on our operating income and our net income.

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	Three Months		Three Months		Increase /		Percentage
	Ended		Ended		(decrease)		change
	June 30,		June 30,		from prior		from prior
	2010		2009		year		year
			(in millions)
Selling, General, Administrative and Other	$	92	$	78	$	14		17.9	%

     The increase in selling, general, administrative and other for the three months ended June 30, 2010 was primarily a result of the timing and amounts of accruals for incentive based compensation in the current year when compared to the prior year.

	Three Months			Three Months		Increase /			Percentage
	Ended			Ended		(decrease)			change
	June 30,			June 30,		from prior			from prior
	2010			2009		year			year
				(in millions)
Restructuring and Other Special (Credits) Charges, Net	$	(1	)	$	5	$	(6	)		n/m

     During the three months ended June 30, 2010, we recorded restructuring credits of $1 million associated with the reversal of previous restructuring reserves no longer deemed necessary.

     During the three months ended June 30, 2009, we recorded restructuring charges of $5 million in connection with our initiative of rationalizing our cost structure in light of the decline in growth in our business units. This initiative was substantially completed in 2009.

	Three Months		Three Months		Increase /			Percentage
	Ended		Ended		(decrease)			change
	June 30,		June 30,		from prior			from prior
	2010		2009		year			year
			(in millions)
Depreciation and Amortization	$	73	$	76	$	(3	)		(4.0	)%

     Depreciation and amortization expense declined to $73 million for the three months ended June 30, 2010 when compared to the $76 million in the same period in 2009 due to reduced depreciation expense from sold hotels, partially offset by additional depreciation from capital expenditures made in the last twelve months.

	Three Months		Three Months		Increase /		Percentage
	Ended		Ended		(decrease)		change
	June 30,		June 30,		from prior		from prior
	2010		2009		year		year
			(in millions)
Operating Income	$	137	$	99	$	38		38.4	%

     The increase in operating income was primarily due to the favorable operating results from owned, leased and consolidated joint venture hotels, as well as increased management fees due to the increase in REVPAR and the completion of our cost rationalization initiative discussed above.

	Three Months		Three Months		Increase /		Percentage
	Ended		Ended		(decrease)		change
	June 30,		June 30,		from prior		from prior
	2010		2009		year		year
			(in millions)
Equity Earnings (Losses) and Gains and (Losses) from Unconsolidated Ventures, Net	$	3	$	3	$	—		—

     Equity earnings and gains and losses from unconsolidated joint ventures were consistent with the prior year as improved operating results at several properties owned by joint ventures in which we hold non-controlling interests were offset by prior year gains on foreign-denominated debt in certain Latin American joint ventures.

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	Three Months		Three Months		Increase /		Percentage
	Ended		Ended		(decrease)		change
	June 30,		June 30,		from prior		from prior
	2010		2009		year		year
			(in millions)
Net Interest Expense	$	59	$	53	$	6		11.3	%

     The increase in net interest expense was primarily the result of a $4 million increase related to the adoption of ASU No. 2009-17 on January  1, 2010, as previously discussed. Additionally, the three months ended June 30, 2010 includes a full quarter of interest expense from the senior notes issued in 2009, partially offset by a lower overall debt balance. Our weighted average interest rate was 6.93% at June 30, 2010 as compared to 6.16% at June 30, 2009.

	Three Months		Three Months			Increase /		Percentage
	Ended		Ended			(decrease)		change
	June 30,		June 30,			from prior		from prior
	2010		2009			year		year
			(in millions)
Gain (Loss) on Asset Dispositions and Impairments, Net	$	20	$	(21	)	$	41		n/m

     During the three months ended June 30, 2010, we recorded a net gain on dispositions of approximately $20 million primarily related to a gain of $14 million from insurance proceeds received for a claim at an owned property that suffered damage during a tornado in 2008. Additionally, we recorded a $5 million gain as a result of the acquisition of a controlling interest in a joint venture in which we previously held a non-controlling interest.

     During the three months ended June 30, 2009, we recorded a loss on dispositions of approximately $21 million, primarily related to the $14 million impairment of our retained interest in vacation ownership mortgage receivables and the $5 million impairment of certain technology-related fixed assets.

	Three Months		Three Months			Increase /		Percentage
	Ended		Ended			(decrease)		change
	June 30,		June 30,			from prior		from prior
	2010		2009			year		year
			(in millions)
Income Tax (Benefit) Expense	$	22	$	(112	)	$	134		n/m

     The increase in income tax expense primarily relates to a deferred tax benefit of $120 million (net) in 2009 for an Italian tax incentive program in which the tax basis of land and buildings for the hotels we own in Italy was stepped-up to fair value in exchange for paying a current tax of $9 million.

Discontinued Operations

     During the three months ended June 30, 2010, we recorded a gain of approximately $36 million, primarily related to a tax benefit in connection with the sale of two hotels for $78 million (see Note 5). The tax benefit was related to the realization of a high tax basis in these hotels that was generated through a previous transaction.

     During the three months ended June 30, 2009, the loss of $7 million primarily relates to the loss on disposition of two hotels, partially offset by a tax benefit for a settlement of an uncertain tax position related to the sale of an entity several years ago.

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Six Months Ended June 30, 2010 Compared with Six Months Ended June 30, 2009

Continuing Operations

	Six Months		Six Months		Increase /		Percentage
	Ended		Ended		(decrease)		change
	June 30,		June 30,		from prior		from prior
	2010		2009		year		year
			(in millions)
Owned, Leased and Consolidated Joint Venture Hotels	$	818	$	766	$	52		6.8	%
Management Fees, Franchise Fees and Other Income		330		310		20		6.5	%
Vacation Ownership and Residential		270		261		9		3.4	%
Other Revenues from Managed and Franchised Properties		1,058		957		101		10.6	%
Total Revenues	$	2,476	$	2,294	$	182		7.9	%

     The increase in revenues from owned, leased and consolidated joint venture hotels was primarily due to improved REVPAR (as discussed below) at our existing owned, leased and consolidated joint venture hotels, offset in part by lost revenues from seven owned hotels that were sold or closed in 2009. These sold or closed hotels had revenues of $0 million in the six months ended June 30, 2010 compared to $37 million in the six months ended June 30, 2009. Revenues at our Same-Store Owned Hotels (57 hotels for the six months ended June 30, 2010 and 2009, excluding the eight hotels sold or closed and five additional hotels undergoing significant repositionings or without comparable results in 2010 and 2009) increased 9.8%, or $64 million, to $720 million for the six months ended June 30, 2010 when compared to $656 million in the same period of 2009 due primarily to an increase in REVPAR.

     REVPAR at our worldwide Same-Store Owned Hotels increased 11.6% to $133.19 for the six months ended June 30, 2010 when compared to the corresponding 2009 period. The increase in REVPAR at these worldwide Same-Store Owned Hotels resulted from an increase in occupancy rates to 67.1% in the six months ended June 30, 2010 when compared to 60.8% in the same period in 2009 as well as a 1% increase in ADR to $198.42 for the six months ended June 30, 2010 compared to $196.36 for the corresponding 2009 period. REVPAR at Same-Store Owned Hotels in North America increased 11.7% for the six months ended June 30, 2010 when compared to the same period of 2009. REVPAR growth was particularly strong at our owned hotels in New York, New York, Chicago, Illinois and Toronto, Canada. REVPAR at our international Same-Store Owned Hotels increased by 11.3% for the six months ended June 30, 2010 when compared to the same period of 2009. REVPAR for Same-Store Owned Hotels internationally increased 8.2% excluding the favorable effects of foreign currency translation.

     The increase in management fees, franchise fees and other income was primarily a result of a $29 million increase in management and franchise revenues to $322 million for the six months ended June 30, 2010 compared to $293 million in 2009. Management fees increased $22 million or 13.3% and franchise fees increased $10 million or 15.2% as compared to the six months ended June 30, 2009. These increases were due to growth in REVPAR of existing hotels as well as the net addition of 50 managed and franchised hotels to our system since the second quarter of 2009.

     As a result of applying ASU No. 2009-17 beginning on January 1, 2010, vacation ownership revenues for the six months ended June 30, 2010 increased $11 million compared to the corresponding period of 2009. This increase was partially offset by lower originated contract sales of VOI inventory and timing of adjustments for percentage of completion accounting. Originated contract sales of VOI inventory decreased 3.2% in the six months ended June 30, 2010 when compared to the same period in 2009 primarily due to the closure of fractional sales centers in 2009. This decline is primarily driven by a 7.5% decrease in the average contract amount per vacation ownership unit sold to approximately $16,000 in the six months ended June 30, 2010 when compared to the corresponding period in 2009. The average contract amount per vacation ownership unit sold decreased primarily as a result of price reductions and inventory mix. The number of contracts signed increased 4.8% when compared to 2009 due to higher closing efficiency partly offset by lower tour flow. The increase in vacation ownership and residential sales and services also included a $5 million increase in residential revenue. Residential revenue in the six months ended June 30, 2010 included $4 million of marketing and license fees associated with a new hotel and residential project in Guangzhou, China, and $4 million of marketing and license fees in connection with 16 properties.

     Other revenues from managed and franchised properties increased to $1.058 billion for the six months ended June 30, 2010 compared to $957 million in 2009, primarily due to an increase in the number of managed and franchised hotels. These revenues represent reimbursements of costs incurred on behalf of managed hotel and

32

vacation ownership properties and franchisees and relate primarily to payroll costs at managed properties where we are the employer. Since the reimbursements are made based upon the costs incurred with no added margin, these revenues and corresponding expenses have no effect on our operating income and our net income.

	Six Months		Six Months		Increase /		Percentage
	Ended		Ended		(decrease)		change
	June 30,		June 30,		from prior		from prior
	2010		2009		year		year
			(in millions)
Selling, General, Administrative and Other	$	168	$	151	$	17		11.3	%

     The increase in selling, general, administrative and other expenses was primarily a result of the timing and amounts of accruals for incentive based compensation in the current year when compared to the prior year.

	Six Months			Six Months		Increase /		Percentage
	Ended			Ended		(decrease)		change
	June 30,			June 30,		from prior year		from prior
	2010			2009				year
				(in millions)
Restructuring and Other Special (Credits) Charges, Net	$	(1	)	$	22	$	23		n/m

     During the six months ended June 30, 2010, we recorded restructuring credits of $1 million associated with the reversal of previous restructuring reserves no longer deemed necessary.

     During the six months ended June 30, 2009, we recorded restructuring charges of $22 million in connection with our initiative of rationalizing our cost structure in light of the decline in growth in our business units. This initiative was substantially completed in 2009.

	Six Months		Six Months		Increase /			Percentage
	Ended		Ended		(decrease)			change
	June 30,		June 30,		from prior			from prior
	2010		2009		year			year
			(in millions)
Depreciation and Amortization	$	149	$	151	$	(2	)		(1.3	)%

     Depreciation and amortization expense was $149 million for the six months ended June 30, 2010 when compared to the $151 million in the same period in 2009 as additional depreciation from capital expenditures made in the last twelve months were offset by reduced depreciation expense from sold hotels.

	Six Months		Six Months		Increase /		Percentage
	Ended		Ended		(decrease)		change
	June 30,		June 30,		from prior		from prior
	2010		2009		year		year
			(in millions)
Operating Income	$	222	$	160	$	62		38.8	%

     The increase in operating income was primarily due to the favorable operating results from owned, leased and consolidated joint venture hotels, as well as increased management fees due to the increase in REVPAR and the completion of our cost rationalization initiative discussed above.

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	Six Months		Six Months			Increase /		Percentage
	Ended		Ended			(decrease)		change
	June 30,		June 30,			from prior		from prior
	2010		2009			year		year
			(in millions)
Equity Earnings (Losses) and Gains and (Losses) from Unconsolidated Ventures, Net	$	6	$	(2	)	$	8		n/m

     The increase in equity earnings and gains and losses from unconsolidated joint ventures was primarily due to improved operating results at several properties owned by joint ventures in which we hold non-controlling interests.

	Six Months		Six Months		Increase /		Percentage
	Ended		Ended		(decrease)		change
	June 30,		June 30,		from prior		from prior
	2010		2009		year		year
			(in millions)
Net Interest Expense	$	121	$	96	$	25		26.0	%

     The increase in net interest expense was partially the result of a $10 million increase related to the adoption of ASU No. 2009-17 on January 1, 2010, as previously discussed. The increase also relates to increased interest expense from the senior notes issued in 2009, partially offset by a lower overall debt balance. Our weighted average interest rate was 6.93% at June 30, 2010 as compared to 6.16% at June 30, 2009.

	Six Months		Six Months			Increase /		Percentage
	Ended		Ended			(decrease)		change
	June 30,		June 30,			from prior		from prior
	2010		2009			year		year
			(in millions)
Gain (Loss) on Asset Dispositions and Impairments, Net	$	21	$	(26	)	$	47		n/m

     During the six months ended June 30, 2010, we recorded a net gain on dispositions of approximately $21 million primarily related to a gain of $14 million from insurance proceeds received for a claim at an owned property that suffered damages during a tornado in 2008. Additionally, we recorded a $5 million gain as a result of the acquisition of a controlling interest in a joint venture in which we previously held a non-controlling interest.

     During the six months ended June 30, 2009, we recorded a loss on dispositions of approximately $26 million, primarily related to the $16 million impairment of our retained interest in vacation ownership mortgage receivables, the $5 million impairment of certain technology-related fixed assets and a net loss of approximately $5 million related to the sale of a wholly-owned hotel.

	Six Months		Six Months			Increase /		Percentage
	Ended		Ended			(decrease)		change
	June 30,		June 30,			from prior		from prior
	2010		2009			year		year
			(in millions)
Income Tax (Benefit) Expense	$	21	$	(111	)	$	132		n/m

     The increase in income tax expense primarily relates to a deferred tax benefit of $120 million (net) in 2009 for an Italian tax incentive program in which the tax basis of land and buildings for the hotels we own in Italy was stepped-up to fair value in exchange for paying a current tax of $9 million.

Discontinued Operations

     During the six months ended June 30, 2010, we recorded a gain of approximately $36 million, primarily related to a tax benefit in connection with the sale of two hotels for $78 million (see Note 5). The tax benefit was related to the realization of a high tax basis in these hotels that was generated through a previous transaction.

     During the six months ended June 30, 2009, the loss of $8 million primarily relates to the loss on disposition of two hotels, partially offset by a tax benefit for a settlement of an uncertain tax position related to the sale of an entity several years ago.

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Seasonality and Diversification

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

LIQUIDITY AND CAPITAL RESOURCES

Cash From Operating Activities

     Cash flow from operating activities is generated primarily from management and franchise revenues, operating income from our owned hotels and sales of VOIs and residential units. Other sources of cash are distributions from joint-ventures, servicing financial assets and interest income. These are the principal sources of cash used to fund our operating expenses, principal and interest payments on debt, capital expenditures, dividend payments, property and income taxes and share repurchases. We believe that our existing borrowing availability together with capacity for additional borrowings and cash from operations will be adequate to meet all funding requirements for our operating expenses, principal and interest payments on debt, capital expenditures, dividend payments and share repurchases in the foreseeable future.

     The majority of our cash flow is derived from corporate and leisure travelers and is dependent on the supply and demand in the lodging industry. In a recessionary economy, we experience significant declines in business and leisure travel. The impact of declining demand in the industry and higher hotel supply in key markets could have a material impact on our sources of cash. Our day-to-day operations are financed through a net working capital deficit, a practice that is common in our industry. The ratio of our current assets to current liabilities was 0.80 and 0.74 as of June 30, 2010 and December 31, 2009, respectively. Consistent with industry practice, we sweep the majority of the cash at our owned hotels on a daily basis and fund payables as needed by drawing down on our existing revolving credit facility.

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

     Due to the adoption of ASU Nos. 2009-16 and 2009-17, as discussed previously in Note 2, 2010 cash flow from operating activities includes collections on securitized vacation ownership notes receivable and no longer includes cash flow activity related to Retained Interests.

Cash Used for Investing Activities

     Gross capital spending during the six months ended June 30, 2010 was as follows (in millions):

Maintenance Capital Expenditures:
Owned, leased and consolidated joint venture hotels	$	34
Corporate and information technology		7
Subtotal		41
Vacation Ownership Capital Expenditures (1):
Net capital expenditures for inventory (excluding St. Regis Bal Harbour)	$	(17	)
Capital expenditures for inventory — St. Regis Bal Harbour		75
Subtotal		58
Development Capital (2)		62
Total Capital Expenditures	$	161

(1)	Represents gross inventory capital expenditures of $86 million less cost of sales of $28 million.
(2)	Includes $29 million of expenditures that are classified as Plant, property and equipment, net and $28 million of expenditures that are classified as Investments on the consolidated balance sheet.

35

     Gross capital spending during the six months ended June 30, 2010 included approximately $41 million of maintenance capital, and $62 million of development capital. Investment spending on gross vacation ownership interest (“VOI”) and residential inventory was $86 million, primarily in Bal Harbour, Florida, Rancho Mirage, California and Cancun, Mexico. Our capital expenditure program includes both offensive and defensive capital. Defensive spending is related to repairs, maintenance, and renovations that we believe is necessary to stay competitive in the markets we are in. Other than capital to address fire and life safety issues, we consider defensive capital to be discretionary, although reductions to this capital program could result in decreases to our cash flow from operations, as hotels in certain markets could become less desirable. The offensive capital expenditures, which are primarily related 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 2010 (excluding vacation ownership and residential inventory) will be approximately $150 million for maintenance, renovations, and technology capital. In addition, for the full year 2010, we currently expect to spend approximately $290 million for investment projects, including construction of the St. Regis Bal Harbour and various joint ventures and other investments.

     During the second quarter of 2010, we made a $23 million investment into an unconsolidated joint venture. Our partner in the joint venture contributed an equal amount and the funds were used to pay off a third-party mortgage.

     During the second quarter of 2010, we paid approximately $23 million to acquire a controlling interest in a joint venture in which we had previously held a non-controlling interest (see Note 4).

     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 21 of the consolidated financial statements for discussion regarding the amount of loans we have outstanding with owners, unfunded loan commitments, equity and other potential contributions, surety bonds outstanding, performance guarantees and indemnifications we are obligated under, and investments in hotels and joint ventures.

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

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

     Since 2006 and through June 30, 2010, we have sold 62 hotels realizing proceeds of approximately $5.2 billion in numerous transactions. On April 15, 2010, we completed the sale of two hotels for gross proceeds of $78 million.

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

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Cash Used for Financing Activities

     The following is a summary of our debt portfolio excluding securitized vacation ownership debt (including capital leases) as of June 30, 2010:

	Amount
	Outstanding at			Interest Rate at
	June 30,			June 30,			Average
	2010(a)			2010			Maturity
	(in millions)						(In years)
Floating Rate Debt
Revolving Credit Facility	$	127			3.68	%		3.4
Mortgages and Other		35			6.70	%		2.5
Interest Rate Swaps		500			4.92	%
Total/Average	$	662			5.60	%(b)		3.2
Fixed Rate Debt
Senior Notes	$	2,696			7.26	%		4.6
Mortgages and Other		121			7.55	%		7.7
Interest Rate Swaps		(500	)		7.06	%
Total/Average	$	2,317			7.31	%		4.7
Total Debt
Total Debt and Average Terms	$	2,979			6.93	%		4.6

(a)	Excludes approximately $439 million of our share of unconsolidated joint venture debt, all of which is non-recourse.
(b)	Includes commitment fees on undrawn revolver.

     Due to the adoption of ASU Nos. 2009-16 and 2009-17, as discussed previously in Note 2, our 2010 cash flows from financing activities include the borrowings and repayments of securitized vacation ownership debt.

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

     At June 30, 2010, we had gross debt of $2.979 billion, excluding debt associated with securitized vacation ownership notes receivable. Additionally, we had cash and cash equivalents of $162 million (including $72 million of restricted cash), or net debt of $2.817 billion, compared to net debt of $2.819 billion as of December 31, 2009. As we discussed earlier, we adopted ASU Nos. 2009-16 and 2009-17 on January 1, 2010 and, as a result, at June 30, 2010 we had $375 million of debt associated with securitized vacation ownership receivables. Including this debt associated with securitized vacation ownership receivables, our net debt was $3.192 billion at June 30, 2010.

     On April 20, 2010, we executed a new $1.5 billion Senior Credit Facility (“New Facility”). The New Facility matures on November 15, 2013 and replaces the former $1.875 billion Revolving Credit Agreement, which would have matured on February 11, 2011.

     Our Facilities are used to fund general corporate cash needs. As of June 30, 2010, we have availability of over $1.2 billion under the Facilities. Our ability to borrow under the Facilities is subject to compliance with the terms and conditions under the Facilities, including certain leverage and coverage covenants.

     Based upon the current level of operations, management believes that our cash flow from operations, together with our significant cash balances (approximately $162 million at June 30, 2010, including $72 million of short-term and long-term restricted cash), available borrowings under the Facilities (approximately $1.2 billion), our expected income tax refund of over $200 million and our capacity for additional borrowings will be adequate to meet anticipated requirements for scheduled maturities, dividends, working capital, capital expenditures, marketing and advertising program expenditures, other discretionary investments, interest and scheduled principal payments and share repurchases for the foreseeable future. However, there can be no assurance that we will be able to refinance our indebtedness as it becomes due and, if refinanced, on favorable terms. 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.

37

     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 June 30, 2010 (in millions):

			Amount of Commitment Expiration Per Period
			Less than						After
	Total		1 Year		1-3 Years		3-5 Years		5 Years
Standby letters of credit	$	153	$	151	$	—	$	—	$	2

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

     We enter into forward contracts to manage foreign exchange risk in forecasted transactions based in foreign currencies and to manage foreign exchange risk on intercompany loans that are not deemed permanently invested. We also enter into interest rate swap agreements to hedge interest rate risk (see Note 13).

Item 4. Controls and Procedures.

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

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

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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 financial position or results of operations.

Item 1A. Risk Factors.

     The discussion of our business and operations should be read together with the risk factors contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, 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 June 30, 2010, 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, 2009.

Item 6. Exhibits.

10.1	Credit Agreement dated as of April 20, 2010 among Starwood Hotels & Resorts Worldwide, Inc., certain additional Dollar Revolving Loan Borrowers, certain additional Alternate Currency Revolving Loan Borrowers, various Lenders, Deutsche Bank AG New York Branch, as Administrative Agent, JPMorgan Chase Bank, N.A., as Syndication Agent, and Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Banc of America Securities LLC, as Lead Arrangers and Book Running Managers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 22, 2010).
31.1	Certification Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 – Chief Executive Officer (1)
31.2	Certification Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 – Chief Financial Officer (1)
32.1	Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code – Chief Executive Officer (1)
32.2	Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code – Chief Financial Officer (1)

(1) Filed herewith.

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SIGNATURES

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

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

Date: July 28th, 2010

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14 UNDER THE SECURITIES EXCHANGE
ACT OF 1934

I, Frits van Paasschen, certify that:

1)	I have reviewed this quarterly report on Form 10-Q of Starwood Hotels & Resorts Worldwide, Inc.;
2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 28th, 2010

/s/ Frits van Paasschen Frits van Paasschen
Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14 UNDER THE SECURITIES
EXCHANGE ACT OF 1934

I, Vasant Prabhu, certify that:

1)	I have reviewed this quarterly report on Form 10-Q of Starwood Hotels & Resorts Worldwide, Inc.;
2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 28th, 2010

/s/ Vasant Prabhu Vasant Prabhu
Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code

     I, Frits van Paasschen, the Chief Executive Officer of Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”), certify , pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that (i) the accompanying Form 10-Q of Starwood for the quarter ended June 30, 2010 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Starwood.

/s/ Frits van Paasschen  

Frits van Paasschen 

Chief Executive Officer
Starwood Hotels & Resorts Worldwide, Inc. 

July 28th, 2010

EX-32.2

Exhibit 32.2

Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code

     I, Vasant Prabhu, the Chief Financial Officer of Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”), certify , pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that (i) the accompanying Form 10-Q of Starwood for the quarter ended June 30, 2010 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Starwood.

/s/ Vasant Prabhu  

Vasant Prabhu 

Chief Financial Officer
Starwood Hotels & Resorts Worldwide, Inc. 


July 28th, 2010