Business Segment Information

9 Months Ended

Sep. 30, 2012

Business Segment Information

Note 20. Business Segment Information

On July 1, 2012, the Company completed an internal management reorganization related to its former hotel segment. Whereas its hotel business had previously been included in a single reportable segment, as a result of this reorganization, these results are now segregated into three separate hotel segments: (i) the Americas, (ii) EAME and (iii) Asia Pacific. The vacation ownership and residential business remains a separate segment. Prior period data has been restated to be consistent with the current year presentation.

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

Each hotel segment generates its earnings through a network of owned, leased, consolidated and unconsolidated joint venture hotels and resorts operated primarily under 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 management of the Company’s vacation ownership and residential sales business is conducted by the vacation ownership and residential segment. The vacation ownership and residential segment generates its earnings through the acquisition, development and operation of vacation ownership resorts, marketing and selling of VOIs, and providing financing to customers who purchase such interests.

The CODM primarily evaluates the operating performance of a segment based on segment earnings. The Company defines segment earnings as net income attributable to its common stockholders before interest expense, taxes, depreciation and amortization, as well as the Company’s share of interest, depreciation and amortization associated with its unconsolidated joint ventures. Segment earnings also excludes certain recurring and nonrecurring items, such as restructuring costs, goodwill impairment and other special charges and gains (losses) on asset dispositions and impairments. General, administrative and other expenses directly related to the segments are included in the calculation of segment earnings, whereas corporate general, administrative, and other expenses are not included in the segment earnings calculation. In addition to revenues recorded within its four segments, the Company also has other revenues from managed and franchised properties, which represent the reimbursement of costs incurred on behalf of managed property owners. These revenues, together with the corresponding expenses, are not recorded within the segments. Other corporate unallocated revenues and earnings primarily relate to other license fee income and are also reported outside of segment revenues.

The following tables present revenues, segment earnings, earnings from unconsolidated ventures, capital expenditures, total assets, and investments in unconsolidated ventures for the Company’s reportable segments. Prior periods have been restated to reflect the current period presentation (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Revenues:
Americas(a)	$	392	$	385	$	1,221	$	1,209
EAME		152		164		410		447
Asia Pacific		81		77		239		212
Vacation ownership and residential		204		139		1,026		429
Total segment revenues		829		765		2,896		2,297
Other revenues from managed and franchised hotels		603		589		1,828		1,745
Other corporate revenues – unallocated		23		18		64		51
	$	1,455	$	1,372	$	4,788	$	4,093

(a) Includes revenues of $269 million and $260 million for the three months ended September 30, 2012 and 2011, respectively, and $840 million and $834 million for the nine months ended September 30, 2012 and 2011, respectively, from hotels located in the United States of America. No other country contributed more than 10% of the Company’s total revenues.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Segment earnings:
Americas	$	134		$	124		$	421		$	395
EAME		60			61			141			147
Asia Pacific		47			44			149			129
Vacation ownership and residential		47			32			237			101
Total segment earnings		288			261			948			772
Other corporate unallocated		23			19			65			52
Corporate selling, general, administrative and other – unallocated		(36	)		(39	)		(118	)		(113	)
Gain (loss) on asset dispositions and impairments, net		1			45			(7	)		14
Restructuring, goodwill and other special charges (credits)		—			—			11			—
Adjustments to equity earnings(a)		(10	)		(19	)		(31	)		(43	)
Interest expense		(39	)		(46	)		(150	)		(153	)
Depreciation and amortization		(61	)		(65	)		(186	)		(200	)
Discontinued operations, net		23			(1	)		15			(21	)
Income taxes		(19	)		8			(127	)		14
Net income	$	170		$	163		$	420		$	322

(a) Includes interest expense, depreciation, and amortization expense related to equity earnings not allocated to segment earnings.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Earnings from unconsolidated ventures included in segment earnings is as follows:
Americas	$	6	$	6	$	22	$	21
EAME		1		—		3		2
Asia Pacific		7		7		24		23
Vacation ownership and residential		—		1		1		3
Total earnings from unconsolidated ventures	$	14	$	14	$	50	$	49

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012		2011
Capital expenditures:
Americas	$	59		$	43	$	132	$	96
EAME		23			54		72		81
Asia Pacific		11			3		13		6
Vacation ownership and residential(a)		(1	)		42		7		118
Total segment capital expenditures		92			142		224		301
Other corporate unallocated		16			44		52		88
	$	108		$	186	$	276	$	389

(a) Represents gross inventory capital expenditures less cost of sales of $(7) million and $30 million for the three months ended September 30, 2012 and 2011, respectively, and $(10) million and $77 million for the nine months ended September 30, 2012 and 2011, respectively. Additionally, includes development capital of $6 million and $12 million for the three months ended September 30, 2012 and 2011, respectively, and $17 million and $41 million for the nine months ended September 30, 2012 and 2011, respectively.

	September 30, 2012		December 31, 2011
Assets:
Americas(a)	$	2,353	$	2,307
EAME		899		830
Asia Pacific		577		610
Vacation ownership and residential		1,467		2,056
Total segment assets		5,296		5,803
Other corporate assets		3,913		3,757
	$	9,209	$	9,560

(a) Includes long-lived assets of $1.6 billion and $2.0 billion located in the United States of America. No other country contributed more than 10% of the Company’s total long-lived assets.

	September 30, 2012		December 31, 2011
Investments in unconsolidated ventures:
Americas	$	76	$	70
EAME		25		22
Asia Pacific		139		137
Vacation ownership and residential		21		30
Total investments in unconsolidated ventures	$	261	$	259