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2012 PROXY STATEMENT & 2011 ANNUAL REPORT A BETTER WAY TO EXPERIENCE THE WORLD.

Transcript of €¦ · The St. Regis Bangkok The St. Regis Saadiyat Island Resort, Abu Dhabi The St. Regis Sanya...

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2012 PROXY STATEMENT & 2011 ANNUAL REPORT

A BETTER WAY TO EXPERIENCE THE WORLD.

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The St. Regis Bangkok

The St. Regis Saadiyat Island Resort, Abu Dhabi

The St. Regis Sanya Yalong Bay Resort

The St. Regis Shenzhen

The St. Regis Tianjin

The Chatwal, New York City, a Luxury Collection Hotel

The Liberty Hotel, Boston, a Luxury Collection Hotel

Lugal, Ankara, a Luxury Collection Hotel

The Naka Island, Phuket, a Luxury Collection Resort & Spa

Villarrica Park Lake Hotel & Spa, Villarrica, a Luxury Collection Hotel & Spa

W London – Leicester Square

W Retreat & Spa Bali – Seminyak

W St. Petersburg

W Taipei

Le Méridien Coimbatore

Le Méridien Koh Samui Resort & Spa

Le Méridien Oran Hotel & Convention Centre

The Westin Abu Dhabi Golf Resort & Spa

The Westin Guadalajara

The Westin Houston, Memorial City

The Westin Lima Hotel & Convention Center

The Westin Nanjing

The New York Helmsley Hotel

The Westin Pazhou

The Westin Phoenix Downtown

Sheraton Agoura Hills Hotel

Sheraton At The Falls Hotel, Niagara Falls, New York

Sheraton Baku Airport

Sheraton Bangalore Hotel at Brigade Gateway

Sheraton Beijing Dongcheng Hotel

Sheraton Bijao Beach Resort

Sheraton Changzhou Wujin Hotel

Sheraton Changzhou Xinbei Hotel

Sheraton Chongqing Hotel

Sheraton Columbus Hotel at Capitol Square

Sheraton Daqing Hotel

Sheraton Detroit Metro Airport

Sheraton Guangzhou Hotel

2011 NEW OPENINGS

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Sheraton Guangzhou Huadu Resort

Sheraton Hangzhou Wetland Park Resort

Sheraton Hiroshima Hotel

Sheraton Jinzhou Hotel

Sheraton Kansas City Hotel at Crown Center

Sheraton Montreal Airport Hotel

Sheraton Omaha Hotel

Sheraton Red Deer Hotel

Sheraton Seoul D Cube City Hotel

Sheraton Shanghai Hongkou Hotel

Sheraton Shenzhou Peninsula Resort

Sheraton Stamford Hotel

Sheraton Wilmington South Hotel

Sheraton Zhenjiang Hotel

Aloft Bangkok - Sukhumvit 11

Aloft Bogota Airport

Aloft Coimbatore Singanallur

Aloft Haiyang

Aloft Jacksonville Tapestry Park

Aloft London Excel

Aloft Nanhai, Foshan

Aloft New York Brooklyn

Aloft Zhengzhou Shangjie

Four Points by Sheraton Barcelona Diagonal

Four Points by Sheraton College Station

Four Points by Sheraton Downtown Seattle Center

Four Points by Sheraton Hotel & Serviced Apartments, Pune

Four Points by Sheraton Houston Hobby Airport

Four Points by Sheraton Langkawi Resort

Four Points by Sheraton Long Island City/Queensboro Bridge

Four Points by Sheraton Memphis East

Four Points by Sheraton Minneapolis Airport

Four Points by Sheraton Nashville - Brentwood

Four Points by Sheraton Niagara Falls

Four Points by Sheraton Peoria Downtown

Four Points by Sheraton Qingdao, Chengyang

Four Points by Sheraton San Antonio Airport

Four Points by Sheraton Tripoli

Four Points by Sheraton Visakhapatnam

Four Points by Sheraton Zaporozhye

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Starwood posted another great year in 2011. We grew REVPAR index and room count faster than the industry. We played offense in the marketplace. But we played it safe with our finances, as we enter 2012 with our strongest ever balance sheet. This has been Starwood’s game plan since the crisis has receded, and it is paying off as we further distance ourselves from the competition and accelerate our growth trajectory.

We delivered strong financial results despite a turbulent global economy. As the most global company in our industry, we witness firsthand world events like the Arab Spring, the disaster in Japan or the euro-zone drama. Behind those headlines, though, we see encouraging trend lines. Our REVPAR gains were fueled by rapid economic growth in emerging markets and tight supply in the developed world. The global economic recovery continued through 2011, bringing occupancies close to pre-crisis levels. With many hotels full on weeknights and during peak periods, we saw rates increase. For the full year, higher rates accounted for over half of our REVPAR gains. We are encouraged to see robust demand for business travel, which drives 75% of our total revenue. Corporate profits and cash on hand are at record levels, and companies are scouring the globe in search of growth opportunities.

Against this backdrop, here are just a few highlights from the year:

» We grew Same Store Worldwide REVPAR by 9.7% (or 7.4% in constant dollars)» We gained 140bps in Worldwide REVPAR index» We opened 81 hotels, for a record

20,900 rooms» We signed 112 new deals, bringing our pipeline

to almost 90,000 rooms» We drove guest satisfaction scores to

record levels» We held our SG&A growth below inflation,

up 2.3%

These strong results are thanks to the hard work of our 154,000 employees around the world. Our surveys tell us that our associates have never been more engaged, energized and committed to our global growth. We share a belief that people want a better way to experience the world. Those better experiences drive growth, brand loyalty and market-leading returns.

GLOBAL GROWTHGrowing our footprint of hotels is a key driver of value over the long term, and we will continue to generate and deliver on our pipeline of great new hotels year after year. This momentum gives us the confidence to be selective in where we open hotels and in culling lagging ones from our system. Between 2007 and 2011, Starwood opened 389 hotels. This equates to an average of 8% growth per year, and means over one-third of our properties are newly opened. Bear in mind also that this growth continued even in the wake of the Great Recession of 2008 and 2009. In the midst of the credit crisis, new hotel activity in the developed world ground to a halt. Factoring in the typical three-year gestation period for building a new hotel, you might have expected a drop in new hotel openings today.

Filling the gap were a record number of conversions of existing hotels to our brands in the developed world. We also went from strength to strength in emerging markets. During 2010 and 2011, we opened more hotels in Asia Pacific than our three largest US-based lodging competitors combined. Overall, emerging markets accounted for 61% of our new rooms last year, up from 50% in 2010 and 31% in 2009.

More importantly, the rise of these markets is the single biggest growth opportunity in our lifetimes. Take China, for example, where we are the leading operator of four- and five-star hotels, with almost 100 properties open today and another 100 in the

DEAR FELLOWSTOCKHOLDERS

+ 9.7% SAME STORE

WORLDWIDE REVPAR

+ 140BPS IN WORLDWIDE REVPAR INDEX

81 HOTELS OPENED,

FOR A RECORD

20,900 ROOMS

112 NEW DEALS,

BRINGING OUR PIPELINE

TO ALMOST

90,000 ROOMS

DROVE GUEST SATISFACTION

SCORES TO RECORD LEVELS

SG&A GROWTH BELOW INFLATION,

+ 2.3%

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pipeline. Domestic travel volume there is already roughly equal to the US and likely to double in the next five years. China could one day be our largest market, eclipsing the 480 hotels we have today in the United States.

Two-thirds of the 112 hotel deals we signed in 2011 were in emerging markets. This means we are positioned to lengthen our lead and strengthen our brands with great new hotels. Globalization is adding to the ranks of elite travelers like never before, and our brands have captured more than our fair share of that demand. Our luxury room count doubled during the last five years, which underscores the value of our investments in brands and in loyalty.

A BETTER WAY TO EXPERIENCE THE WORLDAs we sell real estate, we are making a shift from owning hotels to owning guest relationships. Compelling brands, great service and best-in-class properties are three key ingredients to fostering these relationships. Starwood Preferred Guest® (SPG) is what binds our brands and properties together. To great fanfare, we recently announced changes to our SPG program that will deepen our connection to global mega-travelers. Here is how these changes came to life, what it does for our guests and how it creates value for our hotel owners.

In any branded business, the best marketing investments are geared to recruiting and retaining new brand-loyal customers and getting even more business from existing ones. The more targeted and the more focused on their needs, the better. Over the last five years, we’ve doubled our number of elite members, and spending per elite member is up 60%. Today, the top 2% of our guests account for 30% of hotel profits. Our Platinum SPG members give us nearly 50 times the business of our average guest. Our first-mover advantage has enabled us to benefit from the rising wealth around the world. Today, 40% of our elite members live outside the US, and these mega-travelers are more diverse, more informed and more sophisticated than ever.

We engaged in a dialog with these travelers, and what we learned made a lot of sense. High-end travelers want more than just a good deal. They want that personal touch, and to be treated in a special way. Their comments helped us to recast SPG. They told us that not all trips are equal and not all benefits matter. They asked for more milestones,

more reasons to stay after they reached a certain level and more choices. All of these are part of our program. They also wanted to know whether their loyalty with us over time counted for something, so we introduced lifetime status. Our guests asked for a more flexible definition of a stay. So we tested our ability to meet that need, and today we are offering 24-hour check-in for our most elite guests. Even in this digital age, they appreciated a one-on-one contact, which we have made a part of our program for our most loyal guests.

We believe that the changes to SPG will not only set the program apart, but will take loyalty to a whole new level. A great benefit for guests means more business at our hotels. For every dollar, euro or yuan that we spend on the transformation, our experience tells us that we should expect to see over four times that amount in top-line growth. In other words, happy guests mean better returns for our owners, and stronger brands.

DELIVER MARKET-LEADING RETURNSWe are focused on delivering market-leading returns for all of our stakeholders, and we have four financial levers at our disposal. It starts with driving REVPAR premiums, growing our footprint, holding down costs and unlocking the value of our balance sheet. As we have noted, 2011 was a strong year along each of these measures. We made progress in getting cash from the sale of our real estate assets. We sold two hotels and a joint venture in 2011 for net proceeds of $281 million. Other sources of cash include over $200 million from time-share and $74 million from residential units at The St. Regis Bal Harbour Resort.

We expect 2012 to build on our momentum. We will generate cash as we work toward our target of being at least 80% fee-driven. From Bal Harbour and from our timeshare business, we expect to generate $375 million in cash. When it comes to selling our owned hotels, we will continue to be patient and disciplined sellers, searching for the right prices, partners and management contracts.

We also expect to continue to gain share. Our margins will grow, as REVPAR is driven by rising rates. Our corporate customers expect to keep hitting the road in 2012. Corporate negotiated rates are set to be up mid- to high-single digits, and our group meetings are being booked at higher rates as well.

At Starwood, we are sticking to a cautiously confident worldview. Our caution is reflected in our conservative balance sheet and cost base. After all, the world remains an uncertain place. Our confidence is rooted in the long-term growth prospects for high-end travel and for our portfolio of brands. To lengthen our lead in 2012, we will stay on offense, targeting additional REVPAR index gains, opening more rooms than ever, signing the most hotel deals since the beginning of the crisis and further deepening our ties to elite guests.

Thank you for your interest in Starwood. And, of course, we look forward to welcoming you as a Starwood guest in 2012.

FRITS VAN PAASSCHENChief Executive Officer

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.2012 PROXY STATEMENT & 2011 ANNUAL REPORT

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Starwood Hotels & Resorts Worldwide, Inc.One StarPointStamford, CT 06902

March 21, 2012

Dear Stockholder:

We cordially invite you to attend our 2012 Annual Meeting of Stockholders (the “Annual Meeting”), whichwill be held on Thursday, May 3, 2012, at 10:00 a.m., local time, at The St. Regis Bal Harbour Resort, 9703Collins Avenue, Bal Harbour, Florida 33154.

At the Annual Meeting, you will be asked to (i) elect ten director nominees to serve on our board ofdirectors until the 2013 Annual Meeting of Stockholders, (ii) approve, on a non-binding advisory basis, thecompensation of our named executive officers, (iii) ratify the appointment of Ernst & Young LLP as ourindependent registered public accounting firm for the fiscal year ending December 31, 2012 and (iv) act on anyother matters that may be properly presented at the Annual Meeting or any adjournment or postponement thereof.

We hope you will attend the Annual Meeting, but whether or not you are planning to attend, we encourageyou to vote your shares. You can vote in person at the Annual Meeting or authorize proxies to vote your shareseither by telephone, electronically through the Internet, or by completing, signing and returning your proxy cardby mail prior to the Annual Meeting. To ensure your vote is counted, please vote as promptly as possible.

We thank you for your continued support and look forward to seeing you at the Annual Meeting.

Sincerely,

Frits van Paasschen Bruce W. DuncanChief Executive Officer and President Chairman of the Board

YOUR VOTE IS IMPORTANT.PLEASE PROMPTLY SUBMIT YOUR PROXY BY MAIL, TELEPHONE OR OVER THE INTERNET.

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Starwood Hotels & Resorts Worldwide, Inc.One StarPointStamford, CT 06902

NOTICE OF ANNUAL MEETING OF STOCKHOLDERSOF

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

DATE: May 3, 2012

TIME: 10:00 a.m. local time

PLACE: The St. Regis Bal Harbour Resort9703 Collins AvenueBal Harbour, Florida 33154

ITEMS OF BUSINESS: 1. To elect ten directors to serve until the 2013 Annual Meeting ofStockholders and until their successors are duly elected and qualify;

2. To consider and vote upon a proposal to approve, on a non-bindingadvisory basis, the compensation of our named executive officers;

3. To consider and vote upon a proposal to ratify the appointment of Ernst &Young LLP as our independent registered public accounting firm for fiscalyear 2012; and

4. To transact such other business as may properly come before the meeting orany postponement or adjournment thereof.

RECORD DATE: Holders of record at the close of business on March 9, 2012 are entitled to noticeof, and to vote at, the meeting and any adjournment or postponement thereof.

By Order of the Board of Directors,

Kenneth S. SiegelCorporate Secretary

March 21, 2012Stamford, Connecticut

THE BOARD OF DIRECTORS URGES YOU TO VOTE IN PERSON AT THE ANNUAL MEETINGOR TO AUTHORIZE PROXIES TO VOTE YOUR SHARES BY TELEPHONE, THROUGH THEINTERNET OR BY COMPLETING, SIGNING AND RETURNING YOUR PROXY CARD PRIOR

TO THE ANNUAL MEETING.

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TABLE OF CONTENTS

THE ANNUAL MEETING AND VOTING — QUESTIONS AND ANSWERS . . . . . . . . . . . . . . . . . . . . . . 1CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

FIRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . 14BENEFICIAL OWNERSHIP OF PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15BENEFICIAL OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . 16EXECUTIVE AND DIRECTOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18COMPENSATION DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20COMPENSATION COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362011 SUMMARY COMPENSATION TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372011 GRANTS OF PLAN-BASED AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE AND GRANTS OF

PLAN-BASED AWARDS SECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39OUTSTANDING EQUITY AWARDS AT 2011 FISCAL YEAR-END . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402011 OPTION EXERCISES AND STOCK VESTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412011 NONQUALIFIED DEFERRED COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL . . . . . . . . . . . . . . . . . . 43DIRECTOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

AUDIT COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION . . . . . . . . . . . . . . . . . 52CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53SOLICITATION COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53HOUSEHOLDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.ONE STARPOINT

STAMFORD, CT 06902

PROXY STATEMENTFOR

2012 ANNUAL MEETING OF STOCKHOLDERS

Our Board of Directors (the “Board”) solicits your proxy for the 2012 Annual Meeting (the “AnnualMeeting”) of Stockholders of Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (“we,” “us,”“Starwood” or the “Company”), to be held on Thursday May 3, 2012, at 10:00 a.m. local time, at The St. RegisBal Harbour Resort, 9703 Collins Avenue, Bal Harbour, Florida 33154, and at any postponement or adjournmentthereof. Proxy materials or a Notice of Meeting and Internet Availability were first sent to stockholders on orabout March 21, 2012.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS.THE PROXY STATEMENT FOR THE 2012 ANNUAL MEETING OF STOCKHOLDERS AND

THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011ARE AVAILABLE AT www.starwoodhotels.com/corporate/investor_relations.html.

THE ANNUAL MEETING AND VOTING — QUESTIONS AND ANSWERS

What is the purpose of the Annual Meeting?

At our Annual Meeting, stockholders will act upon the matters outlined in the Notice of Annual Meeting ofStockholders. These include the election of the ten director nominees, a non-binding advisory vote to approve thecompensation of our named executive officers, ratification of the appointment of Ernst & Young LLP as ourindependent registered public accounting firm and any other matters that may be properly presented at themeeting. We are not aware of any matters to be presented at the meeting, other than those described in this proxystatement. If any matters not described in the proxy statement are properly presented at the meeting, or anyadjournment or postponement thereof, the proxies may vote your shares pursuant to the discretionary authoritygranted in the proxy.

Why did I receive a notice in the mail regarding the Internet availability of the proxy materials instead ofa paper copy of the proxy materials?

The Securities and Exchange Commission has adopted rules permitting the electronic delivery of proxymaterials. In accordance with those rules, we have elected to provide access to our proxy materials, whichinclude the Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K for the fiscal yearended December 31, 2011, over the Internet at www.starwoodhotels.com/corporate/investor_relations.html. Wesent a Notice of Meeting and Internet Availability of Proxy Materials (the “Notice”) to our stockholders of recordand beneficial owners as of the close of business on March 9, 2012, directing them to a website where they canaccess the proxy materials and view instructions on how to authorize proxies to vote their shares over the Internetor by telephone. Stockholders who previously indicated a preference for paper copies of our proxy materialsgoing forward received paper copies. If you received a Notice but would like to request paper copies of our proxymaterials, you may still do so by following the instructions described in the Notice.

Choosing to receive your proxy materials by email will save us the cost of printing and mailing thedocuments to you and will also help preserve environmental resources. Unless you affirmatively elect to receivepaper copies of our proxy materials in the future by following the instructions included in the Notice, you willcontinue to receive a Notice directing you to a website for electronic access to our proxy materials.

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When and where will the Annual Meeting be held?

The Annual Meeting will be held on May 3, 2012 at 10:00 a.m., local time, at The St. Regis Bal HarbourResort, 9703 Collins Avenue, Bal Harbour, Florida 33154. Seating will begin at 9:00 a.m. If you plan to attendthe Annual Meeting and have a disability or require special assistance, please contact the Company’s InvestorRelations department at (203) 351-3500.

Who can attend the Annual Meeting?

Only stockholders of record at the close of business on March 9, 2012, the record date, or their dulyauthorized proxies, may attend the Annual Meeting. To gain admittance, you must present valid pictureidentification, such as a driver’s license or passport.

If you hold your shares in “street name” (through a broker, bank or other nominee), you will also need tobring a copy of a brokerage statement or a letter from your broker or other nominee (in a name matching yourphoto identification) reflecting your stock ownership as of the record date.

If you are a representative of a corporate or institutional stockholder, you must present valid photoidentification, along with proof that you are a representative of such stockholder.

Please note that cameras, phones, or other similar electronic devices and the bringing of large bags,packages or sound or video recording equipment will not be permitted in the meeting room.

How many shares must be present to hold the Annual Meeting?

In order for us to conduct the Annual Meeting, holders of a majority of the shares entitled to vote as of theclose of business on the record date must be present in person or by proxy. This constitutes a quorum for thetransaction of business at the Annual Meeting.

You are counted as present if you attend the Annual Meeting and vote in person, if you properly authorizeproxies to vote your shares over the Internet or by telephone or if you properly execute and return a proxy cardby mail prior to the Annual Meeting.

Abstentions and broker non-votes are counted as present for purposes of determining whether a quorum ispresent at the Annual Meeting.

If a quorum is not present, the Annual Meeting will be adjourned until a quorum is obtained. Whether or nota quorum is present when the Annual Meeting is convened, the presiding officer may adjourn the AnnualMeeting to a date not more than 120 days after March 9, 2012, the record date, without notice other thanannouncement at the Annual Meeting. If a motion is made to adjourn the Annual Meeting, the persons named asproxies on the enclosed proxy card may vote your shares pursuant to the discretionary authority granted in theproxy.

Who is entitled to vote at the Annual Meeting?

If you were a stockholder of record at the close of business on March 9, 2012, the record date, you areentitled to notice of, and to vote at, the Annual Meeting, or at any adjournment or postponement thereof, on anymatter that is properly submitted to a vote. On March 9, 2012, there were 197,101,127 shares of common stockissued, outstanding and entitled to vote. Each owner of record on the record date is entitled to one vote for eachshare of common stock held.

How do I vote my shares?

In Person. If you are a stockholder of record, you may vote in person at the Annual Meeting. If you are astockholder of record who holds shares in “street name” (through a broker, bank or other nominee), you may alsovote in person at the Annual Meeting provided you have legal authorization from such broker, bank or other

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nominee to vote the shares held on your behalf. Please contact your broker, bank or other nominee for furtherinformation on such authorization. Ballots will be made available and distributed at the Annual Meeting. If youdo not plan to attend the Annual Meeting or do not wish to vote in person, you may authorize proxies to voteyour shares by written proxy, by telephone or over the Internet.

By Written Proxy. If you are a stockholder of record and wish to authorize proxies to vote your shares bywritten proxy, you may request a proxy card at any time by following the instructions on the Notice. If you are astockholder of record who holds shares in “street name” you should receive instructions on how you may vote bywritten proxy from your broker, bank or other nominee.

By Telephone or Internet. If you are a stockholder of record and wish to authorize proxies to vote yourshares by telephone or over the Internet, you may use the toll-free telephone number or access the electronic linkto the proxy voting site by following the instructions on the Notice. If you are a stockholder of record who holdsshares in “street name,” you may authorize proxies to vote your shares by telephone or over the Internet if yourbroker, bank or other nominee makes these methods available, in which case you will receive instructions withthe proxy materials.

Each share represented by a properly completed written proxy or properly authorized proxy by telephone orover the Internet will be voted at the Annual Meeting in accordance with the stockholder’s instructions specifiedin the proxy, unless such proxy has been revoked. If no instructions are specified, the shares will be voted“FOR” the election of each of the ten nominees for director named in this proxy statement, “FOR” the approval,on a non-binding advisory basis, of the compensation of our named executive officers, “FOR” ratification of theappointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2012,and, with respect to other matters to properly come before the meeting, pursuant to the discretionary authoritygranted in the proxy to the proxy holder.

How many Notices will I receive? What does it mean if I receive more than one Notice?

If you are a stockholder of record, you will receive only one Notice (or proxy card upon request) for all ofthe shares of common stock you hold in certificate form, book entry form and in any of our savings plans.

If you are a stockholder of record who holds in “street name”, you will receive one Notice or votinginstruction form for each account you have with a bank or broker. If you hold shares in multiples accounts, youmay need to provide voting instructions for each account. Please sign and return all proxy cards or votinginstruction forms you receive to ensure that all of the shares you hold are voted.

What if I hold shares through the Company’s 401(k) savings plan or employee stock purchase plan?

If you participate in the Company’s Savings and Retirement Plan (the “Savings Plan”) or Employee StockPurchase Plan (the “ESPP”), your proxy card or vote by telephone or over the Internet will serve as a votinginstruction for the trustee of the Savings Plan or ESPP. Whether you authorize vote by proxy card, telephone orover the Internet, you must transmit your vote to the transfer agent on or prior to 11:59 p.m., Eastern Time onApril 30, 2012. If you participate in the Savings Plan and your vote is not received by the transfer agent by thatdate or if you sign and return your proxy card without specifying your voting instructions, the trustee for theSavings Plan will vote your shares in the same proportion as the other shares for which such trustee has receivedtimely voting instructions unless contrary to ERISA. If you participate in the ESPP and your proxy card is notreceived by the transfer agent by that date or if you sign and return your proxy card without specifying yourvoting instructions, the trustee of the ESPP will not vote your shares.

If I submit a proxy, may I later revoke it and/or change my vote?

If you are a stockholder of record, you may revoke your proxy and change your vote at any time before thefinal vote at the Annual Meeting by:

• signing and returning another proxy card with a later date;

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• submitting a proxy on a later date by telephone or over the Internet (only your latest proxy will becounted); or

• attending the meeting and voting in person if you hold your shares in your own name or, provided youhave obtained a legal proxy from your broker, bank or other nominee, if you are a stockholder who holdsin “street name.”

Are votes confidential? Who counts the votes?

The votes of all stockholders are kept confidential except:

• as necessary to meet applicable legal requirements and to assert or defend claims for or against us;

• in case of a contested proxy solicitation;

• if a stockholder makes a written comment on the proxy card or otherwise communicates his or her vote tomanagement; or

• to allow the independent inspector of election to certify the results of the vote.

We have retained Broadridge Financial Solutions to tabulate the votes. We have retained The CarideoGroup, Inc. to act as independent inspector of the election.

How can I confirm my vote was counted?

For the first time, and in furtherance of our commitment to the highest standards of corporate governancepractices, we are offering our stockholders the opportunity to confirm their votes were cast in accordance withtheir instructions. We believe that the implementation of a vote confirmation mechanism promotes a more fairand transparent electoral process. Beginning April 18, 2012 through July 3, 2012, you may confirm your votebeginning twenty-four hours after your vote is received, whether it was cast by proxy card, electronically ortelephonically. To obtain vote confirmation, log onto www.proxyvote.com using your control number (located onyour Notice or proxy card) and receive confirmation on how your vote was cast. If you hold your shares througha bank or brokerage account, the ability to confirm your vote may be affected by the rules of your bank or brokerand the confirmation will not confirm whether your bank or broker allocated the correct number of shares to you.

How does the Board recommend that I vote?

The Board of Directors recommends that you vote:

• “FOR” each of the ten director nominees;

• “FOR” approval of the non-binding advisory vote on the compensation of our named executive officers;and

• “FOR” ratification of the appointment of Ernst & Young LLP as our independent registered publicaccounting firm for fiscal year 2012.

What vote is needed to approve each proposal?

The election of directors requires a plurality of votes cast in the election of directors at the Annual Meeting,either in person or by proxy. The ten nominees who receive the largest number of “FOR” votes will be elected toserve as directors until the 2013 Annual Meeting of Stockholders and until their successors are duly elected andqualify. Stockholders cannot cumulate votes in the election of directors. Brokers are not permitted to vote on theelection of directors without instructions from the beneficial owner, so if you hold your shares through a brokeror other nominee, your shares will not be voted in the election of directors unless you affirmatively vote yourshares in accordance with the voting instructions provided by such broker or other nominee. Instructions to“ABSTAIN” will have no effect on the result of the vote.

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Adoption of a resolution approving, on a non-binding advisory basis, the compensation of our namedexecutive officers requires a majority of the votes cast at the Annual Meeting, either in person or by proxy.Abstentions and broker non-votes will have no effect on the result of the vote. The Board of Directors expects totake the result of the advisory vote into consideration when making future compensation decisions.

The ratification of the appointment of Ernst & Young LLP as our independent registered public accountingfirm for fiscal year 2012 requires a majority of the votes cast at the Annual Meeting, either in person or by proxy.Brokers may vote uninstructed shares on this matter. Abstentions will have no effect on the result of the vote. If amajority of the votes cast are “AGAINST” ratification of the appointment of Ernst & Young, the Board ofDirectors and the Audit Committee will reconsider its appointment.

What are broker non-votes?

If you hold shares through a broker, bank or other nominee, you may give voting instructions to such partyand the broker, bank or other nominee must vote as you directed. If you do not give any instructions, the broker,bank or other nominee may vote on all routine matters, such as ratification of the appointment of an independentregistered public accounting firm, at its discretion. A broker, bank or other nominee, however, may not voteuninstructed shares on non-routine matters, such as the election of directors or an advisory vote on executivecompensation, at its discretion. This is referred to as a broker non-vote.

What happens if a director nominee does not receive a “majority” of the votes cast?

Under our Bylaws, a director nominee, running uncontested, who receives more “WITHHELD” votes than“FOR” votes is required to tender his or her resignation for consideration by the Board of Directors. TheCorporate Governance and Nominating Committee will then make a recommendation to the Board of Directorsas to whether the Board of Directors should accept or reject such resignation. The Board of Directors will act onthe tendered resignation and publicly disclose its decision within 90 days following certification of the electionresults. The director nominee in question will not participate in the deliberation process.

When are stockholder proposals for the 2013 Annual Meeting of Stockholders due?

In order to be eligible for inclusion in our proxy statement for our 2013 Annual Meeting of Stockholders,stockholder proposals must be received no later than November 22, 2012. Stockholder proposals received afterNovember 22, 2012 would be untimely.

In order to be eligible for consideration at our 2013 Annual Meeting of Stockholders but not included in ourproxy statement, stockholder proposals must be received no later than February 17, 2013 nor earlier thanJanuary 23, 2013.

All stockholder proposals must be in writing and received by the deadlines described above at our principalexecutive offices at Starwood Hotels & Resorts Worldwide, Inc., One StarPoint, Stamford, Connecticut 06902,Attention: Kenneth S. Siegel, Corporate Secretary. Stockholder proposals must be in the form provided in ourBylaws and must include the information set forth in the Bylaws. If we do not receive the required informationon a timely basis, the proposal may be excluded from the proxy statement and from consideration at the 2013Annual Meeting of Stockholders.

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CORPORATE GOVERNANCE

Overview

Starwood Resorts & Hotels Worldwide, Inc. is committed to maintaining the highest standards of corporategovernance and ethical business conduct across all aspects of its operations and decision-making processes.

Important documents governing our corporate governance practices include our Charter, Bylaws, CorporateGovernance Guidelines, Board of Directors Committee Charters, Finance Code of Ethics, Code of BusinessConduct and Ethics and Corporate Opportunity and Related Person Transaction Policy. These documents can beaccessed on our website at www.starwoodhotels.com and are discussed in more detail below.

Board Leadership Structure

Our board leadership structure currently consists of a Chairman (who is not the Chief Executive Officer andPresident of the Company), the Chief Executive Officer and President of the Company, nine outside directors andfour committee Chairs. The Board of Directors believes that having a separate independent director serve asChairman promotes clear, independent board leadership and engagement. The Board of Directors also believes itis well served by having the Chief Executive Officer and President of the Company serve as a member of theBoard, as the Chief Executive Officer and President of the Company has primary responsibility for managing theCompany’s day-to-day operations and, consequently, a unique understanding of the Company’s operations, andthe hotel and leisure industry generally.

Board Role in Risk Oversight

The Board of Directors regularly receives reports from members of the Company’s senior managementregarding any strategic, operational, financial, legal, regulatory or reputational risk that the Company may befacing. The Board of Directors then reviews management’s assessment, discusses options for mitigating any suchrisk with management, and directs management to manage and minimize the Company’s exposure. Managementis ultimately responsible for identifying any such risk, and for developing and implementing mitigation plansduring the strategic planning process. The Board’s role is one of oversight. The Board’s committees assist it withthe risk oversight function as follows:

• the Audit Committee oversees the Company’s controls and compliance activities and overseesmanagement’s process for identifying and quantifying risks facing the Company;

• the Compensation and Option Committee oversees risk associated with our compensation policies andpractices and structures the Company’s incentive compensation in a way that discourages the taking ofexcessive risks;

• the Corporate Governance and Nominating Committee oversees Board processes and corporategovernance-related risk; and

• the Capital Committee oversees risks related to our hotel portfolio, capital improvement plans and capitalbudgets, and any investments, divestitures, significant asset sales, mergers and acquisitions and otherextraordinary transactions.

Corporate Governance Policies

In addition to our Charter and Bylaws, we have adopted the Corporate Governance Guidelines (the“Guidelines”), which are posted on our website at www.starwoodhotels.com/corporate/investor_relations.html.The Guidelines address significant corporate governance matters and provide the framework for the Company’scorporate governance policies and practices including: board and committee composition, director and executiveownership guidelines, incentive recoupment and anti-hedging policies, and board and committee assessment. TheCorporate Governance and Nominating Committee is responsible for overseeing and reviewing the Guidelinesand for reporting and recommending to the Board of Directors any changes to the Guidelines.

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We have adopted a Finance Code of Ethics (the “Finance Code”), applicable to our Chief Executive Officer,Chief Financial Officer, Corporate Controller, Corporate Treasurer, Senior Vice President-Taxes and otherpersons performing similar functions. The Finance Code is posted on the Company’s website atwww.starwoodhotels.com/corporate/investor_relations.html. The Company intends to post amendments to, andwaivers from, the Finance Code on its website, as required by applicable rules of the Securities and ExchangeCommission (the “SEC”).

The Company also has a Code of Business Conduct and Ethics (the “Code of Conduct”), applicable to allemployees and directors, that addresses legal and ethical issues that may be encountered in carrying out theirduties and responsibilities. Subject to applicable law, employees are required to report any conduct they believeto be a violation of the Code of Conduct. The Code of Conduct is posted on the Company’s website atwww.starwoodhotels.com/corporate/investor_relations.html.

To further promote transparency and ensure accurate and adequate disclosure, the Company has establisheda Disclosure Committee comprised of certain senior executives, to design, establish and maintain the Company’sinternal controls and other procedures with respect to the preparation of periodic reports required to be filed withthe SEC, earnings releases and other written information that the Company decides to disclose to the investmentcommunity. The Disclosure Committee evaluates the effectiveness of the Company’s disclosure controls andprocedures on a regular basis and maintains written records of its meetings.

The Board of Directors also has certain policies relating to retirement and a change in a director’s principaloccupation. One policy provides that directors who are not employees of the Company or any of its subsidiariesmay not stand for re-election after reaching the age of 72 and that directors who are employees of the Companymust retire from the Board upon retirement from the Company. Another policy provides that in the event adirector changes his or her principal occupation (including through retirement), such director should voluntarilytender his or her resignation to the Board.

The Company indemnifies its directors and officers to the fullest extent permitted by law so that they will befree from undue concern about personal liability in connection with their service to the Company.Indemnification is required pursuant to our Charter and the Company has entered into agreements with itsdirectors and executive officers undertaking a contractual obligation to provide the same.

Director Independence

In accordance with New York Stock Exchange (the “NYSE”) rules, the Board of Directors makes an annualdetermination as to the independence of the directors and director nominees. A director or director nominee is notdeemed independent unless the Board of Directors affirmatively determines that such director or directornominee has no material relationship with the Company, directly or as an officer, stockholder or partner of anorganization that has a relationship with the Company. The Board of Directors observes all criteria forindependence established by the NYSE listing standards and other governing laws and regulations. Whenassessing materiality of a director’s relationship with the Company, the Board of Directors considers all relevantfacts and circumstances, not merely from the director’s standpoint, but from that of the persons or organizationswith which the director has an affiliation, and the frequency or regularity of the services, whether the services arebeing carried out at arm’s length in the ordinary course of business and whether the services are being providedsubstantially on the same terms to the Company as those prevailing at the time from unrelated parties forcomparable transactions. Material relationships can include any commercial, banking, consulting, legal,accounting, charitable or other business relationships each director or director nominee may have with theCompany. In addition, the Board of Directors consults with the Company’s external legal counsel to ensure thatthe Board’s determinations are consistent with all relevant securities laws and other applicable laws andregulations regarding the definition of “independent director,” including but not limited to those set forth inpertinent listing standards of the NYSE.

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Our Board of Directors has determined that each of the directors and director nominees, with the exceptionof Mr. van Paasschen, is “independent” under the NYSE rules and that these directors have no materialrelationship with the Company that would prevent the directors from being considered independent. Mr. vanPaasschen, as Chief Executive Officer and President of the Company, is not an “independent” director under theNYSE rules.

In making this determination, the Board of Directors took into account that three of the non-employeedirectors, Messrs. Aron and Daley and Ms. Galbreath, have no relationship with the Company except as adirector and stockholder of the Company and that the remaining six non-employee directors have relationshipswith companies that do business with the Company that are consistent with the NYSE independence standards aswell as independence standards adopted by the Board of Directors.

Communications with the Board

The Company has adopted a policy which permits stockholders and other interested parties to contact theBoard of Directors. If you are a stockholder or interested party and would like to contact the Board of Directors, youmay send a letter to the Board of Directors, c/o the Corporate Secretary of the Company, One StarPoint, Stamford,Connecticut 06902 or contact us online at www.hotethics.com. It is important that you identify yourself as astockholder or an interested party in the correspondence. If the correspondence contains complaints about ourCompany’s accounting, internal or auditing matters or is directed to the non-employee directors, the CorporateSecretary will advise a member of the Audit Committee. If the correspondence concerns other matters, theCorporate Secretary will forward the correspondence to the director to whom it is addressed or otherwise as wouldbe appropriate under the circumstances, attempt to handle the inquiry directly (for example where it is a request forinformation or a stock-related matter), or not forward the communication altogether if it is primarily commercial innature or relates to an improper or irrelevant topic. At each regularly scheduled Board meeting, the CorporateSecretary or his designee will present a summary of all such communications received since the last meeting thatwere not forwarded and shall make those communications available to the directors upon request. This policy is alsoposted on the Company’s website at www.starwoodhotels.com/corporate/investor_relations.html.

Posted Documents

You may also obtain a free copy of any of the aforementioned posted documents by sending a letter to theInvestor Relations Department of the Company, One StarPoint, Stamford, Connecticut 06902. Please note thatthe information on the Company’s website is not incorporated by reference in this proxy statement.

ELECTION OF DIRECTORS

Under the Company’s Charter, each of the Company’s directors is elected to serve until the next annualmeeting of stockholders and until his or her successor is duly elected and qualifies. Set forth below is informationas of March 9, 2012 regarding the nominees of the Board of Directors for election as a director, which has beenconfirmed by each of them for inclusion in this proxy statement. Each nominee has agreed to serve on the Boardof Directors if elected. If a nominee becomes unavailable for election, proxy holders and stockholders may votefor another nominee proposed by the Board of Directors or, as an alternative, the Board of Directors may reducethe number of directors to be elected at the meeting.

On February 16, 2012, Kneeland C. Youngblood, a director of the Company since 2001, notified the Boardof Directors of his intention not to stand for re-election at the Annual Meeting. Dr. Youngblood will continue toserve on the Board of Directors and the Compensation and Option and Audit Committees of the Board untilimmediately prior to the Annual Meeting.

The director nominees, if elected, will serve until the 2013 Annual Meeting or until their successor is dulyelected and qualifies.

Frits van Paasschen, 51, has been Chief Executive Officer and President of the Company since September2007. From March 2005 until September 2007, he served as President and Chief Executive Officer of MolsonCoors Brewing Company’s largest division, Coors Brewing Company, a brewing company, prior to its merger

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with Miller Brewing Company and the formation of MillerCoors LLC. Prior to joining Coors, from April 2004until March 2005, Mr. van Paasschen worked independently through FPaasschen Consulting, a consultingcompany, and Mercator Investments, a private equity firm, evaluating, proposing, and negotiating private equitytransactions. Prior thereto, Mr. van Paasschen spent seven years at Nike, Inc., a designer, developer and marketerof footwear, apparel and accessory products, most recently as Corporate Vice President/General Manager,Europe, Middle East and Africa from 2000 to 2004. From 1995 to 1997, Mr. van Paasschen served as VicePresident, Finance and Planning at Disney Consumer Products, a business segment of The Walt Disney Companythat extends the Disney brand to a range of merchandise, and earlier in his career was a management consultantfor eight years at the global management consulting firm of McKinsey & Company and the Boston ConsultingGroup. Mr. van Paasschen has been a director of the Company since September 2007.

The Corporate Governance and Nominating Committee considered these qualifications, his valuable insightand unique understanding of the Company’s operations, and the hotel and leisure industry generally, hissignificant public company managerial experience, and a requirement under his employment agreement that heserve on the Company’s Board of Directors (subject to customary procedures and conditions to Boardmembership, including stockholder election) in making the determination that Mr. van Paasschen should be anominee for director of the Company.

Bruce W. Duncan, 60, has been President, Chief Executive Officer and a director of First Industrial RealtyTrust, Inc., a real estate investment trust that engages in the ownership, management, acquisition, sale,development and redevelopment of industrial real estate properties, since January 2009. He was a privateinvestor prior to that time and since January 2006. From April to September 2007, Mr. Duncan served as ChiefExecutive Officer of the Company on an interim basis. He also has been a senior advisor to Kohlberg Kravis &Roberts & Co., a global investment firm, from July 2008 to January 2009. From May 2005 to December 2005,Mr. Duncan was Chief Executive Officer and Trustee of Equity Residential (“EQR”), a publicly traded real estateinvestment trust, and held various positions at EQR from March 2002 to December 2005, including President,Chief Executive Officer and Trustee from January 2003 to May 2005, and President and Trustee from March2002 to December 2002. Mr. Duncan has served as a director of the Company since April 1999.

The Corporate Governance and Nominating Committee considered these qualifications, his experience asChief Executive Officer of other publicly traded companies, and his tenure with the Company in making thedetermination that Mr. Duncan should be a nominee for director of the Company.

Adam M. Aron, 57, has been Chief Executive Officer of the Philadelphia 76ers, a professional basketballteam and Alternate Governor of the National Basketball Association since 2011 and, since 2006, has been theChairman and Chief Executive Officer of World Leisure Partners, Inc., a leisure-related consultancy. From 1996through 2006, Mr. Aron served as Chairman and Chief Executive Officer of Vail Resorts, Inc., an owner andoperator of ski resorts and hotels. Mr. Aron is a director of Norwegian Cruise Line Limited, Prestige CruiseHoldings, Inc. and Cap Juluca Properties Ltd. In the past 5 years, Mr. Aron also served as a director of e-MilesLLC, FTD Group, Inc., Rewards Network, Inc. and Marathon Acquisition Corp. Mr. Aron has been a director ofthe Company since August 2006.

The Corporate Governance and Nominating Committee considered these qualifications, his significantexperience in the leisure travel industry, his financial expertise, and his tenure with the Company in making thedetermination that Mr. Aron should be a nominee for director of the Company.

Charlene Barshefsky, 61, has been Senior International Partner at the law firm of WilmerHale, LLP, inWashington, D.C. since September 2001. From March 1997 to January 2001, Ambassador Barshefsky was theUnited States Trade Representative, the chief trade negotiator and principal trade policymaker for the UnitedStates and a member of the President’s Cabinet. Ambassador Barshefsky has been a director of The Estee LauderCompanies, Inc. since July 2001, American Express Company since July 2001, and Intel Corporation since

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January 2004. Ambassador Barshefsky is a member of the Council on Foreign Relations, a Trustee of theHoward Hughes Medical Institute and a member of the Global Advisory Board of Moelis & Company. In thepast 5 years Ambassador Barshefsky also served as a director of Idenix Pharmaceuticals, Inc. and of the Councilon Foreign Relations. She has been a director of the Company since October 2001.

The Corporate Governance and Nominating Committee considered these qualifications, her significantpublic policy experience, her governance experience as a result of having served on a number of other publiccompany boards of directors and board committees, and her tenure with the Company in making thedetermination that Ambassador Barshefsky should be a nominee for director of the Company.

Thomas E. Clarke, 60, has been President of New Business Ventures of Nike, Inc., a designer, developerand marketer of footwear, apparel and accessory products, since 2001. Dr. Clarke joined Nike in 1980. He wasappointed Divisional Vice President in charge of marketing in 1987, Corporate Vice President in 1990, andserved as President and Chief Operating Officer from 1994 to 2000. Dr. Clarke previously held various positionswith Nike, primarily in research, design, development and marketing. Dr. Clarke has also been a director ofNewell Rubbermaid Inc., a global marketer of consumer and commercial products, since 2003. Dr. Clarke hasbeen a director of the Company since April 2008.

The Corporate Governance and Nominating Committee considered these qualifications, his expertise inbrand marketing, and his tenure with the Company in making the determination that Dr. Clarke should be anominee for director of the Company.

Clayton C. Daley, Jr., 60, spent his entire professional career with The Procter & Gamble Company, aglobal consumer packaged goods company, joining the company in 1974, and has held a number of keyaccounting and finance positions including Chief Financial Officer and Vice Chair for Procter & Gamble;Comptroller, U.S. Operations for Procter & Gamble USA; Vice President and Comptroller of Procter & GambleInternational and Vice President and Treasurer. Mr. Daley retired from Procter & Gamble in October 2009.Mr. Daley has also been a director of Nucor Corporation since 2001 and Foster Wheeler, AG since 2009. In thepast 5 years, Mr. Daley served as a director of Boy Scouts of America. In addition, Mr. Daley is Senior Advisorto TPG Capital. Mr. Daley has been a director of the Company since November 2008.

The Corporate Governance and Nominating Committee considered these qualifications, his experience incorporate strategy and planning for a global consumer products company, his financial expertise, and his tenurewith the Company in making the determination that Mr. Daley should be a nominee for director of the Company.

Lizanne Galbreath, 54, has been Managing Partner of Galbreath & Company, a real estate investment firm,since 1999. From April 1997 to 1999, Ms. Galbreath was Managing Director of LaSalle Partners/Jones LangLaSalle, a real estate services and investment management firm, where she also served as a director. From 1984to 1997, Ms. Galbreath served as a Managing Director, Chairman and Chief Executive Officer of The GalbreathCompany, the predecessor entity of Galbreath & Company. Ms. Galbreath has been a director of the Companysince May 2005.

The Corporate Governance and Nominating Committee considered these qualifications, her expertise in realestate, and her tenure with the Company in making the determination that Ms. Galbreath should be a nominee fordirector of the Company.

Eric Hippeau, 60, has been a Partner with Lerer Ventures, a venture capital fund, since June 2011. From2009 to 2011 he was the Chief Executive Officer of The Huffington Post, a news website. From 2000 to 2009, hewas a Managing Partner of Softbank Capital, a technology venture capital firm. Mr. Hippeau served as Chairmanand Chief Executive Officer of Ziff-Davis Inc., an integrated media and marketing company, from 1993 to March2000 and held various other positions with Ziff-Davis from 1989 to 1993. In the past 5 years, Mr. Hippeau servedas a director of Yahoo! Inc. Mr. Hippeau has been a director of the Company since April 1999.

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The Corporate Governance and Nominating Committee considered these qualifications, his significantexperience as a director (including at many privately held companies), and his tenure with the Company inmaking the determination that Mr. Hippeau should be a nominee for director of the Company.

Stephen R. Quazzo, 52, is the Chief Executive Officer and has been the Managing Director and co-founderof Pearlmark Real Estate Partners, L.L.C., formerly known as Transwestern Investment Company, L.L.C., a realestate principal investment firm, since March 1996. From April 1991 to March 1996, Mr. Quazzo was Presidentof Equity Institutional Investors, Inc., a private investment firm and a subsidiary of Equity Group Investments,Inc. Mr. Quazzo has been a director of the Company since April 1999.

The Corporate Governance and Nominating Committee considered these qualifications, his expertise in realestate, and his tenure with the Company in making the determination that Mr. Quazzo should be a nominee fordirector of the Company.

Thomas O. Ryder, 67, retired as Chairman of the Board of The Reader’s Digest Association, Inc., a globalmedia and direct marketing company, in January 2007, a position he had held since January 1, 2006. Mr. Ryderwas Chairman of the Board and Chief Executive Officer of that company from April 1998 through December 31,2005. In addition, Mr. Ryder was Chairman of the Board and Chairman of the Audit Committee of Virgin MobileUSA, Inc., a wireless service provider, from October 2007 to November 2009. Mr. Ryder was President,American Express Travel Related Services International, a division of American Express Company, whichprovides travel, financial and network services, from October 1995 to April 1998. In addition, he has been adirector of Amazon.com, Inc. since November 2002, Quad/Graphics, Inc. since September 2010, and RPXCorporation since December 2009. In the past 5 years, Mr. Ryder has also served as a director of World ColorPress, Inc., a company acquired by Quad/Graphics, Inc. in July 2010. Mr. Ryder has been a director of theCompany since April 2001.

The Corporate Governance and Nominating Committee considered these qualifications, his financialexpertise, and his tenure with the Company in making the determination that Mr. Ryder should be a nominee fordirector of the Company.

The Board of Directors unanimously recommends a vote “FOR” the election of each of these nominees.

Board Meeting, Committee Meeting and Annual Meeting Attendance

Directors are expected to attend Board of Directors meetings, meetings of committees on which they serveand the annual meeting of stockholders. The Company encourages all directors to attend all meetings andbelieves that attendance at the annual meeting is as important as attendance at meetings of the Board of Directorsand its committees. All of our incumbent directors attended the 2011 Annual Meeting of Stockholders.

During the year ended December 31, 2011, the Board of Directors held five meetings. In addition, directorsattended meetings of individual Board of Directors committees. Each incumbent director who was a member ofthe Board of Directors in 2011 attended at least 75% of the meetings of the Board of Directors and the Board ofDirectors committees on which he or she served.

Board Committees

The Board of Directors has established four standing committees: the Audit Committee, the CapitalCommittee, the Compensation and Option Committee and the Corporate Governance and NominatingCommittee. Each of the standing committees operates pursuant to a written charter adopted by the Board, whichis available on the Company’s website at www.starwoodhotels.com/corporate/investor_relations.html. Eachcommittee’s principal functions are described below:

Audit Committee. The Audit Committee, which has been established in accordance withSection 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is currently

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comprised of Messrs. Daley (chairperson), Aron, Clarke and Youngblood, all of whom are “independent”directors, as determined by the Board in accordance with the NYSE listing requirements and applicable federalsecurities laws. The Board of Directors has determined that each of Messrs. Daley and Aron is an “auditcommittee financial expert” under federal securities laws. The Board of Directors has adopted a written charterfor the Audit Committee which states that the Audit Committee provides oversight regarding accounting,auditing and financial reporting practices of the Company. The Audit Committee selects and engages theCompany’s independent registered public accounting firm to audit the Company’s annual consolidated financialstatements and discusses with it the scope and results of the audit. The Audit Committee also discusses with theindependent registered public accounting firm, and with management, financial accounting and reportingprinciples, policies and practices and the adequacy of the Company’s accounting, financial, operating anddisclosure controls. The Audit Committee met nine times during 2011.

Capital Committee. The Capital Committee is currently comprised of Mr. Quazzo (chairperson),Ms. Galbreath and Messrs. Hippeau and Ryder, all of whom are “independent” directors, as determined by theBoard in accordance with the NYSE listing requirements and applicable federal securities laws. The CapitalCommittee was established in November 2005 to exercise some of the power of the Board relating to, amongother things, capital plans and needs, mergers and acquisitions, divestitures and other significant corporateopportunities between meetings of the Board. The Capital Committee met six times during 2011.

Compensation and Option Committee. Under the terms of its charter, the Compensation and OptionCommittee (the “Compensation Committee”) is required to consist of three or more members of the Board whomeet the independence requirements of the NYSE, are “non-employee directors” pursuant to Exchange ActRule 16b-3, and are “outside directors” for purposes of Section 162(m) of the Internal Revenue Code of 1986, asamended (the “Code”). The Compensation Committee is currently comprised of Messrs. Aron (chairperson),Clarke, Daley, Ryder and Youngblood, all of whom are “independent” directors, as determined by the Board inaccordance with the NYSE listing requirements and applicable federal securities laws. The CompensationCommittee makes recommendations to the Board with respect to the salaries and other compensation to be paidto the Company’s executive officers and other members of senior management, and administers the Company’semployee benefits plans, including the Company’s 2004 Long-Term Incentive Compensation Plan. TheCompensation Committee met six times during 2011.

Corporate Governance and Nominating Committee. The Corporate Governance and NominatingCommittee (the “Governance Committee”) is currently comprised of Ambassador Barshefsky (chairperson),Ms. Galbreath, and Messrs. Duncan and Hippeau, all of whom are “independent” directors, as determined by theBoard in accordance with the NYSE listing requirements and applicable federal securities laws. The GovernanceCommittee, operating pursuant to a written charter, was established in May 2004 and combines the functions ofthe Corporate Governance Committee and the Nominating Committee. The Governance Committee establishes,or assists in the establishment of, the Company’s governance policies (including policies that govern potentialconflicts of interest) and monitors and advises the Company as to compliance with those policies. TheGovernance Committee reviews, analyzes, advises and makes recommendations to the Board with respect tosituations, opportunities, relationships and transactions that are governed by such policies, such as opportunitiesin which a director or executive officer or their affiliates has a personal interest. In addition, the GovernanceCommittee is responsible for making recommendations for candidates to the Board (taking into accountsuggestions made by officers, directors, employees and stockholders), recommending directors for service onBoard committees, developing and reviewing background information for candidates, and makingrecommendations to the Board of Directors for changes to the Guidelines related to the nomination orqualifications of directors or the size or composition of the Board of Directors. The Governance Committee metfive times during 2011.

There are no firm prerequisites to qualify as a candidate for the Board, although the Board of Directorsseeks a diverse group of candidates who possess the background, skills and expertise relevant to the business ofthe Company, or candidates that possess a particular geographical or international perspective. The Board of

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Directors looks for candidates with qualities that include strength of character, an inquiring and independentmind, practical wisdom and mature judgment. The Board of Directors seeks to insure that at least two-thirds ofthe directors are independent under the Guidelines, and that members of the Audit Committee meet the financialliteracy requirements under the rules of the NYSE and at least one of them qualifies as an “audit committeefinancial expert” under applicable federal securities laws. The Governance Committee does not have a set policyfor considering or weighing diversity in identifying nominees but does seek to have a diversity of backgrounds,skills and perspectives among Board members, and considers how the background, skills and perspectives of thenominee would contribute to the total mix of backgrounds, skills and perspectives that would be available to theBoard as a whole. The Governance Committee reviews the qualifications and backgrounds of the directors andthe overall composition of the Board on an annual basis, and recommends to the full Board of Directors the slateof directors to be recommended for nomination for election at the next annual meeting of stockholders.

The Board of Directors does not believe that its members should be prohibited from serving on boards and/or committees of other organizations, and the Board of Directors has not adopted any guidelines limiting suchactivities. However, the Governance Committee and the full Board of Directors will take into account the natureof, and time involved in, a director’s service on other boards in evaluating the suitability of individual directorsand in making its recommendations to Company stockholders. However, service on boards and/or committees ofother organizations must be consistent with the Company’s conflict of interest policies.

The Governance Committee may from time-to-time utilize the services of a search firm to help identify andevaluate candidates for director who meet the criteria and qualifications outlined above.

The Governance Committee will consider candidates for nomination recommended by stockholders andsubmitted for consideration. Although it has no formal policy regarding stockholder candidates, the GovernanceCommittee believes that stockholder candidates should be reviewed in substantially the same manner as othercandidates.

Under the Company’s current Bylaws, stockholder nominations of individuals to be elected as directors atan annual meeting of our stockholders must be made in writing and delivered to the Corporate Secretary of theCompany, One StarPoint, Stamford, Connecticut 06902, and be received by the Corporate Secretary no later thanthe close of business on the 75th day nor earlier than the close of business on the 100th day prior to the firstanniversary of the preceding year’s annual meeting. In accordance with the Company’s current Bylaws, inaddition to other required information specified in the Bylaws, such notice shall set forth as to each proposednominee (i) the name, age and business address of each nominee proposed in such notice, and a statement as tothe qualification of each nominee, (ii) the principal occupation or employment of each such nominee, (iii) thenumber of shares which are beneficially owned and owned of record by the nominating stockholder, and (iv) anyother information concerning the nominee that must be disclosed of nominees in proxy solicitations regulated byRegulation 14A of the Exchange Act, including, without limitation, such person’s written consent to beingnamed in the proxy statement as a nominee and to serving as a director if elected.

The Company provides a comprehensive orientation for all new directors. The process involves a corporateoverview, one-on-one meetings with members of senior management and an orientation meeting. In addition, alldirectors are given written materials providing information on the Company’s business, its operations anddecision-making processes.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires that the Company’s directors and executive officers, and personswho own more than 10 percent of the outstanding shares of the Company, file with the SEC (and provide a copyto the Company) certain reports relating to their ownership of shares.

To the Company’s knowledge, based solely on a review of the copies of these reports furnished to theCompany for the fiscal year ended December 31, 2011, and written representations from our directors andexecutive officers, all Section 16(a) filing requirements applicable to its directors, executive officers and greaterthan 10 percent beneficial owners were complied with for the most recent fiscal year.

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RATIFICATION OF APPOINTMENT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors has appointed and is requesting ratification by stockholders of the appointment ofErnst & Young LLP (“Ernst & Young”) as the Company’s independent registered public accounting firm forfiscal year 2012. While not required by law, the Board is asking its stockholders to ratify the selection of Ernst &Young as a matter of good corporate governance practice. Representatives of Ernst & Young are expected to bepresent at the Annual Meeting, will have an opportunity to make a statement, if they desire to do so, and will beavailable to respond to appropriate questions. If the appointment of Ernst & Young is not ratified, the Board andthe Audit Committee will reconsider the selection of Ernst & Young as the independent registered publicaccounting firm for fiscal year 2012.

The Board of Directors unanimously recommends a vote “FOR” ratification of the appointment of Ernst &Young as the Company’s independent registered public accounting firm for fiscal year 2012.

ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION

The Board of Directors is committed to the highest standards of corporate governance and recognizes thesignificant interest of stockholders and investors in executive compensation matters.

The Company has designed its executive compensation programs to attract, motivate, reward and retain thesenior management talent required to achieve our corporate objectives and increase stockholder value. Webelieve that our compensation programs are centered on pay-for-performance principles and are strongly alignedwith the long-term interests of our stockholders. See the discussion of the compensation of our named executiveofficers in the section entitled Compensation Discussion and Analysis beginning on page 20 of this proxystatement.

At last year’s annual meeting, we provided our stockholders with the opportunity to cast a non-bindingadvisory vote regarding the compensation of our named executive officers as disclosed in the proxy statement forthe 2011 Annual Meeting of Stockholders. Our stockholders overwhelmingly approved the proposal, with morethan 96% of the votes cast in favor of the proposal. We also asked our stockholders to indicate if we should holda “say-on-pay” vote every one, two or three years. Consistent with the recommendation of our Board ofDirectors, our stockholders indicated by non-binding advisory vote their preference to hold a “say-on-pay” voteannually. After consideration of the 2011 voting results, and based upon its prior recommendation, our Board ofDirectors elected to hold “say-on-pay” votes on an annual basis. Accordingly, this year we are again asking ourstockholders to indicate their support for the compensation of our Chief Executive Officer, Chief FinancialOfficer and our three most highly compensated executive officers, as determined for 2011 (the “NamedExecutive Officers”) as disclosed in the Compensation Discussion and Analysis, compensation tables andnarrative discussion of this proxy statement, as required by Section 14A of the Exchange Act. The “say-on-pay”vote is not intended to address any specific item of compensation, but, rather, the overall compensation of ourNamed Executive Officers and the philosophy, policies and practices related thereto. We expect to hold the next“say-on-pay” vote in connection with our 2013 Annual Meeting of Stockholders.

Accordingly, we are asking our stockholders to vote “FOR” the following resolution at the Annual Meeting:

“RESOLVED, that the Company’s stockholders hereby approve, on a non-binding advisory basis, thecompensation paid to our Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K,including the Compensation Discussion and Analysis, compensation tables and narrative discussion in our proxystatement for the 2012 Annual Meeting of Stockholders.”

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This “say-on-pay” vote is advisory, and therefore is not binding on the Company, the CompensationCommittee or the Board of Directors. However, the Compensation Committee and the Board of Directors valuethe opinions of our stockholders and expect to consider the outcome of the “say-on-pay” vote when makingfuture compensation decisions.

The Board of Directors unanimously recommends a vote “FOR” the approval, on a non-binding advisorybasis, of the executive compensation program for the Company’s Named Executive Officers as disclosed in theCompensation Discussion and Analysis, compensation tables and narrative discussion of this proxy statement.

BENEFICIAL OWNERSHIP OF PRINCIPAL STOCKHOLDERS

The table below shows the number of Company shares beneficially owned by principal stockholders whobeneficially own more than five percent of the Company’s outstanding shares as of March 9, 2012. Theinformation in this table is based upon the latest filings of either a Schedule 13D, Schedule 13G or Form 13F (oramendments thereto) as filed by the respective stockholder with the SEC as of the date stated in the belowfootnotes.

We calculate the stockholder’s percentage of ownership assuming the stockholder beneficially owned thatnumber of shares on March 9, 2012, the record date for the Annual Meeting. Unless otherwise indicated, thestockholder had sole voting and dispositive power over the shares.

Name and Address of Beneficial OwnerAmount and Nature ofBeneficial Ownership

Percentof Class

T. Rowe Price Associates, Inc.(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,508,619 9.90%100 E. Pratt StreetBaltimore, MD 21202

Waddell & Reed Financial, Inc.(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,253,864 8.25%6300 Lamar AvenueOverland Park, KS 66202

The Vanguard Group, Inc.(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,379,391 5.27%100 Vanguard Blvd.Malvern, PA 19355

(1) Based on information contained in a Schedule 13G/A, dated February 14, 2012 (the “Price Associates 13G/A”), filed by T. Rowe Price Associates, Inc. (“Price Associates”) with the SEC, with respect to theCompany, reporting beneficial ownership as of December 31, 2011. The Price Associates 13G/A reportsthat Price Associates has sole voting power over 6,587,053 shares and sole dispositive power over19,508,619 shares. These securities are owned by various individual and institutional investors which PriceAssociates serves as an investment adviser with power to direct investments and/or sole power to vote thesecurities. For the purposes of the reporting requirements of the Exchange Act, Price Associates is deemedto be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact,the beneficial owner of such securities.

(2) Based on information contained in a Schedule 13G/A, dated February 14, 2012 (the “Waddell & Reed 13G/A”), filed by Waddell & Reed Financial, Inc. (WDR”), Waddell & Reed Financial Services, Inc.(“WRFSI”), Waddell & Reed, Inc. (“WRI”), Waddell & Reed Investment Management Company(“WRIMCO”), and Ivy Investment Management Company (“IICO”) (collectively “Waddell & Reed”) withthe SEC, with respect to the Company reporting beneficial ownership as of December 31, 2011. TheWaddell & Reed 13G/A reports that Waddell & Reed has sole voting power and sole dispositive power over16,253,864 shares as follows: WDR holds 16,253,864 shares indirectly; WRFSI holds 3,646,205 sharesindirectly; WRI holds 3,646,205 shares indirectly; WRIMCO holds 3,646,205 shares directly; and IICOholds 12,607,659 shares directly.

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(3) Based on information contained in a Schedule 13G/A, dated February 6, 2012 (the “Vanguard 13G/A”) filedby The Vanguard Group, Inc. (“Vanguard”) with the SEC, with respect to the Company, reporting beneficialownership as of December 31, 2011. The Vanguard 13G/A reports that Vanguard has sole voting powerover 271,130 shares, sole dispositive power over 10,108,261 shares and shared dispositive power over271,130 shares. Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of Vanguard, holds271,130 shares and directs the voting of those shares.

BENEFICIAL OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

The table below shows the beneficial ownership of Company shares of (i) each director, (ii) each nomineefor director, (iii) our Chief Executive Officer, our Chief Financial Officer and each of the other three most highlypaid executive officers and (iv) all directors and executive officers as a group, as of January 31, 2012. Beneficialownership includes any shares that a director, nominee for director or executive officer may acquire pursuant tostock options and other derivative securities that are exercisable on that date or that will become exercisablewithin 60 days thereafter. Unless otherwise indicated, the stockholder had sole voting and dispositive power overthe shares.

Name (Listed alphabetically)Amount and Nature ofBeneficial Ownership Percent of Class

Adam M. Aron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,378(1)(2) (3)Matthew E. Avril . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,451(1) (3)Charlene Barshefsky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,769(1)(4) (3)Thomas E. Clarke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,254(1) (3)Clayton C. Daley, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,286(1)(4)(5) (3)Bruce W. Duncan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,979(1)(4)(6) (3)Lizanne Galbreath . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,245(1)(4) (3)Eric Hippeau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,069(1)(4) (3)Vasant M. Prabhu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433,130(1) (3)Stephen R. Quazzo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,509(1)(7) (3)Thomas O. Ryder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,814(1)(4) (3)Kenneth S. Siegel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287,451(1) (3)Simon M. Turner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393,345(1)(8) (3)Frits van Paasschen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 845,863(1) (3)Kneeland C. Youngblood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,128(1) (3)All Directors, Nominees for Directors and executive officers as a group

(17 persons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,040,619(1) (3)

(1) Includes shares subject to presently exercisable options, and options, restricted stock and restricted stockunits that will become exercisable or vest within 60 days of January 31, 2012, as follows: 32,970 forMr. Aron; 127,451 for Mr. Avril; 29,614 for Ambassador Barshefsky; 112,047 for Mr. Jeffrey M. Cava;24,860 for Dr. Clarke; 20,573 for Mr. Daley; 76,014 for Mr. Duncan; 40,593 for Ms. Galbreath; 40,593 forMr. Hippeau; 117,151 for Mr. Philip P. McAveety; 409,780 for Mr. Prabhu; 40,593 for Mr. Quazzo; 40,593for Mr. Ryder; 223,662 for Mr. Siegel; 366,405 for Mr. Turner; 843,832 for Mr. van Paasschen and 29,614for Dr. Youngblood.

(2) Includes 10,000 shares owned jointly with spouse.

(3) Less than 1%.

(4) Amount includes the following number of “phantom” stock units received as a result of the followingdirectors’ election to defer directors’ annual fees: 4,056 for Ambassador Barshefsky; 4,198 for Mr. Daley;7,300 for Mr. Duncan; 12,623 for Ms. Galbreath; 25,625 for Mr. Hippeau; and 20,579 for Mr. Ryder.

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(5) Includes 3,000 shares held by the Clayton C. Daley, Jr. Revocable Trust of which Mr. Daley is a trustee andbeneficiary.

(6) Includes 121,866 shares held by The Bruce W. Duncan Revocable Trust of which Mr. Duncan is a trusteeand beneficiary.

(7) Includes 33,020 shares held by a trust of which Mr. Quazzo is settlor and over which he shares investmentcontrol, and 397 shares owned by Mr. Quazzo’s wife in a retirement account.

(8) Includes 19,958 shares owned jointly with spouse.

The following table provides information as of December 31, 2011 regarding shares that may be issuedunder equity compensation plans maintained by the Company.

Equity Compensation Plan Information-December 31, 2011

Plan Category

Number of Securitiesto be Issued Upon

Exercise ofOutstanding Options,Warrants and Rights

(a)

Weighted-AverageExercise Price of

Outstanding Options,Warrants and Rights

(b)

Number of SecuritiesRemaining Available forFuture Issuance Under

Equity Compensation Plans(Excluding Securities

Reflected in Column (a))(c)

Equity compensation plans approved bysecurity holders . . . . . . . . . . . . . . . . . . . . . 13,567,571 $15.14 55,717,431(1)

Equity compensation plans not approved bysecurity holders . . . . . . . . . . . . . . . . . . . . . — — —

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,567,571 $15.14 55,717,431

(1) Does not include shares underlying deferred restricted stock units that vest over three years and may besettled in shares that were granted pursuant to the Annual Incentive Plan for Certain Executives, amendedand restated as of December 2008 (the “Executive Plan”). The Executive Plan, as it was approved bystockholders at the 2010 Annual Meeting, did not limit the number of deferred restricted stock units thatmay be issued. In addition, 10,048,154 shares remain available for issuance under our Employee StockPurchase Plan, a stock purchase plan meeting the requirements of Section 423 of the Code.

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EXECUTIVE AND DIRECTOR COMPENSATION

I. EXECUTIVE OFFICERS

Our executive officers and their positions as of March 9, 2012 are:

Name(listed alphabetically, afterChief Executive Officer) Position

Frits van Paasschen . . . . . . . . . . . . . . . . . Chief Executive Officer and President and a DirectorMatthew E. Avril . . . . . . . . . . . . . . . . . . . President, Hotel GroupJeffrey M. Cava . . . . . . . . . . . . . . . . . . . . Executive Vice President and Chief Human Resources

OfficerPhilip P. McAveety . . . . . . . . . . . . . . . . . Executive Vice President and Chief Brand OfficerVasant M. Prabhu . . . . . . . . . . . . . . . . . . Vice Chairman and Chief Financial OfficerKenneth S. Siegel . . . . . . . . . . . . . . . . . . Chief Administrative Officer, General Counsel and

SecretarySimon M. Turner . . . . . . . . . . . . . . . . . . . President, Global Development

The biography for Mr. van Paasschen, our Chief Executive Officer and President, follows the table listingour directors under the section entitled Election of Directors beginning on page 8 of this proxy statement.Biographies for our other executive officers follow:

Matthew E. Avril. Mr. Avril, 51, has been President, Hotel Group since September 2008. From May 2005until August 2008, he was President and Managing Director of Operations for Starwood Vacation Ownership,Inc. (“SVO”), a subsidiary of the Company that focuses on the development and operation of vacation ownershipresorts and marketing, selling and financing vacation ownership interests in the resorts; and immediately prior,from September 2002 to May 2005, served as Senior Vice President for SVO. Mr. Avril was with Vistana, Inc.(SVO’s predecessor entity) for the ten year period from January 1989 to December 1998, serving as its ExecutiveVice President and Chief Operating Officer and, prior to that, as the company’s Chief Financial Officer. Prior tojoining Vistana, Mr. Avril, a certified public accountant, spent five years with KPMG Peat Marwick, a publicaccounting firm. Mr. Avril is also a member of the board of directors of API Technologies Corp.

Jeffrey M. Cava. Mr. Cava, 60, has been Executive Vice President and Chief Human Resources Officersince May 2008. Mr. Cava served as Executive Vice President and Chief Human Resources Officer for Wendy’sInternational, Inc., a restaurant franchising company specializing in quick-service hamburgers, from June 2003 toMay 2008. Prior to joining Wendy’s, Mr. Cava was Vice President and Chief Human Resources Officer for Nike,Inc., a designer, developer and marketer of footwear, apparel and accessory products; Vice President HumanResources for The Walt Disney Company, Consumer Products Group, a business segment of The Walt DisneyCompany that extends the Disney brand to a range of merchandise; and Vice President of Global Staffing,Training and Development for ITT Sheraton Corporation, a hotel company. Mr. Cava is also a member of theboard of directors and chairs the compensation committee of The Society for Human Resources Management, anon-profit global human resources professional organization.

Philip P. McAveety. Mr. McAveety, 45, has been Executive Vice President and Chief Brand Officer sinceApril 2008. Prior to joining the company, Mr. McAveety was Global Brand Director of Camper, SL, a fashionfootwear company, from January 2007 until March 2008. From July 1997 until December 2006, he served asVice President, Brand Marketing, Europe, Middle East and Africa at Nike, Inc., a designer, developer andmarketer of footwear, apparel and accessory products.

Vasant M. Prabhu. Mr. Prabhu, 52, has been Vice Chairman and Chief Financial Officer since February2010. Prior to that, he was Executive Vice President and Chief Financial Officer since January 2004. Prior tojoining the Company, Mr. Prabhu served as Executive Vice President and Chief Financial Officer for SafewayInc., a North American food and drug retailer specializing in grocery and general merchandise, from September2000 through December 2003. Mr. Prabhu was previously the President of the Information and Media Group at

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the McGraw-Hill Companies, Inc., a provider of information services for the financial, education, commercial,and commodities market worldwide, from June 1998 to August 2000, and held several senior positions atdivisions of PepsiCo, Inc., a global food, snack and beverage company, from June 1992 to May 1998. FromAugust 1983 to May 1992 he was a partner at Booz Allen Hamilton Inc., an international management consultingfirm. Mr. Prabhu is a member of the board of directors of Mattel, Inc.

Kenneth S. Siegel. Mr. Siegel, 56, has been Chief Administrative Officer and General Counsel since May2006. From November 2000 to May 2006, Mr. Siegel held the position of Executive Vice President and GeneralCounsel. In February 2001, he was also appointed as the Secretary of the Company. Mr. Siegel was formerly theSenior Vice President and General Counsel of Gartner, Inc., a provider of research and analysis on informationtechnology industries, from January 2000 to November 2000. Prior to that time, he served as Senior VicePresident, General Counsel and Corporate Secretary of IMS Health Incorporated, an information servicescompany, and its predecessors from February 1997 to December 1999. Prior to that time, Mr. Siegel was aPartner in the law firm of Baker & Botts, LLP. Mr. Siegel is also a Trustee of Cancer Hope Network, a non-profitentity, a Trustee of Minority Corporate Counsel Association, and a Trustee of the American Hotel & LodgingEducational Foundation.

Simon M. Turner. Mr. Turner, 50, has been President, Global Development since May 2008. From June1996 to April 2008, he was a principal of Hotel Capital Advisers, Inc., a hotel investment advisory firm. Duringthis period, Mr. Turner served on the board of directors of Four Season Hotels, Inc., serving as a member of theHuman Resources Committee and the Audit Committee. He was also a member of the board of directors ofFairmont Raffles Hotels International and was chairman of the Audit Committee. From July 1987 to May 1996,Mr. Turner was a member of the Investment Banking Department of Salomon Brothers, based in both New Yorkand London.

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II. COMPENSATION DISCUSSION AND ANALYSIS

Executive SummaryOur executive compensation program is designed to attract, motivate and retain executive officers and

other key employees who contribute to the Company’s success in a way that rewards performance andaligns pay with our stockholders’ long-term interests. The Compensation Committee reviews theCompany’s overall compensation strategy for all employees, including our Named Executive Officers, on anannual basis. In the course of this review, the Compensation Committee considers the Company’s currentcompensation programs and whether to modify them or introduce new programs to better meet theCompany’s overall compensation objectives.

Key highlights of our executive compensation program for fiscal 2011 included:Pay Decisions

• Base Salaries Remained Generally Unaltered — the base salary of Mr. van Paasschen was the same asfiscal 2010; the base salaries of the other Named Executive Officers remained relatively unchangedcompared to fiscal 2010, with the exception of Mr. Turner, whose salary went up 15.6% when comparedto fiscal 2010, to more closely align with the median base salary of executives at peer companies.

• Incentive Pay Largely Contingent upon the Company’s Performance — 75% of our NamedExecutive Officers’ total target annual bonus opportunity was dependent upon the Company’sfinancial results, up 15% for Mr. van Paasschen and 25% for the other Named Executive Officerscompared to fiscal 2010; maximum payout eligibility for the Company financial portion of theannual bonus was 98% for 2011, compared with 120% in 2010.

• Decrease in Equity Grants — the total equity grants made to our Named Executive Officersdecreased by approximately 2% when compared to fiscal 2010.

• CEO’s Stock Ownership Requirement Increased — Mr. van Paasschen’s stock ownershiprequirement was increased to a multiple of six times his base salary, up one multiple when comparedto fiscal 2010, to keep in line with market practices.

Pay Practices• Minimum Compensation Levels in our Executive Plan Removed to Better Align Executive

Compensation to the Company’s Financial Results — minimum compensation levels tied to theCompany’s financial results were previously removed so that bonus pool funding is based solely onthe Company’s financial performance.

• No More Tax Gross-Ups — except for tax gross-ups required to be paid under existing employmentagreements, the Compensation Committee does not intend to approve any other tax gross-ups.

• All Incentive Awards Subject to Clawback — all incentive awards received by any senior vicepresident or more senior officer, including our Named Executive Officers, remain subject to aclawback policy that mandates repayment in certain instances where there is a restatement of theCompany’s financial statements.

• No Hedging Activities Linked to Company Stock — officers and directors of the Company,including our Named Executive Officers, were required to refrain from engaging in any hedging ormonetization transaction directly linked to Company stock.

• Stock Ownership Requirements — all of our executive officers, including our Named ExecutiveOfficers, were required to hold a number of shares having a market value equal to or greater than amultiple of each executive’s base salary.

• Formal Evaluation Process — the Compensation Committee conducted a formal performance review ofMr. van Paasschen and determined whether and to what extent the Company’s financial performancegoals were achieved; Mr. van Paasschen, together with the Chief Human Resources Officer and withoversight and input from the Compensation Committee conducted a formal performance review of theother Named Executive Officers through the Performance Management Process.

• Compensation Consultants Retained — the Compensation Committee retained MeridianCompensation Partners, LLC to assist it in the review and determination of compensation awards forthe Named Executive Officers.

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A. Overview of Starwood’s Executive Compensation Program

1. Program Objectives and Other Considerations

Objectives. As a consumer lifestyle company with a branded hotel portfolio at its core, the Companyoperates in a competitive, dynamic and challenging business environment. In step with this mission andenvironment, the Company’s compensation program for our Named Executive Officers has the following keyobjectives:

• Attract and Retain: We seek to attract and retain talented executives from within and outside thehospitality industry who understand the importance of innovation, brand enhancement and consumerexperience. We are working to reinvent the hospitality industry, and one element of this endeavor is tobring in key talent from other industries. Therefore, overall program competitiveness must take theseother markets into account.

• We broadly target total compensation opportunities at the median (50th percentile) of the market fortarget performance levels; however, we also review the range of values around the median, includingthe 25th and 75th percentiles. However, we believe that benchmarking alone does not provide acomplete basis for establishing compensation levels or design practices.

• Actual individual compensation may be above or below targeted levels based on Company andindividual performance, key responsibilities, unique market demands, and experience level.

• Motivate: We seek to motivate our executives to sustain high performance and achieve Companyfinancial and strategic/operational goals over the course of business cycles in various market conditions.

• However, our compensation programs are designed to not encourage excessive risk taking; we assesscompensated-related risk annually. In addition, we have a policy which allows us to recoupincentives paid in the event of a financial restatement. See the section entitled Potential Impact onCompensation for Executive Misconduct beginning on page 33 of this proxy statement.

• Align Interests: We endeavor to align the interests of stockholders and our executives by linkingexecutive compensation to the Company’s annual business results and stock performance. Moreover, westrive to keep the executive compensation program transparent, in line with market practices andconsistent with the highest standards of corporate governance practices. The following changes weredesigned to better align compensation with the creation and preservation of stockholder value:

• Tax gross-ups were eliminated for arrangements put in place in 2008 and thereafter.

• The structure for determining annual incentive compensation under the Company’s Executive Planwas revised so that with respect to the goal based upon the Company’s financial performance, thefloor below which incentive compensation could not fall was removed, and with respect to bonuspool funding, funding is based entirely on the Company’s financial performance.

What the Program Intends to Reward. Our executive compensation program is strongly weightedtoward variable compensation tied to the Company’s annual business results and stock performance. Specifically,our compensation program for our Named Executive Officers is designed to ensure the following:

• Alignment with Stockholders: A significant portion of Named Executive Officer compensation isdelivered in the form of equity incentives with significant performance and/or vesting requirements,ensuring that long-term compensation is strongly linked to stockholder returns. Further, our executiveofficers, including our Named Executive Officers, are required to own a requisite amount of Companyshares. See the section entitled Share Ownership Guidelines beginning on page 35 of this proxystatement.

• Achievement of Company Financial Objectives: A portion of Named Executive Officer compensation istied directly to the Company’s financial performance.

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• Achievement of Strategic/Operational Objectives: A portion of Named Executive Officer compensationis tied to achievement of specific individual objectives that are directly aligned with the execution of ourbusiness strategy. These objectives may be related to, among others, operational excellence, brandenhancement, innovation, growth, cost containment/efficiency, customer experience and/or teamwork.

• Overall Leadership and Stewardship of the Company: Leadership, teambuilding, and development offuture talent are key success factors for the Company and a portion of Named Executive Officercompensation is dependent on satisfaction of core leadership competencies.

2. Roles and Responsibilities

The Compensation Committee is responsible for, among other things, the establishment and review ofcompensation policies and programs for our executive officers and ensuring that the executive officers arecompensated in a manner consistent with the objectives and principles outlined above. It also monitors theCompany’s executive succession plan, and reviews and monitors the Company’s performance as it affects theCompany’s employees and the overall compensation policies for the Company’s employees.

The Compensation Committee makes all compensation decisions with respect to our Named ExecutiveOfficers. Our Chief Executive Officer, together with the Chief Human Resources Officer, reviews theperformance of each other Named Executive Officer and presents to the Compensation Committee hisconclusions and recommendations, including salary adjustments and annual incentive compensation amounts (asdescribed in more detail in the Annual Incentive Compensation section beginning on page 25 of this proxystatement). The Compensation Committee may exercise its discretion in modifying any recommended salaryadjustments or awards to these executives.

The role of the Company’s management is to provide reviews and recommendations for the CompensationCommittee’s consideration, and to manage operational aspects of the Company’s compensation programs,policies and governance. Direct responsibilities include, but are not limited to, (i) providing an ongoing review ofthe effectiveness of the compensation programs, including competitiveness, and alignment with the Company’sobjectives, (ii) recommending changes, if necessary, to ensure achievement of all program objectives and(iii) recommending pay levels, payout and/or awards for executive officers other than the Chief ExecutiveOfficer. Management also prepares tally sheets which describe and quantify all components of totalcompensation for our Named Executive Officers, including salary, annual incentive compensation, long-termincentive compensation, deferred compensation, outstanding equity awards, benefits, perquisites and potentialseverance and change in control payments. The Compensation Committee reviews and considers these tallysheets in making compensation decisions for our Named Executive Officers.

The Compensation Committee directly engaged Meridian Compensation Partners, LLC (“Meridian”) toassist it in the review and determination of compensation awards to the Named Executive Officers (including theChief Executive Officer) for the 2011 performance period, as well as the annual fees or other compensation paidto our Board. Meridian worked with management and the Compensation Committee in reviewing thecompensation structure of the Company and of the companies in the peer group. Meridian does not provide anyservices to the Company.

At last year’s annual meeting, we provided our stockholders with the opportunity to cast a non-bindingadvisory vote regarding the compensation of our named executive officers as disclosed in the proxy statement forthe 2011 Annual Meeting of Stockholders. Our stockholders overwhelmingly approved the proposal, with morethan 96% of the votes cast in favor of the proposal. We also asked our stockholders to indicate if we should holda “say-on-pay” vote every one, two or three years. Consistent with the recommendation of our Board, ourstockholders indicated by non-binding advisory vote their preference to hold a “say-on-pay” vote annually. Afterconsideration of the 2011 voting results, and based upon its prior recommendation, our Board of Directorselected to hold “say-on-pay” votes on an annual basis. In addition, the Compensation Committee

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considered the strong support for our “say-on-pay” proposal as evidence of our stockholders’ support for thenamed executive officer compensation decisions and actions that the Compensation Committee has been making.As a result, the Compensation Committee made no material changes in the structure of our named executiveofficer compensation program that were directly motivated by the results of our “say-on-pay” vote. We have,however, continued to review and make adjustments to this program as necessary to achieve our objectivesdescribed above.

3. Risk Assessment

In setting compensation, our Compensation Committee also considers the risks to our stockholders, and theCompany as a whole, arising out of our compensation programs. In February 2012, management held a specialmeeting to discuss and assess the risk profile of our compensation programs. The Chief Human ResourcesOfficer, our Chief Administrative Officer, General Counsel and Secretary, our Vice Chairman and ChiefFinancial Officer and the Company’s external legal counsel for compensation matters were among theparticipants in the special meeting. Their review considered risk-determining characteristics of the overallstructure and individual components of our Company-wide compensation program, including our base salaries,incentive plans (both at the executive and property management levels) and equity plans. A report of the findingswas provided to the Compensation Committee for its review and consideration. Following this assessment, webelieve that the Company has instituted policies that align our executive officers’ interests with those of ourstockholders without creating incentives for our executive officers or other employees to take risks that arereasonably likely to have a material adverse effect on the Company. For example,

• Balance of Compensation: Across the Company, individual elements of our compensation programinclude base salaries, incentive compensation, and for certain of our employees, equity-based awards. Byproviding a mix of different elements of compensation which reward both short-term and long-termperformance, the Company’s compensation programs, as a whole, provide a balanced approach toincentivizing and retaining employees, without placing an inappropriate emphasis on any particular formof compensation.

• Objective Formula and Pre-established Performance Measures Dictate Annual Incentives: Under theExecutive Plan, payment of annual incentives to our Named Executive Officers is subject to thesatisfaction of specific company-wide annual performance targets determined under an incentive formulaestablished by our Compensation Committee within the first 90 days of each fiscal year. Similarly, theCompany’s employees other than the Named Executive Officers that are eligible to receive an annualincentive receive such incentive subject to the satisfaction of specific company-wide annual performancetargets determined under an incentive formula established by our Compensation Committee. Theseperformance targets are directly and specifically tied to one or more of the following company-widebusiness criteria: earnings before interest, taxes, depreciation and amortization (or EBITDA),consolidated pre-tax earnings, net revenues, net earnings, operating income, earnings before interest andtaxes, cash flow measures, return on equity, return on net assets employed or earnings per share for theapplicable fiscal year.

• Minimum and Maximum Thresholds for Annual Incentives: Each year our Compensation Committeeestablishes within the first 90 days of any fiscal year a threshold level of EBITDA that the Company mustachieve in order for any bonus to be paid to our Named Executive Officers or other Company employeeseligible to receive an annual incentive for any given year. The Executive Plan also specifies a maximumincentive amount, in dollars, that may be paid to any executive officer for any 12-month performanceperiod. As a result of this threshold performance requirement and the design of our Executive Plan,incentive compensation is payable under our incentive plans only upon the attainment of performancetargets related to business criteria that are in the interests of our stockholders.

• Use of Long-Term Incentive Compensation: Equity-based long-term incentive compensation that vestsover a period of years is a key component of total compensation of our executive employees. This vesting

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period encourages our executives to focus on sustaining the Company’s long-term performance. Thesegrants are also made annually, so executives always have unvested awards that could decreasesignificantly in value if our business is not managed for the long-term.

• Share Ownership Guidelines: Our share ownership guidelines require our executive officers, includingthe Named Executive Officers, to hold that number of shares having a market value equal to or greaterthan a multiple of each executive’s base salary. For the Chief Executive Officer, the multiple wasincreased from five times base salary to six times base salary in 2011 to be more in line with marketpractices, and for the other Named Executive Officers, the multiple is four times base salary. A retentionrequirement of 35% is applied to restricted shares upon vesting (net shares after tax withholding) andshares obtained from option exercises until the executive meets the target, or if an executive falls out ofcompliance. See the section entitled Share Ownership Guidelines beginning on page 35 of this proxystatement for a description of the securities that count towards meeting the target and otherconsiderations.

• Restrictions on Related Party Transactions: We have a corporate opportunity and related persontransaction approval process regarding the review, approval and ratification by our GovernanceCommittee of all transactions with related parties, executive officers, and their respective family membersand/or corporate affiliates. See the section entitled Certain Relationships and Related Transactionsbeginning on page 52 of this proxy statement for a complete description of this policy.

• Incentive Recoupment Policy: We have an incentive recoupment policy that allows the Company torecover any annual incentive payment or long-term incentive payment to any individual executive at thesenior vice president level and above, including our Named Executive Officers, under certaincircumstances. See the section entitled Potential Impact on Compensation for Executive Misconductbeginning on page 33 of this proxy statement.

• Anti-Hedging Policy: We have an anti-hedging policy that restricts all officers and directors fromengaging in short sales, entering into any derivative transactions, such as swaps, straddles, puts, or calls,or engaging in any hedging or monetization transactions, such as collars or forward sale contracts, that aredirectly linked to Company shares.

• Internal Processes Further Restrict Risk: The Company has in place additional processes to limit risk tothe Company from our compensation programs. Specifically, the Company has financial policies thatrestrict the amount of capital that any individual may deploy absent obtaining internal approvals, whichreduces the risk of inappropriate expenditures by an individual. Further, the processes and controlsassociated with respect to our compensation programs are audited each year to insure that expenditureshave been approved within the Company’s guidelines and by required approval authorities. In addition,the Company engages an external compensation consulting firm for design and review of ourcompensation programs, as well as external legal counsel to assist it with the periodic review of ourcompensation plans to ensure compliance with applicable laws and regulations.

B. Elements of Compensation

1. Primary Elements

The primary elements of the Company’s compensation program for our Named Executive Officers are:

• Base Salary

• Incentive Compensation

• Annual Incentive Compensation

• Long-Term Incentive Compensation

• Benefits and Perquisites

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Total compensation for Named Executive Officers is evaluated against the peer group identified in thisproxy statement. Evaluated on this basis, the Compensation Committee believes the actual cash and equitycompensation delivered for the 2011 performance year was appropriate in light of the Company’s overallperformance and the performance of the particular executives.

We describe each of the compensation elements below and explain why we pay each element and how wedetermine the amount of each element.

Base Salary. The Company believes it is essential to provide our Named Executive Officers withcompetitive base salaries that will enable the Company to continue to attract and retain critical senior executivesfrom within and outside the hospitality industry. In the case of Named Executive Officers other than the ChiefExecutive Officer, base salary typically accounts for approximately 20% of total compensation at target (in otherwords, total compensation assuming performance goals are satisfied at targeted levels, but excluding benefits andperquisites). In the case of Mr. van Paasschen, base salary for 2011 was $1,250,000. As a result, base salaryaccounted for approximately 14% of total compensation at target for Mr. van Paasschen. Base salary serves as aminimum level of compensation to Named Executive Officers in circumstances when achieving Companyfinancial and strategic/operational objectives becomes challenging and the level of incentive compensation isimpacted. Salaries for Named Executive Officers are generally based on the responsibilities of each position,Company and individual performance, unique market demands and experience level. Salaries are reviewedannually against similar positions among a group of peer companies developed by the Company and approved bythe Compensation Committee after consultation with Meridian, consisting of similarly-sized hotel and propertymanagement companies as well as other companies representative of markets in which the Company competesfor key executive talent. See the section entitled Background Information on the Executive CompensationProgram — Use of Peer Data section beginning on page 34 of this proxy statement for a list of the peercompanies used in this analysis. Similar to other companies, the Company generally seeks to position basesalaries of our Named Executive Officers at or near the median base salary of the Company’s peer group forsimilar positions but also reviews the range of values around the median, including the 25th and 75th percentile forreference purposes. See additional detail regarding base salaries in the section entitled Narrative Disclosure toSummary Compensation Table and Grants of Plan-Based Awards beginning on page 39 of this proxystatement.

Incentive Compensation. Incentive compensation includes annual cash bonus awards under theCompany’s Executive Plan and long-term incentive compensation in the form of equity awards under theCompany’s LTIP. Incentive compensation typically accounts for approximately 80% of total compensation attarget (86% for Mr. van Paasschen in 2011), with annual cash bonus compensation and long-term incentivecompensation accounting for 19% and 61%, respectively (29% and 57% for Mr. van Paasschen, respectively, in2011). The Company believes that this structure allows it to provide each Named Executive Officer withsubstantial incentive compensation opportunities if performance objectives are met. The Company believes thatthe allocation between base salary and incentive compensation is appropriate and beneficial because:

• it promotes the Company’s competitive position by allowing it to provide Named Executive Officers withabove-median total competitive compensation if targets are met;

• it targets and attracts highly motivated and talented executives within and outside the hospitality industry;

• it aligns senior management’s interests with those of stockholders;

• it promotes achievement of business and individual performance objectives; and

• it provides long-term incentives for Named Executive Officers to remain in the Company’s employ.

Annual Incentive Compensation. Annual cash bonuses are a key part of the Company’s executivecompensation program. The bonuses directly link the achievement of Company financial and strategic/operational performance objectives to executive pay. Annual bonuses also provide a complementary balance to

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equity incentives (discussed below). Each Named Executive Officer has an annual opportunity to receive anincentive award under the stockholder-approved Executive Plan. If and when earned, awards are typically paid toNamed Executive Officers partly in cash and, unless the Compensation Committee otherwise elects, partly asdeferred stock awards (under the Executive Plan). The deferred stock awards generally vest over a three-yearperiod. See additional detail regarding these deferred stock awards in the section entitled Long-Term IncentiveCompensation beginning on page 30 of this proxy statement.

Viewed on a combined basis, once minimum performance is attained, the annual bonus paymentsattributable to both Company financial and strategic/operational performance can range from 0% – 238% oftarget, not to exceed 200% for the Named Executive Officers. See additional detail regarding targets in thesection entitled Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awardsbeginning on page 39 of this proxy statement.

Minimum Threshold.

For the Named Executive Officers, an annual bonus award for 2011 was paid under the Executive Plan.Under the Executive Plan, each year, the Compensation Committee establishes, in advance, a threshold level ofEBITDA that the Company must achieve in order for any bonus to be paid under the Executive Plan for that year(the “EP Threshold”). The Executive Plan also specifies a maximum bonus amount, in dollars, that may be paidto any executive for any 12-month performance period. When the threshold is established at the beginning of ayear, the achievement of the threshold is considered substantially uncertain for purposes of Section 162(m),which is one of the requirements for compensation paid under the Executive Plan to be deductible asperformance-based compensation under Section 162(m). For 2011, the EP Threshold was $820,000,000.

Generally, a Named Executive Officer will receive payment of a bonus award under the Executive Plan onlyif he remains employed by the Company on the award payment date. However, subject to attaining the EPThreshold in the relevant year, pro rata awards may be paid at the discretion of the Compensation Committee inthe event of death, disability, retirement or other termination of employment.

Once the EP Threshold is achieved, the maximum annual bonus amount specified in the Executive Planbecomes available for each Named Executive Officer and the Compensation Committee may apply its discretionto reduce such amount to determine the actual bonus amount for each individual. To determine the actual bonusto be paid for a year under the Executive Plan, the Compensation Committee also establishes specific annualCompany financial and strategic/operational performance goals and a related target bonus amount for eachexecutive. These financial and strategic/operational goals are described below.

Additional Performance Criteria.

If the EP Threshold under the Executive Plan is met for a year, the Company’s performance in comparisonto the financial and strategic/operational goals for the year set by the Compensation Committee is then used todetermine a Named Executive Officer’s actual bonus, as follows:

Financial Goals

The Company financial goals for Named Executive Officers under the Executive Plan consist of EBITDAand earnings per share targets, with each criteria accounting for half of the financial goal portion of the annualbonus. The Company deems EBITDA and EPS to be the most appropriate metrics to measure performance andhas consistently used these metrics since 2009. As the Compensation Committee generally sets target bonusaward opportunities above the median and monitors awards around the median, including the 25th and 75th

percentile, among the Company’s peer group, the Company financial and strategic/operational goals to achievesuch award levels are considered challenging but achievable, representing a superior level of performance.Consistent with maintaining these high standards and subject to achieving the EP Threshold, the Compensation

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Committee retains the ability to consider whether an adjustment of the financial goals for any year is necessitatedby exceptional circumstances, for example, an unanticipated and material downturn in the business cycle thattriggers, in response, an increased focus by the Compensation Committee on the Company’s performancerelative to the industry. This ability is intended to be narrowly and infrequently used and, if applicable, the basisfor its use would be detailed in the Company’s proxy statement.

Performance against the financial goals determined 75% of Named Executive Officers’ total target annualbonus opportunity. Subject to achieving the EP Threshold, actual bonuses paid to Named Executive Officers forfinancial performance may range from 0% to 200% of the pre-determined target bonus for this category ofperformance, as determined by the Compensation Committee. For Named Executive Officers, the Companyfinancial performance portion is based 50% on earnings per share and 50% on EBITDA of the Company.

As noted above, once the EP Threshold is achieved, the minimum and maximum annual bonus amountspecified in the Executive Plan becomes available for award. The maximum bonus payout for the applicableCompany financial performance metric is limited to 200% of target (“Maximum”) and the CompensationCommittee may apply its discretion to reduce such amount to the actual bonus amount for each Named ExecutiveOfficer. The table below sets forth for each metric the performance levels for 2011 which would have resulted in100% bonus payout (“Target”), the minimum performance level (“Minimum”) that would have resulted in a 40%bonus pool payout and the Maximum that would have resulted in a 200% target of bonus pool payout. Inaddition, the table sets forth the approximate mid-points of payout between the Minimum to Target and Target toMaximum and indicates the related required performance level:

Minimum(40%)

Mid-point(70%)

Target(100%)

Mid-point(150%)

Maximum(200%)

Earnings per share . . . . . . $ 0.99 $ 1.39 $ 1.80 $ 2.47 $ 3.15Company EBITDA . . . . . . $820,000,000 $923,000,000 $1,025,000,000 $1,196,000,000 $1,367,000,000

For the 2011 performance period, “adjusted” EBITDA (which exceeded the EP Threshold) for purposes ofdetermining annual bonuses was $1,021,000,000. EBITDA was adjusted to exclude the impact of asset sales andchanges in foreign exchange rates versus budgeted. Earnings per share from continuing operations for 2011 forbonus purposes was $1.76 which excludes tax benefits related to non-core items partially offset by restructuring,goodwill impairment and other special charges and debt extinguishment charges. Using the metrics describedabove resulted in a payout eligibility of 98% of target for the Company financial portion of the annual bonus forthe 2011 fiscal year for the Named Executive Officers.

Strategic/Operational Goals

The strategic/operational performance goals for Named Executive Officers under the Executive Planconsists of “Big 5” and leadership competency objectives that link individual contributions to execution of ourbusiness strategy and major financial and operating goals. “Big 5” refers to each executive’s specific deliverableswithin the Company’s critical performance categories — win with talent, execute brilliantly, build great brands,deliver global growth, and drive outstanding results. As part of a structured process that cascades downthroughout the Company, these objectives are developed at the beginning of the year, and they integrate and alignan executive with the Company’s strategic and operational plan. Achievement of “Big 5” objectives typicallyaccounts for 80% of the strategic/operational performance evaluation, and achievement of leadership competencyobjectives typically accounts for 20% of such evaluation. The portion of annual bonus awards attributable tostrategic/operational management performance represents 25% of Named Executive Officers’ total target. Actualbonuses paid to Named Executive Officers for strategic/operational performance may range from 0% to 175% ofthe pre-determined target amount for this category of performance, as determined by the CompensationCommittee. The strategic/operational performance goals are generally established at levels that are reasonablydifficult to achieve relative to historical trends and future expectations, and that will generally require significanteffort on the part of our Named Executive Officers to achieve.

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Evaluation Process.

In the case of Mr. van Paasschen, the Compensation Committee conducts a formal performance reviewprocess each year during which the Compensation Committee evaluates how Mr. van Paasschen performedagainst the strategic/operational/talent management performance goals established for the prior year. TheCompensation Committee also determines the extent to which the Company’s financial performance goals wereachieved and whether the Company achieved the applicable minimum threshold(s) required to pay awards.

With respect to the other Named Executive Officers, Mr. van Paasschen, together with the Chief HumanResources Officer and with oversight and input from the Compensation Committee, conducts a formalperformance review process each year to evaluate performance against the officer’s strategic/operationalperformance goals for the prior year. The Chief Executive Officer conducts this evaluation through thePerformance Management Process (“PMP”), which results in a PMP rating for each executive. This PMP ratingcorresponds to a payout range under the Executive Plan determined annually by the Compensation Committeefor that rating. As noted, for 2011 the portion of the Executive Plan payouts based on PMP ratings could rangefrom 0% to 175% of target once the target has been adjusted to reflect the Company’s performance. Wherenecessary to preserve the competitive position of the Company’s compensation scale, the Chief ExecutiveOfficer may recommend a market adjustment to the base amount that is subject to this percentage. At theconclusion of his review, the Chief Executive Officer submits his recommendations to the CompensationCommittee for final review and approval. In determining the actual award payable to a Named Executive Officerunder the Executive Plan, the Compensation Committee reviews the Chief Executive Officer’s evaluation andmakes a final determination as to how the executive performed against his strategic/operational goals for theyear. The Compensation Committee also determines, based on management’s report, the extent to which theCompany’s financial performance goals were achieved and whether the Company achieved the applicableminimum threshold(s) required to pay awards. The Chief Executive Officer also meets in executive session withthe Board of Directors to inform the Board of Directors of his performance assessments regarding the NamedExecutive Officers and the basis for the compensation recommendations he presented to the CompensationCommittee.

The evaluation of Mr. van Paasschen and the other Named Executive Officers with respect to eachexecutive’s strategic/operational goals for 2011 is described below.

Mr. van Paasschen’s accomplishments for 2011 show a clear connection between motivated associates,through strong brands, to better financial results:

• drove record high associate engagement, according to 138,000 responses to an annual survey;

• reached record high guest satisfaction levels across system of nearly 1,100 hotels;

• drove growth in relative brand performance to a record high for the Company, based on revenue peravailable room index measures from over 600 hotels where data is tracked;

• opened a record number of nearly 21,000 new rooms in the system, including a record number ofconversions from other brands;

• pushed the Company’s innovation agenda further in guest relationships and loyalty, including e-folio, 24hour check-in, and next generation Starwood Preferred Guest; and

• delivered an increase in adjusted EBITDA of approximately 17% and earnings per share from continuingoperations excluding special items of approximately 54%, as compared to fiscal year 2010. Generatedsignificant cash through the sale of three hotels and timeshare and residential closings at the The St. RegisBal Harbour Resort.

In light of Mr. van Paasschen’s accomplishments and impact on the Company, the Compensation Committeeawarded him a payout at 98% of target for the strategic/operational portion of the annual bonus, for a total annualbonus of $2,450,000 for 2011, representing 98% of his overall annual bonus target.

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Mr. Avril’s accomplishments for the 2011 performance year included the following:

• achieved significant market share increases across all Company brands, including an 2.0% increase overlast year in our North American division (fueled by a 2.2% increase in our Westin brand and a 1.4%increase in our Sheraton brand);

• adjusted for asset sales, grew hotel group EBITDA by 16% and owned hotels EBITDA by 12%, despitethe challenging world events in Japan, the Middle East and Europe;

• furthered strong growth in the Company’s hotel worldwide portfolio by opening 81 hotels withapproximately 21,000 rooms; and

• strengthened key relationships with hotel owners, joint venture partners and our Company’s personnel todrive revenue, strong owner relations, and retention of management talent throughout our hotels.

In light of Mr. Avril’s accomplishments in 2011, he received an “accomplished objectives” PMP performancerating and was awarded a payout at 98% of target for the strategic/operational portion of the annual bonus, for atotal annual bonus of $736,715 for 2011, representing 98% of his overall annual bonus target.

Mr. Prabhu’s accomplishments for the 2011 performance year included the following:

• reduced interest expense through effective use of fixed to variable swaps and debt reduction. Vacationownership receivable securitization achieved on favorable terms;

• maintained low effective tax rate with good tax planning on a global basis. Concluded 2004-06 IRS auditwith a refund. Ensured structures are in place to continue tax effective hotel sales;

• sustained tight control of SG&A. Achieved Company financial objectives while maintaining a high levelof control and compliance; and

• information technology organization delivered on significant projects while ensuring a high level ofoperational stability and enhanced IT security.

In light of Mr. Prabhu’s accomplishments, he received an “accomplished objectives” PMP performance ratingand the Compensation Committee awarded him a payout at 98% of target for the strategic/operational portion ofthe annual bonus, for a total annual bonus of $736,715 for 2011, representing 98% of his overall annual bonustarget.

Mr. Siegel’s individual accomplishments for the 2011 performance year included the following:

• provided legal support for over 112 new hotel management and franchise transactions, including newdeals, changes in ownership and re-engagements worldwide; strategic hotel sales; sale-and-manage-backtransactions; corporate transactions including the execution of interest rate swap agreements, the earlyredemption of our 2012 Senior Notes, corporate restructurings and the Company’s current sharerepurchase program;

• completed on budget the build-out and relocation of two of the Company’s corporate offices, the officesin Scottsdale, Arizona and the Company’s new headquarters at One StarPoint in Stamford, Connecticut,and the negotiation of the new lease for corporate offices in Atlanta, Georgia;

• designed and executed a series of initiatives to protect our most valuable intangible assets and tradesecrets, including the roll-out of customized training on confidentiality obligations and the preservation ofCompany assets; and

• made significant progress in long-term Global Citizenship goals, including achieving significantreductions in energy and water consumptions at our corporate offices and hotels.

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In light of Mr. Siegel’s accomplishments, he received an “accomplished objectives” PMP performance rating andwas awarded a payout at 98% of target for the strategic/operational portion of the annual bonus, for a total annualbonus of $625,720 for 2011, representing 98% of his overall annual bonus target.

Mr. Turner’s accomplishments for the 2011 performance year included the following:

• managed the Global Development team to execute agreements for 70 new managed hotels (approximately20,000 rooms) and 42 new franchised hotels (approximately 9,000 rooms), a significant portion of whichopened in 2011 and a portion of which will open in the future;

• achieved 4.2% global net rooms growth driven in large part by the opening of 81 new hotels representingapproximately 21,000 rooms;

• streamlined processes to maximize conversion opportunities as evidenced by 32 conversion deals signedin 2011 (versus 23 in 2010), 17 of which resulted in opened hotels in 2011 (versus 8 in 2010); and

• completed strategic asset sale transactions generating net proceeds of $290 million.

In light of Mr. Turner’s accomplishments in 2011, he received an “accomplished objectives” PMP performancerating and was awarded a payout at 98% of target for the strategic/operational portion of the annual bonus, for atotal annual bonus of $735,020 for 2011, representing 98% of his overall annual bonus target.

Overall, the Compensation Committee paid the Named Executive Officers individual bonuses under theExecutive Plan at 98% of target, which reflected the target payout based upon the Company’s financialperformance goals, and the contribution made by each of the Named Executive Officers under his strategic/operational goals.

Annual awards made to our Named Executive Officers under the Executive Plan with respect to 2011performance are reflected in the 2011 Summary Compensation Table on page 37 of this proxy statement anddescribed in the accompanying narrative.

Long-Term Incentive Compensation. Like the annual incentives described above, long-term incentivesare a key part of the Company’s executive compensation program. Long-term incentives are strongly tied toreturns experienced by stockholders, providing a direct link between the interests of stockholders and the NamedExecutive Officers. Long-term incentive compensation for our Named Executive Officers consists primarily ofequity compensation awards granted annually (in February of each year following the announcement of theCompany’s earnings for the previous year) under the Company’s LTIP and secondarily of the portion of theExecutive Plan awards that are deferred in the form of deferred stock awards. Taken together, approximately60% of total compensation at target award levels is equity-based long-term incentive compensation.

The Compensation Committee grants awards under the LTIP to Mr. van Paasschen consisting of acombination of stock options and restricted stock. Mr. van Paasschen’s employment agreement, which reflects anemphasis on performance and long-term incentives, provides that in the event of strong financial and individualperformance, Mr. van Paasschen benefits greatly in the form of long-term incentive compensation that, for the2011 fiscal year, would not be less than $5,000,000. The Compensation Committee generally grants awardsunder the LTIP to all other Named Executive Officers consisting of a combination of stock options and restrictedstock awards. For the other Named Executive Officers, compensation is also geared towards performance andlong-term incentives, but to a lesser degree than Mr. van Paasschen. The Compensation Committee believes anemphasis on long-term equity compensation (through the use of stock options and restricted stock) is particularlyappropriate for the leader of a management team committed to the creation of stockholder value.

In 2011, for all Named Executive Officers, the Compensation Committee used a grant approach in whichthe award was articulated as a dollar value. Under this approach, an overall award value, in dollars, wasdetermined for each Named Executive Officer based upon our compensation strategy and competitive marketpositioning taking into account the Company and individual performance factors for the Named ExecutiveOfficers described in the Annual Incentive Compensation section beginning on page 25 of the proxy statement.

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The Compensation Committee determines the appropriate mix of restricted stock and stock options to begiven to our Named Executive Officers. For 2011, the Compensation Committee determined that a split of 75%of restricted stock awards and 25% of stock options was the appropriate balance to maximize cost effectivenessand encourage equity ownership among our management. The number of shares of restricted stock wascalculated by dividing 75% of the award value by the fair market value of the Company’s stock on the grant date.The number of stock options was determined by dividing the remaining 25% of the award value by the fairmarket value of the Company’s stock on the grant date and multiplying the result by two and one-half, which webelieve historically approximates the number of options determined through formal lattice model optionvaluation. The Named Executive Officers were able to elect a greater portion of options (up to 100% options).Based on the factors set forth above, including the Company’s performance and individual performance of eachNamed Executive Officer in 2011, the Compensation Committee believes that the equity award grants in 2011were appropriate.

The exercise price for each stock option is equal to fair market value of the Company’s common stock onthe option grant date. See the section entitled Equity Grant Practices beginning on page 35 of this proxystatement for a description of the manner in which we determine fair market value for this purpose. Currently,most stock options vest in 25% increments annually starting with the first anniversary of the date of grant. Forstock options granted in 2011, awards granted to associates who are retirement-eligible, as defined in the LTIP,vest in 16 equal quarterly periods. The only Named Executive Officer who currently meets the retirement criteriais Mr. Siegel, the Company’s Chief Administrative Officer, General Counsel and Secretary. Unexercised stockoptions expire eight years from the date of grant, or earlier in the event of termination of employment. Stockoptions provide compensation only when vested and only if the Company’s stock price appreciates and exceedsthe exercise price of the option. Therefore, during business downturns, option awards may not represent anyeconomic value to an executive.

Named Executive Officers have a mandatory deferral of 25% of their annual long-term incentivecompensation awards under the Executive Plan in the form of deferred restricted stock units. The CompensationCommittee has the discretion to reduce the percentage of an annual long-term incentive compensation award thatmust be deferred. The deferred amount (as increased by the percentage described below) is converted into anumber of deferred restricted stock units determined by dividing the amount of the deferred award by the averageof the high and low fair market value of a share on the date of grant. The deferred restricted stock units aresubject to time-based vesting. Upon vesting, shares of the Company common stock equal to the number of vestedunits are delivered to the Named Executive Officer. As such, the awards combine performance-basedcompensation with a further link to stockholder interests. First, amounts must be earned based on annualCompany financial and strategic/operational performance under the Executive Plan. Second, these already earnedamounts are put at risk through a vesting schedule. Vesting occurs in installments over a three-year period. Third,these earned amounts become subject to share price performance. Primarily in consideration of this vesting riskbeing applied to already earned compensation (but also taking into account the enhanced stockholder alignmentthat results from being subject to share performance), the amount of the deferred long-term incentivecompensation amount is increased by 33%. For awards granted in 2009 or later, vesting will accelerate in theevent of death, disability or retirement.

Restricted stock and restricted stock unit awards provide some measure of mitigation of business cyclicalitywhile maintaining a direct tie to share price. The Company seeks to enhance the link to stockholder performanceby building a strong retention incentive into the equity program. Consequently, for 2011 grants, 100% ofrestricted stock unit awards vest on the fiscal year end of the year immediately prior to the third anniversary ofthe date of grant and 100% of restricted stock awards vest on the third anniversary of the date of grant. Forrestricted stock granted in 2011, awards granted to associates who are retirement-eligible, as defined in the LTIP,vest in twelve equal quarterly periods. This vesting places an executive’s long-term compensation at risk to shareprice performance for a significant portion of the business cycle, while encouraging long-term retention ofexecutives.

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Pursuant to his employment agreement, Mr. van Paasschen has agreed not to sell any shares earned underany stock awards or shares received upon the exercise of an option (except as may be withheld for taxes) withoutprior consultation with the Board of Directors. See additional detail regarding incentive awards in the sectionentitled 2011 Grants of Plan-Based Awards beginning on page 38 of this proxy statement.

Benefits and Perquisites. Base salary and incentive compensation are supplemented by benefits andperquisites, as described below.

Perquisites. As reflected in the 2011 Summary Compensation Table below, the Company provides certainlimited perquisites to select Named Executive Officers when necessary to provide an appropriate compensationpackage, particularly in connection with enabling the executives and their families to smoothly transition fromprevious positions which may require relocation. For example, Mr. van Paasschen may use the Company airplanewhenever reasonable for both personal and business travel and the Company’s other Named Executive Officersmay use the airplane whenever air travel is required for business. Depending on availability, family members ofexecutive officers are permitted to accompany our executives on the Company airplane. The cost of that travel isimputed as income to the executive and included in the All Other Compensation column in the 2011 SummaryCompensation Table, and the executive is fully responsible for any associated tax liability. The Company alsoreimburses Named Executive Officers generally for travel expenses and other out-of-pocket costs incurred withrespect to attendance by their spouses at one meeting of the Board each year.

Retirement Benefits. The Company maintains a tax-qualified retirement savings plan pursuant to Codesection 401(k) (the “Savings Plan”) for a broadly-defined group of eligible employees that includes the NamedExecutive Officers. Eligible employees may contribute a portion of their eligible compensation to the SavingsPlan on a before-tax basis, subject to certain limitations prescribed by the Code. Beginning in 2008, the Companymatches 100% of the first 1% of eligible compensation and 50% of the next 6% of eligible compensation that aneligible employee contributes. These matching contributions, as adjusted for related investment returns, becomefully vested upon the eligible employee’s completion of two years of service with the Company. Our NamedExecutive Officers, in addition to certain other eligible employees, are permitted to make additional deferrals ofbase pay and regular annual incentive awards under our nonqualified deferred compensation plan. This plan isdiscussed in further detail under the 2011 Nonqualified Deferred Compensation section beginning on page 42 ofthis proxy statement.

2. Change in Control Arrangements

On March 25, 2005, the Company adopted a policy proscribing certain terms of severance agreementstriggered upon a change in control of the Company. Pursuant to the policy, the Company is required to seekstockholder approval of severance agreements with executive officers that provide Benefits (as defined in thepolicy) in excess of 2.99 times base salary plus such officer’s most recent annual incentive award.

In 2006, the Board reviewed the change in control arrangements then in place with the Named ExecutiveOfficers and decided to enter into new change in control agreements with the Named Executive Officers at thattime, which included Messrs. Prabhu and Siegel. In connection with the hiring of Mr. Turner in May 2008 asPresident, Global Development, and the promotion of Mr. Avril in September 2008 to President, Hotel Group,the Company entered into change in control arrangements with these executives that were similar to thearrangements in place for the other Named Executive Officers (other than the Chief Executive Officer). Pursuantto the Company’s 2008 policy decision to cease paying tax gross-ups in change in control agreements, thearrangements with Messrs. Turner and Avril do not provide for a tax gross-up if the benefits payable thereunderare subject to the excise tax under Section 280G of the Code. Instead, the benefits provided are reduced to thepoint that it would be more advantageous to the executive to pay the excise tax rather than reduce benefitsfurther. The Company also included change in control arrangements in Mr. van Paasschen’s employmentagreement.

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These change in control arrangements are described in more detail in the Potential Payments UponTermination or Change in Control section beginning on page 43 of this proxy statement. The change in controlseverance agreements are intended to promote stability and continuity of senior management. The Companybelieves that the provision of severance pay to these Named Executive Officers upon a change in control alignstheir interests with those of stockholders. By making severance pay available, the Company is able to mitigateexecutive concern over employment termination in the event of a change in control that benefits stockholders. Inaddition, the acceleration of equity compensation vesting in connection with a change in control provides theseNamed Executive Officers with protection against equity forfeiture due to termination and ample incentive toachieve Company goals, including facilitating a sale of the Company at the highest possible price per share,which would benefit both stockholders and executives. In addition, the Company acknowledges that seeking anew senior position is a long and time-consuming process. Lastly, each severance agreement permits theexecutive to maintain certain benefits for a period of two years following termination and to receiveoutplacement services. The aggregate effect of our change in control provisions is intended to focus executiveson maximizing value to stockholders. In addition, should a change in control occur, benefits will be paid onlyafter a “double trigger” event as described in the Potential Payments Upon Termination or Change in Controlsection beginning on page 43 of this proxy statement. The Company believes benefit levels have been set to becompetitive with peer group practices.

3. Additional Severance Arrangements

In 2007, the Company entered into a letter agreement with Mr. Prabhu clarifying that, pursuant to hisemployment agreement dated November 13, 2003, his severance included the acceleration of 50% of unvestedstock options in the event that his employment was terminated without cause by us or by him for good reason.The clarification formally documented Mr. Prabhu’s existing severance arrangements as part of his employmentwith the Company.

This additional severance arrangement is described in more detail beginning on page 43 of this proxystatement under the heading Potential Payments Upon Termination or Change in Control.

4. Potential Impact on Compensation for Executive Misconduct

If the Board of Directors determines that an executive officer has engaged in misconduct, the Board ofDirectors may take a range of actions to remedy the misconduct. In 2011 the Compensation Committee adoptedan incentive recoupment policy that allows the Company to recover any annual incentive payment or long-termincentive award to any individual executive at the senior vice president level or above, including our NamedExecutive Officers, if the Board of Directors determines that (i) the Company is required to prepare anaccounting financial restatement due to the material non-compliance of the Company with any financial reportingrequirement under applicable securities laws and the compensation payment previously made was based onerroneous data; or (ii) the Board of Directors determines that the executive engaged in intentional misconductthat caused or substantially caused the need for a financial restatement and a lower payment would have beenmade to the executive based upon the restated financial results. In such circumstances the Company will, to theextent practicable, seek to recover from the individual executive the amount by which the individual executive’spayments for the relevant period exceeded the lower payment that would have been made based on the restatedfinancial results. In addition, the Company’s LTIP provides that the Compensation Committee may cancel,suspend, withhold or otherwise restrict or limit any long-term incentive award to any participant under the LTIP,including executive officers, if the Compensation Committee determines that such participant engaged inmisconduct.

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C. Background Information on the Executive Compensation Program

1. Use of Peer Data

In determining competitive compensation levels, the Compensation Committee reviews data prepared byMeridian, its executive compensation consultants, that reflect compensation practices for executives in directhotel and property management companies. Due to the to the limited number of direct competitors of similarscale, a robust peer community requires expanding beyond these organizations to companies in related industrieswith a strong brand focus, and/or with similar talent needs, e.g., hospitality/entertainment industries, brand-dependent companies, companies of similar size, scale and complexity. To assess the appropriateness ofincluding the company in Starwood’s peer group, the following eight screening criteria was used: (i) revenue sizewith stronger consideration given to companies within a range of one-third to three times Starwood’s revenue(given Starwood’s unique role in managing property revenues beyond those captured in its financial statements, acouple larger revenue companies were included); (ii) market capitalization with stronger consideration given tocompanies within a range of one-third to three times Starwood’s market capitalization; (iii) EBITDA withstronger consideration given to companies within a range of one-third to three times Starwood’s EBITDA;(iv) financial performance with stronger consideration given to companies with financial results comparable toStarwood in terms of 1-year, 3-year and 5-year annualized revenue growth, operating income and totalshareholder return; (v) direct competitors; (vi) related industries, e.g. cruise lines, entertainment; (vii) talentcompetitors; and (viii) global complexity with stronger consideration given to companies with global scope,where greater than 25% of revenues are generated outside U.S. The Compensation Committee along withCompany reviews the peer group bi-annually to ensure it represents a relevant market perspective. TheCompensation Committee utilizes the peer group for a broad set of comparative purposes, including levels oftotal compensation for executives and directors, pay mix, incentive plan design and equity usage and other termsof employment. The Company believes that by conducting the competitive analysis using a broad peer group,which includes companies outside the hospitality industry, it is able to attract and retain talented executives fromoutside the hospitality industry. The Company’s experience has proven that key executives with diversifiedexperience prove to be major contributors to its continued growth and success.

The peer group approved by the Compensation Committee for 2011 is set out below. We expect that it willbe necessary to update the list periodically.

Avon Products, Inc. NIKE, Inc.Carnival Corporation and Carnival plc* Ralph Lauren CorporationThe Estée Lauder Companies Inc. Royal Caribbean Cruises Ltd.H.J. Heinz Company Simon Property Group, Inc.Host Hotels & Resorts, Inc. Starbucks CorporationInterContinental Hotels Group PLC V.F. CorporationKellogg Company The Walt Disney CompanyLimited Brands, Inc. Wyndham Worldwide CorporationMarriott International, Inc. Yum! Brands, Inc.MGM Resorts International

* Carnival Corporation and Carnival plc are public companies with separate listings and shareholders butoperate as if they are a single economic enterprise.

In comparison to the peer group used in 2010, H.J Heinz Company, InterContinental Hotels Group PLC,Ralph Lauren Corporation, Royal Caribbean Cruises Ltd., and V.F. Corporation were added to the 2011 peergroup. The following companies from the 2010 peer group were deleted: Coach, Inc., Colgate-PalmoliveCompany, FedEx Corporation, McDonald’s Corporation, Staples, Inc. and Williams-Sonoma, Inc.

In performing its competitive analysis for 2011, the Compensation Committee reviewed:

• base pay;

• target and actual total cash compensation, consisting of salary, target and actual annual incentive awardsin prior years;

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• direct total compensation consisting of salary, target and actual annual incentive awards, and the value ofoption and restricted stock/restricted stock unit awards; and

• retirement benefits.

When establishing target compensation levels for 2011, the Compensation Committee reviewed peer groupdata on payments to named executive officers as reported in proxy statements available as of February 2011 asprovided by Meridian.

2. Tax Considerations

Section 162(m) generally disallows a federal income tax deduction to public companies for incentivecompensation in excess of $1,000,000 paid to the chief executive officer and to each of the three other mosthighly compensated executive officers (other than the chief financial officer). Qualified performance-basedcompensation is not subject to the deduction limit if certain requirements are met. The Company believes thatcompensation paid under the Executive Plan for 2011 meets these requirements and is generally fully deductiblefor federal income tax purposes. In addition, for federal income tax purposes, compensation earned under optiongrants is also fully deductible for federal tax purposes.

In designing the Company’s compensation programs, the Compensation Committee carefully considers theeffect of this provision together with other factors relevant to its business needs. In certain circumstances theCompany may approve compensation that does not meet these requirements in order to advance the long-terminterests of its stockholders. In February 2010, the Compensation Committee approved an increase inMr. van Paasschen’s base salary from $1,000,000 to $1,250,000. For the 2011 and 2012 fiscal years, theCompensation Committee determined that Mr. van Paasschen’s base salary should remain $1,250,000. TheCompany has historically taken, and intends to continue taking, reasonably practicable steps to minimize theimpact of the loss of deductibility under Section 162(m).

3. Share Ownership Guidelines

The Company has adopted share ownership guidelines for our executive officers, including the NamedExecutive Officers. Pursuant to the guidelines, the Named Executive Officers, including the Chief ExecutiveOfficer, are required to hold that number of shares having a market value equal to or greater than a multiple ofeach executive’s base salary. For the Chief Executive Officer, the multiple was increased from five times basesalary to six times base salary in 2011 to be more in line with market practice, and for the other Named ExecutiveOfficers, the multiple is four times base salary. A retention requirement of 35% is applied to restricted sharesupon vesting (net shares after tax withholding) and shares obtained from option exercises until the executivemeets the target, or if an executive falls out of compliance shares owned, stock equivalents (vested/unvestedrestricted stock units), and unvested restricted stock (pre-tax) count towards meeting ownership targets.However, stock options do not count towards meeting the target. Officers have five years from the date of hire or,if later, the date they first become subject to the policy, to meet the ownership requirements. All NamedExecutive Officers are in compliance with share ownership guidelines.

4. Equity Grant Practices

Determination of Option Exercise Prices. The Compensation Committee grants stock options with anexercise price equal to the fair market value of a share on the grant date. Under the LTIP, the fair market value ofour common stock on a particular date is determined as the average of the high and low trading prices of a shareon the NYSE on that date.

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Timing of Equity Grants. The Compensation Committee generally makes annual equity compensationgrants to Named Executive Officers following its first regularly scheduled meeting that occurs after the release ofthe Company’s earnings for the prior year (typically the grant date is February 28th or the last business day priorto that date). The timing of this meeting is determined based on factors unrelated to the pricing of equity grants.The Compensation Committee (or its delegates), however, has discretion under unusual circumstances to awardgrants at other times in the year.

The Compensation Committee approves equity compensation awards to a newly hired executive officer atthe time that the Board of Directors meets to approve the executive’s employment package. Generally, the dateon which the Board of Directors approves the employment package becomes the grant date of the newly-hiredexecutive officer’s equity compensation awards. However, if the Company and the new executive officer enterinto an employment agreement regarding the employment relationship, the Company requires the executiveofficer to sign his employment agreement shortly following the date of Board approval of the employmentpackage; the later of the date on which the executive officer signs his employment agreement or the date that theexecutive officer begins employment becomes the grant date of these equity compensation awards.

III. COMPENSATION COMMITTEE REPORT

The Compensation and Option Committee of the Board of Directors of Starwood Hotels & ResortsWorldwide, Inc. has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b)of Regulation S-K with management and, based on such review and discussions, recommended to the Board ofDirectors that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement for the2012 Annual Meeting of Stockholders and incorporated by reference into the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 2011.

COMPENSATION AND OPTION COMMITTEE

Adam M. Aron, ChairmanThomas E. ClarkeClayton C. Daley, Jr.Thomas O. RyderKneeland C. Youngblood

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IV. 2011 SUMMARY COMPENSATION TABLE

The table below sets forth a summary of the compensation received by the Named Executive Officers forthe past three years:

Name and principal position(listed alphabeticallyfollowing theChief Executive Officer) Year

Salary($)(1)

Bonus($)

Stockawards($)(2)

Optionawards($)(3)

Non-equityincentive plancompensation

($)(4)

All othercompensation

($)(5)Total

($)

Frits van Paasschen . . . . . . . . 2011 1,250,000 — 3,997,530 1,125,465 2,450,000 32,863 8,855,858Chief Executive Officer and 2010 1,208,333 — 3,956,262 1,210,395 3,000,000 19,927 9,394,917President 2009 1,000,000 800,000(6) 150,125 5,151,077 1,700,000 60,432 8,861,634

Matthew E. Avril . . . . . . . . . . 2011 751,750 — 1,574,435 450,186 736,715 10,557 3,523,643President, Hotel 2010 747,292 — 1,550,838 484,167 902,100 9,901 3,694,298Group 2009 725,000 — 44,269 1,545,324 616,250 25,654 2,956,497

Vasant M. Prabhu . . . . . . . . . 2011 751,750 — 2,174,427 630,256 736,715 11,198 4,304,346Vice Chairman and 2010 733,235 — 2,312,035 726,243 902,100 9,800 4,683,413Chief Financial Officer 2009 640,658 207,191(6) 1,298,096 1,287,769 544,559 27,085 4,005,358

Kenneth S. Siegel . . . . . . . . . . 2011 638,490 — 1,600,725 461,442 625,720 11,981 3,338,358Chief Administrative 2010 634,582 — 1,468,148 459,953 766,188 9,800 3,338,671Officer, General Counseland Secretary

2009 615,039 — 46,166 1,957,411 522,784 26,914 3,168,314

Simon M. Turner . . . . . . . . . . 2011 733,142 — 1,314,216 1,125,465 735,020 9,800 3,917,643President, Global 2010 644,792 — 693,824 1,888,226 778,500 9,800 4,015,142Development 2009 625,000 — 34,369 2,575,538 531,250 27,910 3,794,067

(1) Represents salary actually earned during the fiscal year listed.

(2) Represents the grant date fair value for restricted stock and restricted stock unit awards granted during theyear computed in accordance with Financial Accounting Standards Board Accounting StandardsCodification 718, or ASC 718. For additional information, refer to Note 22 of the Company’s financialstatements filed with the SEC as part of the Form 10-K for the year ended December 31, 2011. Theseamounts reflect the grant date fair value for these awards and do not correspond to the actual value that willbe recognized by the Named Executive Officers. See the 2011 Grants of Plan-Based Awards Table onpage 38 of this proxy statement for information on awards granted in 2011.

(3) Represents the grant date fair value for stock option awards granted during the year computed in accordancewith ASC 718. For additional information, refer to Note 22 of the Company’s financial statements filed withthe SEC as part of the Form 10-K for the year ended December 31, 2011. These amounts reflect the grantdate fair value for these awards and do not correspond to the actual value that will be recognized by theNamed Executive Officers. See the 2011 Grants of Plan-Based Awards Table on page 38 of this proxystatement for information on awards granted in 2011.

(4) Represents cash awards paid in March 2012, 2011 and 2010 with respect to performance in 2011, 2010 and2009, respectively, determined under the Executive Plan, as discussed under the section entitled AnnualIncentive Compensation beginning on page 25 of this proxy statement. Cash incentive awards include thefollowing amounts that were converted into restricted stock units and such number of restricted stock unitswas increased by 33% in accordance with the Executive Plan:

Name 2011 Amount Deferred 2010 Amount Deferred 2009 Amount Deferred

van Paasschen . . . . . . . . . . . . . . 612,500 750,000 625,000(A)Avril . . . . . . . . . . . . . . . . . . . . . . 184,179 225,525 154,063Prabhu . . . . . . . . . . . . . . . . . . . . 184,179 225,525 187,938(B)Siegel . . . . . . . . . . . . . . . . . . . . . . 156,430 191,547 130,696Turner . . . . . . . . . . . . . . . . . . . . 183,755 194,625 132,813

(A) This amount is an aggregate of cash incentive awards deferred in respect of the 2009 fiscal year, whichincludes $200,000 deferred from a special one-time cash bonus enhancement awarded by theCompensation Committee.

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(B) This amount is an aggregate of cash incentive awards deferred in respect of the 2009 fiscal year, whichincludes $51,798 deferred from a special one-time cash bonus enhancement awarded by theCompensation Committee.

(5) The amounts reported in the “All Other Compensation” for 2011 include Company contributions to theCompany’s Savings Plan, life insurance premiums for Mr. van Paasschen and tax gross-up payments(including a payment to Mr. van Paasschen in the amount of $18,738). Each officer’s perquisites andpersonal benefits for 2011 are less than $10,000, and no other item reported in this column for 2011 has avalue that exceeds $10,000.

(6) Represents special one-time cash bonus enhancements awarded by the Compensation Committee inrecognition of 2009 accomplishments.

V. 2011 GRANTS OF PLAN-BASED AWARDS

The table below sets forth a summary of the grants of plan-based incentive awards to the Named ExecutiveOfficers made during 2011:

Name(listed alphabeticallyby name following theChief ExecutiveOfficer)(a)

Grantdate (or

year withrespect tonon-equity

incentive planaward)(b)(1)

CompensationCommitteeApproval

date(c)(1)

Estimated Future Payouts UnderNon-Equity Incentive Plan Awards(2)

All OtherStock

Awards:Number ofShares ofStock or

Units(#)(g)

All OtherOption

Awards:Number ofSecurities

UnderlyingOptions(#)(h)(3)

Exerciseor BasePrice ofOptionAwards

($/Sh)(i)(4)

Grant DateFair Value

of Stockand Option

Awards($)(j)(5)

Threshold($)(d)

Target($)(e)

Maximum($)(f)

van Paasschen . . . . . . 2/28/2011 2/17/2011 50,995 61.28 1,125,4652/28/2011 2/17/2011 61,195(7) 3,750,0303/01/2011 (6) 16,759(6) 997,496

2011 1,000,000 2,500,000 5,000,000

Avril . . . . . . . . . . . . . . 2/28/2011 2/17/2011 20,398 61.28 450,1862/28/2011 2/17/2011 24,478(7) 1,500,0123/01/2011 (6) 5,039(6) 299,921

2011 300,700 751,750 1,503,500

Prabhu . . . . . . . . . . . . 2/28/2011 2/17/2011 28,557 61.28 630,2562/28/2011 2/17/2011 34,269(7) 2,100,0043/01/2011 (6) 5,039(6) 299,921

2011 300,700 751,750 1,503,500

Siegel . . . . . . . . . . . . . 2/28/2011 2/17/2011 20,908 61.28 461,4422/28/2011 2/17/2011 25,090(7) 1,537,5153/01/2011 (6) 4,280(6) 254,746

2011 255,396 638,490 1,276,980

Turner . . . . . . . . . . . . 2/28/2011 2/17/2011 50,995 61.28 1,125,4652/28/2011 2/17/2011 20,398(7) 1,249,9893/01/2011 (6) 4,349(6) 258,852

2011 300,008 750,020 1,500,040

(1) Grant date differs from Compensation Committee approval date in accordance with the procedure outlinedin the section entitled Equity Grant Practices beginning on page 35 of this proxy statement.

(2) Represents the potential values of the awards granted to the Named Executive Officers under the ExecutivePlan if the threshold, target and maximum goals are satisfied for all applicable performance measures. Seedetailed discussion of these awards in the section entitled Narrative Disclosure To Summary CompensationTable and Grants of Plan-Based Awards Section beginning on page 39 of this proxy statement.

(3) The options generally vest in equal installments on the first, second, third and fourth anniversary of theirgrant. As of September 4, 2010, Mr. Siegel’s awards vest quarterly in equal installments over four years dueto his retirement eligible status, as defined in the LTIP. As of December 15, 2014, Mr. Prabhu’s awards willvest in quarterly due to his retirement eligible status, as defined in the LTIP.

(4) The exercise price was determined by using the average of the high and low price of shares on the grantdate.

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(5) Represents the fair value of the awards disclosed in columns (g) and (h) on their respective grant dates. Forrestricted stock and restricted stock units, fair value is calculated in accordance with ASC 718 using theaverage of the high and low price of shares on the grant date. For stock options, fair value is calculated inaccordance with ASC 718 using a lattice valuation model. For additional information, refer to Note 22 of theCompany’s financial statements filed with the SEC as part of the Form 10-K for the year endedDecember 31, 2011. There can be no assurance that these amounts will correspond to the actual value thatwill be recognized by the Named Executive Officers.

(6) On March 1, 2011, in accordance with the Executive Plan, 25% of Messrs. van Paasschen, Avril, Prabhu,Siegel and Turner’s annual bonus with respect to 2010 performance was converted into restricted stock unitsand the number of units was increased by 33%. The amount included in Stock awards column in the 2011Summary Compensation Table only includes the 33% increase, as the deferral of the bonus amount isdisclosed separately. These restricted stock units vest in equal installments on the first, second and thirdfiscal year-ends following the date of grant, and vested units are distributed on the earlier of (i) the thirdfiscal year-end or (ii) a termination of employment. Dividends are paid to the Named Executive Officers inamounts equal to those paid to holders of shares. No separate Compensation Committee approval wasrequired for award of these deferred stock units, which are provided by plan terms.

(7) This award vests on the third anniversary of the grant date, except with respect to Mr. Siegel whose awardsas of September 4, 2010, vest quarterly in equal installments over three years due to his retirement-eligiblestatus, as defined in the LTIP. Dividends are accrued and paid upon vesting.

VI. NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE AND GRANTS OFPLAN-BASED AWARDS SECTION

We describe below the Executive Plan awards granted to our Named Executive Officers in 2011. Theseawards are reflected in both the 2011 Summary Compensation Table beginning on page 37 of the proxystatement and the 2011 Grants of Plan-Based Awards section beginning on page 38 of the proxy statement.

Each of the Named Executive Officers received an award in March 2012 relating to his 2011 performance.The table below sets forth for each Named Executive Officer his salary, target award as both a percentage ofsalary and a dollar amount, actual award, the portion of the award that is deferred into restricted stock units andthe related 33% increase in his restricted stock units.

NameSalary

($)

AwardTarget

Relativeto

Salary(%)

AwardTarget

($)

ActualAward

($)

Award Deferredinto Restricted

Stock Units($)

IncreasedAward

Deferred intoRestricted

Stock Units($)

van Paasschen . . . . . . . . . . . . . . . . 1,250,000 200% 2,500,000 2,450,000 612,500 814,625Avril . . . . . . . . . . . . . . . . . . . . . . . . 751,750 100% 751,750 736,715 184,179 244,958Prabhu . . . . . . . . . . . . . . . . . . . . . . 751,750 100% 751,750 736,715 184,179 244,958Siegel . . . . . . . . . . . . . . . . . . . . . . . . 638,490 100% 638,490 625,720 156,430 208,052Turner . . . . . . . . . . . . . . . . . . . . . . 750,020 100% 750,020 735,020 183,755 244,394

The following factors contributed to the Compensation Committee’s determination of the 2011 ExecutivePlan awards for the Named Executive Officers:

• the Company’s 2011 financial performance as measured by EBIDTA and earnings per share,

• the strategic and operational performance goals for each Named Executive Officer that link individualcontributions to execution of our business strategy and major financial and operating goals, and

• the bonuses paid to executive officers performing comparable functions in peer companies

as further described in the Annual Incentive Compensation assessment beginning on page 25 of the proxystatement.

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VII. OUTSTANDING EQUITY AWARDS AT 2011 FISCAL YEAR-END

The following table provides information on the current holdings of stock options and stock awards by theNamed Executive Officers as of December 31, 2011. This table includes unexercised and unvested stock options,unvested restricted stock and unvested restricted stock units. Each equity grant is shown separately for eachNamed Executive Officer. The market value of the stock awards is based on the closing price of a share onDecember 30, 2011, the last business day of the fiscal year, which was $47.97.

Option awards Stock awards

Name(listed alphabetically followingthe Chief Executive Officer)

GrantDate

Number ofSecurities

UnderlyingUnexercised

Options-Exercisable

(#)(1)(2)

Number ofSecurities

UnderlyingUnexercised

OptionsUnexercisable

(#)(1)(2)

OptionExercise

Price($)(1)

OptionExpiration

Date

Number ofShares or

Units of StockThat Have Not

Vested (#)

Market valueof Shares

or Units ofStock ThatHave Not

Vested($)

van Paasschen . . . . . . . . . . . . . . . 9/24/2007 63,895 — 58.69 9/24/20152/28/2008 77,153 25,717 48.61 2/28/20162/27/2009 348,968 548,968 11.39 2/27/20172/26/2010 20,433 61,298 38.24 2/26/20182/28/2011 — 50,995 61.28 2/28/20192/26/2010 98,078(3) 4,704,8023/01/2010 7,156(4) 343,2732/28/2011 61,195(3) 2,935,5243/01/2011 11,172(4) 535,921

Avril . . . . . . . . . . . . . . . . . . . . . . . 2/28/2007 20,723 — 65.15 2/28/20152/28/2008 — 5,555 48.61 2/28/20162/27/2009 — 164,690 11.39 2/27/20172/26/2010 — 24,519 38.24 2/26/20182/28/2011 — 20,398 61.28 2/28/20192/28/2008 5,555(3) 266,4732/26/2010 39,231(3) 1,881,9113/01/2010 1,764(4) 84,6192/28/2011 24,478(3) 1,174,2103/01/2011 3,359(4) 161,131

Prabhu . . . . . . . . . . . . . . . . . . . . . 2/07/2006 79,913 — 48.80 2/07/20142/28/2007 34,538 — 65.15 2/28/20152/28/2008 59,022 19,674 48.61 2/28/20162/27/2009 — 137,242 11.39 2/27/20172/26/2010 12,260 36,779 38.24 2/26/20182/28/2011 — 28,557 61.28 2/28/20192/28/2008 6,558(3) 314,5872/27/2009 109,794(3) 5,266,8182/26/2010 58,847(3) 2,822,8913/01/2010 2,152(4) 103,2312/28/2011 34,269(3) 1,643,8843/01/2011 3,359(4) 161,131

Siegel . . . . . . . . . . . . . . . . . . . . . . 2/28/2007 34,538 — 65.15 2/28/20152/28/2008 28,933 1,928 48.61 2/28/20162/27/2009 104,304 130,380 11.39 2/27/20172/26/2010 13,589 17,469 38.24 2/26/20182/28/2011 3,921 16,987 61.28 2/28/20192/28/2008 1,928(3) 92,4862/26/2010 15,528(3) 744,8783/01/2010 1,496(4) 71,7632/28/2011 18,817(3) 902,6513/01/2011 2,853(4) 136,858

Turner . . . . . . . . . . . . . . . . . . . . . 5/07/2008 33,806 33,806 53.25 5/07/20162/27/2009 118,857 274,484 11.39 2/27/20172/26/2010 31,876 95,625 38.24 2/26/20182/28/2011 — 50,995 61.28 2/28/20192/26/2010 17,000(3) 815,4903/01/2010 1,520(4) 72,9142/28/2011 20,398(3) 978,4923/01/2011 2,899(4) 139,065

(1) In connection with the sale of 33 hotels to Host Hotels & Resorts, Inc. (or “Host”), Company stockholdersreceived 0.6122 Host shares and $0.503 in cash for each of their Class B Shares. Holders of Company

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employee stock options and restricted stock did not receive this consideration while the market price ofshares was reduced to reflect the payment of this consideration directly to the holders of the Class B Shares.In order to preserve the value of the Company’s options immediately before and after the Host transaction,the Company adjusted its stock options to reduce the strike price and increase the number of stock optionsusing the intrinsic value method based on the share price immediately before and after the transaction. Theoption information provided reflects the number of options granted and the option exercise prices after theseadjustments were made. As of December 31, 2011, this impacts Mr. Prabhu’s holdings only.

(2) These options generally vest in equal installments on the first, second, third and fourth anniversary of theirgrant. As of September 4, 2010, Mr. Siegel’s 2008, 2009, 2010 and 2011 awards vest quarterly in equalinstallments over four years due to his retirement-eligible status, as defined in the LTIP. As of December 15,2014, Mr. Prabhu’s awards will vest quarterly due to his retirement-eligible status, as defined in the LTIP.

(3) For awards granted in 2008, the restricted stock or restricted stock units generally vest 75% on the thirdanniversary and 25% on the fourth anniversary of the date of grant. For awards granted in 2009, 2010 and2011, the restricted stock or restricted stock units generally vest 100% on the third anniversary of theirgrant. As of September 4, 2010, Mr. Siegel’s 2008, 2010 and 2011 awards vest quarterly in equalinstallments due to his retirement eligible status, as defined in the LTIP.

(4) These restricted stock units vest in equal installments on the first, second and third fiscal year-endsfollowing the date of grant, and are distributed on the earlier of: (a) the third fiscal year-end or (b) atermination of employment. Shares underlying the restricted stock units that vested as of December 31,2011, but which shares will not be distributed to the Named Executive Officers until either December 31,2012 or 2013, are non-forfeitable with respect to each Named Executive Officer and will be included in the2011 Option Exercises and Stock Vested table for the year in which they are settled.

VIII. 2011 OPTION EXERCISES AND STOCK VESTED

The following table discloses, for each Named Executive Officer, (i) option awards representing sharesacquired pursuant to exercise of stock options during 2011; and (ii) stock awards representing (A) shares ofrestricted stock that vested in 2011 and (B) shares acquired in 2011 on account of vesting of restricted stockunits. The table also discloses the value realized by the Named Executive Officer for each such event, calculatedprior to the deduction of any applicable withholding taxes and brokerage commissions.

Option Awards Stock Awards

Name

Number of SharesAcquired on

Exercise(#)

Value Realizedon Exercise

($)

Number of SharesAcquired on

Vesting(#)

Value Realizedon Vesting

($)

van Paasschen . . . . . . . . . . . . . . . . . . . . . . . . . — — 88,662 4,017,527

Avril . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,074 4,379,200 84,088 4,168,058

Prabhu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,621 4,083,261 55,111 3,143,017

Siegel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 43,852 2,186,718

Turner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,385 925,041 12,984 628,296

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IX. 2011 NONQUALIFIED DEFERRED COMPENSATION

The Company’s Deferred Compensation Plan (the “Plan”) permits eligible executives, including our NamedExecutive Officers, to defer up to 100% of their Executive Plan cash bonus award, as applicable, and up to 75%of their base salary for a calendar year. The Company does not contribute to the Plan. No Named ExecutiveOfficer made deferrals under the Plan in 2011.

Name

ExecutiveContributions in

Last FY($)

RegistrantContributions

in Last FY($)

AggregateEarnings

in Last FY($)

AggregateWithdrawals/Distributions

($)

AggregateBalance atLast FYE

($)

van Paasschen . . . . . . . . . . . — — 47,353 — 632,729(1)Avril . . . . . . . . . . . . . . . . . . . — — — — —Prabhu . . . . . . . . . . . . . . . . . — — — — —Siegel . . . . . . . . . . . . . . . . . . — — — — —Turner . . . . . . . . . . . . . . . . . — — — — —

(1) $500,000 of this amount previously was reported as salary in the Summary Compensation Table.

Deferral elections are made in December for base salary paid in pay periods beginning in the followingcalendar year. Deferral elections are made in June for annual incentive awards that are earned for performance inthat calendar year but paid in March of the following year. Deferral elections are irrevocable.

Elections as to the time and form of payment are made at the same time as the corresponding deferralelection. A participant may elect to receive payment on February 1 of a calendar year while still employed oreither 6 or 12 months following employment termination. Payment will be made immediately in the event aparticipant terminates employment on account of death, disability or on account of certain changes in control. Aparticipant may elect to receive payment of his account balance in either a lump sum or in annual installments, solong as the account balance exceeds $50,000; otherwise payment will be made in a lump sum.

If a participant elects an in-service distribution, the participant may change the scheduled distribution dateor form of payment so long as the change is made at least 12 months in advance of the scheduled distributiondate. Any such change must provide that distribution will commence at least five years later than the scheduleddistribution date. If a participant elects to receive a distribution upon employment termination, that election andthe corresponding form of payment election are irrevocable. Withdrawals for hardship that result from anunforeseeable emergency are available, but no other unscheduled withdrawals are permitted.

The Plan uses the investment funds listed below as potential indices for calculating investment returns on aparticipant’s Plan account balance. The deferrals the participant directs for investment into these funds areadjusted based on a deemed investment in the applicable funds. The participant does not actually own theinvestments that he selects. The Company may, but is not required to, make identical investments pursuant to avariable universal life insurance product. When it does, participants have no direct interest in this life insurance.

Name of Investment Fund

1-Year AnnualizedRate of Return(as of 2/28/11)

NVIT Money Market — Class V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0.25%PIMCO VIT Total Return — Admin Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.21%Fidelity VIP High Income — Service Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.78%NVIT Inv Dest Moderate — Class 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.11%T. Rowe Price Equity Income — Class II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99%Dreyfus Stock Index — Initial Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.61%Fidelity VIP II Contrafund — Service Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.47%NVIT Mid Cap Index Class I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.47%Dreyfus IP Small Cap Stock Index — Service Shares . . . . . . . . . . . . . . . . . . . . . . . . 4.41%NVIT International Index — Class 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8.44%Invesco V.I. International Growth — Series I Shares . . . . . . . . . . . . . . . . . . . . . . . . . -1.32%

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X. POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

The Company provides certain benefits to our Named Executive Officers in the event of employmenttermination, both in connection with a change in control and otherwise. These benefits are in addition to benefitsavailable generally to salaried employees, such as distributions under the Company’s Savings Plan, disabilityinsurance benefits and life insurance benefits. These benefits are described below.

A. Termination Before Change in Control: Involuntary Other than for Cause, Voluntary for GoodReason, Death or Disability

Pursuant to Mr. van Paasschen’s employment agreement, if Mr. van Paasschen’s employment is terminatedby the Company other than for cause or by Mr. van Paasschen for good reason, the Company will payMr. van Paasschen as a severance benefit (i) any accrued benefits; (ii) two times the sum of his base salary andtarget annual bonus and (iii) a pro rated target bonus for the year of termination. None of the other equity awardsgranted to Mr. van Paasschen would be accelerated. If Mr. van Paasschen’s employment were terminatedbecause of his death or permanent disability, Mr. van Paasschen (or his estate) would be entitled to receive, inaddition to any accrued benefits, a pro-rated target bonus for the year of termination pursuant to the terms of theunderlying award agreements, and all of his equity awards would accelerate and vest.

Pursuant to Mr. Avril’s employment agreement, if Mr. Avril’s employment is terminated by the Companyfor any reason other than for cause, Mr. Avril will receive severance benefits of twelve months of base salary andthe Company will continue to provide medical benefits coverage for up to twelve months after the date oftermination. In addition, Mr. Avril will also be entitled to acceleration of all of his restricted stock and optionsthat were granted prior to August 19, 2008, but no acceleration for equity awards granted on or after August 19,2008. If Mr. Avril’s employment were terminated because of his death or permanent disability, pursuant to theterms of the underlying award agreements, all of his equity awards would accelerate and vest.

Pursuant to his employment agreement, if Mr. Prabhu’s employment is terminated by the Company for anyreason other than for cause or by Mr. Prabhu for good reason, Mr. Prabhu will receive severance benefits oftwelve months of base salary and the Company will continue to provide medical benefits coverage for up totwelve months after the date of termination. In addition, the Company will accelerate the vesting of 50% ofMr. Prabhu’s unvested restricted stock and options. The Company entered into a letter agreement on August 14,2007 confirming the terms of the agreement as it relates to the acceleration of 50% of Mr. Prabhu’s unvestedrestricted stock and options if his employment is terminated by the Company without cause or is terminated byhim voluntarily with good reason. If Mr. Prabhu’s employment were terminated because of his death orpermanent disability, pursuant to the terms of the underlying award agreements, all of his equity awards wouldaccelerate and vest.

Pursuant to Mr. Siegel’s employment agreement, in the event Mr. Siegel’s employment is terminated by theCompany for any reason other than for cause, Mr. Siegel will receive severance benefits of twelve months ofbase salary plus 100% of his target annual incentive and the Company will continue to provide medical benefitscoverage for up to twelve months after the date of termination. If Mr. Siegel’s employment were terminatedbecause of his death or permanent disability, pursuant to the terms of the underlying award agreements, all of hisequity awards would accelerate and vest.

Pursuant to Mr. Turner’s employment agreement, if Mr. Turner’s employment is terminated by theCompany for any reason other than for cause or by Mr. Turner for good reason, Mr. Turner will receiveseverance benefits of twelve months base salary and the Company will continue to provide medical benefitscoverage for up to twelve months after the date of termination. The receipt of such severance benefits is subjectto and conditioned upon Mr. Turner’s compliance with his agreement not to engage in competitive activities orsolicit employees for a period of twelve months after the date of termination. If Mr. Turner’s employment weterminated because of his death or permanent disability, pursuant to the term of the underlying awardagreements, all of his equity awards would accelerate and vest.

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B. Termination in the Event of Change in Control

The Company has entered into severance agreements with each of Messrs. Prabhu and Siegel. Eachseverance agreement provides for a term of three years, with automatic one-year extensions until either theexecutive or the Company notifies the other that such party does not wish to extend the agreement. If a Change inControl (as described below) occurs, the agreement will continue for at least 24 months following the date ofsuch Change in Control.

Each agreement provides that if, following a Change in Control, the executive’s employment is terminatedwithout Cause (as defined in the agreement) or with Good Reason (as defined in the agreement), the executivewould receive, in addition to any accrued salary or normal post-termination compensation and benefits inaccordance with the Company’s retirement, insurance and other compensation or benefit plans, programs andarrangements as in effect immediately prior to the date of termination, the following:

• two times the sum of his base salary plus the average of the annual bonuses earned by the executive in thethree fiscal years ending immediately prior to the fiscal year in which the termination occurs or, if higher,the annual bonus earned in the immediately prior year;

• continued medical benefits for two years, reduced to the extent benefits of the same type are received byor made available to the executive from another employer;

• a lump sum amount, in cash, equal to the sum of (A) any unpaid incentive compensation which had beenallocated or awarded to the executive for any measuring period preceding termination under any annual orlong-term incentive plan and which, as of the date of termination, is contingent only upon the continuedemployment of the executive until a subsequent date, and (B) the aggregate value of all contingentincentive compensation awards allocated or awarded to the executive for all then uncompleted periodsunder any such plan that the executive would have earned on the last day of the performance awardperiod, assuming the achievement, at the target level, of the individual and corporate performance goalsestablished with respect to such award;

• immediate vesting of stock options, restricted stock and restricted stock units held by the executive underany stock option or incentive plan maintained by the Company;

• outplacement services suitable to the executive’s position for a period of two years or, if earlier, until thefirst acceptance by the executive of an offer of employment, the cost of which will not exceed 20% of theexecutive’s base salary;

• a lump sum payment of the executive’s deferred compensation paid in accordance with Section 409Adistribution rules; and

• immediate vesting of all unvested 401(k) contributions in the executive’s 401(k) account or payment bythe Company of an amount equal to any such unvested amounts that are forfeited by reason of theexecutive’s termination of employment.

In addition, to the extent that any executive becomes subject to the “golden parachute” excise tax imposedunder Section 4999 of the Code, the executive would receive a gross-up payment in an amount sufficient to offsetthe effects of such excise tax.

Under the severance agreements, a “Change in Control” is deemed to occur upon any of the followingevents:

• any person becomes the beneficial owner of securities of the Company (not including in the securitiesbeneficially owned by such person any securities acquired directly from the Company or its affiliates)representing 25% or more of the combined voting power of the Company;

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• a majority of the directors cease to serve on the Company’s Board in connection with a successful hostileproxy contest;

O a merger or consolidation of the Company or any direct or indirect subsidiary of the Company withany other corporation, other than:

O a merger or consolidation in which securities of the Company would represent at least 70% of thevoting power of the surviving entity; or

• a merger or consolidation effected to implement a recapitalization of the Company in which no personbecomes the beneficial owner of 25% or more of the voting power of the Company; or

• approval of a plan of liquidation or dissolution by the stockholders or the consummation of a sale of all orsubstantially all of the Company’s assets, other than a sale to an entity in which the Company’sstockholders would hold at least 70% of the voting power in substantially the same proportions as theirownership of the Company immediately prior to such sale. However, a “Change in Control” does notinclude a transaction in which Company stockholders continue to hold substantially the sameproportionate ownership in the entity which would own all or substantially all of the Company’s assetsfollowing such transaction.

Each of Messrs. Avril and Turner entered into similar change in control agreements in connection with theiremployment with the Company, provided that no tax gross-up is provided if such payments become subject tothe excise tax. If such payments are subject to the excise tax, the benefits under the agreement will be reduceduntil the point where the executive is better off paying the excise tax rather than reducing the benefits.

Mr. van Paasschen’s employment agreement provides that he would be entitled to the following benefits ifhis employment were terminated without cause or he resigned with good reason following a Change in Control:

• two times the sum of his base salary and target annual bonus;

• a lump sum payment, in cash, equal to the unpaid incentive compensation then subject to performanceconditions, payable at the maximum level of performance;

• immediate vesting of stock options, restricted stock and restricted stock units held under any stock optionor incentive plan maintained by the Company;

• a lump sum payment of his nonqualified deferred compensation paid in accordance with Section 409Adistribution rules; and

• immediate vesting of all unvested 401(k) contributions in his 401(k) account or payment by the Companyof an amount equal to any such unvested amounts that are forfeited by reason of his termination ofemployment.

In addition, to the extent that Mr. van Paasschen becomes subject to the “golden parachute” excise taximposed under Section 4999 of the Code, he would receive a gross-up payment in an amount sufficient to offsetthe effects of such excise tax.

C. Estimated Payments Upon Termination

The tables below reflect the estimated amounts payable to the Named Executive Officers in the event theiremployment with the Company had terminated as of December 30, 2011 under various circumstances, andincludes amounts earned through that date. The actual amounts that would become payable in the event of anactual employment termination can only be determined at the time of such termination.

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1. Involuntary Termination without Cause or Voluntary Termination for Good Reason

The following table discloses the amounts that would have become payable on account of an involuntarytermination without cause or a voluntary termination for good reason outside of the change in control context.

Name

SeverancePay($)

MedicalBenefits

($)

Vesting ofRestricted Stock

($)(1)

Vesting ofStock Options

($)(2)Total

($)

van Paasschen . . . . . . . . . . . 10,000,000 — — — 10,000,000

Avril(3) . . . . . . . . . . . . . . . . . 751,750 10,070 266,473 — 1,028,293

Prabhu . . . . . . . . . . . . . . . . . 751,750 10,070 5,443,396 2,689,526 8,894,742

Siegel(3) . . . . . . . . . . . . . . . . 1,276,980 9,524 — — 1,286,504

Turner . . . . . . . . . . . . . . . . . 750,020 9,524 — — 759,544

(1) Includes values for holdings of restricted stock and restricted stock units. With respect to Mr. Prabhu,includes vested but deferred restricted stock units in accordance with the Executive Plan.

(2) Excludes vested stock options.

(3) Messrs. Siegel and Avril’s employment agreements provide for payments in the event of involuntarytermination other than for cause but do not provide for payments in the event of voluntary termination forgood reason.

2. Termination on Account of Death or Disability

The following table discloses the amounts that would have become payable on account of a termination onaccount of death or disability.

Name

SeverancePay($)

MedicalBenefits

($)

Vesting ofRestricted

Stock($)(1)

Vesting ofStock

Options($)(2)

Total($)

van Paasschen(3) . . . . . . . . . . . . 2,500,000 — 9,474,075 33,646,640 45,620,715

Avril . . . . . . . . . . . . . . . . . . . . . . . 751,750 10,070 3,818,172 6,263,876 10,843,868

Prabhu . . . . . . . . . . . . . . . . . . . . . 751,750 10,070 10,599,595 5,498,393 16,859,808

Siegel . . . . . . . . . . . . . . . . . . . . . . 1,276,980 9,524 2,160,665 8,888,264 12,335,433

Turner . . . . . . . . . . . . . . . . . . . . . 750,020 9,524 2,221,443 15,631,603 18,612,590

(1) Includes values for holdings of restricted stock and restricted stock units. Includes vested but deferredrestricted stock units in accordance with the Executive Plan.

(2) Includes vested stock options. Vested stock options could be subject to loss by the Named ExecutiveOfficers in the event of a termination for cause and certain other events but could not in the event oftermination on account of death or disability.

(3) Excludes $632,729 of Mr. van Paasschen’s nonqualified deferred compensation that is payable upon death,disability or certain changes in control as discussed in the 2011 Nonqualified Deferred Compensationsection beginning on page 42.

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3. Change in Control

The following table discloses the amounts that would have become payable on account of an involuntarytermination without cause following a change in control or a voluntary termination with good reason following achange in control.

Name

SeverancePay($)

MedicalBenefits

($)

Vesting ofRestricted

Stock($)(1)

Vesting ofStock

Options($)(2)

Outplacement($)

401(k)Payment

($)

TaxGross-Up

($)Total

($)

van Paasschen(3) . . . . . 12,500,000 4,848 9,474,075 33,646,640 — — — 55,625,563Avril . . . . . . . . . . . . . . . 4,059,450 27,390 3,818,172 6,263,876 150,350 — — 14,319,238Prabhu . . . . . . . . . . . . . 4,059,450 27,390 10,599,595 5,498,393 150,350 — — 20,335,178Siegel . . . . . . . . . . . . . . . 3,447,846 25,904 2,160,665 8,888,264 127,698 — — 14,650,377Turner . . . . . . . . . . . . . . 3,807,060 25,904 2,221,443 15,631,603 150,004 — — 21,836,014

(1) Includes values for holdings of restricted stock and restricted stock units. Includes vested but deferredrestricted stock units in accordance with the Executive Plan.

(2) Includes vested stock options. Vested stock options could be subject to loss by the Named ExecutiveOfficers in the event of a termination for cause and certain other events but could not in the event of aninvoluntary termination without cause following a change in control or a voluntary termination with goodreason following a change in control.

(3) If the amount of severance pay and other benefits payable on change in control is greater than three timescertain base period taxable compensation for Mr. van Paasschen, a 20% excise tax is imposed on the excessamount of such severance pay and other benefits. Excludes $632,729 of Mr. van Paasschen’s nonqualifieddeferred compensation that is payable upon death, disability or certain changes in control as discussed in the2011 Nonqualified Deferred Compensation section beginning on page 42.

XI. DIRECTOR COMPENSATION

The Company uses a combination of cash and stock-based awards to attract and retain qualified candidatesto serve on the Board. In setting director compensation, the Company considers the significant amount of timethat members of the Board spend in fulfilling their duties to the Company as well as the skill level required bythe Company of its directors. The current compensation structure is described below.

For 2011, under the Company’s director share ownership guidelines, each non-employee director (“Non-Employee Director”) was required to own shares (or deferred compensation stock equivalents) that have a marketprice equal to four times the annual Non-Employee Director’s fees paid to such Non-Employee Director. If anyNon-Employee Director fails to satisfy this requirement, sales of shares by such Non-Employee Director shall besubject to a 35% retention requirement. Any new Non-Employee Director shall be given a period of three yearsto satisfy this requirement.

Non-Employee Directors receive compensation for their services as described below.

A. Annual Fees

Each Non-Employee Director receives an annual fee in the amount of $80,000, payable in four equalinstallments of shares issued under our LTIP. The number of shares to be issued is based on the fair market valueof a share using the average of the high and low price of the Company’s stock as of December 31 of the yearprior to grant.

A Non-Employee Director may elect to receive up to one-half of the annual fee in cash and to defer (at anannual interest rate of LIBOR plus 1 1/2 % for deferred cash amounts) any or all of such annual fee payable incash. A Non-Employee Director is also permitted to elect to defer to a deferred unit account any or all of theannual fee payable in shares. Deferred cash or stock amounts are payable in accordance with the Non-EmployeeDirector’s advance election.

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Non-Employee Directors serving as members of the Audit Committee receive an additional annual feepayable in cash of $10,000 ($25,000 for the Chairman of the Audit Committee). The chairperson of each othercommittee of the Board receives an additional annual fee payable in cash of $12,500. The Chairman of the Boardreceives an additional fee of $150,000, payable quarterly in restricted stock units which vest in three years.

B. Attendance Fees

Non-Employee Directors do not receive fees for attendance at meetings.

C. Equity grant

In 2011, each Non-Employee Director received an annual equity grant (made at the same time as the annualgrant is made to Company employees) under our LTIP with a value of $125,000. The equity grant was delivered50% in restricted stock units and 50% in stock options. The number of restricted stock units is determined bydividing the award value by the fair market value of the Company’s stock on the date of grant (fair market valueis calculated as the average of the high and low share price on such date). The number of options is determinedby dividing the award value by the fair market value of the Company’s stock on the date of grant (fair marketvalue is calculated as the average of the high and low share price on such date) and multiplying by two and onehalf, which we believe historically approximates the number of options determined through formal lattice modeloption valuation. The options are fully vested and exercisable upon grant and are scheduled to expire eight yearsafter the grant date. The restricted stock units awarded pursuant to the annual grant generally vest upon theearlier of (i) the third anniversary of the grant date and (ii) the date such person ceases to be a director of theCompany.

D. Starwood Preferred Guest Program Points and Rooms

In 2011, each Non-Employee Director received an annual grant of 750,000 Starwood Preferred Guest(“SPG”) points to encourage them to visit and personally evaluate our properties.

E. Other Compensation

The Company reimburses Non-Employee Directors for travel expenses, other out-of-pocket costs they incurwhen attending meetings and, for one meeting per year, expenses related to attendance by spouses.

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We have summarized the compensation paid by the Company to our Non-Employee Directors in 2011 in thetable below.

Name(1)

Fees earnedor Paid in Cash

($)

StockAwards(2) (3)

($)

OptionAwards(4)

($)

All OtherCompensation(5)

($)Total

($)

Adam M. Aron . . . . . . . . . . . . . . . . . . . . . . 22,500 142,402 49,276 18,750 232,928Charlene Barshefsky . . . . . . . . . . . . . . . . . 52,500 102,454 49,276 21,240 225,470Thomas E. Clarke . . . . . . . . . . . . . . . . . . . . 50,000 102,454 49,276 18,750 220,480Clayton C. Daley, Jr. . . . . . . . . . . . . . . . . . 65,000 102,454 49,276 35,005 251,735Bruce W. Duncan . . . . . . . . . . . . . . . . . . . . — 292,446 49,276 20,150 361,872Lizanne Galbreath . . . . . . . . . . . . . . . . . . . — 142,402 49,276 19,086 210,764Eric Hippeau . . . . . . . . . . . . . . . . . . . . . . . . — 142,402 49,276 34,763 226,441Stephen R. Quazzo . . . . . . . . . . . . . . . . . . . 12,500 142,402 49,276 18,750 222,928Thomas O. Ryder . . . . . . . . . . . . . . . . . . . . — 142,402 49,276 20,510 212,188Kneeland C. Youngblood . . . . . . . . . . . . . . 50,000 102,454 49,276 18,750 220,480

(1) Mr. van Paasschen is not included in this table because he was an employee of the Company and thusreceived no compensation for his services as a director. Mr. van Paasschen’s 2011 compensation from theCompany is disclosed in the 2011 Summary Compensation Table on page 37.

(2) As of December 31, 2011, every director, with the exception of Mr. Duncan, held 7,047 restricted stockunits that had not vested. As of December 31, 2011, Mr. Duncan held 22,267 restricted stock units that hadnot vested.

(3) Represents the grant date fair value for stock (deferred and otherwise) and restricted stock unit awardsgranted during the year computed in accordance with ASC 718. For additional information, refer to Note 22of the Company’s financial statements filed with the SEC as part of the Form 10-K for the year endedDecember 31, 2011. These amounts reflect the grant date fair value for these awards and do not correspondto the actual value that will be recognized by the Named Executive Officers. The grant date fair value ofeach stock award is set forth below:

Director Grant DateNumber of Shares of

Stock/Units Grant Date Fair Value ($)

Adam M. Aron . . . . . . . . . . . . . . . . . . . . 2/28/2011 1,020 62,5063/31/2011 328 19,9746/30/2011 328 19,9749/30/2011 328 19,974

12/31/2011 328 19,974Charlene Barshefsky . . . . . . . . . . . . . . . . 2/28/2011 1,020 62,506

3/31/2011 164 9,9876/30/2011 164 9,9879/30/2011 164 9,987

12/31/2011 164 9,987Thomas E. Clarke . . . . . . . . . . . . . . . . . . 2/28/2011 1,020 62,506

3/31/2011 164 9,9876/30/2011 164 9,9879/30/2011 164 9,987

12/31/2011 164 9,987Clayton C. Daley, Jr. . . . . . . . . . . . . . . . . 2/28/2011 1,020 62,506

3/31/2011 164 9,9876/30/2011 164 9,9879/30/2011 164 9,987

12/31/2011 164 9,987

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Director Grant DateNumber of Shares of

Stock/Units Grant Date Fair Value ($)

Bruce W. Duncan . . . . . . . . . . . . . . . . . . 2/28/2011 1,020 62,5063/31/2011 616 37,5113/31/2011 328 19,9746/30/2011 616 37,5116/30/2011 328 19,9749/30/2011 616 37,5119/30/2011 328 19,974

12/31/2011 616 37,51112/31/2011 328 19,974

Lizanne Galbreath . . . . . . . . . . . . . . . . . . 2/28/2011 1,020 62,5063/31/2011 328 19,9746/30/2011 328 19,9749/30/2011 328 19,974

12/31/2011 328 19,974Eric Hippeau . . . . . . . . . . . . . . . . . . . . . . 2/28/2011 1,020 62,506

3/31/2011 328 19,9746/30/2011 328 19,9749/30/2011 328 19,974

12/31/2011 328 19,974Stephen R. Quazzo . . . . . . . . . . . . . . . . . 2/28/2011 1,020 62,506

3/31/2011 328 19,9746/30/2011 328 19,9749/30/2011 328 19,974

12/31/2011 328 19,974Thomas O. Ryder . . . . . . . . . . . . . . . . . . 2/28/2011 1,020 62,506

3/31/2011 328 19,9746/30/2011 328 19,9749/30/2011 328 19,974

12/31/2011 328 19,974Kneeland C. Youngblood . . . . . . . . . . . . 2/28/2011 1,020 62,506

3/31/2011 164 9,9876/30/2011 164 9,9879/30/2011 164 9,987

12/31/2011 164 9,987

(4) Represents the aggregate grant date fair value for stock option awards granted during the year computed inaccordance with ASC 718. For additional information, refer to Note 22 of the Company’s financialstatements filed with the SEC as part of the Form 10-K for the year ended December 31, 2011. Theseamounts reflect the grant date fair value for these awards and do not correspond to the actual value that willbe recognized by the directors. As of December 31, 2011, each director has the following aggregate numberof stock options outstanding: Mr. Aron, 28,578; Ambassador Barshefsky, 25,222; Dr. Clarke, 20,468;Mr. Daley, 16,181; Mr. Duncan, 69,447; Ms. Galbreath, 36,201; Mr. Hippeau, 36,201; Mr. Quazzo, 36,201;Mr. Ryder, 36,201; Dr. Youngblood, 25,222. All directors received a grant of 2,550 options on February 28,2011 with a grant date fair value of $49,276.

(5) We reimburse Non-Employee Directors for travel expenses and other out-of-pocket costs they incur whenattending meetings and, for one meeting per year, attendance by spouses. In addition, in 2011Non-Employee Directors received 750,000 SPG points valued at $18,750. Non-Employee Directors receiveinterest on deferred dividends. Pursuant to SEC rules, perquisites and personal benefits are not reported forany director for whom such amounts were less than $10,000 in the aggregate for 2011 but must be identifiedby type for each director for whom such amounts were equal to or greater than $10,000 in the aggregate.SEC rules do not require specification of the value of any type of perquisite or personal benefit provided tothe Non-Employee Directors because no such value exceeded $25,000.

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AUDIT COMMITTEE REPORT

The information contained in this Audit Committee Report shall not be deemed to be “soliciting material”or “filed” or “incorporated by reference” in future filings with the SEC, or subject to the liabilities of Section 18of the Exchange Act, except to the extent that the Company specifically incorporates it by reference into adocument filed under the Securities Act of 1933, as amended, or the Exchange Act.

The Audit Committee (the “Audit Committee”) of the Board of Directors (the “Board”) of StarwoodHotels & Resorts Worldwide, Inc. (the “Company”), which is comprised entirely of “independent” directors, asdetermined by the Board in accordance with the New York Stock Exchange (the “NYSE”) listing requirementsand applicable federal securities laws, serves as an independent and objective party to assist the Board infulfilling its oversight responsibilities including, but not limited to, (i) monitoring the quality and integrity of theCompany’s financial statements, (ii) monitoring compliance with legal and regulatory requirements,(iii) assessing the qualifications and independence of the independent registered public accounting firm and(iv) establishing and monitoring the Company’s systems of internal controls regarding finance, accounting andlegal compliance. The Audit Committee operates under a written charter which meets the requirements ofapplicable federal securities laws and the NYSE requirements.

In the first quarter of 2012, the Audit Committee reviewed and discussed the audited financial statementsfor the year ended December 31, 2011 with management, the Company’s internal auditors and the independentregistered public accounting firm, Ernst & Young LLP, including the matters required to be discussed with theindependent accountant by Statement of Auditing Standards No. 61, as amended. The Audit Committee alsodiscussed with the independent registered public accounting firm matters relating to its independence, including areview of audit and non-audit fees and the written disclosures and letter from Ernst & Young LLP to the AuditCommittee required pursuant to Rule 3526 of the Public Company Accounting Oversight Board regarding theindependent accountants’ communications with the Audit Committee concerning independence.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Boardthat the financial statements referred to above be included in the Company’s Annual Report on Form 10-K forthe year ended December 31, 2011.

Audit Committee of the Board of Directors

Clayton C. Daley, Jr., ChairmanAdam M. AronThomas E. ClarkeKneeland C. Youngblood

Audit Fees

The aggregate amounts paid by the Company for the fiscal years ended December 31, 2011 and 2010 to theCompany’s principal accounting firm, Ernst & Young, are as follows (in millions):

2011 2010

Audit Fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6.6 $5.6Audit-Related Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.8 $0.9Tax Fees(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.5 $0.6

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8.9 $7.1

(1) Audit fees include the fees paid for the annual audit, the review of quarterly financial statements andassistance with financial reports required as part of regulatory and statutory filings and the audit of theCompany’s internal controls over financial reporting with the objective of obtaining reasonable assuranceabout whether effective internal controls over financial reporting were maintained in all material respects.

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(2) Audit-related fees include fees for audits of employee benefit plans, audit and accounting consultation andother attest services.

(3) Tax fees include domestic and foreign tax compliance and consultations regarding tax matters.

The Company has adopted a policy which requires the Audit Committee of the Board of Directors toapprove the hiring of any current or former employee (within the last five years) of the Company’s independentregistered public accounting firm into any position (i) as a manager or higher, (ii) in its accounting or taxdepartments, (iii) where the hire would have direct involvement in providing information for use in its financialreporting systems, or (iv) where the hire would be in a policy setting position. When undertaking its review, theAudit Committee considers applicable laws, regulations and related commentary regarding the definition of“independence” for independent registered public accounting firms.

Pre-Approval of Services

The Audit Committee pre-approves all services, including both audit and non-audit services, provided bythe Company’s independent registered public accounting firm. The independent registered public accountingfirm submits an audit services fee proposal, which also must be approved by the Audit Committee before theaudit commences. The Audit Committee may delegate authority to one of its members to pre-approve all audit/non-audit services by the independent registered public accounting firm, as long as these approvals are presentedto the full Audit Committee at its next regularly scheduled meeting.

Management submits to the Audit Committee all non-audit services that it recommends the independentregistered public accounting firm be engaged to provide and an estimate of the fees to be paid for each.Management and the independent registered public accounting firm must each confirm to the Audit Committeethat the performance of the non-audit services on the list would not compromise the independence of theregistered public accounting firm and would be permissible under all applicable legal requirements. The AuditCommittee must approve both the list of non-audit services and the budget for each such service beforecommencement of the work. Management and the independent registered public accounting firm report to theAudit Committee at each of its regular meetings as to the non-audit services actually provided by the independentregistered public accounting firm and the approximate fees incurred by the Company for those services.

All audit and permissible non-audit services provided by Ernst & Young to the Company for the fiscal yearsended December 31, 2011 and 2010 were pre-approved by the Audit Committee or our Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee during fiscal year 2011 were all independent directors, andno member was an employee or former employee of the Company. None of the Compensation Committeemembers had any relationship requiring disclosure under the Related Person Transaction Policy described below.During fiscal year 2011, none of our executive officers served on the compensation committee (or its equivalent)or board of directors of another entity whose officer served on our Compensation Committee.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Board of Directors has adopted a Corporate Opportunity and Related Person Transaction Policy (the“Related Person Transaction Policy”), the purpose of which is to address the reporting, review and approval orratification of transactions with directors, director nominees, executive officers, stockholders known to own ofrecord or beneficially more than five percent of our shares (“5% Holders”) and each of the foregoing’s respectivefamily members and/or corporate affiliates (collectively “Covered Persons”). As a general matter, we seek toavoid Related Person Transactions because they can involve potential or actual conflicts of interest and pose therisk that they may be, or be perceived to be, based on considerations other than the Company’s best interests. For

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purposes of the policy, a “Related Person Transaction” means any transaction involving the Company in which aCovered Person has a direct or indirect material interest. A transaction involving entities controlled by theCompany shall be deemed a transaction in which the Company participates. However, we recognize that in somecircumstances transactions between us and related persons may be incidental to the normal course of business orprovide an opportunity that is in the best interests of the Company, or that is not inconsistent with the bestinterests of the Company, or is more efficient to pursue than an alternative transaction. The Board has chargedthe Governance Committee with establishing and periodically reviewing our Related Person Transaction Policy.A copy of the policy is posted on our website at www.starwoodhotels.com/corporate/investor_relations.html.

The Related Person Transaction Policy also governs certain corporate opportunities to ensure that CorporateOpportunities are not pursued by Covered Persons unless and until the Company has determined that it is notinterested in pursuing said opportunity. For purposes of the policy, a “Corporate Opportunity” means anyopportunity (i) that is within the Company’s existing line of business or is one in which the Company either hasan existing interest or a reasonable expectancy of an interest; and (ii) the Company is reasonably capable ofpursuing.

Under the Related Person Transaction Policy, except as otherwise provided, each director, executive officer,and 5% Holder is required to submit any such Related Person Transaction or Corporate Opportunity to theGovernance Committee for review. In its review, the Governance Committee is to consider all relevant facts andcircumstances to determine whether it should (i) reject the proposed transaction; (ii) conclude that the proposedtransaction is appropriate and suggest that the Company pursue it on the terms presented or on different terms,and in the case of a Corporate Opportunity, suggest that the Company pursue the Corporate Opportunity on itsown, with the party who brought the proposed transaction to the Company’s attention or with another third party;or (iii) ask the Board of Directors to consider the proposed transaction so that the Board of Directors may thentake either of the actions described in (i) or (ii) above, and, at the Governance Committee’s option, in connectionwith (iii), make a recommendation to the Board of Directors.

Any person bringing a proposed transaction to the Governance Committee is obligated to provide any andall information requested by the Governance Committee and, in the case of a director, such director must recusehimself or herself from any vote or other deliberation on the matter.

The policy may be changed at any time by the Board of Directors.

OTHER MATTERS

The Board of Directors is not aware of any matters not referred to in this proxy statement that may properlybe presented for action at the Annual Meeting. The deadline for stockholders to submit matters for considerationat the Annual Meeting and have it included in these proxy materials was November 22, 2011, and the deadlinefor stockholders to submit matters for consideration at the Annual Meeting without having the proposal includedin these proxy materials expired on February 20, 2012. However, if any other matter properly comes before theAnnual Meeting, it is the intention of the persons named in the enclosed proxy to vote the shares representedthereby in accordance with their discretion.

SOLICITATION COSTS

The Company will pay the cost of soliciting proxies for the Annual Meeting, including the cost of mailing.The solicitation is being made by mail and over the Internet and may also be made by telephone or in personusing the services of a number of regular employees of the Company at nominal cost. The Company willreimburse banks, brokerage firms and other custodians, nominees and fiduciaries for expenses incurred insending proxy materials to beneficial owners of shares. The Company has engaged D.F. King & Co., Inc. tosolicit proxies and to assist with the distribution of proxy materials for a fee of $19,500 plus reasonableout-of-pocket expenses.

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HOUSEHOLDING

The SEC allows us to deliver a single proxy statement and annual report or Notice to an address shared bytwo or more of our stockholders. This delivery method, referred to as “householding,” can result in significantcost savings for us. In order to take advantage of this opportunity, the Company and banks and brokerage firmsthat hold your shares have delivered only one proxy statement and annual report or Notice to multiplestockholders who share an address unless one or more of the stockholders has provided contrary instructions. TheCompany will deliver promptly, upon written or oral request, a separate copy of the proxy statement and annualreport or Notice to any stockholder at a shared address to which a single copy of the documents was delivered. Astockholder who wishes to receive a separate copy of the proxy statement and annual report or Notice, now or inthe future, may obtain one, without charge, by addressing a request to Investor Relations, Starwood Hotels &Resorts Worldwide, Inc., One StarPoint, Stamford, Connecticut 06902 or by calling (203) 351-3500. You mayalso obtain a copy of the proxy statement and annual report from the investor relations page on the Company’swebsite (www.starwoodhotels.com/corporate/investor_relations.html). Stockholders of record sharing an addresswho are receiving multiple copies of proxy materials and annual reports or Notices and wish to receive a singlecopy of such materials in the future should submit their request by contacting us in the same manner. If you arethe beneficial owner, but not the record holder, of the shares and wish to receive only one copy of the proxystatement and annual report or Notice in the future, you will need to contact your broker, bank or other nomineeto request that only a single copy of each document be mailed to all stockholders at the shared address in thefuture.

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STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING

If you want to make a proposal for consideration at next year’s annual meeting and have it included in theCompany’s proxy materials, the Company must receive your proposal by November 22, 2012, and the proposalmust comply with the rules of the SEC.

If you want to make a proposal or nominate a director for consideration at next year’s annual meetingwithout having the proposal included in the Company’s proxy materials, you must comply with the then currentadvance notice provisions and other requirements set forth in the Company’s Bylaws, including that theCompany must receive your proposal on or after January 23, 2013 and on or prior to February 17, 2013, withcertain exceptions if the date of next year’s annual meeting is advanced by more than 30 days or delayed by morethan 60 days from the anniversary date of the 2012 Annual Meeting.

If the Company does not receive your proposal or nomination by the appropriate deadline and in accordancewith the terms of the Company’s Bylaws, then it may not properly be brought before the 2013 Annual Meeting ofStockholders.

The fact that the Company may not insist upon compliance with these requirements should not be construedas a waiver by the Company of its right to do so at any time in the future.

You should address your proposals or nominations to the Corporate Secretary, Starwood Hotels & ResortsWorldwide, Inc., One StarPoint, Stamford, Connecticut 06902, Attention: Kenneth S. Siegel, CorporateSecretary.

By Order of the Board of Directors,

Kenneth S. SiegelCorporate Secretary

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General Directions ToThe St. Regis Bal Harbour Resort

From Miami International Airport (MIA)

• Proceed east on State Road 836.

• Exit onto Interstate 95 North towards Fort Lauderdale.

• Take Exit 9 for Bal Harbour and turn right onto 125th Street (922).

• Proceed east on 125th Street (922) as it becomes 123rd Street (Toll Road).

• After 123rd becomes 96th Street, turn left onto Collins Avenue.

• The hotel will be on the right.

From North

• Follow Interstate 95 South to Exit 9 for Bal Harbour.

• Turn left onto 125th Street (922).

• Proceed east on 125th Street (922) as it becomes 123rd Street (Toll Road).

• After 123rd becomes 96th Street, turn left onto Collins Avenue.

• The hotel will be on the right.

From Ft. Lauderdale International Airport (FLL)

• Exit the airport via Interstate 595.

• Proceed west and exit onto Interstate 95 South.

• Take Exit 9 for Bal Harbour and turn left onto 125th Street (922).

• Proceed east on 125th Street (922) as it becomes 123rd Street (Toll Road).

• After 123rd becomes 96th Street, turn left onto Collins Avenue.

• The hotel will be on the right.

From South

• Follow Interstate 95 North towards Fort Lauderdale.

• Take Exit 9 for Bal Harbour and turn right onto 125th Street (922).

• Proceed east on 125th Street (922) as it becomes 123rd Street (Toll Road).

• After 123rd becomes 96th Street, turn left onto Collins Avenue.

• The hotel will be on the right.

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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-KÍ Annual Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934For the Fiscal Year Ended December 31, 2011

OR

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

One StarPointStamford, CT 06902

(Address of principal executiveoffices, including zip code)

(203) 964-6000(Registrant’s telephone number,

including area code)

Securities Registered Pursuant to Section 12(b) of the Act:Title of Each Class Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share New York Stock ExchangeSecurities Registered Pursuant to Section 12(g) of the Act:

NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes Í No ‘

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No Í

Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Actfrom their obligations under those Sections.

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 ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes Í No ‘

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive DataFile required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (orfor such shorter period than the registrant was required to submit and post such files). Yes Í No ‘

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not containedherein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by referencein Part III of this Form 10-K or any amendment to this Form 10-K Í

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

Large accelerated filer Í Accelerated filer ‘ Non-accelerated filer ‘ Smaller reporting company ‘

(Do not check if smaller reporting company)

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

As of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2011, the aggregate market value of theregistrant’s voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the closing sales price asquoted on the New York Stock Exchange was approximately $10.9 billion.

As of February 10, 2012, the registrant had 196,106,079 shares of common stock outstanding.

Documents Incorporated by Reference:Document Where Incorporated

Proxy Statement Part III (Items 10, 11, 12, 13 and 14)

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TABLE OF CONTENTS

Page

PART I

Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

PART II

Item 5. Market for Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchasesof Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . 25

Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . . 43

Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

PART III

Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Item 13. Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . . . 44

Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

PART IVItem 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

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This Annual Report is filed by Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the“Corporation”). Unless the context otherwise requires, all references to “we”, “us”, “our”, “Starwood”, or the“Company” refer to the Corporation and include those entities owned or controlled by the Corporation.

PART I

Forward-Looking Statements

This Annual Report contains statements that constitute forward-looking statements within the meaning ofthe Private Securities Litigation Reform Act of 1995. Forward-looking statements are any statements other thanstatements of historical fact, including statements regarding the intent, belief or current expectations of Starwood,its directors or its officers with respect to the matters discussed in this Annual Report. 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. Suchforward-looking statements appear in several places in this Annual Report, including, without limitation, Item 1.Business and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.All forward-looking statements involve risks and uncertainties that could cause actual results to differ materiallyfrom those discussed in, or implied by, the forward-looking statements including, without limitation, the risksand uncertainties disclosed under Item 1A. Risk Factors. We caution readers that any such statements are basedon currently available operational, financial and competitive information, and they should not place unduereliance on these forward-looking statements, which reflect management’s opinion only as of the date on whichthey were made. Except as required by law, Starwood undertakes no obligation to publicly update or revise anyforward-looking statements to reflect current or future events or circumstances.

Item 1. Business

General

We are one of the world’s largest hotel and leisure companies. We conduct our hotel and leisure businessboth directly and through our subsidiaries. Our brand names include the following:

St. Regis® (luxury full-service hotels, resorts and residences) is for connoisseurs who desire the finestexpressions of luxury. They provide flawless and bespoke service to high-end leisure and business travelers. St.Regis hotels are located in the ultimate locations within the world’s most desired destinations, importantemerging markets and yet to be discovered paradises, and they typically have individual design characteristics tocapture the distinctive personality of each location.

The Luxury Collection® (luxury full-service hotels and resorts) is a group of unique hotels and resortsoffering exceptional service to an elite clientele. From legendary palaces and remote retreats to timeless modernclassics, these remarkable hotels and resorts enable the most discerning traveler to collect a world of unique,authentic and enriching experiences indigenous to each destination that capture the sense of both luxury andplace. They are distinguished by magnificent decor, spectacular settings and impeccable service.

W® (luxury and upscale full-service hotels, retreats and residences) is where iconic design and cutting-edgelifestyle set the stage for exclusive and extraordinary experiences. Each hotel and retreat is uniquely inspired byits destination, where innovative design is inspired by local influences and creates energizing spaces to play orwork by day or mix and mingle out by night. Guests are invited into extraordinary environments that combineentertainment, vibrant lounges, modern guestrooms, and innovative cocktail culture and cuisine. The beats perminute increase as the day transitions to night, amplifying the scene in every W Living Room for guests tosocialize and see and be seen. W Hotels Worldwide, a global design powerhouse brought to life through WHappenings, exclusive partnerships and the signature Whatever/Whenever® promises to grant its guests and localcommunity alike access to What’s New/Next.

Westin® (luxury and upscale full-service hotels, resorts and residences) provides innovative programs andinstinctive services which transform every aspect of a guest’s stay into a revitalizing experience. Indulge in adeliciously wholesome menu including exclusive SuperFoodsRx® dishes. Energize in the fitness studio with the

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industry-leading WestinWORKOUT®. Revive in the Heavenly® Bath where luxurious touches create a spa-likeexperience. And of course, experience truly restorative sleep in the world-renowned Heavenly® Bed—an oasis oflush sheets, down, and patented pillow-top mattress. Whether an epic city center location or refreshing resortdestination, Westin ensures guests leave feeling better than when they arrived. Westin. For A Better You.

Le Méridien® (luxury and upscale full-service hotels, resorts and residences) is a Paris-born hotel brand,currently represented by approximately 100 properties in 43 countries worldwide. Le Méridien aims to target thecreative mind: an audience inspired by creativity who are eager to learn something new and see things in adifferent light. A curated approach towards the arts connects Le Méridien with the creative mind in an authenticand credible way. A cultural curator was engaged, responsible for integrating the arts into the guest experienceand identifying the appropriate creative talents, a family of cultural innovators, LM100 TM, to define and enrichthe guest experience through their dedicated tailor-made creations. This esteemed group comprises of a globalarray of visionaries, from painters to photographers, musicians to designers and chefs. Le Méridien is more thana hotel, it’s a way of life that provides “A New Perspective”.

Sheraton® (luxury and upscale full-service hotels, resorts and residences) is our largest brand serving theneeds of upscale business and leisure travelers worldwide. For over 75 years this full-service, iconic brand haswelcomed guests, becoming a trusted friend to travelers and one of the world’s most recognized hotel brands.From being the first hotel brand to step into major international markets like China, to completely captivatingentire destinations like Waikiki, Sheraton understands that travel is about bringing people together. In Sheratonlobbies you’ll find the Link@SheratonSM experienced with Microsoft. The Sheraton Club is a social space whereguests indulge in the upside of everything. Sheraton Fitness programmed by Core Performance, our signaturefitness program, brings guests together as they train and eat healthy on the road. Sheraton transcends lifestyles,generations and geographies and will continue to welcome generation after generation of world travelers as TheWorld’s Gathering Place.

Four Points® (select-service hotels) delights the self-sufficient traveler with what is needed for greatercomfort and productivity. Great Hotels. Great Rates. All at the honest value our guests deserve. Our guests starttheir day feeling energized and finish up relaxed, maybe even with one of our Best Brews (local craft beer). It’sthe little indulgences that make their time away from home special.

Aloft® (select-service hotels) first opened in 2008. It will already be opening its 55th property in 2012. Aloftprovides new heights: an oasis where you least expect it, a spirited neighborhood outpost, a haven at the side ofthe road. Bringing a cozy harmony of modern elements to the classic on-the-road tradition, Aloft offers a sassy,refreshing, ultra effortless alternative for both the business and leisure traveler. Fresh, fun, and fulfilling, Aloft isan experience to be discovered and rediscovered, destination after destination, as you ease on down the road.Style at a Steal.

Element(SM) (extended stay hotels), a brand introduced in 2006 with the first hotel opened in 2008, providesa modern, upscale and intuitively designed hotel experience that allows guests to live well and feel in control.Inspired by Westin, Element hotels promote balance through a thoughtful, upscale environment. Decidedlymodern with an emphasis on nature, Element is intuitively constructed with an efficient use of space thatencourages guests to stay connected, feel alive, and thrive while they are away. Primarily all Element hotels areLEED certified, depicting the importance of the environment in today’s world. Space to live your life.

Through our brands, we are well represented in most major markets around the world. Our operations arereported in two business segments, hotels and vacation ownership and residential operations.

Our revenue and earnings are derived primarily from hotel operations, which include management and otherfees earned from hotels we manage pursuant to management contracts, the receipt of franchise and other fees andthe operation of our owned hotels.

Our hotel business emphasizes the global operation of hotels and resorts primarily in the luxury and upscalesegment of the lodging industry. We seek to acquire interests in, or management or franchise rights with respectto properties in this segment. At December 31, 2011, our hotel portfolio included owned, leased, managed andfranchised hotels totaling 1,076 hotels with approximately 315,300 rooms in approximately 100 countries, and is

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comprised of 59 hotels that we own or lease or in which we have a majority equity interest, 518 hotels managedby us on behalf of third-party owners (including entities in which we have a minority equity interest) and 499hotels for which we receive franchise fees.

Our revenues and earnings are also derived from the development, ownership and operation of vacationownership resorts, marketing and selling vacation ownership interests (“VOIs”) in the resorts and providingfinancing to customers who purchase such interests. Generally these resorts are marketed under the brand namesdescribed above. Additionally, our revenue and earnings are derived from the development, marketing andselling of residential units at mixed use hotel projects owned by us as well as fees earned from the marketing andselling of residential units at mixed use hotel projects developed by third-party owners of hotels operated underour brands. At December 31, 2011, we had 22 owned vacation ownership resorts and residential properties(including 13 stand-alone, eight mixed-use and one unconsolidated joint venture) in the United States, Mexicoand the Bahamas.

Due to the global economic crisis and its impact on the long-term growth outlook for the timeshare industry,in 2009 we evaluated all of our existing vacation ownership projects, as well as land held for future vacationownership projects. At that time, we decided not to initiate any new vacation ownership projects. We alsodecided not to develop certain vacation ownership sites and future phases of certain existing projects. As theeconomy and market conditions improved in 2011, we commenced construction on a future phase at onetimeshare location where we had ceased development.

Our operations are in geographically diverse locations around the world. The following tables reflect ourhotel and vacation ownership and residential properties by type of revenue source and geographical presence bymajor geographic area as of December 31, 2011:

Number ofProperties Rooms

Managed and unconsolidated joint venture hotels . . . . . . . . . . . . . . . . . . . . . . . 518 172,900

Franchised hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499 123,000

Owned hotels (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 19,400

Vacation ownership resorts and stand-alone properties . . . . . . . . . . . . . . . . . . . 13 7,000

Total properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,089 322,300

(a) Includes wholly owned, majority owned and leased hotels.Number ofProperties Rooms

North America (and Caribbean) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 565 179,600

Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 39,000

Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 66,900

Africa and the Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 21,600

Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 15,200

Total properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,089 322,300

We have implemented a strategy of reducing our investment in owned real estate and increasing our focuson the management and franchise business. In furtherance of this strategy, since 2006, we have sold 65 hotels forapproximately $5.6 billion. As a result, our primary business objective is to maximize earnings and cash flow byincreasing the number of our hotel management contracts and franchise agreements; selling VOIs; and investingin real estate assets where there is a strategic rationale for doing so, which may include selectively acquiringinterests in additional assets and disposing of non-core hotels (including hotels where the return on investedcapital is not adequate) and “trophy” assets that may be sold at significant premiums. We plan to meet theseobjectives by leveraging our global assets, broad customer base and other resources and by taking advantage ofour scale to reduce costs. The implementation of our strategy and financial planning is impacted by theuncertainty relating to geopolitical and economic environments around the world and its consequent impact ontravel.

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The Corporation was incorporated in 1980 under the laws of Maryland. Sheraton Hotels & Resorts andWestin Hotels & Resorts, Starwood’s largest brands, have been serving guests for more than 60 years. StarwoodVacation Ownership (and its predecessor, Vistana, Inc.) has been selling VOIs for more than 20 years.

Our principal executive offices are located at One StarPoint, Stamford, Connecticut 06902, and ourtelephone number is (203) 964-6000.

For a full discussion of our revenues, profits, assets and geographical segments, see our consolidatedfinancial statements of this Annual Report, including the notes thereto. For additional information concerning ourbusiness, see Item 2 Properties, of this Annual Report.

Competition

The hotel and timeshare industry is highly competitive. Competition is generally based on quality andconsistency of room, restaurant and meeting facilities and services, attractiveness of locations, availability of aglobal distribution system, price, the ability to earn and redeem loyalty program points and other factors.Management believes that we compete favorably in these areas. Our properties compete with other hotels andresorts in their geographic markets, including facilities owned by local interests and facilities owned by nationaland international chains. Our principal competitors include other hotel operating companies, national andinternational hotel brands, and ownership companies (including hotel REITs).

We encounter strong competition as a hotel, resort, residential and vacation ownership operator. While someof our competitors are private management firms, several are large national and international chains that own andoperate their own hotels, as well as manage hotels for third-party owners and sell VOIs, under a variety of brandsthat compete directly with our brands.

Intellectual Property

We operate in a highly competitive industry and our intellectual property, including brands, logos,trademarks, service marks, and trade dress is an important component of our business. The success of ourbusiness depends, in part, on the increase in awareness of our brands and our ability to further develop our brandsglobally through the use of our intellectual property. To that end, we apply to register, register and renew ourintellectual property, enforce our rights against the unauthorized use of our intellectual property by third parties;and otherwise protect our intellectual property through strategies and in jurisdictions where we reasonably deemappropriate.

Environmental Matters

We are subject to certain requirements and potential liabilities under various foreign and U.S. federal, stateand local environmental laws, ordinances and regulations (“Environmental Laws”). Under such laws, we couldbe held liable for the costs of removing or cleaning up hazardous or toxic substances at, on, under, or in ourcurrently or formerly owned or operated properties. Such laws often impose liability without regard to whetherthe owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Thepresence of hazardous or toxic substances may adversely affect the owner’s ability to sell or rent such realproperty or to borrow using such real property as collateral. Persons who arrange for the disposal or treatment ofhazardous or toxic wastes may be liable for the costs of removal or remediation of such wastes at the treatment,storage or disposal facility, regardless of whether such facility is owned or operated by such person. We usecertain substances and generate certain wastes that may be deemed hazardous or toxic under applicableEnvironmental Laws, and we from time to time have incurred, and in the future may incur, costs related tocleaning up contamination resulting from historic uses of certain of our current or former properties or ourtreatment, storage or disposal of wastes at facilities owned by others. Other Environmental Laws governoccupational exposure to asbestos-containing materials (“ACMs”) and require abatement or removal of certainACMs (limited quantities of which are present in various building materials such as spray-on insulation, floorcoverings, ceiling coverings, tiles, decorative treatments and piping located at certain of our hotels) in the eventof damage or demolition, or certain renovations or remodeling. Environmental Laws also regulatepolychlorinated biphenyls (“PCBs”), which may be present in electrical equipment. A number of our hotels haveunderground storage tanks (“USTs”) and equipment containing chlorofluorocarbons (“CFCs”); the operation and

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subsequent removal or upgrading of certain USTs and the use of equipment containing CFCs also are regulatedby Environmental Laws. In connection with our ownership, operation and management of our properties, wecould be held liable for costs of remedial or other action with respect to PCBs, USTs or CFCs.

Congress and some states are considering or have undertaken actions to regulate and reduce greenhouse gasemissions. New or revised laws and regulations or new interpretations of existing laws and regulations, such asthose related to climate change, could affect the operation of our hotels and/or result in significant additionalexpense and operating restrictions. The cost impact of such legislation, regulation, or new interpretations woulddepend upon the specific requirements enacted and cannot be determined at this time.

Environmental Laws are not the only source of environmental liability. Under common law, owners andoperators of real property may face liability for personal injury or property damage because of variousenvironmental conditions such as alleged exposure to hazardous or toxic substances (including, but not limitedto, ACMs, PCBs and CFCs), poor indoor air quality, radon or poor drinking water quality.

Although we have incurred and expect to incur remediation and various environmental-related costs duringthe ordinary course of operations, management does not anticipate that such costs will have a material adverseeffect on our operations or financial condition.

Seasonality and Diversification

The hotel industry is seasonal in nature; however, the periods during which our properties experience higherrevenue activities vary from property to property and depend principally upon location. Generally, our revenuesand operating income have been lower in the first quarter than in the second, third or fourth quarters.

Comparability of Owned Hotel Results

We continually update and renovate our owned, leased and consolidated joint venture hotels. Whileundergoing renovation, these hotels are generally not operating at full capacity and, as such, these renovationscan negatively impact our owned hotel revenues and operating income. Other events, such as the occurrence ofnatural disasters may cause a full or partial closure or sale of a hotel, and such events can negatively impact ourrevenues and operating income. Finally, as we pursue our strategy of reducing our investment in owned realestate assets, the sale of such assets can significantly reduce our revenues and operating income from owned,leased and consolidated joint venture hotels.

Employees

At December 31, 2011, approximately 154,000 people were employed at our corporate offices, owned andmanaged hotels and vacation ownership resorts, of which approximately 31% were employed in the UnitedStates. At December 31, 2011, approximately 25% of the U.S.-based employees were covered by variouscollective bargaining agreements providing, generally, for basic pay rates, working hours, other conditions ofemployment and orderly settlement of labor disputes. Generally, labor relations have been maintained in anormal and satisfactory manner, and management believes that our employee relations are satisfactory.

Where You Can Find More Information

We file an annual report on a Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K andamendments to those reports, a proxy statement and other information with the Securities and ExchangeCommission (“SEC”). Our SEC filings are available to the public over the Internet at the SEC’s website at http://www.sec.gov. Our SEC filings are also available on our website at http://www.starwoodhotels.com/ corporate/investor_relations.html as soon as reasonably practicable after they are filed with or furnished to the SEC. Youmay also read and copy any document we file with the SEC at its public reference room located at 100 F Street,NE, in Washington, D.C. 20549 on official business days during the hours of 10 a.m. to 3 p.m. Please call theSEC at (800) SEC-0330 for further information. Our filings with the SEC are also available at the New YorkStock Exchange. For more information on obtaining copies of our public filings at the New York StockExchange, you should call (212) 656-5060. You may also obtain a copy of our filings free of charge by callingInvestor Relations at (203) 351-3500.

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Item 1A. Risk Factors.

Risks Relating to Hotel, Resort, Vacation Ownership and Residential Operations

We Are Subject to All the Operating Risks Common to the Hotel and Vacation Ownership andResidential Industries. Operating risks common to the hotel and vacation ownership and residential industriesinclude:

• changes in general economic conditions, including the severity and duration of downturns in the UnitedStates, Europe and global economies;

• impact of war and terrorist activity (including threatened terrorist activity) and heightened travel securitymeasures instituted in response thereto;

• domestic and international political and geopolitical conditions;

• travelers’ fears of exposures to contagious diseases;

• decreases in the demand for transient rooms and related lodging services, including a reduction inbusiness travel as a result of general economic conditions;

• decreases in demand or increases in supply for vacation ownership interests;

• the impact of internet intermediaries on pricing and our increasing reliance on technology;

• cyclical over-building in the hotel and vacation ownership industries;

• restrictive changes in zoning and similar land use laws and regulations or in health, safety andenvironmental laws, rules and regulations and other governmental and regulatory action;

• changes in travel patterns;

• changes in operating costs including, but not limited to, energy, labor costs (including the impact ofunionization), food costs, workers’ compensation and health-care related costs, insurance andunanticipated costs such as acts of nature and their consequences;

• the costs and administrative burdens associated with compliance with applicable laws and regulations,including, among others, franchising, timeshare, privacy, licensing and labor and employment;

• disputes with owners of properties, including condominium hotels, franchisees and homeownerassociations which may result in litigation;

• the availability and cost of capital to allow us and potential hotel owners and franchisees to fundconstruction, renovations and investments;

• foreign exchange fluctuations;

• the financial condition of third-party owners, project developers and franchisees, which may impact ourability to recover indemnity payments that may be owed to us and their ability to fund amounts requiredunder development, management and franchise agreements and in most cases our recourse is limited tothe equity value said party has in the property;

• the financial condition of the airline industry and the impact on air travel; and

• regulation or taxation of carbon dioxide emissions by airlines and other forms of transportation.

If We Are Unable to Maintain Existing Management and Franchise Agreements or Obtain NewAgreements on as Favorable Terms, our Operating Results May be Adversely Affected. We are impacted byour relationships with hotel owners and franchisees. Our hotel management contracts are typically long-termarrangements, but most allow the hotel owner to replace us in certain circumstances, such as the bankruptcy ofthe hotel owner or franchisee, the failure to meet certain financial or performance criteria and in certain cases,upon a sale of the property. Our ability to meet these financial and performance criteria is subject to, among otherthings, the risks common to hotel industries described above. Factors outside of our control, such as the currentEuropean sovereign debt crisis, could also have a significant negative impact on the financial condition andviability of our hotel property owners. Additionally, the nature of responsibilities under these management andfranchise arrangements may give rise to disagreements with the property owners, making it difficult to maintain

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positive relationships with current and potential hotel owners and franchisees. Consequently, our operatingresults would be adversely affected if we could not maintain existing management, franchise or representationagreements or obtain new agreements on as favorable terms as the existing agreements.

We and Our Third Party Licensees May Not Be Able to Sell Residential Properties Using our Brands fora Profit or at Anticipated Prices. We utilize our brands in connection with the residential portions of certainproperties that we develop and license our brands to third parties to use in a similar manner for a fee. Residentialproperties using our brands could become less attractive due to changes in mortgage rates and the availability ofmortgage financing generally, market absorption or oversupply in a particular market. As a result, we and ourthird party licensees may not be able to sell these residences for a profit or at the prices that we or they haveanticipated.

The Recent Recession in the Lodging Industry and the Global Economy Generally Will Continue toImpact Our Financial Results and Growth. The recent economic recession and continued economic uncertaintyin the United States, Europe and much of the rest of the world has had a negative impact on the hotel andvacation ownership and residential industries. Substantial increases in air and ground travel costs and decreasesin airline capacity have reduced demand for our hotel rooms and interval and fractional timeshare products.Accordingly, our financial results have been impacted by the economic recession and both our future financialresults and growth could be further harmed if recovery from the economic recession slows or the economicrecession becomes worse. In certain cases, we have entered into third party hotel management contracts whichcontain performance guarantees specifying that certain operating metrics will be achieved. As a result of theimpact of the economic downturn on the lodging industry (and despite the stabilization in lodging that began in2010), we may not meet the requisite performance levels, and we may be forced to loan or contribute monies tofund the shortfall of performance levels or terminate the management contract. For a more detailed description ofour performance guarantees, see Note 25 of the consolidated financial statements.

Moreover, many businesses, particularly financial institutions, face restrictions on the ability to travel andhold conferences or events at resorts and luxury hotels. These restrictions as well as negative publicity associatedwith such companies holding large conference and corporate events has resulted in reduced corporate bookingsthat could impact our financial results in the future.

Our Revenues, Profits, or Market Share Could Be Harmed If We Are Unable to Compete Effectively. Thehotel, vacation ownership and residential industries are highly competitive. Our properties compete for customerswith other hotel and resort properties, ranging from national and international hotel brands to independent, localand regional hotel operators, and, with respect to our vacation ownership resorts and residential projects, withowners reselling their VOIs, including fractional ownership, or apartments. We compete based on a number offactors, including quality and consistency of rooms, restaurant and meeting facilities and services, attractivenessof locations, availability of a global distribution system, price, and the ability to earn and redeem loyalty programpoints. Some of our competitors may have substantially greater marketing and financial resources than we do,and if we are unable to successfully compete in these areas, our operating results could be adversely affected.

Moreover, our present growth strategy for development of additional lodging facilities entails entering intoand maintaining various management agreements, franchise agreements, and leases with property owners. Wecompete with other hotel companies for this business primarily on the basis of fees, contract terms, brandrecognition, and reputation. In connection with entering into these agreements, we may be required to makeinvestments in, or guarantee the obligations of, third parties or guarantee minimum income to third parties. Theterms of our management agreements, franchise agreements, and leases for each of our lodging facilities areinfluenced by contract terms offered by our competitors, among other things. We cannot assure you that any ofour current arrangements will continue or that we will be able to enter into future collaborations, renewagreements, or enter into new agreements in the future on terms that are as favorable to us as those that existtoday.

Our Businesses Are Capital Intensive. For our owned, managed and franchised properties to remainattractive and competitive, the property owners and we have to spend money periodically to keep the propertieswell maintained, modernized and refurbished. This creates an ongoing need for cash. Third-party propertyowners may be unable to access capital or unwilling to spend available capital when necessary, even if required

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by the terms of our management or franchise agreements. To the extent that property owners and we cannot fundexpenditures from cash generated by operations, funds must be borrowed or otherwise obtained. Failure to makethe investments necessary to maintain or improve such properties could adversely affect the reputation of ourbrands.

Recent events, including the failures and near failures of financial services companies and the decrease inliquidity and available capital, have negatively impacted the capital markets for hotel and real estate investments.

Any Failure to Protect our Trademarks Could Have a Negative Impact on the Value of Our BrandNames and Adversely Affect Our Business. We believe our trademarks are an important component of ourbusiness. We rely on trademark laws to protect our proprietary rights. The success of our business depends inpart upon our continued ability to use our trademarks to increase brand awareness and further develop our brandin both domestic and international markets. From time to time, we apply to have certain trademarks registeredand there is no guarantee that such trademark registrations will be granted. Further, monitoring the unauthorizeduse of our intellectual property is difficult. Litigation has been and may continue to be necessary to enforce ourintellectual property rights or to determine the validity and scope of the proprietary rights of others. Litigation ofthis type could result in substantial costs and diversion of resources, may result in counterclaims or other claimsagainst us and could significantly harm our results of operations. In addition, the laws of some foreign countriesdo not protect our proprietary rights to the same extent as do the laws of the United States. We cannot assure youthat all of the steps we have taken to protect our trademarks in the United States and foreign countries will beadequate to prevent imitation of our trademarks by others. The unauthorized reproduction of our trademarkscould diminish the value of our brand and its market acceptance, competitive advantages or goodwill, whichcould adversely affect our business.

Our Dependence on Hotel and Resort Development Exposes Us to Timing, Budgeting and Other Risks.We intend to develop hotel and resort properties and residential components of hotel properties, as suitableopportunities arise, taking into consideration the general economic climate. In addition, the owners anddevelopers of new-build properties that we have entered into management or franchise agreements with aresubject to these same risks which may impact the amount and timing of fees we had expected to collect fromthose properties. New project development has a number of risks, including risks associated with:

• construction delays or cost overruns that may increase project costs;

• receipt of zoning, occupancy and other required governmental permits and authorizations;

• development costs incurred for projects that are not pursued to completion;

• so-called acts of God such as earthquakes, hurricanes, floods or fires that could adversely impact aproject;

• defects in design or construction that may result in additional costs to remedy or require all or a portion ofa property to be closed during the period required to rectify the situation;

• ability to raise capital; and

• governmental restrictions on the nature or size of a project or timing of completion.

We cannot assure you that any development project, including sites held for development of vacationownership resorts, will in fact be developed, and, if developed, the time period or the budget of suchdevelopment may be greater than initially contemplated and the actual number of units or rooms constructed maybe less than initially contemplated.

International Operations Are Subject to Unique Political and Monetary Risks. We have significantinternational operations which as of December 31, 2011 included 161 owned, managed or franchised propertiesin Europe (including 16 properties with majority ownership); 84 managed or franchised properties in Africa andthe Middle East; 69 owned, managed or franchised properties in Latin America (including nine properties withmajority ownership); and 210 owned, managed or franchised properties in the Asia Pacific region (including fourproperties with majority ownership). International operations generally are subject to various political,

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geopolitical, and other risks that are not present in U.S. operations. These risks include exposure to localeconomic conditions, potential adverse changes in the diplomatic relations between foreign countries and theUnited States, hostility from local populations, including the risk of war and civil unrest, restrictions on therepatriation of non-U.S. earnings and withdrawal of foreign investments, restriction on the ability to paydividends and remit earnings to affiliated companies, uncertainty as to the enforceability of contractual rightsunder local law, conflicts between local law and United States law and compliance with complex and changinglaws, regulations and policies. In addition, sales in international jurisdictions typically are made in localcurrencies, which subject us to risks associated with currency fluctuations. Currency devaluations andunfavorable changes in international monetary and tax policies could have a material adverse effect on ourprofitability and financing plans, as could other changes in the international regulatory climate and internationaleconomic conditions.

Additionally, our current growth strategy is heavily dependent upon growth in international markets. As ofDecember 31, 2011, 85% of our pipeline represented international growth. Further, 61% of our pipelinerepresents new properties in Asia Pacific and 44% represents new growth in China alone. If our internationalexpansion plans are unsuccessful, our financial results could be materially adversely affected.

We Could be Adversely Affected by Violations of the U.S. Foreign Corrupt Practices Act. Our businessoperations in countries outside the United States are subject to anti-corruption laws and regulations, includingrestrictions imposed by the Foreign Corrupt Practices Act (“FCPA”). The FCPA and similar anti-corruption lawsin other jurisdictions generally prohibit companies and their intermediaries from making improper payments togovernment officials for the purpose of obtaining or retaining business. We operate in many parts of the worldthat have experienced governmental corruption to some degree and, in certain circumstances, strict compliancewith anti-corruption laws may conflict with local customs and practices. We train our employees concerning anti-corruption laws and issues, and also require our third-party business partners and agents and others who workwith us or on our behalf that they must comply with our anti-corruption policies. We also have procedures andcontrols in place to monitor internal and external compliance. We cannot provide assurance that our internalcontrols and procedures will always protect us from the reckless or criminal acts committed by our employees orthird parties with whom we work. If we are found to be liable for violations of the FCPA or similar anti-corruption laws in international jurisdictions, either due to our own acts or out of inadvertence, or due to the actsor inadvertence of others, we could suffer from criminal or civil penalties which could have a material andadverse effect on our results of operations, financial condition and cash flows.

Third Party Internet Reservation Channels May Negatively Impact Our Bookings. Some of our hotelrooms are booked through third party internet travel intermediaries such as Travelocity.com®, Expedia.com®,Orbitz.com® and Priceline.com®. As the percentage of internet bookings increases, these intermediaries may beable to obtain higher commissions, reduced room rates or other significant contract concessions from us.Moreover, some of these internet travel intermediaries are attempting to commoditize hotel rooms by increasingthe importance of price and general indicators of quality (such as “three-star downtown hotel”) at the expense ofbrand identification. Over time consumers may develop loyalties to these third party internet reservationssystems rather than to our lodging brands. Although we expect to derive most of our business from traditionalchannels and our websites, if the amount of sales made through internet intermediaries increases significantly,our business and profitability may be significantly harmed.

A Failure to Keep Pace with Developments in Technology Could Impair Our Operations or CompetitivePosition. The hospitality industry continues to demand the use of sophisticated technology and systems includingtechnology utilized for property management, brand assurance and compliance, procurement, reservationsystems, operation of our customer loyalty program, distribution and guest amenities. These technologies can beexpected to require refinements, including to comply with the legal requirements such as privacy regulations andrequirements established by third parties such as the payment card industry, and there is the risk that advancednew technologies will be introduced. Further, the development and maintenance of these technologies mayrequire significant capital. There can be no assurance that as various systems and technologies become outdatedor new technology is required, we will be able to replace or introduce them as quickly as our competition orwithin budgeted costs and timeframes. Further, there can be no assurance that we will achieve the benefits thatmay have been anticipated from any new technology or system.

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Disasters, Disruptions and Other Impairment of Our Information Technologies and Systems CouldAdversely Affect our Business. Our business involves the processing, use, storage and transmission of personalinformation regarding our employees, customers, hotel owners, and vendors for various business purposes,including marketing and promotional purposes. The protection of personal as well as proprietary information iscritical to us. We are subject to numerous laws and regulations designed to protect personal information,including Member State implementation of the European Union Directive on Data Protection and various U.S.federal and state laws. We have established policies and procedures to help protect the privacy and security ofour information. However, every year the number of laws and regulations continues to grow, as does thecomplexity of such laws. Further, privacy regulations, on occasion, may be inconsistent from one jurisdiction toanother. Compliance with applicable privacy regulations may increase our operating costs and/or adverselyimpact our ability to market our products, properties and services to our guests.

We are dependent on information technology networks and systems to process, transmit and storeproprietary and personal information, and to communicate among our various locations around the world, whichmay include our reservation systems, vacation exchange systems, hotel/property management systems, customerand employee databases, call centers, administrative systems, and third party vendor systems. The complexity ofthis infrastructure contributes to the potential risk of security breaches. We rely on the security of our informationsystems and, those of our vendors and other authorized third parties, to protect our proprietary and personalinformation.

Despite our efforts, information networks and systems may be vulnerable to threats such as system, networkor Internet failures; computer hacking or business disruption; cyber-terrorism; viruses, worms or other malicioussoftware programs; employee error, negligence, fraud, or misuse of systems; or other unauthorized attempts bythird parties to access, modify or delete our proprietary and personal information. Although we have taken stepsto address these concerns by implementing network security and internal controls, there can be no assurance thata system failure, unauthorized access, or breach will not occur.

Any compromise of our networks or systems, public disclosure, or loss of personal or proprietaryinformation could result in a disruption to our operations; damage to our reputation and a loss of confidence fromour customers or employees; legal claims or proceedings, liability under laws that protect personal information,regulatory penalties, potentially resulting in significant monetary damages, regulatory enforcement actions, fines,and/or criminal or civil prosecution in one or more jurisdictions; and subjecting us to additional regulatoryscrutiny, or additional costs and liabilities which could have a material adverse affect on our business, operationsor financial condition.

Significant Owners of Our Properties May Concentrate Risks. There is potential for a concentration ofownership of hotels operated under our brands by any single owner. Following the acquisition of the Le Méridienbrand business and a large disposition transaction to one ownership group in 2006, single ownership groups ownsignificant numbers of hotels operated by us. While the risks associated with such ownership are no differentthan exist generally (i.e., the financial position of the owner, the overall state of the relationship with the ownerand their participation in optional programs and the impact on cost efficiencies if they choose not to participate),they are more concentrated.

Our Real Estate Investments Subject Us to Numerous Risks. We are subject to the risks that generallyrelate to investments in real property because we own and lease hotels and resorts. The investment returnsavailable from equity investments in real estate depend in large part on the amount of income earned and capitalappreciation generated by the related properties, and the expenses incurred. In addition, a variety of other factorsaffect income from properties and real estate values, including governmental regulations, insurance, zoning, taxand eminent domain laws, interest rate levels and the availability of financing. For example, new or existing realestate zoning or tax laws can make it more expensive and/or time-consuming to develop real property or expand,modify or renovate hotels. When interest rates increase, the cost of acquiring, developing, expanding orrenovating real property increases and real property values may decrease as the number of potential buyersdecreases. Similarly, as financing becomes less available, it becomes more difficult both to acquire and to sellreal property. Finally, under eminent domain laws, governments can take real property. Sometimes this taking isfor less compensation than the owner believes the property is worth. Any of these factors could have a material

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adverse impact on our results of operations or financial condition. In addition, equity real estate investments aredifficult to sell quickly and we may not be able to adjust our portfolio of owned properties quickly in response toeconomic or other conditions. If our properties do not generate revenue sufficient to meet operating expenses,including debt service and capital expenditures, our income will be adversely affected.

We May Be Subject to Environmental Liabilities. Our properties and operations are subject to a number ofEnvironmental Laws. Under such laws, we could be held liable for the costs of removing or cleaning uphazardous or toxic substances at, on, under, or in our currently or formerly owned or operated properties. Suchlaws often impose liability without regard to whether the owner or operator knew of, or was responsible for, thepresence of such hazardous or toxic substances. The presence of hazardous or toxic substances may adverselyaffect the owner’s ability to sell or rent such real property or to borrow using such real property as collateral.Persons who arrange for the disposal or treatment of hazardous or toxic wastes may be liable for the costs ofremoval or remediation of such wastes at the treatment, storage or disposal facility, regardless of whether suchfacility is owned or operated by such person. We use certain substances and generate certain wastes that may bedeemed hazardous or toxic under applicable Environmental Laws, and we from time to time have incurred, andin the future may incur, costs related to cleaning up contamination resulting from historic uses at certain of ourcurrent or former properties or our treatment, storage or disposal of wastes at facilities owned by others. OtherEnvironmental Laws govern occupational exposure to ACMs and require abatement or removal of certain ACMs(limited quantities of which are present in various building materials such as spray-on insulation, floor coverings,ceiling coverings, tiles, decorative treatments and piping located at certain of our hotels) in the event of damageor demolition, or certain renovations or remodeling. Environmental Laws also regulate PCBs, which may bepresent in electrical equipment. A number of our hotels have USTs and equipment containing CFCs; theoperation and subsequent removal or upgrading of certain USTs and the use of equipment containing CFCs alsoare regulated by Environmental Laws. In connection with our ownership, operation and management of ourproperties, we could be held liable for costs of remedial or other action with respect to PCBs, USTs or CFCs.

Congress and some states are considering or have undertaken actions to regulate and reduce greenhouse gasemissions. New or revised laws and regulations or new interpretations of existing laws and regulations, such asthose related to climate change, could affect the operation of our hotels and/or result in significant additionalexpense and operating restrictions on us. The cost impact of such legislation, regulation, or new interpretationswould depend upon the specific requirements enacted and cannot be determined at this time.

Risks Relating to Operations in Syria and Other Countries Subject to Sanction Laws

From time to time the United States may impose sanctions that prohibit U.S. companies from engaging inbusiness activities with certain persons or foreign countries or governments that it determines are adverse to U.S.foreign policy interests. For example, the United States has issued an executive order that prohibits U.S.companies from engaging in certain business activities with the government of Syria, a country that the UnitedStates has identified as a state sponsor of terrorism. During fiscal 2011, a foreign subsidiary of Starwoodgenerated approximately $300,000 of revenue from management and other fees from existing hotels located inSyria. This amount constitutes significantly less than 1% of our worldwide annual revenues. We believe ouractivities in Syria are in full compliance with U.S. and local law. At any time, the United States may imposeadditional sanctions against Syria. If so, our existing activities in Syria may be adversely affected, or we mayincur costs to respond to an executive order, depending on the nature of any further sanctions that might beimposed.

In addition, in 2011 the United States issued an executive order that prohibited U.S. companies fromtransacting with the government of Libya and certain entities and individuals associated with the former Gaddafiregime. A foreign subsidiary of Starwood currently has a management contract for one hotel located in Libya, aswell as three hotels outside Libya that are indirectly owned by the government of Libya. Although the restrictionwas released following the fall of the Gaddafi regime, the United States may impose additional sanctions againstLibya at any time.

Further, our activities in countries that are subject to U.S. sanction laws may reduce demand for our stockamong certain investors. Any restrictions on Starwood’s ability to conduct its business operations in ajurisdiction that is subject to U.S. sanctions laws could negatively impact our financial results.

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Risks Relating to Debt Financing

Our Debt Service Obligations May Adversely Affect our Cash Flow. As a result of our debt obligations, weare subject to: (i) the risk that cash flow from operations will be insufficient to meet required payments ofprincipal and interest, (ii) restrictive covenants, including covenants relating to certain financial ratios, and(iii) interest rate risk. Although we anticipate that we will be able to repay or refinance our existing indebtednessand any other indebtedness when it matures, there can be no assurance that we will be able to do so or that theterms of such refinancing will be favorable. Our leverage may have important consequences including thefollowing: (i) our ability to obtain additional financing for acquisitions, working capital, capital expenditures orother purposes, if necessary, may be impaired or such financing may not be available on terms favorable to usand (ii) a substantial decrease in operating cash flow, EBITDA (as defined in our credit agreements) or asubstantial increase in our expenses could make it difficult for us to meet our debt service requirements andrestrictive covenants and force us to sell assets and/or modify our operations.

We Have Little Control Over the Availability of Funds Needed to Fund New Investments and MaintainExisting Hotels. In order to fund new hotel investments, as well as refurbish and improve existing hotels, bothwe and current and potential hotel owners must have access to capital. The availability of funds for newinvestments and maintenance of existing hotels depends in large measure on capital markets and liquidity factorsover which we have little control. Current and prospective hotel owners may find hotel financing expensive anddifficult to obtain. Delays, increased costs and other impediments to restructuring such projects may affect ourability to realize fees, recover loans and guarantee advances, or realize equity investments from such projects.Our ability to recover loans and guarantee advances from hotel operations or from owners through the proceedsof hotel sales, refinancing of debt or otherwise may also affect our ability to raise new capital. In addition,downgrades of our public debt ratings by rating agencies could increase our cost of capital. A breach of acovenant could result in an event of default that, if not cured or waived, could result in an acceleration of all or asubstantial portion of our debt. For a more detailed description of the covenants imposed by our debt obligations,see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidityand Capital Resources – Cash Used for Financing Activities in this Annual Report.

Volatility in the Credit Markets Will Continue to Adversely Impact Our Ability to Sell the Loans That OurVacation Ownership Business Generates. Our vacation ownership business provides financing to purchasers ofour vacation ownership units, and we attempt to sell interests in those loans in the securities markets. Volatility inthe credit markets may impact the timing and volume of the timeshare loans that we are able to sell. Although weexpect to realize the economic value of our vacation ownership note portfolio even if future note sales aretemporarily or indefinitely delayed, such delays may result in either increased borrowings to provide capital toreplace anticipated proceeds from such sales or reduced spending in order to maintain our leverage and returntargets.

Risks Relating to So-Called Acts of God, Terrorist Activity and War

Our financial and operating performance may be adversely affected by so-called acts of God, such as naturaldisasters, in locations where we own and/or operate significant properties and areas of the world from which wedraw a large number of customers. Similarly, wars (including the potential for war), terrorist activity (includingthreats of terrorist activity), political unrest and other forms of civil strife and geopolitical uncertainty havecaused in the past, and may cause in the future, our results to differ materially from anticipated results. In 2011,our hotels in Syria, Tunisia, Libya and Egypt experienced reduced bookings as a result of the political climate inthese countries. If these conditions do not improve, our financial results could be negatively impacted.

Risks Related to Pandemic Diseases

Our business could be materially and adversely affected by the effect of a pandemic disease on the travelindustry. For example, the past outbreaks of SARS and avian flu had a severe impact on the travel industry, andthe recent outbreak of swine flu in Mexico had a similar impact. A prolonged recurrence of SARS, avian flu,swine flu or another pandemic disease also may result in health or other government authorities imposingrestrictions on travel. Any of these events could result in a significant drop in demand for our hotel and vacationownership businesses and adversely affect our financial condition and results of operations.

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Our Insurance Policies May Not Cover All Potential Losses

We carry insurance coverage for general liability, property, business interruption, and other risks withrespect to our owned and leased properties and we make available insurance programs for owners of propertieswe manage. These policies offer coverage terms and conditions that we believe are usual and customary for ourindustry. Generally, our “all-risk” property policies provide that coverage is available on a per occurrence basisand that, for each occurrence, there is a limit as well as various sub-limits on the amount of insurance proceedswe will receive in excess of applicable deductibles. In addition, there may be overall limits under the policies.Sub-limits exist for certain types of claims such as service interruption, debris removal, expediting costs orlandscaping replacement, and the dollar amounts of these sub-limits are significantly lower than the dollaramounts of the overall coverage limit. Our property policies also provide that for the coverage of criticalearthquake (California and Mexico), hurricane and flood, all of the claims from each of our properties resultingfrom a particular insurable event must be combined together for purposes of evaluating whether the annualaggregate limits and sub-limits contained in our policies have been exceeded and any such claims will also becombined with the claims of owners of managed hotels that participate in our insurance program for the samepurpose. Therefore, if insurable events occur that affect more than one of our owned hotels and/or managedhotels owned by third parties that participate in our insurance program, the claims from each affected hotel willbe added together to determine whether the per occurrence limit, annual aggregate limit or sub-limits, dependingon the type of claim, have been reached and if the limits or sub-limits are exceeded each affected hotel will onlyreceive a proportional share of the amount of insurance proceeds provided for under the policy. In addition, underthose circumstances, claims by third party owners will reduce the coverage available for our owned and leasedproperties.

In addition, there are also other risks including but not limited to war, certain forms of terrorism such asnuclear, biological or chemical terrorism, political risks, some environmental hazards and/or acts of God thatmay be deemed to fall completely outside the general coverage limits of our policies or may be uninsurable ormay be too expensive to justify insuring against.

We may also encounter challenges with an insurance provider regarding whether it will pay a particularclaim that we believe to be covered under our policy. Should an uninsured loss or a loss in excess of insuredlimits occur, we could lose all or a portion of the capital we have invested in a hotel or resort, as well as theanticipated future revenue from the hotel or resort. In that event, we might nevertheless remain obligated for anymortgage debt or other financial obligations related to the property.

Our Acquisitions/Dispositions and Investments in New Brands May Ultimately Not Prove Successful andWe May Not Realize Anticipated Benefits

We consider corporate as well as property acquisitions and investments that complement our business. Inmany cases, we compete for these opportunities with third parties who may have substantially greater financialresources or different or lower acceptable financial metrics than we do. There can be no assurance that we will beable to identify acquisition or investment candidates or complete transactions on commercially reasonable termsor at all. If transactions are consummated, there can be no assurance that any anticipated benefits will actually berealized. Similarly, there can be no assurance that we will be able to obtain additional financing for acquisitionsor investments, or that the ability to obtain such financing will not be restricted by the terms of our debtagreements.

We periodically review our business to identify properties or other assets that we believe either arenon-core, no longer complement our business, are in markets which may not benefit us as much as other marketsduring an economic recovery or could be sold at significant premiums. We are focused on restructuring andenhancing real estate returns and monetizing investments, and from time to time, may attempt to sell theseidentified properties and assets. There can be no assurance, however, that we will be able to completedispositions on commercially reasonable terms or at all or that any anticipated benefits will actually be received.

We may develop and launch additional brands in the future. There can be no assurance regarding the levelof acceptance of these brands in the development and consumer marketplaces, that the cost incurred indeveloping the brands will be recovered or that the anticipated benefits from these new brands will be realized.

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Investing Through Partnerships or Joint Ventures Decreases Our Ability to Manage Risk

In addition to acquiring or developing hotels and resorts or acquiring companies that complement ourbusiness directly, we have from time to time invested, and expect to continue to invest, as a co-venturer. Jointventurers often have shared control over the operation of the joint venture assets. Therefore, joint ventureinvestments may involve risks such as the possibility that the co-venturer in an investment might becomebankrupt or not have the financial resources to meet its obligations, or have economic or business interests orgoals that are inconsistent with our business interests or goals, or be in a position to take action contrary to ourinstructions or requests or contrary to our policies or objectives. Consequently, actions by a co-venturer mightsubject hotels and resorts owned by the joint venture to additional risk. Further, we may be unable to take actionwithout the approval of our joint venture partners. Alternatively, our joint venture partners could take actionsbinding on the joint venture without our consent. Additionally, should a joint venture partner become bankrupt,we could become liable for our partner’s share of joint venture liabilities.

Our Vacation Ownership Business is Subject to Extensive Regulation and Risk of Default

We market and sell VOIs, which typically entitle the buyer to ownership of a fully-furnished resort unit fora one-week period on either an annual or an alternate-year basis. We also acquire, develop and operate vacationownership resorts, and provide financing to purchasers of VOIs. These activities are all subject to extensiveregulation by the federal government and the states in which vacation ownership resorts are located and in whichVOIs are marketed and sold including regulation of our telemarketing activities under state and federal “Do NotCall” laws. In addition, the laws of most states in which we sell VOIs grant the purchaser the right to rescind thepurchase contract at any time within a statutory rescission period. Although we believe that we are in materialcompliance with all applicable federal, state, local and foreign laws and regulations to which vacation ownershipmarketing, sales and operations are currently subject, changes in these requirements, or a determination by aregulatory authority that we were not in compliance, could adversely affect us. In particular, increasedregulations of telemarketing activities could adversely impact the marketing of our VOIs.

We bear the risk of defaults under purchaser mortgages on VOIs. If a VOI purchaser defaults on themortgage during the early part of the loan amortization period, we will not have recovered the marketing, selling(other than commissions in certain events), and general and administrative costs associated with such VOI, andsuch costs will be incurred again in connection with the resale of the repossessed VOI. Accordingly, there is noassurance that the sales price will be fully or partially recovered from a defaulting purchaser or, in the event ofsuch defaults, that our allowance for losses will be adequate.

Risks Related to Our Dependence on Senior Management and Our Ability to Achieve Our Growth Strategy

Our future success and our ability to manage future growth depend in large part upon the efforts of oursenior management and our ability to attract and retain key officers and other highly qualified personnel.Competition for such personnel is intense. In the past several years, we have experienced significant changes inour senior management, including executive officers (see Item 10, Directors, Executive Officers and CorporateGovernance of this Annual Report). There can be no assurance that we will continue to be successful in attractingand retaining qualified personnel. Accordingly, there can be no assurance that our senior management will beable to successfully execute and implement our growth and operating strategies.

Over the last few years we have been pursuing a strategy of reducing our investment in owned real estateand increasing our focus on the management and franchise business. As a result, we are planning on substantiallyincreasing the number of hotels we open every year and increasing the overall number of hotels in our system.This increase will require us to recruit and train a substantial number of new associates to work at these hotels aswell as increasing our capabilities to enable hotels to open on time and successfully. There can be no assurancethat our strategy will be successful.

Tax Risks

Evolving Government Regulation Could Impose Taxes or Other Burdens on Our Business. We rely upongenerally available interpretations of tax laws and other types of laws and regulations in the countries and localesin which we operate. We cannot be sure that these interpretations are accurate or that the responsible taxing or

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other governmental authority is in agreement with our views. The imposition of additional taxes or requirementsto change the way we conduct our business could cause us to have to pay taxes that we currently do not collect orpay or increase the costs of our services or increase our costs of operations.

Our current business practice with our internet reservation channels is that the intermediary collects hoteloccupancy tax from its customer based on the price that the intermediary paid us for the hotel room. We thenremit these taxes to the various tax authorities. Several jurisdictions have stated that they may take the positionthat the tax is also applicable to the intermediaries’ gross profit on these hotel transactions. If jurisdictions takethis position, they should seek the additional tax payments from the intermediary; however, it is possible thatthey may seek to collect the additional tax payment from us and we would not be able to collect these taxes fromthe customers. To the extent that any tax authority succeeds in asserting that the hotel occupancy tax applies tothe gross revenue on these transactions, we believe that any additional tax would be the responsibility of theintermediary. However, it is possible that we might have additional tax exposure. In such event, such actionscould have a material adverse effect on our business, results of operations and financial condition.

Risks Relating to Ownership of Our Shares

Our Board of Directors May Issue Preferred Stock and Establish the Preferences and Rights of SuchPreferred Stock. Our charter provides that the total number of shares of stock of all classes which theCorporation has authority to issue is 1,200,000,000, consisting of one billion shares of common stock and200 million shares of preferred stock. Our Board of Directors has the authority, without a vote of stockholders, toestablish the preferences and rights of any preferred shares to be issued and to issue such shares. The issuance ofpreferred shares having special preferences or rights could delay or prevent a change in control even if a changein control would be in the interests of our stockholders. Since our Board of Directors has the power to establishthe preferences and rights of preferred shares without a stockholder vote, our Board of Directors may give theholders preferences, powers and rights, including voting rights, senior to the rights of holders of our shares.

Our Board of Directors May Implement Anti-Takeover Devices and Our Charter and Bylaws ContainProvisions which May Prevent Takeovers. Certain provisions of Maryland law permit our Board of Directors,without stockholder approval, to implement possible takeover defenses that are not currently in place, such as aclassified board. In addition, our charter contains provisions relating to restrictions on transferability of ourcommon stock, which provisions may be amended only by the affirmative vote of our stockholders holdingtwo-thirds of the votes entitled to be cast on the matter. As permitted under the Maryland General CorporationLaw, our Bylaws provide that directors have the exclusive right to amend our Bylaws.

We Cannot Provide Assurance That We Will Continue to Pay Dividends. There can be no assurance thatwe will continue to pay dividends. Our Board of Directors may suspend the payment of dividends if the Boarddeems such action to be in the best interests of the Company or stockholders. If we do not pay dividends, theprice of our common stock must appreciate for you to realize a gain on your investment in the Company. Thisappreciation may not occur and our stock may, in fact, depreciate in value.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

We are one of the largest hotel and leisure companies in the world, with operations in approximately 100countries. We consider our hotels and resorts, including vacation ownership resorts (together “Resorts”),generally to be premier establishments with respect to desirability of location, size, facilities, physical condition,quality and variety of services offered in the markets in which they are located. Although obsolescenceattributable to age, condition of facilities, and style can adversely affect our Resorts, Starwood and third-party

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owners of managed and franchised Resorts expend substantial funds to renovate and maintain their facilities inorder to remain competitive. For further information see Item 7, Management’s Discussion and Analysis ofFinancial Condition and Results of Operations – Liquidity and Capital Resources in this Annual Report.

At December 31, 2011 our hotel business included 1,076 owned, managed or franchised hotels withapproximately 315,300 rooms and our owned vacation ownership and residential business included 13 stand-alone vacation ownership resorts and residential properties at December 31, 2011, predominantly under sevenbrands. All brands (other than the Four Points by Sheraton and the Aloft and Element brands) represent full-service properties that range in amenities from luxury hotels and extended stay resorts to more moderately pricedhotels. Our Four Points by Sheraton, Aloft and Element brands are select-service properties that cater to morevalue oriented consumers.

The following table reflects our hotel and vacation ownership properties, by brand, as of December 31,2011:

Hotels,VOI and Residential(a)

Properties Rooms

St. Regis and Luxury Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 20,500

W . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 12,000

Westin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 74,500

Le Méridien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 25,600

Sheraton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421 148,400

Four Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 27.900

Aloft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 8,700

Independent / Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4,700

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,089 322,300

(a) Includes vacation ownership properties of which 13 are stand-alone, eight are mixed-use and one is anunconsolidated joint venture totaling rooms of 7,000.

Hotel Business

Managed and Franchised Hotels. Hotel and resort properties in the United States are often owned byentities that do not manage hotels or own a brand name. Hotel owners typically enter into management contractswith hotel management companies to operate their hotels. When a management company does not offer a brandaffiliation, the hotel owner often chooses to pay separate franchise fees to secure the benefits of brand marketing,centralized reservations and other centralized administrative functions, particularly in the sales and marketingarea. Management believes that companies, such as Starwood, that offer both hotel management services andwell-established worldwide brand names appeal to hotel owners by providing the full range of management,marketing and reservation services. In 2011, we opened 80 managed and franchised hotels with approximately21,000 rooms and 31 managed and franchised hotels with approximately 7,000 rooms left our system.

Managed Hotels. We manage hotels worldwide, usually under a long-term agreement with the hotel owner(including entities in which we have a minority equity interest). Our responsibilities under hotel managementcontracts typically include hiring, training and supervising the managers and employees that operate thesefacilities. For additional fees, we provide centralized reservation services and coordinate national andinternational advertising and certain marketing and promotional services. We prepare and implement annualbudgets for the hotels we manage and are responsible for allocating property-owner funds for periodicmaintenance and repair of buildings and furnishings. In addition to our owned and leased hotels, at December 31,

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2011, we managed 518 hotels with approximately 172,900 rooms worldwide. During the year endedDecember 31, 2011, we generated management fees by geographic area as follows:

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.8%

Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.0%

Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9%

Middle East and Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.7%

Americas (Latin America, Caribbean & Canada) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0%

Management contracts typically provide for base fees tied to gross revenue and incentive fees tied to profitsas well as fees for other services, including centralized reservations, national and international advertising andsales and marketing. In our experience, owners seek hotel managers that can provide attractively priced base,incentive and marketing fees combined with demonstrated sales and marketing expertise and operations-focusedmanagement designed to enhance profitability. Some of our management contracts permit the hotel owner toterminate the agreement when the hotel is sold or otherwise transferred to a third party, as well as if we fail tomeet established performance criteria. In addition, many hotel owners seek equity, debt or other investmentsfrom us to help finance hotel renovations or conversions to a Starwood brand, so as to align the interests of theowner and Starwood. Our ability or willingness to make such investments may determine, in part, whether wewill be offered, will accept or will retain a particular management contract. During the year ended December 31,2011, we opened 49 managed hotels with approximately 14,000 rooms, and 11 managed hotels withapproximately 4,000 rooms left our system. In addition, during 2011, we signed management agreements for 70hotels with approximately 20,000 rooms, a small portion of which opened in 2011 and the majority of which willopen in the future.

Brand Franchising and Licensing. We franchise our Sheraton, Westin, Four Points by Sheraton, LuxuryCollection, Le Méridien, Aloft and Element brand names and generally derive licensing and other fees fromfranchisees based on a fixed percentage of the franchised hotel’s room revenue, as well as fees for other services,including centralized reservations, national and international advertising and sales and marketing. In addition, afranchisee may purchase hotel supplies, including brand-specific products, from certain Starwood-approvedvendors. We also review certain plans for, and the location of, franchised hotels and review their design. AtDecember 31, 2011, there were 499 franchised properties with approximately 123,000 rooms. During the yearended December 31, 2011, we generated franchise fees by geographic area as follows:

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66.9%

Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.8%

Americas (Latin America, Caribbean & Canada) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.4%

Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2%

Middle East and Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0%

In addition to the franchise contracts we retained in connection with the sale of hotels during the year endedDecember 31, 2011, we opened 31 franchised hotels with approximately 7,000 rooms, and 20 franchised hotelswith approximately 4,000 rooms left our system. In addition, during 2011 we signed franchise agreements for 42hotels with approximately 9,000 rooms, a portion of which opened in 2011 and a portion of which will open inthe future.

Owned, Leased and Consolidated Joint Venture Hotels. Historically, we have derived the majority of ourrevenues and operating income from our owned, leased and consolidated joint venture hotels and a significantportion of these results are driven by these hotels in North America. However, beginning in 2006, we embarkedupon a strategy of selling a significant number of hotels. Since 2006 and through December 31, 2011, we havesold 65 wholly-owned hotels which has substantially reduced our revenues and operating income from owned,leased and consolidated joint-venture hotels. The majority of these hotels were sold subject to long-term

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management or franchise contracts. To date, where we have sold hotels, we have not provided seller financing orother financial assistance to buyers. Total revenues generated from our owned, leased and consolidated jointventure hotels worldwide for the years ending December 31, 2011, 2010 and 2009 were $1.768 billion, $1.704billion and $1.584 billion, respectively (total revenues from our owned, leased and consolidated joint venturehotels in North America were $1.001 billion, $1.067 billion and $1.024 billion for 2011, 2010 and 2009,respectively).

The following represents our top five markets in the United States by metropolitan area as a percentage ofour total owned, leased and consolidated joint venture revenues for the years ended December 31, 2011 and2010:

Top Five Domestic Markets in the United States as a % of Total OwnedRevenues for the Years Ended December 31, 2011 and 2010 (1)

2011 2010Metropolitan Area Revenues Revenues

New York, NY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4% 12.3%

Hawaii . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1% 6.2%

Phoenix, AZ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3% 5.0%

San Francisco, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1% 4.0%

Chicago, IL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1% 4.3%

The following represents our top five international markets by country as a percentage of our total owned,leased and consolidated joint venture revenues for the years ended December 31, 2011 and 2010:

Top Five International Markets as a % of Total OwnedRevenues for the Years Ended December 31, 2011 and 2010 (1)

2011 2010Country Revenues Revenues

Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.0% 10.8%

Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4% 7.1%

Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9% 5.6%

Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9% 4.1%

Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2% 4.1%

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

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Following the sale of a significant number of our hotels in the past three years, we currently own or lease 59hotels as follows:

Hotel Location Rooms

U.S. Hotels:The St. Regis Hotel, New York New York, NY 229

St. Regis Hotel, San Francisco San Francisco, CA 260

The Phoenician Scottsdale, AZ 643

W New York – Times Square New York, NY 509

W Chicago Lakeshore Chicago, IL 520

W Los Angeles Westwood Los Angeles, CA 258

W New Orleans New Orleans, LA 410

W New Orleans, French Quarter New Orleans, LA 98

The Westin Maui Resort & Spa Maui, HI 759

The Westin Peachtree Plaza, Atlanta Atlanta, GA 1,068

The Westin San Francisco Airport San Francisco, CA 397

The Westin St. John Resort & Villas St. John, Virgin Islands 175

Sheraton Kauai Resort Kauai, HI 394

Sheraton Steamboat Springs Resort Steamboat Springs, CO 207

Sheraton Suites Philadelphia Airport Philadelphia, PA 251

Aloft Lexington Lexington, MA 136

Aloft Philadelphia Airport Philadelphia, PA 136

Element Lexington Lexington, MA 123

Four Points by Sheraton Philadelphia Airport Philadelphia, PA 177

Four Points by Sheraton Tucson University Plaza Tucson, AZ 150

The Manhattan at Times Square New York, NY 659

Tremont Hotel Chicago, IL 135

Clarion Hotel San Francisco, CA 251

Cove Haven Resort Scranton, PA 276

Pocono Palace Resort Scranton, PA 189

Paradise Stream Resort Scranton, PA 144

Perimeter Hotel, Atlanta Atlanta, GA 275

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International Hotels: Location Rooms

St. Regis Grand Hotel, Rome Rome, Italy 161

St. Regis, Osaka Tokyo, Japan 160

St. Regis, Florence Florence, Italy 100

Hotel Gritti Palace Venice, Italy 90

Park Tower Buenos Aires, Argentina 181

Hotel Alfonso XIII Seville, Spain 147

Hotel Imperial Vienna, Austria 138

Hotel Goldener Hirsch Salzburg, Austria 69

Hotel Maria Cristina San Sebastian, Spain 136

W Barcelona Barcelona, Spain 473

W London – Leicester Square London, England 192

The Westin Excelsior, Rome Rome, Italy 316

The Westin Resort & Spa, Los Cabos Los Cabos, Mexico 243

The Westin Resort & Spa, Puerto Vallarta Puerto Vallarta, Mexico 280

The Westin Excelsior, Florence Florence, Italy 171

The Westin Resort & Spa Cancun Cancun, Mexico 379

The Westin Denarau Island Resort Nadi, Fiji 273

The Westin Dublin Hotel Dublin, Ireland 163

Sheraton Centre Toronto Hotel Toronto, Canada 1,377

Sheraton On The Park Sydney, Australia 557

Sheraton Rio Hotel & Resort Rio de Janeiro, Brazil 542

Sheraton Diana Majestic Hotel Milan, Italy 106

Sheraton Ambassador Hotel Monterrey, Mexico 229

Sheraton Lima Hotel & Convention Center Lima, Peru 431

Sheraton Santa Maria de El Paular Rascafria, Spain 44

Sheraton Fiji Resort Nadi, Fiji 264

Sheraton Buenos Aires Hotel & Convention Center Buenos Aires, Argentina 742

Sheraton Maria Isabel Hotel & Towers Mexico City, Mexico 755

Sheraton Gateway Hotel in Toronto International Airport Toronto, Canada 474

Le Centre Sheraton Montreal Hotel Montreal, Canada 825

Sheraton Paris Airport Hotel & Conference Centre Paris, France 252

The Park Lane Hotel, London London, England 303

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An indicator of the performance of our owned, leased and consolidated joint venture hotels is revenue peravailable room (“REVPAR”), as it measures the period-over-period growth in rooms revenue for comparableproperties. This is particularly the case in the United States where there is no impact on this measure fromforeign exchange rates.

The following table summarizes REVPAR, average daily rates (“ADR”) and average occupancy rates on ayear-to-year basis for our 45 owned, leased and consolidated joint venture hotels (excluding six hotels sold orclosed and 14 hotels undergoing significant repositionings or without comparable results in 2011 and 2010)(“Same-Store Owned Hotels”) for the years ended December 31, 2011 and 2010:

Year EndedDecember 31,

2011 2010 Variance

Worldwide (45 hotels with approximately 16,000 rooms)REVPAR (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $159.12 $142.76 11.5%ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $218.65 $205.49 6.4%Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.8% 69.5% 3.3North America (22 hotels with approximately 9,000 rooms)REVPAR (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $164.78 $153.63 7.3%ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $215.60 $207.44 3.9%Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76.4% 74.1% 2.3International (23 hotels with approximately 7,000 rooms)REVPAR (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $152.01 $129.11 17.7%ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $222.95 $202.64 10.0%Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68.2% 63.7% 4.5

(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 titledmeasures such as revenues.

During the years ended December 31, 2011 and 2010, we invested approximately $283 million and $184million, respectively, for capital expenditures at owned hotels. These capital expenditures included renovationcosts at The Westin Peachtree Plaza in Atlanta, GA, Sheraton Kauai Resort in Koloa, HI, The St. Regis Florencein Florence, Italy, Hotel Alfonso XIII in Seville, Spain and the purchase of the Hotel Goldener Hirsch inSalzburg, Austria.

The following table summarizes REVPAR, ADR and average occupancy rates for our same-store owned,leased, managed and franchised hotels (“Same-Store Systemwide Hotels”) on a year-to-year basis for the yearsended December 31, 2011 and 2010.

Year EndedDecember 31,

2011 2010 Variance

WorldwideREVPAR (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $114.56 $104.43 9.7%ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $168.37 $158.57 6.2%Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68.0% 65.9% 2.1

North AmericaREVPAR (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $108.57 $ 99.47 9.1%ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $155.11 $148.45 4.5%Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70.0% 67.0% 3.0InternationalREVPAR (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $123.40 $111.74 10.4%ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $189.36 $174.17 8.7%Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65.2% 64.2% 1.0

(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 titledmeasures such as revenues.

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Vacation Ownership and Residential Business

We develop, own and operate vacation ownership resorts, market and sell the VOIs in the resorts and, inmany cases, provide financing to customers who purchase such ownership interests. Owners of VOIs can tradetheir interval for intervals at other Starwood vacation ownership resorts, intervals at certain vacation ownershipresorts not otherwise sponsored by Starwood through an exchange company, or for hotel stays at Starwoodproperties. From time to time, we securitize or sell the receivables generated from our sale of VOIs.

We have also entered into arrangements with several owners for mixed use hotel projects that will include aresidential component. We have entered into licensing agreements for the use of certain of our brands to allowthe owners to offer branded condominiums to prospective purchasers. In consideration, we typically receive alicensing fee equal to a percentage of the gross sales revenue of the units sold. The licensing arrangementgenerally terminates upon the earlier of sell-out of the units or a specified length of time. We recently completedthe development of a residential project in Bal Harbour, Florida and are in the process of selling residential units.

At December 31, 2011, we had 22 residential and vacation ownership resorts and sites in our portfolio with17 actively selling VOIs and residences including one unconsolidated joint venture. During 2011 and 2010 weinvested approximately $70 million and $151 million, respectively, for vacation ownership capital expenditures,including VOI construction at the Westin Desert Willow Villas in Palm Desert, CA, the Westin LagunamarOcean Resort in Cancun, as well as construction costs at The St. Regis Bal Harbour Resort in Miami Beach, FL(“St. Regis Bal Harbour”) .

Due to the global economic crisis and its impact on the long-term outlook for the timeshare industry, duringthe fourth quarter of 2009, we completed a comprehensive review of our vacation ownership projects. Wedecided at that time that no new projects were to be initiated, and that we would not develop three vacationownership sites and future phases of certain existing projects. As a result, inventories, fixed assets and landvalues at certain projects were determined to be impaired and were written down to their fair value, resulting in aprimarily non-cash pre-tax impairment charge in 2009 of $255 million. Additionally, in connection with thisreview of the business, we made a decision to reduce the pricing of certain inventory at existing projects,resulting in a pre-tax charge of $17 million. As a result of these decisions and future plans for the vacationownership business, we also recorded a $90 million non-cash charge for the impairment of goodwill associatedwith the vacation ownership reporting unit. As a result of the economic recovery, in 2011, we decided toconstruct additional timeshare inventory in a small portion of one of the projects where we had ceaseddevelopment.

Item 3. Legal Proceedings.

Information regarding Legal Proceedings is incorporated by reference from the “Litigation” section in Note25, Commitments and Contingencies, of our consolidated financial statements set forth in Item 8. FinancialStatements and Supplementary Data of this Annual Report, which is incorporated herein by reference.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities

Market Information

Our common stock, par value $0.01 per share (“Corporation Shares”), is traded on the New York StockExchange (the “NYSE”) under the symbol “HOT”.

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The following table sets forth the quarterly range of the high and low sale prices of the Corporation Sharesfor the fiscal periods indicated as reported on the NYSE Composite Tape:

High Low

2011Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $54.15 $35.78

Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $59.45 $37.88

Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $61.70 $50.87

First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $65.51 $54.95

2010Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $62.72 $52.16

Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $54.25 $39.60

Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $56.65 $41.28

First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $47.52 $33.15

Approximate Number of Equity Security Holders

As of February 10, 2012, there were approximately 14,000 holders of record of Corporation Shares.

Dividends

The following table sets forth the frequency and amount of cash dividends declared by the Corporation toholders of Corporation Shares for the fiscal years ended December 31, 2011 and 2010:

DividendsDeclared

2011Annual dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.50 (a)

2010Annual dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.30 (b)

(a) The Corporation declared a dividend in the fourth quarter of 2011 to shareholders of record onDecember 15, 2011, which was paid in December 2011.

(b) The Corporation declared a dividend in the fourth quarter of 2010 to shareholders of record onDecember 16, 2010, which was paid in December 2010.

Conversion of Securities; Sale of Unregistered Securities

Units of SLC Operating Limited Partnership, our wholly-owned subsidiary, are convertible into CorporationShares at the unit holders’ option, provided that we have the option to settle conversion requests in cash orCorporation Shares. At December 31, 2011 and 2010 there were approximately 159,000 and 166,000 of theseunits outstanding, respectively.

Issuer Purchases of Equity Securities

During the year ended December 31, 2011, our Board of Directors authorized a share purchase program of$250 million. As of December 31, 2011, $250 million of repurchase capacity remained available under thisprogram.

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STOCK RETURN PERFORMANCE AND CUMULATIVE TOTAL RETURN

Set forth below is a line graph comparing the cumulative total stockholder return on the Corporation Sharesagainst the cumulative total return on the S&P 500 and the S&P 500 Hotel Index (the “S&P 500 Hotel”) for thefive fiscal years beginning after December 31, 2006 and ending December 31, 2011. The graph assumes that thevalue of the investments was $100 on December 31, 2006 and that all dividends and other distributions werereinvested. The comparisons are provided in response to SEC disclosure requirements and are not intended toforecast or be indicative of future performance.

201120102009200820072006

DO

LL

AR

S

Starwood

S&P 500

S&P 500 Hotel

0

50

100

150

200

250

12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11

Starwood $100.00 71.89 30.69 63.05 105.31 83.98

S&P 500 $100.00 105.49 66.47 84.06 96.74 98.76

S&P 500 Hotel $100.00 87.56 45.28 70.57 108.15 87.28

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Item 6. Selected Financial Data.

The following selected financial data should be read in conjunction with the information set forth underItem 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and ourconsolidated financial statements and related notes thereto (the “Notes”) beginning on page F-1 of this AnnualReport.

Year Ended December 31,

2011 2010 2009 2008 2007

(In millions, except per share data)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,624 $5,071 $4,696 $5,754 $5,999

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 630 $ 600 $ 26 $ 610 $ 841

Income (loss) from continuing operations (a) . . . . . . . . . . . . . . . . . . $ 502 $ 310 $ (1) $ 249 $ 532

Diluted earnings per share from continuing operations . . . . . . . . . . $ 2.57 $ 1.63 $ 0.00 $ 1.34 $ 2.52

Cash from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 641 $ 764 $ 571 $ 646 $ 884

Cash from (used for) investing activities . . . . . . . . . . . . . . . . . . . . . $ (176) $ (71) $ 116 $ (172) $ (215)

Cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . $ (775) $ (26) $ (993) $ (243) $ (712)

Aggregate cash distributions paid . . . . . . . . . . . . . . . . . . . . . . . . . . $ 99 $ 93 $ 165 $ 172 $ 90

Cash distributions and dividends declared per Share . . . . . . . . . . . . $ 0.50 $ 0.30 $ 0.20 $ 0.90 $ 0.90

(a) Amounts represent income from continuing operations attributable to Corporation Shares (i.e. excludingnon-controlling interests).

At December 31,

2011 2010 2009 2008 2007

(In millions)

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,560 $9,776 $8,761 $9,703 $9,622

Long-term debt, net of current maturities . . . . . . . . . . . . . . . . . . . . $2,596 $3,215 $2,955 $3,502 $3,590

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This 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 accountingprinciples generally accepted in the United States. The preparation of these consolidated financial statementsrequires management 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 thereported amounts of revenues and costs and expenses during the reporting periods. On an ongoing basis,management evaluates its estimates and judgments, including those relating to revenue recognition, bad debts,inventories, investments, plant, property and equipment, goodwill and intangible assets, income taxes, financingoperations, frequent guest program liability, self-insurance claims payable, restructuring costs, retirementbenefits and contingencies and litigation.

Management bases its estimates and judgments on historical experience and on various other factors that arebelieved to be reasonable under the circumstances, the results of which form the basis for making decisions aboutthe carrying values of assets and liabilities that are not readily available from other sources. Actual results maydiffer from these estimates under different assumptions and conditions.

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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 resortrevenues at our owned, leased and consolidated joint venture properties; (2) vacation ownership interests andresidential unit revenues; (3) management and franchise revenues; (4) revenues from managed and franchisedproperties; and (5) other revenues which are ancillary to our operations. Generally, revenues are recognized whenthe 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 hoteloperations, including the rental of rooms and food and beverage sales from owned, leased or consolidatedjoint venture hotels and resorts. Revenue is recognized when rooms are occupied and services have beenrendered. These revenues are impacted by global economic conditions affecting the travel and hospitalityindustry as well as relative market share of the local competitive set of hotels. REVPAR is a leadingindicator of revenue trends at owned, leased and consolidated joint venture hotels as it measures theperiod-over-period growth in rooms revenue for comparable properties.

• Vacation Ownership Interests and Residential Units — We recognize revenue from VOI sales andfinancings and the sales of residential units which are typically a component of mixed use projects thatinclude a hotel. Such revenues are impacted by the state of the global economy and, in particular, the U.S.economy, as well as interest rates and other economic conditions affecting the lending market. Revenue isgenerally recognized upon the buyer demonstrating a sufficient level of initial and continuing investment,the period of cancellation with refund has expired and receivables are deemed collectible. We determinethe portion of revenues to recognize for sales accounted for under the percentage of completion methodbased on judgments and estimates including total project costs to complete. Additionally, we recordreserves against these revenues based on expected default levels. Changes in costs could lead toadjustments to the percentage of completion status of a project, which may result in differences in thetiming and amount of revenues recognized from the projects. We have also entered into licensingagreements with third-party developers to offer consumers branded condominiums or residences. Our feesfrom these agreements are generally based on the gross sales revenue of units sold. Residential feerevenue is recorded in the period that a purchase and sales agreement exists, delivery of services andobligations has occurred, the fee to the owner is deemed fixed and determinable and collectability of thefees is reasonably assured. Residential revenue on whole ownership units is generally recorded using thecompleted contract method, whereby revenue is recognized only when a sales contract is completed orsubstantially completed. During the performance period, costs and deposits are recorded on the balancesheet.

• Management and Franchise Fees — Represents fees earned on hotels and resorts managed worldwide,usually under long-term contracts, franchise fees received in connection with the franchise of ourSheraton, Westin, Four Points by Sheraton, Le Méridien and Luxury Collection brand names, terminationfees and the amortization of deferred gains related to sold properties for which we have significantcontinuing involvement. Management fees are comprised of a base fee, which is generally based on apercentage of gross revenues, and an incentive fee, which is generally based on the property’sprofitability. For any time during the year, when the provisions of our management contracts allowreceipt of incentive fees upon termination, incentive fees are recognized for the fees due and earned as ifthe 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 eventualincentive fees that will be recognized at year-end as conditions and incentive hurdle calculations may notbe final. Franchise fees are generally based on a percentage of hotel room revenues. As with hotelrevenues discussed above, these revenue sources are affected by conditions impacting the travel andhospitality industry as well as competition from other hotel management and franchise companies.

• Other Revenues from Managed and Franchised Properties – These revenues represent reimbursements ofcosts incurred on behalf of managed hotel properties and franchisees. These costs relate primarily topayroll costs at managed properties where we are the employer. Since the reimbursements are made based

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upon the costs incurred with no added margin, these revenues and corresponding expenses have no effecton our operating income or our net income.

Goodwill and Intangible Assets. Goodwill and intangible assets arise in connection with acquisitions,including the acquisition of management contracts. We do not amortize goodwill and intangible assets withindefinite lives. Intangible assets with finite lives are amortized over their respective useful lives. We review allgoodwill and intangible assets for impairment annually, or upon the occurrence of a trigger event. Impairmentcharges, if any, are recognized in operating results.

In September 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-08,“Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment”. This topic permits an entity toassess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit isless than its carrying amount as a basis to determine whether an additional impairment test is necessary. Thistopic is for annual and interim goodwill impairment tests performed for fiscal years beginning afterDecember 13, 2011 with early adoption allowed. We early adopted this topic during the fourth quarter of 2011 inconjunction with our annual impairment testing (see Note 7).

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

We charge our owned, managed and franchised hotels the cost of operating the SPG program, including theestimated cost of our future redemption obligation, based on a percentage of our SPG members’ qualifiedexpenditures. The Company’s management and franchise agreements require that we be reimbursed for the costsof operating the SPG program, including marketing, promotions and communications and performing memberservices for the SPG members. As points are earned, the Company increases the SPG point liability for theamount of cash it receives from its 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 tothe SPG point liability. When points are redeemed by the SPG members, the hotels recognize revenue and theSPG point liability is reduced.

Through the services of third-party actuarial analysts, we determine the value of the future redemptionobligation based on statistical formulas which project the timing of future point redemptions based on historicalexperience, including an estimate of the “breakage” for points that will never be redeemed, and an estimate of thepoints that will eventually be redeemed as well as the cost of reimbursing hotels and other third parties in respectof other redemption opportunities for point redemptions.

We consolidate the assets and liabilities of the SPG program including the liability associated with thefuture redemption obligation which is included in other long-term liabilities and accrued expenses in theaccompanying consolidated balance sheets. The total actuarially determined liability (see Note 17), as ofDecember 31, 2011 and 2010 is $844 million and $753 million, respectively, of which $251 million and $225million, respectively, is included in accrued expenses.

Long-Lived Assets. We evaluate the carrying value of our long-lived assets for impairment by comparingthe expected undiscounted future cash flows of the assets to the net book value of the assets if certain triggerevents occur. If the expected undiscounted future cash flows are less than the net book value of the assets, theexcess of the net book value over the estimated fair value is charged to current earnings. Fair value is based upondiscounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing marketconditions, sales of similar assets, appraisals and, if appropriate, current estimated net sales proceeds frompending offers. We evaluate the carrying value of our long-lived assets based on our plans, at the time, for suchassets and such qualitative factors as future development in the surrounding area, status of expected localcompetition and projected incremental income from renovations. Changes to our plans, including a decision todispose of or change the intended use of an asset, can have a material impact on the carrying value of the asset.

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Loan Loss Reserves. For the vacation ownership and residential segment, we record an estimate of expecteduncollectibility on our VOI notes receivable as a reduction of revenue at the time we recognize a timeshare sale.We hold large amounts of homogeneous VOI notes receivable and therefore assess uncollectibility based onpools of receivables. In estimating loan loss reserves, we use a technique referred to as static pool analysis, whichtracks defaults for each year’s mortgage originations over the life of the respective notes and projects anestimated default rate. As of December 31, 2011, the average estimated default rate for our pools of receivableswas 9.9%.

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

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

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

For the hotel segment, we measure the impairment of a loan based on the present value of expected futurecash 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 recordedinvestment in the loan and the present value of the expected future cash flows or the estimated fair value of thecollateral. We apply the loan impairment policy individually to all loans in the portfolio and do not aggregateloans for the purpose of applying such policy. For loans that we have determined to be impaired, we recognizeinterest income on a cash basis.

Assets Held for Sale. We consider properties to be assets held for sale when management approves andcommits to a formal plan to actively market a property or group of properties for sale and a signed sales contractand 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 whichincludes allocable segment goodwill or its estimated fair value, less estimated costs to sell, and we stop recordingdepreciation expense. Any gain realized in connection with the sale of a property for which we have significantcontinuing involvement (such as through a long-term management agreement) is deferred and recognized overthe initial term of the related agreement. The operations of the properties held for sale prior to the sale date arerecorded in discontinued operations unless we will have continuing involvement (such as through a managementor franchise agreement) after the sale.

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

Income Taxes. We provide for income taxes in accordance with principles contained in ASC 740, IncomeTaxes. Under these principles, we recognize the amount of income tax payable or refundable for the current yearand deferred tax assets and liabilities for the future tax consequences of events that have been recognized in ourfinancial statements or tax returns.

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Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which thosetemporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of achange in tax rates is recognized in earnings in the period when the new rate is enacted. Deferred tax assets areevaluated for future realization and reduced by a valuation allowance to the extent we believe a portion will notbe realized. We consider many factors when assessing the likelihood of future realization of our deferred taxassets, including our recent cumulative earnings experience and expectations of future taxable income by taxingjurisdiction, the carry-forward periods available to us for tax reporting purposes and tax attributes.

We measure and recognize the amount of tax benefit that should be recorded for financial statementpurposes for uncertain tax positions taken or expected to be taken in a tax return. With respect to uncertain taxpositions, we evaluate the recognized tax benefits for derecognition, classification, interest and penalties, interimperiod accounting and disclosure requirements. Judgment is required in assessing the future tax consequences ofevents that have been recognized in our financial statements or tax returns.

RESULTS OF OPERATIONS

The following discussion presents an analysis of results of our operations for the years ended December 31,2011, 2010 and 2009.

The difficult business conditions that plagued the global lodging industry in 2008 and 2009 began tostabilize in 2010. The lodging recovery continued into 2011 as occupancies approached prior peak levels,average daily rate increased, and new hotel supply in the developed world fell well below historic rates ofgrowth. While we remain cautiously optimistic, we acknowledge that known and unknown challenges could slowdown or derail the lodging recovery.

As we move forward, we believe we are uniquely positioned, due to the strength of our brands, our high-endfocus, and our geographic diversification. Starwood is particularly well positioned to take advantage of globalgrowth through our operating teams that have worked in the emerging markets for decades. We also expect togrow in the developed world as we build out our underpenetrated brands in these markets. We believe that wehave the highest quality pipeline in the industry as measured by percentage growth potential as well as our focuson valuable management contracts in the four and five star segments.

We and our hotel owners have continued to invest capital in our hotels and provide innovative ways toutilize public space, such as our Link@Sheraton, which fosters relationships face-to-face or webcam-to-webcam,and also by maximizing guest room conveniences. Finally, we believe our SPG loyalty guest program is anindustry leader. With our recently announced changes to the program, we expect to drive further loyalty from ourSPG members as well as attract the next wave of global elite members. As the program is constantly refined andnew promotions are offered, it provides rewards to our patrons while its growth in membership favorably impactsour results. As we move forward to 2012, we will continue to focus on providing superior guest experiences forour business, leisure, and group customers while maintaining a commitment to controlling our costs.

As discussed in Note 2 of our consolidated financial statements, following the adoption of ASU Nos.2009-16 and 2009-17 on January 1, 2010, our statements of income beginning with the year ended December 31,2010 no longer reflect securitization income, but instead report interest income, net charge-offs and certain otherincome associated with all securitized loan receivables, and interest expense associated with debt issued from thetrusts to third-party investors in the same line items in our statements of income. Additionally, we no longerrecord initial gains or losses on new securitization activity since securitized vacation ownership notes receivableno longer receive sale accounting treatment. Finally, we no longer recognize gains or losses on the revaluation ofthe interest-only strip receivable as that asset is not recognized in a transaction accounted for as a securedborrowing.

Our statement of income for the year ended December 31, 2009 has not been retrospectively adjusted toreflect the adoption of ASU Nos. 2009-16 and 2009-17. While the years ended December 31, 2010 and 2011have been accounted for under the new accounting standards, these years are not comparable to 2009 amounts,particularly with regards to vacation ownership and residential sales and services and interest expense.

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Year Ended December 31, 2011 Compared with Year Ended December 31, 2010

Continuing Operations

Year EndedDecember 31,

2011

Year EndedDecember 31,

2010

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Owned, Leased and Consolidated Joint Venture Hotels . . . . $1,768 $1,704 $ 64 3.8%

Management Fees, Franchise Fees and Other Income . . . . 814 712 102 14.3%

Vacation Ownership and Residential . . . . . . . . . . . . . . . . . . . 703 538 165 30.7%

Other Revenues from Managed and FranchisedProperties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,339 2,117 222 10.5%

Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,624 $5,071 $553 10.9%

The increase in revenues from owned, leased and consolidated joint venture hotels was primarily due toincreased REVPAR (as discussed below) at our existing owned, leased and consolidated joint venture hotels,offset in part by lost revenues from six wholly owned hotels sold or closed in 2011 and 2010. These sold orclosed hotels had revenues of $56 million in the year ended December 31, 2011 compared to $158 million in thecorresponding period of 2010. Revenues at our Same-Store Owned Hotels (45 hotels for the year endedDecember 31, 2011 and 2010, excluding the six hotels sold or closed and 14 additional hotels undergoingsignificant repositionings or without comparable results in 2011 and 2010) increased 9.4%, or $123 million, to$1.441 billion for the year ended December 31, 2011 when compared to $1.318 billion in the correspondingperiod of 2010 due primarily to an increase in REVPAR.

REVPAR at our Same-Store Owned Hotels increased 11.5% to $159.12 for the year ended December 31,2011 when compared to the corresponding 2010 period. The increase in REVPAR at these Same-Store OwnedHotels was driven by a 6.4% increase in ADR to $218.65 for the year ended December 31, 2011 compared to$205.49 for the corresponding 2010 period and an increase in occupancy rates to 72.8% for the year endedDecember 31, 2011 when compared to 69.5% in the corresponding period in 2010. REVPAR at Same-StoreOwned Hotels in North America increased 7.3% for the year ended December 31, 2011 when compared to thecorresponding period of 2010. REVPAR growth was particularly strong at our owned hotels in San Francisco,California, Maui, Hawaii and Scottsdale, Arizona. REVPAR at our international Same-Store Owned Hotelsincreased by 17.7% for the year ended December 31, 2011 when compared to the corresponding period of 2010.REVPAR for Same-Store Owned Hotels internationally increased 8.1% excluding the favorable effects offoreign currency translation.

The increase in management fees, franchise fees and other income was primarily a result of an $83 millionor 12.0% increase in management and franchise revenue to $772 million for the year ended December 31, 2011compared to $689 million in the corresponding period of 2010. Management fees increased $46 million or 11.2%and franchise fees increased $26 million or 16.1% compared to the corresponding period of 2010. Theseincreases were due to growth in REVPAR at existing hotels as well as the net addition of 38 managed and 11franchised hotels to our system since the beginning of 2011. Additionally, other income increased approximately$19 million, for the year ended December 31, 2011 when compared to the corresponding period of 2010,primarily due to payments received on promissory notes that had previously been reserved due to uncertaintyaround collection.

Total vacation ownership and residential sales and services revenue increased 30.7% to $703 million, for theyear ended December 31, 2011 when compared to $538 million in 2010, primarily driven by residential salesrelated to the St. Regis Bal Harbour project which received its certificate of occupancy in late 2011. Originatedcontract sales of VOI inventory increased 6.1% for the year ended December 31, 2011, when compared to thecorresponding period in 2010. This increase was primarily driven by increased tour flow from new buyers andimproved sales performance from existing owner channels. The average contract amount per vacation ownershipunit sold was relatively unchanged, for the year ended December 31, 2011 when compared to the corresponding

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period of 2010, at approximately $14,900. Residential revenue increased approximately $125 million for the yearended December 31, 2011 primarily due to residential sales related to the St. Regis Bal Harbour project asdiscussed above.

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

Year EndedDecember 31,

2011

Year EndedDecember 31,

2010

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Selling, General, Administrative andOther . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $352 $344 $8 2.3%

Selling, general, administrative and other expenses for the year ended December 31, 2011 increased 2.3% to$352 million, when compared to the corresponding period of 2010, primarily due to higher legal costs incurred in2011, while results in 2010 benefitted from the reimbursement of legal costs as a result of a favorable legalsettlement. This increase was partially offset by lower incentive compensation in 2011 compared to 2010.

Year EndedDecember 31,

2011

Year EndedDecember 31,

2010

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Restructuring, Goodwill Impairment andOther Special Charges (Credits), Net . . . . . $68 $(75) $143 n/m

During the year ended December 31, 2011, we recorded a charge of approximately $70 million related to anunfavorable decision in a lawsuit.

During the year ended December 31, 2010, we received cash proceeds of $75 million in connection with thefavorable settlement of a lawsuit. We recorded this settlement, net of the reimbursement of legal costs incurred inconnection with the litigation, as a credit to restructuring, goodwill impairment, and other special (credits)charges. Additionally, we recorded an $8 million credit related to the reversal of a reserve associated with anacquisition in 1998 as the liability is no longer deemed necessary.

Year EndedDecember 31,

2011

Year EndedDecember 31,

2010

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Depreciation and Amortization . . . . . . . . . . . . $265 $285 $(20) (7.0)%

The decrease in depreciation expense for the year ended December 31, 2011, when compared to thecorresponding period of 2010, was primarily due to reduced depreciation expense from sold hotels, partiallyoffset by additional depreciation related to capital expenditures made in the last twelve months.

Year EndedDecember 31,

2011

Year EndedDecember 31,

2010

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Operating Income . . . . . . . . . . . . . . . . . . . . . . $630 $600 $30 5.0%

The increase in operating income for the year ended December 31, 2011, when compared to thecorresponding period of 2010, was primarily due to continued improvement in results from our owned and leased

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hotels and the increase in management and franchise fees attributable to the increase in REVPAR as well as thenet addition of 49 managed and franchised hotels to our system since the beginning of 2011. Additionally,residential sales at the St. Regis Bal Harbour favorably impacted 2011 operating income by $27 million.Operating income for the year ended December 31, 2011, as compared to 2010, was negatively impacted by a$70 million charge associated with an unfavorable legal decision in 2011, while 2010 benefited from a favorablesettlement of a lawsuit of $75 million. Results were also negatively impacted by political unrest in the MiddleEast and North Africa, as well as the earthquake and tsunami in Japan.

Year EndedDecember 31,

2011

Year EndedDecember 31,

2010

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Equity Earnings (Losses) and Gains andLosses from Unconsolidated Ventures,Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11 $10 $1 10.0%

The increase in equity earnings and gains and losses from unconsolidated joint ventures for the year endedDecember 31, 2011, when compared to the corresponding period of 2010 was primarily due to improvedoperating results at several properties owned by joint ventures in which we hold non-controlling interests,partially offset by unfavorable mark-to-market adjustments on US dollar denominated loans at several propertiesin Latin America.

Year EndedDecember 31,

2011

Year EndedDecember 31,

2010

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Net Interest Expense . . . . . . . . . . . . . . . . . . . . $216 $236 $(20) (8.5)%

The decrease in net interest expense for the year ended December 31, 2011, when compared to thecorresponding period of 2010, was primarily due to a lower average debt balance and an increase in capitalizedinterest related to construction projects, primarily relating to the St. Regis Bal Harbour, partially offset by a $16million charge for redemption premiums and other costs associated with the early payoff of all of our $605million Senior Notes, which were originally issued in April 1, 2002 and due in May 2012. Our weighted averageinterest rate was 6.66% at December 31, 2011 as compared to 6.86% at December 31, 2010.

Year EndedDecember 31,

2011

Year EndedDecember 31,

2010

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Loss on Asset Dispositions and Impairments,Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $— $(39) $(39) 100.0%

During the year ended December 31, 2011, we recorded an impairment charge of $31 million to write-offour noncontrolling interest in a joint venture that owns a hotel in Tokyo, Japan, a $9 million loss due tosignificant renovations and related asset retirements at two properties, $7 million in losses relating to theimpairment of six hotels whose carrying value exceeded their book value and a $2 million loss on an investmentin a management contract that was terminated during the period. These amounts were offset by a $50 milliongain as a result of the write-up to fair value of our previously held noncontrolling interest in two hotels in whichwe obtained a controlling interest (see Note 4).

During the year ended December 31, 2010, we recorded a net loss on dispositions of approximately $39million, primarily related to a $53 million loss on the sale of one wholly-owned hotel (see Note 5) as well as a $4million impairment of fixed assets that are being retired in connection with a significant renovation of a wholly-owned hotel, and a $2 million impairment on one hotel whose carrying value exceeded its fair value. Thesecharges were partially offset by a gain of $14 million from insurance proceeds received for a claim at a wholly-owned hotel that suffered damage from a storm in 2008, a $5 million gain as a result of an acquisition of a

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controlling interest in a joint venture in which we previously held a non-controlling interest (see Note 4) and a $4million gain from the sale of non-hotel assets.

Year EndedDecember 31,

2011

Year EndedDecember 31,

2010

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Income Tax (Benefit) Expense . . . . . . . . . . . . $(75) $27 $(102) n/m

In 2011, we completed transactions that involved certain domestic and foreign subsidiaries. These transactionsgenerated capital gains, increased the tax basis in subsidiaries including U.S partnerships and resulted in theinclusion of foreign earnings for U.S. tax purposes. The capital gains were largely reduced by the utilization ofcapital losses. Due to the uncertainty regarding our ability to generate capital gain income, the deferred tax assetassociated with these capital losses was offset by a full valuation allowance prior to these transactions. Thesetransactions resulted in a net tax benefit of $87 million. Additionally, during 2011, an income tax benefit ofapproximately $60 million was generated as the result of the sale of two wholly-owned hotels. Also, in 2011, theInternal Revenue Service (“IRS”) closed its audit in respect to tax years 2004 through 2006 resulting in therecognition of a tax benefit of approximately $25 million, primarily for the reversal of tax and interest reserves.These benefits were partially offset by tax on increased pretax income and valuation allowance increases in 2011compared to 2010.

During 2010, the IRS closed its audit with respect to tax years 1998 through 2003 and we recognized a $42million tax benefit in continuing operations, primarily associated with the refund of interest on taxes alreadypaid. This benefit was partially offset by interest and taxes recorded on uncertain tax positions, which resulted ina charge of $23 million.

Discontinued Operations, Net of TaxDuring the year ended December 31, 2011, we recorded a loss of $13 million primarily related to an $18

million pre-tax loss from the sale of our interest in a consolidated joint venture, offset by a $10 million incometax benefit on the sale. Additionally, we recorded $5 million of interest charges related to an uncertain taxposition.

During the year ended December 31, 2010, we recorded a gain of $134 million related to the final settlementwith the IRS regarding the disposition of World Directories Inc. a pre-tax gain of approximately $3 million ($36million after tax) related to the sale of one wholly-owned hotel. The tax benefit was related to the realization of ahigh tax basis in this hotel that was generated through a previous transaction.

Year Ended December 31, 2010 Compared with Year Ended December 31, 2009Continuing Operations

Year EndedDecember 31,

2010

Year EndedDecember 31,

2009

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Owned, Leased and Consolidated JointVenture Hotels . . . . . . . . . . . . . . . . . . . . . . . $1,704 $1,584 $120 7.6%

Management Fees, Franchise Fees andOther Income . . . . . . . . . . . . . . . . . . . . . . . . 712 658 54 8.2%

Vacation Ownership and Residential . . . . . . . 538 523 15 2.9%

Other Revenues from Managed andFranchised Properties . . . . . . . . . . . . . . . . . 2,117 1,931 186 9.6%

Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . $5,071 $4,696 $375 8.0%

The increase in revenues from owned, leased and consolidated joint venture hotels was primarily due toimproved REVPAR (as discussed below) at our existing owned, leased and consolidated joint venture hotels,offset in part by lost revenues from eight wholly owned hotels sold or closed in 2010 and 2009. These sold orclosed hotels had revenues of $18 million in the year ended December 31, 2010 compared to $98 million in thecorresponding period of 2009. Revenues at our Same-Store Owned Hotels (54 hotels for the year ended

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December 31, 2010 and 2009, excluding the eight hotels sold or closed and eight additional hotels undergoingsignificant repositionings or without comparable results in 2010 and 2009) increased 8.2%, or $107 million, to$1.421 billion for the year ended December 31, 2010 when compared to $1.314 billion in the correspondingperiod of 2009 due primarily to an increase in REVPAR.

REVPAR at our Same-Store Owned Hotels increased 11.2% to $136.27 for the year ended December 31,2010 when compared to the corresponding period of 2009. The increase in REVPAR at these Same-Store OwnedHotels resulted from a 2.6% increase in ADR to $196.62 for the year ended December 31, 2010 compared to$191.60 for the corresponding period of 2009 and an increase in occupancy rates to 69.3% in the year endedDecember 31, 2010 when compared to 64.0% in the corresponding period in 2009. REVPAR at Same-StoreOwned Hotels in North America increased 11.6% for the year ended December 31, 2010 when compared to thecorresponding period of 2009. REVPAR growth was particularly strong at our owned hotels in New York, NewYork, Chicago, Illinois, Toronto, Canada and New Orleans, Louisiana. REVPAR at our international Same-StoreOwned Hotels increased by 10.5% for the year ended December 31, 2010 when compared to the correspondingperiod of 2009. REVPAR for Same-Store Owned Hotels internationally increased 11.6% excluding theunfavorable effects of foreign currency translation.

The increase in management fees, franchise fees and other income was primarily a result of a $59 million or9.4% increase in management and franchise revenue to $689 million for the year ended December 31, 2010compared to $630 million in the corresponding period in 2009. Management fees increased $53 million or 14.9%and franchise fees increased $23 million or 16.7% compared to the corresponding period of 2009. Theseincreases were due to growth in REVPAR at existing hotels as well as the net addition of 27 managed and 65franchised hotels to our system since the beginning of 2009.

Total vacation ownership and residential sales and services revenue increased 2.9% to $538 millioncompared to $523 million in 2009 primarily driven by the impact of ASU 2009-17. Originated contract sales ofVOI inventory decreased 3.1% for the year ended December 31, 2010 when compared to the correspondingperiod in 2009. This decline was primarily driven by lower tour flow which was down 6.8% for the year endedDecember 31, 2010 when compared to the corresponding period in 2009. The decline in tour flow was a result ofthe economic climate and resulting closure of fractional sales centers in the latter part of 2009. Additionally, theaverage contract amount per vacation ownership unit sold decreased 6.0% to approximately $15,000, driven byprice reductions and inventory mix. Residential revenue increased approximately $6 million in the year endedDecember 31, 2010 primarily due to the recognition of $4 million of marketing and license fees associated with anew hotel and residential project in Guangzhou, China which opened in 2010.

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

Year EndedDecember 31,

2010

Year EndedDecember 31,

2009

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Selling, General, Administrative andOther . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $344 $314 $30 9.6%

The increase in selling, general, administrative and other expenses for the year ended December 31, 2010was primarily a result of higher incentive based compensation when compared to the corresponding period of2009. The increase was partially offset by the reimbursement of previously expensed legal costs in connection

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with the favorable settlement of a lawsuit and an $8 million reversal of a guarantee liability which was favorablysettled during the period (see Note 25).

Year EndedDecember 31,

2010

Year EndedDecember 31,

2009

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Restructuring, Goodwill Impairment andOther Special Charges (Credits), Net . . . . . $(75) $379 $454 n/m

During the year ended December 31, 2010, we received cash proceeds of $75 million in connection with thefavorable settlement of a lawsuit. We recorded this settlement, net of the reimbursement of legal costs incurred inconnection with the litigation, as a credit to restructuring, goodwill impairment, and other special (credits)charges. Additionally, we recorded an $8 million credit related to the reversal of a reserve associated with anacquisition in 1998 as the liability is no longer deemed necessary.

During the year ended December 31, 2009, we completed a comprehensive review of our vacationownership business. We decided not to develop certain vacation ownership sites and future phases of certainexisting projects. As a result of these decisions, we recorded a primarily non-cash impairment charge of $255million in the restructuring, goodwill impairment and other special charges (credits) line item. Additionally, werecorded a $90 million non-cash charge for the impairment of goodwill in the vacation ownership reporting unit.

Throughout 2009, we also recorded restructuring and other special charges of $34 million related to ourongoing initiative of rationalizing our cost structure. These charges related to severance charges and costs toclose vacation ownership sales galleries.

Year EndedDecember 31,

2010

Year EndedDecember 31,

2009

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Depreciation and Amortization . . . . . . . . . . . . $285 $309 $(24) 7.8%

The decrease in depreciation expense for the year ended December 31, 2010, when compared to thecorresponding period of 2009, was due to reduced depreciation expense from sold hotels offset by additionalcapital expenditures made in the last twelve months.

Year EndedDecember 31,

2010

Year EndedDecember 31,

2009

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Operating Income . . . . . . . . . . . . . . . . . . . . . . $600 $26 $574 n/m

The increase in operating income for the year ended December 31, 2010, when compared to thecorresponding period of 2009, was primarily related to the restructuring, goodwill impairments and other specialcharges (credits) favorable benefit of $75 million in 2010 compared to a charge of $379 million in 2009.Additionally, the increase in operating income was favorably impacted by improved operating results inprimarily all of our revenue streams.

Year EndedDecember 31,

2010

Year EndedDecember 31,

2009

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Equity Earnings (Losses) and Gains andLosses from Unconsolidated Ventures,Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10 $(4) $14 n/m

The increase in equity earnings and gains and losses from unconsolidated joint ventures for the year endedDecember 31, 2010, when compared to the same period of 2009, was primarily due to improved operating resultsat several properties owned by joint ventures in which we hold non-controlling interests. The increase also

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related to a charge of approximately $4 million, in 2009, related to an unfavorable mark-to-market adjustment ona US dollar denominated loan in an unconsolidated venture in Mexico.

Year EndedDecember 31,

2010

Year EndedDecember 31,

2009

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Net Interest Expense . . . . . . . . . . . . . . . . . . . . $236 $227 $9 4.0%

The increase in net interest expense was primarily due to interest of $27 million on securitized debt relatedto the adoption of ASU No. 2009-17, partially offset by certain early debt extinguishment costs of $21 millionthat were incurred in 2009. Our weighted average interest rate was 6.86% at December 31, 2010 as compared to6.73% at December 31, 2009.

Year EndedDecember 31,

2010

Year EndedDecember 31,

2009

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Loss on Asset Dispositions and Impairments,Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(39) $(91) $52 n/m

During the year ended December 31, 2010, we recorded a net loss on dispositions of approximately $39million, primarily related to a $53 million loss on the sale of one wholly-owned hotel (see Note 5) as well as a $4million impairment of fixed assets that were being retired in connection with a significant renovation of awholly-owned hotel, and a $2 million impairment on one hotel whose carrying value exceeded its fair value.These charges were partially offset by a gain of $14 million from insurance proceeds received for a claim at awholly-owned hotel that suffered damage from a storm in 2008, a $5 million gain as a result of an acquisition ofa controlling interest in a joint venture in which we previously held a non-controlling interest (see Note 4) and a$4 million gain from the sale of non-hotel assets.

During the year ended December 31, 2009, we recorded a net loss on dispositions of approximately $91million, primarily related to $41 million of impairment charges on six hotels whose carrying values exceededtheir fair values, a $22 million impairment of our retained interests in vacation ownership mortgage receivables, a$13 million impairment of an investment in a hotel management contract that was cancelled, a $5 millionimpairment of certain technology-related fixed assets and a $4 million loss on the sale of a wholly-owned hotel.

Year EndedDecember 31,

2010

Year EndedDecember 31,

2009

Increase /(decrease)from prior

year

Percentagechange

from prioryear

(in millions)

Income Tax (Benefit) Expense . . . . . . . . . . . . $27 $(293) $320 n/m

The $320 million increase in income tax expense primarily related to 2009 items that did not recur in 2010,including a $120 million deferred tax benefit for an Italian tax incentive program in which the tax basis of landand building for the hotels we owned in Italy was stepped up to fair value in exchange for paying a current tax of$9 million, a $51 million tax benefit related to previously unrecognized foreign tax credits for prior tax years anda $10 million benefit to reverse the deferred interest accrual associated with the deferral of taxable income. Theremaining increase was primarily due to higher pretax income in 2010, partially offset by a benefit of $42 millionrelated to an IRS audit.

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Discontinued Operations, Net of Tax

During the year ended December 31, 2010, we recorded a tax benefit of $134 million related to the finalsettlement with the IRS regarding the disposition of World Directories, Inc. and a pre-tax gain of approximately$3 million ($36 million after tax) related to the sale of one wholly-owned hotel. The tax benefit was related to therealization of a high tax basis in this hotel that was generated through a previous transaction.

During the year ended December 31, 2009, we sold our Bliss spa business and other non-core assets for cashproceeds of $227 million. Revenues and expenses from the Bliss spa business, together with revenues andexpenses from one hotel that was sold in 2010, were reported in discontinued operations resulting in a loss of $2million, net of tax. In addition, the net gain on the assets sold in 2009 and the one hotel held for sale atDecember 31, 2009 has been recorded in discontinued operations resulting in income of $76 million, net of tax.

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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 resorts and sales of VOIs and residential units. Other sources ofcash are distributions from joint ventures, servicing financial assets and interest income. These are the principalsources of cash used to fund our operating expenses, interest payments on debt, capital expenditures, dividendpayments and property and income taxes. We believe that our existing borrowing availability together withcapacity for additional borrowings and cash from operations will be adequate to meet all funding requirementsfor our operating expenses, principal and interest payments on debt, capital expenditures, dividends and sharerepurchases.

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

Our day-to-day operations are financed through net working capital, a practice that is common in ourindustry. The ratio of our current assets to current liabilities was 1.27 and 1.21 as of December 31, 2011 and2010, respectively. Consistent with industry practice, we sweep the majority of the cash at our owned hotels on adaily basis and fund payables as needed by drawing down on our existing revolving credit facility.

The majority of our restricted cash balance relates to cash used as collateral to reduce fees on letters ofcredit. Additionally, state and local regulations governing sales of VOIs and residential properties allow thepurchaser of such a VOI or property to rescind the sale subsequent to its completion for a pre-specified numberof days. In addition, cash payments received from buyers of units under construction are held in escrow duringthe period prior to obtaining a certificate of occupancy. These payments and the deposits collected from salesduring the rescission period are another component of our restricted cash balances in our consolidated balancesheets. At December 31, 2011 and 2010, we had short-term restricted cash balances of $232 million and $53million, respectively.

During 2011, we completed the securitization of vacation ownership receivables resulting in proceeds ofapproximately $177 million and received a tax refund from the IRS of $45 million (see Note 14).

Cash From Investing Activities

Gross capital spending during the full year ended December 31, 2011 was as follows (in millions):

Maintenance Capital Expenditures (1):Owned, Leased and Consolidated Joint Venture Hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $129

Corporate and information technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253

Vacation Ownership and Residential Capital Expenditures (2):Net capital expenditures for inventory (excluding St. Regis Bal Harbour) . . . . . . . . . . . . . . . . (43)

Capital expenditures for inventory — St. Regis Bal Harbour . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Development Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

Total Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $477

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

(2) Represents gross inventory capital expenditures of $165 less cost of sales of $150.

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Gross capital spending during the year ended December 31, 2011 included approximately $253 million ofmaintenance capital, and $209 million of development capital. Investment spending on gross vacation ownershipinterest and residential inventory was $165 million, primarily related to the construction of our hotel andresidential project in Bal Harbour, Florida. Our capital expenditure program includes both offensive anddefensive capital. Defensive spending is related to maintenance and renovations that we believe are necessary tostay competitive in the markets we are in. Other than capital to address fire and life safety issues, we considerdefensive capital to be discretionary, although reductions to this capital program could result in decreases to ourcash flow from operations, as hotels in certain markets could become less desirable. The offensive capitalexpenditures, which are primarily related to new projects that we expect will generate a return, are alsoconsidered discretionary. We currently anticipate that our defensive capital expenditures for the full year 2012(excluding vacation ownership and residential inventory) will be approximately $200 million for maintenance,renovations, and technology capital. In addition, for the full year 2012, we currently expect to spendapproximately $375 million for investment projects, various joint ventures and other investments.

In order to secure management or franchise agreements, we have made loans to third-party owners, minorityinvestments in joint ventures and provided certain guarantees and indemnifications related thereto. See Note 25of the consolidated financial statements for discussion regarding the amount of loans we have outstanding withowners, unfunded loan commitments, equity and other potential contributions, surety bonds outstanding,performance guarantees and indemnifications we are obligated under, and investments in hotels and jointventures.

We intend to finance the acquisition of additional hotel properties (including equity investments), hotelrenovations, VOI and residential construction, capital improvements, technology spend and other core andancillary business acquisitions and investments and provide for general corporate purposes, (including dividendpayments and share repurchases) through our credit facility described below, the net proceeds from dispositions,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 inmarkets which may not benefit us as much as other markets during an economic recovery or could be sold atsignificant premiums. We are focused on enhancing real estate returns and monetizing investments.

Since 2006, we have sold 65 hotels realizing proceeds of approximately $5.6 billion in numeroustransactions (see Note 5 of the consolidated financial statements). There can be no assurance, however, that wewill be able to complete future dispositions on commercially reasonable terms or at all. During the year endedDecember 31, 2011 asset sales resulted in gross cash proceeds from investing activities of approximately $280million.

In late 2011, we received certificates of occupancy for our St. Regis Bal Harbour project. As a result, webegan closings of units that had previously been sold and, in the fourth quarter of 2011, $74 million of cash wasreleased from escrow accounts related to these closings.

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Cash Used for Financing Activities

The following is a summary of our debt portfolio (including capital leases) as of December 31, 2011:

AmountOutstanding atDecember 31,

2011 (a)

WeightedAverage

Interest Rate atDecember 31,

2011

WeightedAverageMaturity

(Dollars in millions) (In years)

Floating Rate DebtRevolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . $ — — 1.9

Mortgages and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.02% 5.0

Interest Rate Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 4.69%

Total/Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 440 4.72% 5.0

Fixed Rate DebtSenior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,093 7.08% 3.9

Mortgages and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 7.46% 11.5

Interest Rate Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (400) 6.86%

Total/Average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,757 7.14% 4.1

Total DebtTotal Debt and Average Terms . . . . . . . . . . . . . . . . . . . . . $2,197 6.66% 4.2

(a) Excludes approximately $432 million of our share of unconsolidated joint venture debt and securitizedvacation ownership debt of $532 million, all of which is non-recourse.

For specifics related to our financing transactions, issuances, and terms entered into for the years endedDecember 31, 2011 and 2010, see Note 15 of the consolidated financial statements. We have evaluated thecommitments of each of the lenders in our Revolving Credit Facility (the “Facility”) which matures onNovember 15, 2013. In addition, we have reviewed our debt covenants and do not anticipate any issues regardingthe availability of funds under the Facility.

On December 15, 2011, we redeemed all $605 million of our 7.875% Senior Notes, which would havematured in May 2012. We paid $628 million in connection with this early redemption, including $16 million forthe call premium and other associated costs (see Note 15).

Due to the adoption of ASU Nos. 2009-16 and 2009-17, as discussed in Notes 2, 9, and 10, our 2011 cashflows from financing activities include the borrowings and repayments of securitized vacation ownership debt.

December 31,2011

December 31,2010

(in millions)

Gross Unsecuritized Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,197 $2,857

less: cash (including restricted cash of $212 million in 2011 and $44million in 2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (666) (797)

Net Unsecuritized Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,531 $2,060

Gross Securitized Debt (non-recourse) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 532 $ 494

less: cash restricted for securitized debt repayments (not includedabove) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22) (19)

Net Securitized Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 510 $ 475

Total Net Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,041 $2,535

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The cost of borrowing of the Facilities is determined by a combination of our leverage ratios and creditratings. Changes in our credit ratings may result in changes in our borrowing costs. Downgrades in our creditratings would likely increase the relative costs of borrowing and reduce our ability to issue long-term debt,whereas upgrades would likely reduce costs and increase our ability to issue long-term debt. A credit rating is nota recommendation to buy, sell or hold securities, is subject to revision or withdrawal at any time by the assigningrating organization and should be evaluated independently of any other rating. On February 1, 2012, our long-term debt rating was upgraded to investment grade by one of the major credit rating agencies.

Our Facility is used to fund general corporate cash needs. As of December 31, 2011, we have availability ofover $1.5 billion under the Facility. The Facility allows for multi-currency borrowing and, if drawn upon, wouldhave an applicable margin, inclusive of the commitment fee, of 2.5% plus the applicable currency LIBOR rate.Our ability to borrow under the Facility is subject to compliance with the terms and conditions under the Facility,including certain leverage and coverage covenants.

Based upon the current level of operations, management believes that our cash flow from operations,together with our significant cash balances, available borrowings under the Facility, and our capacity foradditional borrowings will be adequate to meet anticipated requirements for scheduled maturities (primarily our$500 million of Senior Notes due in early 2013), dividends, working capital, capital expenditures, marketing andadvertising program expenditures, other discretionary investments, interest and scheduled principal payments andshare repurchases for the foreseeable future. However, there can be no assurance that we will be able to refinanceour indebtedness as it becomes due and, if refinanced, on favorable terms. Approximately $159 million, includedin our cash balance above, is deemed to be permanently invested in foreign countries and we would be subject toincome taxes if we repatriated these amounts. In addition, there can be no assurance that in our continuingbusiness we will generate cash flow at or above historical levels, that currently anticipated results will beachieved or that we will be able to complete dispositions on commercially reasonable terms or at all.

If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may berequired to sell additional assets at lower than preferred amounts, reduce capital expenditures, refinance all or a portionof our existing debt or obtain additional financing at unfavorable rates. Our ability to make scheduled principalpayments, 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 industriesand to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

We had the following contractual obligations (1) outstanding as of December 31, 2011 (in millions):

TotalDue in LessThan 1 Year

Due in1-3 Years

Due in3-5 Years

Due After5 Years

Debt(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,195 $ 3 $1,007 $494 $ 691

Interest payable . . . . . . . . . . . . . . . . . . . . . 659 155 263 134 107

Capital lease obligations (3) . . . . . . . . . . . . 2 — — — 2

Operating lease obligation . . . . . . . . . . . . . 1,455 84 177 170 1,024

Unconditional purchase obligations (4) . . . 174 66 93 15 —

Other long-term obligations . . . . . . . . . . . 1 1 — — —

Total contractual obligations . . . . . . . . . . . $4,486 $309 $1,540 $813 $1,824

(1) This table excludes unrecognized tax benefits that would require cash outlays for $172 million, the timing ofwhich is uncertain. Refer to Note 15 of the consolidated financial statements for additional discussion on thismatter. In addition, the table excludes amounts related to the construction of our St. Regis Bal Harbour projectthat has a total project cost of $759 million, of which $714 million has been paid through December 31, 2011.

(2) Excludes securitized debt of $532 million, all of which is non-recourse.

(3) Excludes sublease income of $0 million.

(4) Included in these balances are commitments that may be reimbursed or satisfied by our managed andfranchised properties.

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We had the following commercial commitments outstanding as of December 31, 2011 (in millions):

TotalLess Than

1 Year 1-3 Years 3-5 YearsAfter 5Years

Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . $171 $168 $— $— $3

A dividend of $0.50 per share was paid in December 2011 to shareholders of record as of December 15,2011.

A dividend of $0.30 per share was paid in December 2010 to shareholders of record as of December 16,2010.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements include letters of credit of $171 million, unconditional purchaseobligations of $167 million and surety bonds of $21 million. These items are discussed in greater detail in Item 8,Financial Statements and Supplementary Data, and in the Notes.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

In limited instances, we seek to reduce earnings and cash flow volatility associated with changes in interestrates and foreign currency exchange rates by entering into financial arrangements intended to provide a hedgeagainst a portion of the risks associated with such volatility. We continue to have exposure to such risks to theextent they are not hedged.

We enter into a derivative financial arrangement to the extent it meets the objectives described above, andwe do not engage in such transactions for trading or speculative purposes.

At December 31, 2011, we were party to the following derivative instruments:

• Forward contracts to hedge forecasted transactions for management and franchise fee revenues earned inforeign currencies. The aggregate dollar equivalent of the notional amounts was approximately $34million. These contracts expire in 2012.

• Forward foreign exchange contracts to manage the foreign currency exposure related to certainintercompany loans not deemed to be permanently invested. The aggregate dollar equivalent of thenotional amounts of the forward contracts was approximately $659 million. These contracts expire in2012.

The following table sets forth the scheduled maturities and the total fair value of our debt portfolio and otherfinancial instruments as of December 31, 2011 (in millions, excluding average exchange rates):

Expected Maturity or Transaction DateAt December 31, Total at

December 31,2011

Total FairValue at

December 31,20112012 2013 2014 2015 2016 Thereafter

LiabilitiesFixed rate . . . . . . . . . . . . . . . . . . . . . . $ 3 $254 $351 $453 $ 4 $692 $1,757 $2,005

Average interest rate . . . . . . . . . . . . . 7.14%

Floating rate . . . . . . . . . . . . . . . . . . . . $— $251 $151 $ 2 $35 $ 1 $ 440 $ 440

Average interest rate . . . . . . . . . . . . . 4.72%

Forward Foreign Exchange HedgeContracts:

Fixed (EUR) to Fixed (USD) . . . . . . . $34 $ — $ — $ — $— $ — $ 3 $ 3

Average Exchange rate . . . . . . . . . . . 1.44

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Expected Maturity or Transaction DateAt December 31, Total at

December 31,2011

Total FairValue at

December 31,20112012 2013 2014 2015 2016 Thereafter

Forward Foreign ExchangeContracts:

Fixed (EUR) to Fixed (USD) . . . . . $104 $ — $ — $ — $ — $ — $ — $ —

Average Exchange rate . . . . . . . . . . 1.30

Fixed (CLP) to Fixed (USD) . . . . . . $ 56 $ — $ — $ — $ — $ — $ — $ —

Average Exchange rate . . . . . . . . . . .00

Fixed (THB) to Fixed (USD) . . . . . $ 14 $ — $ — $ — $ — $ — $ — $ —

Average Exchange rate . . . . . . . . . . .03

Fixed (JPY) to Fixed (USD) . . . . . . $ 77 $ — $ — $ — $ — $ — $ — $ —

Average Exchange rate . . . . . . . . . . .01

Fixed (MXP) to Fixed (USD) . . . . . $ 4 $ — $ — $ — $ — $ — $ — $ —

Average Exchange rate . . . . . . . . . . .07

Fixed (AUD) to Fixed (USD) . . . . . $ 38 $ — $ — $ — $ — $ — $ — $ —

Average Exchange rate . . . . . . . . . . .98

Fixed (CAD) to Fixed (USD) . . . . . $283 $ — $ — $ — $ — $ — $ (1) $ (1)

Average Exchange rate . . . . . . . . . . .98

Fixed (GBP) to Fixed (EUR) . . . . . $ 65 $ — $ — $ — $ — $ — $ 1 $ 1

Fixed (JPY) to Fixed (THB) . . . . . . $ 18 $ — $ — $ — $ — $ — $ — $ —

Item 8. Financial Statements and Supplementary Data.

The financial statements and supplementary data required by this item appear beginning on page F-1 of thisAnnual Report and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision andwith the participation of our management, including our principal executive and principal financial officers, ofthe effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined inRules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).Based upon the foregoing evaluation, our principal executive and principal financial officers concluded that ourdisclosure controls and procedures were effective and operating to provide reasonable assurance that informationrequired 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 ExchangeCommission, and to provide reasonable assurance that such information is accumulated and communicated to ourmanagement, including our principal executive and principal financial officers, as appropriate, to allow timelydecisions regarding required disclosure.

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

Management’s Report on Internal Control over Financial Reporting and the Report of the Corporation’sIndependent Registered Public Accounting Firm are set forth in Part II of the Annual Report and are incorporatedherein by reference.

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Item 9B. Other Information.

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Information regarding directors, executive officers and corporate governance will be included in our proxystatement for the 2012 Annual Meeting of Stockholders (the “Proxy Statement”). The Proxy Statement will befiled with the Securities and Exchange Commission within 120 days after the close of our fiscal year endedDecember 31, 2011 and such information is incorporated herein by reference.

Item 11. Executive Compensation.

Information regarding executive compensation will be included in our Proxy Statement. The ProxyStatement will be filed with the Securities and Exchange Commission within 120 days after the close of ourfiscal year ended December 31, 2011 and such information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters.

Information regarding security ownership of certain beneficial owners and management and relatedstockholder matters will be included in our Proxy Statement. The Proxy Statement will be filed with theSecurities and Exchange Commission within 120 days after the close of our fiscal year ended December 31, 2011and such information is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions and Director Independence.

Information regarding certain relationships and related transactions and director independence will beincluded in our Proxy Statement. The Proxy Statement will be filed with the Securities and ExchangeCommission within 120 days after the close of our fiscal year ended December 31, 2011 and such information isincorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

Information regarding principal accounting fees and services will be included in our Proxy Statement. TheProxy Statement will be filed with the Securities and Exchange Commission within 120 days after the close ofour fiscal year ended December 31, 2011 and such information is incorporated herein by reference.

Item 15. Exhibits, Financial Statement Schedules.

(a) The following documents are filed as part of this Annual Report:

1-2. The financial statements and financial statement schedule listed in the Index to FinancialStatements and Schedule following the signature pages hereof.

3. Exhibits:

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ExhibitNumber Description of Exhibit

2.1 Formation Agreement, dated as of November 11, 1994, among the Company, Starwood Capital andthe Starwood Partners (incorporated by reference to Exhibit 2 to the Company’s Current Report onForm 8-K dated November 16, 1994). (The SEC file number of all filings made by the Companypursuant to the Securities Exchange Act of 1934, as amended, and referenced herein is 1-7959).

2.2 Form of Amendment No. 1 to Formation Agreement, dated as of July 1995, among the Company andthe Starwood Partners (incorporated by reference to Exhibit 10.23 to the Company’s RegistrationStatement on Form S-2 filed with the SEC on June 29, 1995 (Registration Nos. 33-59155 and 33-59155-01)).

3.1 Articles of Amendment and Restatement of the Company, as of May 30, 2007 (incorporated byreference to Appendix A to the Company’s 2007 Notice of Annual Meeting and Proxy Statement).

3.2 Amended and Restated Bylaws of the Company, as amended and restated through April 10, 2006(incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with theSEC on April 13, 2006 (the “April 13 Form 8-K”).

3.3 Amendment to Amended and Restated Bylaws of the Company, dated as of March 13, 2008(incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with theSEC on March 18, 2008).

4.1 Termination Agreement dated as of April 7, 2006 between the Company and the Trust (incorporatedby reference to Exhibit 4.1 of the April 13 Form 8-K).

4.2 Amended and Restated Rights Agreement, dated as of April 7, 2006, between the Company andAmerican Stock Transfer and Trust Company, as Rights Agent (which includes the form of Amendedand Restated Articles Supplementary of the Series A Junior Participating Preferred Stock asExhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights to PurchasePreferred Stock as Exhibit C) (incorporated by reference to Exhibit 4.2 of the April 13 Form 8-K).

4.3 Amended and Restated Indenture, dated as of November 15, 1995, as Amended and Restated as ofDecember 15, 1995 between ITT Corporation (formerly known as ITT Destinations, Inc.) and theFirst National Bank of Chicago, as trustee (incorporated by reference to Exhibit 4.A.IV to the FirstAmendment to ITT Corporation’s Registration Statement on Form S-3 filed November 13, 1996).

4.4 First Indenture Supplement, dated as of December 31, 1998, among ITT Corporation, the Companyand The Bank of New York (incorporated by reference to Exhibit 4.1 to the Company’s CurrentReport on Form 8-K filed with the SEC on January 8, 1999).

4.5 Second Indenture Supplement, dated as of April 9, 2006, among the Company, Sheraton HoldingCorporation and Bank of New York Trust Company, N.A., as trustee (incorporated by reference toExhibit 4.3 to the April 13 Form 8-K).

4.6 Indenture, dated as of April 19, 2002, among the Company, the guarantor parties named therein andU.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’sand Sheraton Holding Corporation’s Joint Registration Statement on Form S-4 filed with the SEC onNovember 19, 2002 (the “2002 Forms S-4”)).

4.7 Indenture, dated as of September 13, 2007, between the Company and the U.S. Bank NationalAssociation, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K filed with the SEC on September 17, 2007 (the “September 17 Form 8-K”)).

4.8 Supplemental Indenture, dated as of September 13, 2007, between the Company and the U.S. BankNational Association, as trustee (incorporated by reference to Exhibit 4.2 to the September 17 Form 8-K).

4.9 Supplemental Indenture No. 2, dated as of May 23, 2008, between the Company and U.S. BankNational Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s CurrentReport on Form 8-K filed with the SEC on May 28, 2008).

4.10 Supplemental Indenture No. 3, dated as of May 7, 2009, between the Company and the U.S. BankNational Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s CurrentReport on Form 8-K files with the SEC on May 12, 2009).

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ExhibitNumber Description of Exhibit

4.11 Supplemental Indenture No. 4, dated as of November 20, 2009, between the Company and the U.S.Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’sCurrent Report on Form 8-K filed with the SEC on November 23, 2009).

The registrant hereby agrees to file with the Commission a copy of any instrument, includingindentures, defining the rights of long-term debt holders of the registrant and its consolidatedsubsidiaries upon the request of the Commission.

10.1 Third Amended and Restated Limited Partnership Agreement for Operating Partnership, datedJanuary 6, 1999, among the Company and the limited partners of Operating Partnership (incorporatedby reference to Exhibit 10.2 to the 1998 Form 10-K).

10.2 Form of Trademark License Agreement, dated as of December 10, 1997, between Starwood Capitaland the Company (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 1997 (the “1997 Form 10-K”)).

10.3 Credit Agreement, dated as of April 20, 2010, among the Company, certain additional DollarRevolving Loan Borrowers, certain additional Alternate Currency Revolving Loan Borrowers, variousLenders, Deutsche Bank AG New York Branch, as Administrative Agent, JPMorgan Chase Bank,N.A., as Syndication Agent, Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Banc ofAmerica Securities LLC, as Lead Arrangers and Book Running Managers, (the “Credit Agreement”)(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed withthe SEC on April 22, 2010).

10.4 First Amendment to Credit Agreement, dated as of March 23, 2011.+

10.5 Second Amendment to Credit Agreement, dated as of December 9, 2011. +

10.6 Starwood Hotels & Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation Plan (the“1999 LTIP”) (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form10-Q for the quarterly period ended June 30, 1999 (the “1999 Form 10-Q2”)). *

10.7 First Amendment to the 1999 LTIP, dated as of August 1, 2001 (incorporated by reference to Exhibit10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30,2001). *

10.8 Second Amendment to the 1999 LTIP (incorporated by reference to Exhibit 10.2 to the 2003 10-Q1). *

10.9 Form of Non-Qualified Stock Option Agreement pursuant to the 1999 LTIP (incorporated byreference to Exhibit 10.30 to the 2004 Form 10-K). *

10.10 Form of Restricted Stock Agreement pursuant to the 1999 LTIP (incorporated by reference to Exhibit10.31 to the 2004 Form 10-K). *

10.11 Starwood Hotels & Resorts Worldwide, Inc. 2002 Long-Term Incentive Compensation Plan (the“2002 LTIP”) (incorporated by reference to Annex B of the Company’s 2002 Proxy Statement). *

10.12 First Amendment to the 2002 LTIP (incorporated by reference to Exhibit 10.1 to the 2003 10-Q1). *

10.13 Form of Non-Qualified Stock Option Agreement pursuant to the 2002 LTIP (incorporated byreference to Exhibit 10.49 to the 2002 Form 10-K filed on February 28, 2003 (the “2002 10-K”)). *

10.14 Form of Restricted Stock Agreement pursuant to the 2002 LTIP (incorporated by reference to Exhibit10.35 to the 2004 Form 10-K). *

10.15 2004 Long-Term Incentive Compensation Plan, amended and restated as of December 31, 2008(“2004 LTIP”) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form8-K filed with the SEC on January 6, 2009 (the “January 2009 8-K”)). *

10.16 Form of Non-Qualified Stock Option Agreement pursuant to the 2004 LTIP (incorporated byreference to Exhibit 10.4 to the 2004 Form 10-Q2). *

10.17 Form of Restricted Stock Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit10.38 to the 2004 Form 10-K). *

10.18 Form of Non-Qualified Stock Option Agreement pursuant to the 2004 LTIP (incorporated byreference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed February 13, 2006 (theFebruary 2006 Form 8-K”)). *

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ExhibitNumber Description of Exhibit

10.19 Form of Restricted Stock Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit10.1 to the February 2006 Form 8-K). *

10.20 Form of Amended and Restated Non-Qualified Stock Option Agreement pursuant to the 2004 LTIP(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for theperiod ended June 30, 2006 (the 2006 Form 10-Q2”)). *

10.21 Form of Amended and Restated Restricted Stock Agreement pursuant to the 2004 LTIP (incorporatedby reference to Exhibit 10.2 to the 2006 Form 10-Q2). *

10.22 Annual Incentive Plan for Certain Executives, amended and restated as of December 2008(incorporated by reference to Exhibit 10.2 to the January 2009 8-K). *

10.23 Starwood Hotels & Resorts Worldwide, Inc. Amended and Restated Deferred Compensation Plan,effective as of January 22, 2008 (incorporate by reference to Exhibit 10.35 to the Company’s AnnualReport on Form 10-K for the fiscal year ended December 31, 2007). *

10.24 Form of Indemnification Agreement between the Company and each of its Directors and executiveofficers (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-Kfiled with the SEC on November 25, 2009). *

10.25 Employment Agreement, dated as of November 13, 2003, between the Company and Vasant Prabhu(incorporated by reference to Exhibit 10.68 to the 2003 10-K). *

10.26 Letter Agreement, dated August 14, 2007, between the Company and Vasant Prabhu (incorporated byreference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 17, 2007 (the“August 17 Form 8-K”)). *

10.27 Amendment, dated as of December 30, 2008, to employment agreement between the Company andVasant Prabhu (incorporated by reference to Exhibit 10.34 to the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2008 (the “2008 Form 10-K”)). *

10.28 Employment Agreement, dated as of September 25, 2000, between the Company and Kenneth Siegel(incorporated by reference to Exhibit 10.57 to the Company’s Annual Report on Form 10-K for thefiscal year ended December 31, 2000 (the “2000 Form 10-K”)). *

10.29 Letter Agreement, dated July 22, 2004 between the Company and Kenneth Siegel (incorporated byreference to Exhibit 10.73 to the 2004 Form 10-K). *

10.30 Letter Agreement, dated August 14, 2007, between the Company and Kenneth S. Siegel (incorporatedby reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 17, 2007 (the“August 17 Form 8-K”)). *

10.31 Amendment, dated as of December 30, 2008, to employment agreement between the Company andKenneth S. Siegel (incorporated by reference to reference to Exhibit 10.43 to the 2008 Form 10-K). *

10.32 Employment Agreement, dated as of August 2, 2007, between the Company and Bruce W. Duncan(incorporated by reference to Exhibit 10.5 to the Company’s quarterly report on Form 10-Q for thequarterly period ended June 30, 2007). *

10.33 Form of Restricted Stock Unit Agreement between the Company and Bruce W. Duncan pursuant tothe 2004 LTIP (incorporated by reference to Exhibit 10.2 to the 2007 Form 10-Q1). *

10.34 Amended and Restated Employment Agreement, dated as of December 30, 2008, between theCompany and Frits van Paasschen (incorporated by reference to Exhibit 10.52 to the 2008Form 10-K). *

10.35 Form of Non-Qualified Stock Option Agreement between the Company and Frits van Paasschenpursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.5 to the 2007 Form 10-Q3). *

10.36 Form of Restricted Stock Unit Agreement between the Company and Frits van Paasschen pursuant tothe 2004 LTIP (incorporated by reference to Exhibit 10.6 to the 2007 Form 10-Q3). *

10.37 Form of Restricted Stock Grant between the Company and Frits van Paasschen pursuant to the 2004LTIP (incorporated by reference to Exhibit 10.7 to the 2007 Form 10-Q3). *

10.38 Form of Severance Agreement between the Company and each of Messrs. Siegel and Prabhu(incorporated by reference to Exhibit 10.57 to the 2008 Form 10-K). *

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ExhibitNumber Description of Exhibit

10.39 Letter Agreement, dated August 22, 2008, between the Company and Matthew Avril (incorporated byreference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly periodended March 31, 2009 (the “2009 Form 10-Q1”). *

10.40 Amendment, dated as of December 30, 2008, to employment agreement between the Company andMatthew Avril (incorporated by reference to Exhibit 10.2 to the 2009 Form 10-Q1). *

10.41 Amendment, dated as of December 15, 2011, to employment agreement between the Company andMatthew Avril. *+

10.42 Amended and Restated Severance Agreement, dated as of December 30, 2008, between the Companyand Matthew Avril (incorporated by reference to Exhibit 10.3 to the 2009 Form 10-Q1). *

10.43 Letter Agreement, dated April 15, 2008, between the Company and Simon Turner (incorporated byreference to Exhibit 10.7 to the 2009 Form 10-Q1). *

10.44 Amendment, dated as of December 30, 2008, to employment agreement between the Company andSimon Turner (incorporated by reference to Exhibit 10.8 to the 2009 Form 10-Q1). *

10.45 Amended and Restated Severance Agreement, dated as of December 30, 2008, between the Companyand Simon Turner (incorporated by reference to Exhibit 10.9 to the 2009 Form 10-Q1). *

12.1 Calculation of Ratio of Earnings to Total Fixed Charges.+

21.1 List of our Subsidiaries. +

23.1 Consent of Ernst & Young LLP. +

31.1 Certification Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 – Chief ExecutiveOfficer. +

31.2 Certification Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 – Chief FinancialOfficer. +

32.1 Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code – ChiefExecutive Officer. +

32.2 Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code – ChiefFinancial Officer. +

+ Filed herewith.

* Indicates management contract or compensatory plan or arrangement

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registranthas duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

STARWOOD HOTELS & RESORTSWORLD WIDE, INC.

By: /S/ FRITS VAN PAASSCHEN

Frits van PaasschenChief Executive Officer and Director

Date: February 17, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature Title Date

/s/ FRITS VAN PAASSCHEN Chief Executive Officer and Director February 17, 2012Frits van Paasschen

/s/ BRUCE W. DUNCAN Chairman and Director February 17, 2012Bruce W. Duncan

/s/ VASANT M. PRABHU Executive Vice President and Chief February 17, 2012Vasant M. Prabhu Financial Officer (Principal Financial

Officer)

/s/ ALAN M. SCHNAID Senior Vice President, Corporate February 17, 2012Alan M. Schnaid Controller and Principal Accounting

Officer

/s/ ADAM M. ARON Director February 17, 2012Adam M. Aron

/s/ CHARLENE BARSHEFSKY Director February 17, 2012Charlene Barshefsky

/s/ THOMAS E. CLARKE Director February 17, 2012Thomas E. Clarke

/s/ CLAYTON C. DALEY, JR. Director February 17, 2012Clayton C. Daley, Jr.

/s/ LIZANNE GALBREATH Director February 17, 2012Lizanne Galbreath

/s/ ERIC HIPPEAU Director February 17, 2012Eric Hippeau

/s/ STEPHEN R. QUAZZO Director February 17, 2012Stephen R. Quazzo

/s/ THOMAS O. RYDER Director February 17, 2012Thomas O. Ryder

/s/ KNEELAND C. YOUNGBLOOD Director February 17, 2012Kneeland C. Youngblood

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

Page

Management’s Report on Internal Control over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4

Consolidated Balance Sheets as of December 31, 2011 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5

Consolidated Statements of Income for the Years Ended December 31, 2011, 2010 and 2009 . . . . . . . . . . . F-6

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2011, 2010 and2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7

Consolidated Statements of Equity for the Years Ended December 31, 2011, 2010 and 2009 . . . . . . . . . . . F-8

Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009 . . . . . . . F-9

Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10

Schedule:

Schedule II — Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1

F-1

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Management’s Report on Internal Control over Financial Reporting

Management of Starwood Hotels & Resorts Worldwide, Inc. and its subsidiaries (“Company”) isresponsible for establishing and maintaining adequate internal control over financial reporting, as such term isdefined in Exchange Act Rule 13a-15(f) or 15(d)-15(f). Those rules define internal control over financialreporting as a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles (“GAAP”) and includes those policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactionsand dispositions of the assets of the Company;

• Provide reasonable assurance that the transactions are recorded as necessary to permit the preparation offinancial statements in accordance with GAAP, and the receipts and expenditures of the Company arebeing made only in accordance with authorizations of management and directors of the Company; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use ordisposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controlsmay become inadequate because of changes in conditions, or that the degree of compliance with policies orprocedures may deteriorate.

Our management assessed the effectiveness of the Company’s internal controls over financial reporting asof December 31, 2011. In making this assessment, the Company’s management used the criteria established inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). Based on assessment and those criteria, management believes that, as of December 31,2011, the Company’s internal control over financial reporting is effective.

Management has engaged Ernst & Young LLP, the independent registered public accounting firm thataudited the financial statements included in this Annual Report on Form 10-K, to attest to the Company’s internalcontrol over financial reporting. The report is included herein.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Starwood Hotels & Resorts Worldwide, Inc.

We have audited Starwood Hotels & Resorts Worldwide, Inc.’s (the “Company”) internal control overfinancial reporting as of December 31, 2011, based on criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSOcriteria). The Company’s management is responsible for maintaining effective internal control over financialreporting, and for its assessment of the effectiveness of internal control over financial reporting included in theaccompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is toexpress an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether effective internal control over financial reporting was maintained in all material respects. Ouraudit included obtaining an understanding of internal control over financial reporting, assessing the risk that amaterial weakness exists, testing and evaluating the design and operating effectiveness of internal control basedon the assessed risk, and performing such other procedures as we considered necessary in the circumstances. Webelieve that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. A company’s internal control over financial reportingincludes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financial statements in accordancewith generally accepted accounting principles, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financialreporting as of December 31, 2011 based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated balance sheets of the Company as of December 31, 2011 and 2010 and therelated consolidated statements of income, comprehensive income, equity, and cash flows for each of the threeyears in the period ended December 31, 2011 of the Company and our report dated February 17, 2012, expressedan unqualified opinion thereon.

/s/ Ernst & Young LLP

New York, New YorkFebruary 17, 2012

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Starwood Hotels & Resorts Worldwide, Inc.

We have audited the accompanying consolidated balance sheets of Starwood Hotels & Resorts Worldwide,Inc. (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of income,comprehensive income, equity, and cash flows for each of the three years in the period ended December 31,2011. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financialstatements and schedule are the responsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made by management, as well as evaluatingthe overall financial statement presentation. We believe that our audits provide a reasonable basis for ouropinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, theconsolidated financial position of the Company at December 31, 2011 and 2010, and the consolidated results ofits operations and its cash flows for each of the three years in the period ended December 31, 2011, in conformitywith U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule,when considered in relation to the basic financial statements taken as a whole, presents fairly in all materialrespects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Company adopted Financial AccountingStandards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2009-16, Transfers and Servicing (Topic860): 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 Reportingby Enterprises Involved with Variable Interest Entities (formerly SFAS No. 167) on January 1, 2010.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board(United States), the Company’s internal control over financial reporting as of December 31, 2011, based oncriteria established in Internal Control-Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated February 17, 2012 expressed an unqualifiedopinion thereon.

/s/ Ernst & Young LLP

New York, New YorkFebruary 17, 2012

F-4

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED BALANCE SHEETS(In millions, except share data)

December 31,

2011 2010

ASSETSCurrent assets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 454 $ 753Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 53Accounts receivable, net of allowance for doubtful accounts of $46 and $45 . . . . . . . . . . 569 513Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 812 802Securitized vacation ownership notes receivable, net of allowance for doubtful accounts

of $10 and $10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 59Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 126Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278 315

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,534 2,621Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259 312Plant, property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,270 3,323Goodwill and intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,057 2,067Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639 664Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355 381Securitized vacation ownership notes receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446 408

$9,560 $9,776

LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:

Short-term borrowings and current maturities of long-term debt . . . . . . . . . . . . . . . . . . . $ 3 $ 9Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 138Current maturities of long-term securitized vacation ownership debt . . . . . . . . . . . . . . . . 130 127Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,177 1,104Accrued salaries, wages and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375 410Accrued taxes and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 377

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,992 2,165Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,194 2,848Long-term securitized vacation ownership debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402 367Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 24Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,971 1,886

6,605 7,290

Commitments and contingenciesStockholders’ equity:

Common stock; $0.01 par value; authorized 1,000,000,000 shares; outstanding195,913,400 and 192,970,437 shares at December 31, 2011 and 2010, respectively . . 2 2

Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 963 805Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (348) (283)Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,337 1,947

Total Starwood stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,954 2,471Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 15

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,955 2,486

$9,560 $9,776

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

F-5

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

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

Year Ended December 31,

2011 2010 2009

RevenuesOwned, leased and consolidated joint venture hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,768 $1,704 $1,584Vacation ownership and residential sales and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703 538 523Management fees, franchise fees and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 814 712 658Other revenues from managed and franchised properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,339 2,117 1,931

5,624 5,071 4,696Costs and ExpensesOwned, leased and consolidated joint venture hotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,449 1,395 1,315Vacation ownership and residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 521 405 422Selling, general, administrative and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352 344 314Restructuring, goodwill impairment and other special charges (credits), net . . . . . . . . . . . . . . . . . . 68 (75) 379Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 252 274Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 33 35Other expenses from managed and franchised properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,339 2,117 1,931

4,994 4,471 4,670Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 630 600 26Equity earnings (losses) and gains and losses from unconsolidated ventures, net . . . . . . . . . . . . . . 11 10 (4)Interest expense, net of interest income of $3, $2 and $3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (216) (236) (227)Gain (loss) on asset dispositions and impairments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (39) (91)

Income (loss) from continuing operations before taxes and noncontrolling interests . . . . . . . . . . . 425 335 (296)Income tax benefit (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 (27) 293

Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 308 (3)Discontinued operations:

Income (loss) from operations, net of tax (benefit) expense of $0, $0 and $(2) . . . . . . . . . . . . . . — (1) (2)Gain (loss) on dispositions, net of tax (benefit) expense of $(5), $(166) and $(35) . . . . . . . . . . . (13) 168 76

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487 475 71Net (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 2

Net income attributable to Starwood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 489 $ 477 $ 73

Earnings (Losses) Per Share — BasicContinuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.65 $ 1.70 $ 0.00Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.07) 0.91 0.41

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.58 $ 2.61 $ 0.41

Earnings (Losses) Per Share — DilutedContinuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.57 $ 1.63 $ 0.00Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.06) 0.88 0.41

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.51 $ 2.51 $ 0.41

Amounts attributable to Starwood’s Common ShareholdersIncome (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 502 $ 310 $ (1)Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13) 167 74

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 489 $ 477 $ 73

Weighted average number of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 183 180

Weighted average number of shares assuming dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 190 180

Dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.50 $ 0.30 $ 0.20

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

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In millions)

Year Ended December 31,

2011 2010 2009

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $487 $475 $ 71

Other comprehensive income (loss), net of taxes:

Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48) 3 87

Reclassification of accumulated foreign currency translation adjustments on soldhotels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (13)

Defined benefit pension and postretirement benefit plans net gains (losses) arisingduring the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20) (4) 10

Net curtailment and settlement gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 23

Amortization of actuarial gains and losses included in net periodic pension cost . . . 1 1 5

Change in fair value of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 (1) —

Reclassification adjustments for losses (gains) included in net income . . . . . . . . . . . . . 2 1 (6)

Change in fair value of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (1) 3

(64) (1) 109

Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423 474 180

Comprehensive (income) loss attributable to noncontrolling interests . . . . . . . . . . . . . . 2 2 2

Foreign currency translation adjustments attributable to noncontrolling interests . . . . . (1) 1 (1)

Comprehensive income attributable to Starwood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $424 $477 $181

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

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF EQUITY

Equity Attributable to Starwood Stockholders

Shares AdditionalPaid-in

Capital (1)

AccumulatedOther

Comprehensive(Loss)

Income (2)RetainedEarnings

EquityAttributable toNoncontrolling

Interests TotalShares Amount

(in millions)

Balance at December 31, 2008 . . . 183 $ 2 $493 $(391) $1,517 $ 23 $1,644

Net income (loss) . . . . . . . . . . . . . — — — — 73 (2) 71

Stock option and restricted stockaward transactions, net . . . . . . . 4 — 54 — — — 54

ESPP stock issuances . . . . . . . . . . — — 5 — — — 5

Other comprehensive income(loss) . . . . . . . . . . . . . . . . . . . . . — — — 108 — 1 109

Dividends declared . . . . . . . . . . . . — — — — (37) (1) (38)

Balance at December 31, 2009 . . . 187 2 552 (283) 1,553 21 1,845

Net income (loss) . . . . . . . . . . . . . — — — — 477 (2) 475

Stock option and restricted stockaward transactions, net . . . . . . . 6 — 248 — — — 248

ESPP stock issuances . . . . . . . . . . — — 5 — — — 5

Impact of adoption of ASUNo. 2009-17 . . . . . . . . . . . . . . . . — — — — (26) — (26)

Other comprehensive income(loss) . . . . . . . . . . . . . . . . . . . . . — — — — — (1) (1)

Dividends declared . . . . . . . . . . . . — — — — (57) (3) (60)

Balance at December 31, 2010 . . . 193 2 805 (283) 1,947 15 2,486

Net income (loss) . . . . . . . . . . . . . — — — — 489 (2) 487

Stock option and restricted stockaward transactions, net . . . . . . . 3 — 154 — — — 154

ESPP stock issuances . . . . . . . . . . — — 5 — — — 5

Other comprehensive income(loss) . . . . . . . . . . . . . . . . . . . . . — — — (65) — 1 (64)

Dividends declared . . . . . . . . . . . . — — — — (99) (1) (100)

Sale of controlling interest . . . . . . — — — — — (13) (13)

Other . . . . . . . . . . . . . . . . . . . . . . . — — (1) — — 1 —

Balance at December 31, 2011 . . . 196 $ 2 $963 $(348) $2,337 $ 1 $2,955

(1) Stock option and restricted stock award transactions are net of a tax (expense) benefit of $26 million, $28 million and $(18) million in2011, 2010, and 2009 respectively.

(2) As of December 31, 2011, this balance is comprised of $276 million of cumulative translation adjustments and $75 million of netunrecognized actuarial losses, partially offset by $3 million of unrecognized gains on forward contracts.

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

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS(In millions)

Year Ended December 31,

2011 2010 2009

Operating ActivitiesNet income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 487 $ 475 $ 71Adjustments to net income:

Discontinued operations:(Gain) loss on dispositions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 (168) (76)Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 8Other adjustments relating to discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —

Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 72 53Excess stock-based compensation tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22) (20) —Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 285 309Amortization of deferred loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 13 10Non-cash portion of restructuring, goodwill impairment and other special charges (credits), net . . . . . . . . . . . . . . . . . . — (7) 332Non-cash foreign currency (gains) losses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 (39) (6)Amortization of deferred gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (87) (81) (82)Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 55 72Distributions in excess (deficit) of equity earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3 30Gain on sale of VOI notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (24)Loss (gain) on asset dispositions and impairments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 39 91Non-cash portion of income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 16 (260)

Changes in working capital:Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27) 9 46Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45) (22) 63Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14) (110) (98)Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15) 1 10Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 13 (44)Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (195) 200 (50)

Securitized VOI notes receivable activity, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45) (29) —VOI notes receivable activity, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1 167Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 58 (51)

Cash (used for) from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641 764 571

Investing ActivitiesPurchases of plant, property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (385) (227) (196)Proceeds from asset sales, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290 148 310Issuance of notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10) (1) (4)Collection of notes receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2 2Acquisitions, net of acquired cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28) (18) —Purchases of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8) (32) (5)Proceeds from investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 49 35Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46) 8 (26)

Cash (used for) from investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (176) (71) 116

Financing ActivitiesRevolving credit facility and short-term borrowings (repayments), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (114) (102)Long-term debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3 726Long-term debt repaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (650) (9) (1,681)Long-term securitized debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 280 —Long-term securitized debt repaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (162) (224) —(Increase) decrease in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (144) — —Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (99) (93) (165)Proceeds from stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 141 2Excess stock-based compensation tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 20 —Share repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39) (30) 227

Cash (used for) from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (755) (26) (993)

Exchange rate effect on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9) (1) 4

Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (299) 666 (302)Cash and cash equivalents — beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 753 87 389

Cash and cash equivalents — end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 454 $ 753 $ 87

Supplemental Disclosures of Cash Flow InformationCash paid (received) during the period for:

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 204 $ 244 $ 214

Income taxes, net of refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56 $(171) $ 12

Non-cash acquisition of Hotel Imperial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57 $ — $ —

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

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying consolidated financial statements represent the consolidated financial position andconsolidated results of operations of Starwood Hotels & Resorts Worldwide, Inc. and its subsidiaries (the“Company”). The Company is one of the world’s largest hotel and leisure companies. The Company’s principalbusiness is hotels and leisure, which is comprised of a worldwide hospitality network of 1,089 full-service hotels,vacation ownership resorts and residential developments primarily serving two markets: luxury and upscale. Theprincipal operations of Starwood Vacation Ownership, Inc. (“SVO”) include the development and operation ofvacation ownership resorts; and marketing, selling and financing vacation ownership interests (“VOIs”) in theresorts.

The consolidated financial statements include assets, liabilities, revenues and expenses of the Company andall of its controlled subsidiaries and partnerships. In consolidating, all material intercompany transactions areeliminated. We have evaluated all subsequent events through the date the consolidated financial statements werefiled.

In accordance with the guidance for noncontrolling interests in Accounting Standards Codification (“ASC”)810, Consolidation, references in this report to our earnings per share, net income, and shareholders’ equityattributable to Starwood’s common shareholders do not include amounts attributable to noncontrolling interests.

Note 2. Significant Accounting Policies

Cash and Cash Equivalents. The Company considers all highly liquid investments purchased with anoriginal maturity of three months or less to be cash equivalents.

Restricted Cash. The majority of the Company’s restricted cash relates to cash used as collateral to reducefees on letters of credit. Restricted cash also consists of deposits received on sales of VOIs and residentialproperties that are held in escrow until a certificate of occupancy is obtained, the legal rescission period hasexpired and the deed of trust has been recorded in governmental property ownership records. At December 31,2011 and 2010, the Company had short-term restricted cash balances of $232 million and $53 million,respectively.

Inventories. Inventories are comprised principally of VOIs of $261 million and $307 million as ofDecember 31, 2011 and 2010, respectively, residential inventory of $521 million and $462 million atDecember 31, 2011 and 2010, respectively, and hotel inventory. VOI and residential inventory is carried at thelower of cost or net realizable value and includes $37 million, $29 million and $31 million of capitalized interestincurred in 2011, 2010 and 2009, respectively. Hotel inventory includes operating supplies and food andbeverage inventory items which are generally valued at the lower of FIFO cost (first-in, first-out) or market.

Loan Loss Reserves. For the vacation ownership and residential segment, the Company records anestimate of expected uncollectibility on its VOI notes receivable as a reduction of revenue at the time itrecognizes a timeshare sale. The Company holds large amounts of homogeneous VOI notes receivable andtherefore assesses uncollectibility based on pools of receivables. In estimating loan loss reserves, the Companyuses a technique referred to as static pool analysis, which tracks defaults for each year’s mortgage originationsover the life of the respective notes and projects an estimated default rate. As of December 31, 2011, the averageestimated default rate for the Company’s pools of receivables was 9.9%.

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

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

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

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

For the hotel segment, the Company measures the impairment of a loan based on the present value ofexpected future cash flows, discounted at the loan’s original effective interest rate, or the estimated fair value ofthe collateral. For impaired loans, the Company establishes a specific impairment reserve for the differencebetween the recorded investment in the loan and the present value of the expected future cash flows or theestimated fair value of the collateral. The Company applies the loan impairment policy individually to all loans inthe portfolio and does not aggregate loans for the purpose of applying such policy. For loans that the Companyhas determined to be impaired, the Company recognizes interest income on a cash basis.

Assets Held for Sale. The Company considers properties to be assets held for sale when managementapproves and commits to a formal plan to actively market a property or group of properties for sale and a signedsales contract and significant non-refundable deposit or contract break-up fee exist. Upon designation as an assetheld for sale, the Company records the carrying value of each property or group of properties at the lower of itscarrying value which includes allocable segment goodwill or its estimated fair value, less estimated costs to sell,and the Company stops recording depreciation expense. Any gain realized in connection with the sale of aproperty for which the Company has significant continuing involvement (such as through a long-termmanagement agreement) is deferred and recognized over the initial term of the related agreement (See Note 12).The operations of the properties held for sale prior to the sale date, if material, are recorded in discontinuedoperations unless the Company will have continuing involvement (such as through a management or franchiseagreement) after the sale.

Investments. Investments in joint ventures are generally accounted for under the equity method ofaccounting when the Company has a 20% to 50% ownership interest or exercises significant influence over theventure. If the Company’s interest exceeds 50% or, if the Company has the power to direct the economicactivities of the entity and the obligation to absorb losses, the results of the joint venture are consolidated herein.All other investments are generally accounted for under the cost method.

The fair market value of investments is based on the market prices for the last day of the period if theinvestment trades on quoted exchanges. For non-traded investments, fair value is estimated based on theunderlying value of the investment, which is dependent on the performance of the investment as well as thevolatility inherent in external markets for these types of investments. In assessing potential impairment for theseinvestments, the Company will consider these factors as well as forecasted financial performance of itsinvestment. If these forecasts are not met, the Company may have to record impairment charges.

Plant, Property and Equipment. Plant, property and equipment, including capitalized interest of $5million, $2 million and $2 million incurred in 2011, 2010 and 2009, respectively, applicable to major projectexpenditures are recorded at cost. The cost of improvements that extend the life of plant, property and equipmentare capitalized. These capitalized costs may include structural improvements, equipment and fixtures. Costs fornormal repairs and maintenance are expensed as incurred. Depreciation is recorded on a straight-line basis overthe estimated useful economic lives of 15 to 40 years for buildings and improvements; 3 to 10 years for furniture,fixtures and equipment; 3 to 20 years for information technology software and equipment; and the lesser of the

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lease term or the economic useful life for leasehold improvements. Gains or losses on the sale or retirement ofassets are included in income when the assets are retired or sold provided there is reasonable assurance of thecollectability of the sales price and any future activities to be performed by the Company relating to the assetssold are insignificant.

The Company evaluates the carrying value of its assets for impairment. For assets in use when the triggerevents specified in ASC 360, Property Plant, and Equipment occur, the expected undiscounted future cash flowsof the assets are compared to the net book value of the assets. If the expected undiscounted future cash flows areless than the net book value of the assets, the excess of the net book value over the estimated fair value is chargedto current earnings. Fair value is based upon discounted cash flows of the assets at rates deemed reasonable forthe type of asset and prevailing market conditions, comparative sales for similar assets, appraisals and, ifappropriate, current estimated net sales proceeds from pending offers.

Goodwill and Intangible Assets. Goodwill and intangible assets arise in connection with acquisitions,including the acquisition of management contracts. The Company does not amortize goodwill and intangibleassets with indefinite lives. Intangible assets with finite lives are amortized on a straight-line basis over theirrespective useful lives. The Company reviews all goodwill and intangible assets for impairment annually, orupon the occurrence of a trigger event. Impairment charges, if any, are recognized in operating results.

Frequent Guest Program. Starwood Preferred Guest® (“SPG”) is the Company’s frequent guest incentivemarketing program. SPG members earn points based on spending at the Company’s owned, managed andfranchised hotels, as incentives to first-time buyers of VOIs and residences, and through participation in affiliatedpartners’ programs such as co-branded credit cards. Points can be redeemed at substantially all of the Company’sowned, leased, managed and franchised hotels as well as through other redemption opportunities with thirdparties, such as conversion to airline miles.

The Company charges its owned, managed and franchised hotels the cost of operating the SPG program,including the estimated cost of its future redemption obligation, based on a percentage of its SPG membersqualified expenditures. The Company’s management and franchise agreements require that the Company bereimbursed for the costs of operating the SPG program, including marketing, promotions and communications,and performing member services for the SPG members. As points are earned, the Company increases the SPGpoint liability for the amount of cash it receives from its managed and franchised hotels related to the futureredemption obligation. For its owned hotels the Company records an expense for the amount of its futureredemption 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.

The Company, through the services of third-party actuarial analysts, determines the value of the futureredemption obligation based on statistical formulas which project the timing of future point redemptions basedon historical experience, including an estimate of the “breakage” for points that will never be redeemed, and anestimate 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.

The Company consolidates the assets and liabilities of the SPG program including the liability associatedwith the future redemption obligation which is included in other long-term liabilities and accrued expenses in theaccompanying consolidated balance sheets. The total actuarially determined liability (see Note 17), as ofDecember 31, 2011 and 2010, is $844 million and $753 million, respectively, of which $251 million and $225million, respectively, is included in accrued expenses.

Legal Contingencies. The Company is subject to various legal proceedings and claims, the outcomes ofwhich are subject to significant uncertainty. ASC 450, Contingencies requires that an estimated loss from a losscontingency be accrued with a corresponding charge to income if it is probable that an asset has been impaired or

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a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingencyis required if there is at least a reasonable possibility that a loss has been incurred. The Company evaluates,among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonableestimate of the amount of loss. Changes in these factors could materially impact the Company’s financialposition or its results of operations.

Fair Value of Financial Instruments. Fair value is defined as the exchange price that would be receivedfor an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the assetor liability in an orderly transaction between market participants on the measurement date. The followinghierarchy prioritizes the inputs to valuation methodologies used to measure fair value as follows;

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quotedprices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that areobservable or can be corroborated by observable market data for substantially the full term of the assetsor liabilities.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significantto the fair value of the assets or liabilities.

Derivative Financial Instruments. The Company periodically enters into interest rate swap agreements,based on market conditions, to manage interest rate exposure. The net settlements paid or received under theseagreements are accrued consistent with the terms of the agreements and are recognized in interest expense overthe term of the related debt.

The Company enters into forward contracts to manage exposure to foreign currency fluctuations. All foreigncurrency hedging instruments have an inverse correlation to the hedged assets or liabilities. Changes in the fairvalue of the derivative instruments are classified in the same manner as the classification of the changes in theunderlying assets or liabilities due to fluctuations in foreign currency exchange rates. These forward contracts donot qualify as hedges.

The Company periodically enters into forward contracts to manage foreign exchange risk based on marketconditions. The Company enters into forward contracts to hedge fluctuations in forecasted transactions based onforeign currencies that are billed in United States dollars. These forward contracts have been designated as cashflow hedges, and their change in fair value is recorded as a component of other comprehensive income. As aforecasted transaction occurs, the gain or loss is reclassified from other comprehensive income to managementfees, franchise fees and other income.

The Company does not enter into derivative financial instruments for trading or speculative purposes andmonitors the financial stability and credit standing of its counterparties.

Foreign Currency Translation. Balance sheet accounts are translated at the exchange rates in effect ateach period end and income and expense accounts are translated at the average rates of exchange prevailingduring the year. The national currencies of foreign operations are generally the functional currencies. Gains andlosses from foreign exchange and the effect of exchange rate changes on intercompany transactions of a long-term investment nature are generally included in other comprehensive income. Gains and losses from foreignexchange rate changes related to intercompany receivables and payables that are not of a long-term investmentnature are reported currently in costs and expenses and amounted to a net loss of $12 million in 2011, a net gainof $39 million in 2010 and a net gain of $6 million in 2009.

Income Taxes. The Company provides for income taxes in accordance with principles contained in ASC740, Income Taxes. Under these principles, the Company recognizes the amount of income tax payable or

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NOTES TO FINANCIAL STATEMENTS

refundable for the current year and deferred tax assets and liabilities for the future tax consequences of eventsthat have been recognized in its financial statements or tax returns.

Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which thosetemporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of achange in tax rates is recognized in earnings in the period when the new rate is enacted. Deferred tax assets areevaluated for future realization and reduced by a valuation allowance to the extent the Company believes aportion will not be realized. The Company considers many factors when assessing the likelihood of futurerealization of its deferred tax assets, including its recent cumulative earnings experience and expectations offuture taxable income by taxing jurisdiction, the carry-forward periods available to us for tax reporting purposesand tax attributes.

The Company measures and recognizes the amount of tax benefit that should be recorded for financialstatement purposes for uncertain tax positions taken or expected to be taken in a tax return. With respect touncertain tax positions, the Company evaluates the recognized tax benefits for derecognition, classification,interest and penalties, interim period accounting and disclosure requirements. Judgment is required in assessingthe future tax consequences of events that have been recognized in its financial statements or tax returns.

Stock-Based Compensation. The Company calculates the fair value of share-based awards on the date ofgrant. Restricted stock awards are valued based on the share price. The Company has determined that a latticevaluation model would provide a better estimate of the fair value of options granted under its long-term incentiveplans than a Black-Scholes model. The lattice valuation option pricing model requires the Company to estimatekey assumptions such as expected life, volatility, risk-free interest rates and dividend yield to determine the fairvalue of share-based awards, based on both historical information and management decision regarding marketfactors and trends. The Company amortizes the share-based compensation expense over the period that theawards are expected to vest, net of estimated forfeitures. If the actual forfeitures differ from managementestimates, additional adjustments to compensation expense are recorded. Please refer to Note 22, Stock-BasedCompensation.

Revenue Recognition. The Company’s revenues are primarily derived from the following sources:(1) hotel and resort revenues at the Company’s owned, leased and consolidated joint venture properties;(2) vacation ownership and residential revenues; (3) management and franchise revenues; (4) revenues frommanaged and franchised properties; and (5) other revenues which are ancillary to the Company’s operations.Generally, revenues are recognized when the services have been rendered. Taxes collected from customers andsubmitted to taxing authorities are not recorded in revenue. The following is a description of the composition ofrevenues for the Company:

• Owned, Leased and Consolidated Joint Ventures — Represents revenue primarily derived from hoteloperations, including the rental of rooms and food and beverage sales, from owned, leased orconsolidated joint venture hotels and resorts. Revenue is recognized when rooms are occupied andservices have been rendered.

• Vacation Ownership and Residential — The Company recognizes sales of vacation ownership interestswhen the buyer has demonstrated a sufficient level of initial and continuing investment, the period ofcancellation with refund has expired and receivables are deemed collectible. For sales that do not qualifyfor full revenue recognition as the project has progressed beyond the preliminary stages but has not yetreached completion, all revenue and profit are initially deferred and recognized in earnings through thepercentage-of-completion method. The Company has also entered into licensing agreements with third-party developers to offer consumers branded condominiums or residences. The fees from thesearrangements are generally based on the gross sales revenue of the units sold. Residential fee revenue isrecorded in the period that a purchase and sales agreement exists, delivery of services and obligations has

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NOTES TO FINANCIAL STATEMENTS

occurred, the fee to the owner is deemed fixed and determinable and collectability of the fees isreasonably assured. Residential revenue on whole ownership units is generally recorded using thecompleted contract method, whereby revenue is recognized only when a sales contract is completed orsubstantially completed. During the performance period, costs and deposits are recorded on the balancesheet.

• Management and Franchise Fees — Represents fees earned on hotels managed worldwide, usually underlong-term contracts, franchise fees received in connection with the franchise of the Company’s Sheraton,Westin, Four Points by Sheraton, Le Méridien, St. Regis, W, Luxury Collection, Aloft and Element brandnames, termination fees and the amortization of deferred gains related to sold properties for which theCompany has significant continuing involvement. Management fees are comprised of a base fee, which isgenerally based on a percentage of gross revenues, and an incentive fee, which is generally based on theproperty’s profitability. Base fee revenues are recognized when earned in accordance with the terms ofthe contract. For any time during the year, when the provisions of the management contracts allow receiptof incentive fees upon termination, incentive fees are recognized for the fees due and earned as if thecontract was terminated at that date, exclusive of any termination fees due or payable. Franchise fees aregenerally based on a percentage of hotel room revenues and are recognized as the fees are earned andbecome due from the franchisee.

• Other Revenues from Managed and Franchised Properties — These revenues represent reimbursementsof costs incurred on behalf of managed hotel properties and franchisees. These costs relate primarily topayroll costs at managed properties where the Company is the employer. Since the reimbursements aremade based upon the costs incurred with no added margin, these revenues and corresponding expenseshave no effect on the Company’s operating income or net income.

Insurance Retention. Through its captive insurance company, the Company provides insurance coveragefor workers’ compensation, property and general liability claims arising at hotel properties owned or managed bythe Company through policies written directly and through reinsurance arrangements. Estimated insurance claimspayable represent expected settlement of outstanding claims and a provision for claims that have been incurredbut not reported. These estimates are based on the Company’s assessment of potential liability using an analysisof available information including pending claims, historical experience and current cost trends. The amount ofthe ultimate liability may vary from these estimates. Estimated costs of these self-insurance programs areaccrued, based on the analysis of third-party actuaries.

Costs Incurred to Sell VOIs. The Company capitalizes direct costs attributable to the sale of VOIs untilthe sales are recognized. Selling and marketing costs capitalized under this methodology were approximately $4million and $3 million as of December 31, 2011 and 2010, respectively, and all such capitalized costs areincluded in prepaid expenses and other assets in the accompanying consolidated balance sheets. Costs eligible forcapitalization follow the guidelines of ASC 978, Real Estate – Time Sharing Activities. If a contract is cancelled,the Company charges the unrecoverable direct selling and marketing costs to expense and records forfeiteddeposits as income.

VOI and Residential Inventory Costs. Real estate and development costs are valued at the lower of cost ornet realizable value. Development costs include both hard and soft construction costs and together with realestate costs are allocated to VOIs and residential units on the relative sales value method. Interest, property taxesand certain other carrying costs incurred during the construction process are capitalized as incurred. Such costsassociated with completed VOI and residential units are expensed as incurred.

Advertising Costs. The Company enters into multi-media advertising campaigns, including television,radio, internet and print advertisements. Costs associated with these campaigns, including communication andproduction costs, are aggregated and expensed the first time that the advertising takes place. If it becomes

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NOTES TO FINANCIAL STATEMENTS

apparent that the media campaign will not take place, all costs are expensed at that time. During the years endedDecember 31, 2011, 2010 and 2009, the Company incurred approximately $149 million, $132 million and $118million of advertising expense, respectively, a significant portion of which was reimbursed by managed andfranchised hotels.

Use of Estimates. The preparation of financial statements in conformity with accounting principlesgenerally accepted in the United States requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates.

Reclassifications. Certain reclassifications have been made to the prior years’ financial statements toconform to the current year presentation.

Impact of Recently Issued Accounting Standards.

Adopted Accounting Standards

In September 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-08,“Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment”. This topic permits an entity toassess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit isless than its carrying amount as a basis to determine whether an additional impairment test is necessary. Thistopic is for annual and interim goodwill impairment tests performed for fiscal years beginning afterDecember 15, 2011 with early adoption allowed. The Company early adopted this topic during the fourth quarterof 2011 in conjunction with its annual impairment testing (see Note 7).

In September 2011, the FASB issued ASU No. 2011-09, “Compensation-Retirement Benefits-Multiemployer Plans (Subtopic 715-80): Disclosures about an Employer’s Participation in a MultiemployerPlan”. This subtopic addresses concerns from users of financial statements on the lack of transparency about anemployer’s participation in a multiemployer pension plan. The disclosures also will indicate the financial healthof all of the significant plans in which the employer participates and assist a financial statement user to accessadditional information that is available outside of the financial statements. The subtopic is effective for annualreporting periods ending after December 15, 2011. The Company adopted this topic as of December 31, 2011(see Note 19).

In July 2010, the FASB issued ASU No. 2010-20, “Receivables (Topic 310): Disclosures about the CreditQuality of Financing Receivables and the Allowance for Credit Losses.” This topic requires disclosures offinancing receivables and allowance for credit losses on a disaggregated basis. The balance sheet relateddisclosures are required beginning at December 31, 2010 and the statements of income disclosures are required,beginning for the three months ended March 31, 2011. The Company adopted this topic on December 31, 2010(see Note 10).

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

ASU No. 2009-16 amended the accounting for transfers of financial assets. Under ASU No. 2009-16, thequalifying special purpose entities (“QSPEs”) used in the Company’s securitization transactions are no longerexempt from consolidation. ASU No. 2009-17 prescribes an ongoing assessment of the Company’s involvementin the activities of the QSPEs and the Company’s rights or obligations to receive benefits or absorb losses of thetrusts that could be potentially significant in order to determine whether those variable interest entities (“VIEs”)

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NOTES TO FINANCIAL STATEMENTS

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 beganconsolidating the QSPEs on January 1, 2010 (see Note 9). Using the carrying amounts of the assets and liabilitiesof the QSPEs as prescribed by ASU No. 2009-17 and any corresponding elimination of activity between theQSPEs and the Company resulting from the consolidation on January 1, 2010, the Company recorded a $417million increase in total assets, a $444 million increase in total liabilities, a $26 million (net of tax) decrease inbeginning retained earnings and a $1 million decrease to stockholders equity. The Company has additional VIEswhereby the Company was determined not to be the primary beneficiary (see Note 25).

Beginning January 1, 2010, the Company’s statements of income no longer reflect activity related to itsRetained Interests, but instead reflects activity related to its securitized vacation ownership notes receivable andthe corresponding securitized debt, including interest income, loan loss provisions, and interest expense. Interestincome and loan loss provisions associated with the securitized vacation ownership notes receivable are includedin the vacation ownership and residential sales and services line item. The cash flows from borrowings andrepayments associated with the securitized vacation ownership debt are now presented as cash flows fromfinancing activities. The Company does not expect to recognize gains or losses from future securitizations as aresult of the adoption of this new guidance.

While the year ended December 31, 2011 and 2010 have been accounted for under the new accountingstandards, these years are not comparable to 2009 amounts, particularly with regards to vacation ownership andresidential sales and services and interest expense.

In October 2009, the FASB issued ASU 2009-13 which supersedes certain guidance in ASC 605-25,Revenue Recognition – Multiple Element Arrangements. This topic requires an entity to allocate arrangementconsideration at the inception of an arrangement to all of its deliverables based on their relative selling prices.This topic is effective for annual reporting periods beginning after June 15, 2010. The Company adopted thistopic on January 1, 2011 and it did not have a material impact on its consolidated financial statements.

Note 3. Earnings (Losses) per Share

The following is a reconciliation of basic earnings (losses) per share to diluted earnings (losses) per sharefor income (losses) from continuing operations attributable to Starwood’s common shareholders (in millions,except per share data):

Year Ended December 31,

2011 2010 2009

Earnings SharesPer

Share Earnings SharesPer

ShareEarnings(Losses) Shares

PerShare

Basic earnings (losses) from continuingoperations attributable to Starwood’scommon shareholders . . . . . . . . . . . . . . . . $502 189 $2.65 $310 183 $1.70 $ (1) 180 $0.00

Effect of dilutive securities:

Employee options and restricted stockawards . . . . . . . . . . . . . . . . . . . . . . . . . . — 6 — 7 — —

Diluted earnings (losses) from continuingoperations attributable to Starwood’scommon shareholders . . . . . . . . . . . . . . . . $502 195 $2.57 $310 190 $1.63 $ (1) 180 $0.00

Approximately 1 million shares, 5 million shares and 12 million shares were excluded from the computationof diluted shares in 2011, 2010 and 2009, respectively, as their impact would have been anti-dilutive.

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NOTES TO FINANCIAL STATEMENTS

Note 4. Significant Acquisitions

During the year ended December 31, 2011, the Company executed a transaction with its former partner in ajoint venture that owned three luxury hotels in Austria. In connection with the transaction, the Company acquiredsubstantially the entire interest in two of the hotels in exchange for its interest in the third hotel and a cashpayment, by the Company, of approximately $27 million. The Company previously held a 47.4% ownershipinterest in the hotels. In accordance with ASC 805, Business Combinations, the Company accounted for thistransaction as a step acquisition, remeasured its previously held investment to fair value and recorded theapproximately $50 million difference between fair value and its carrying value to the gain (loss) on assetdispositions and impairments, net, line item. The fair values of the assets and liabilities acquired have beenrecorded in the Company’s consolidated balance sheet, including the resulting goodwill of approximately $26million. The Company entered into a long-term management contract for the hotel in which it exchanged itsminority ownership interest and recorded a deferred gain of approximately $30 million in connection with thisexchange.

During the year ended December 31, 2010, the Company paid approximately $23 million to acquire acontrolling interest in a joint venture in which it had previously held a non-controlling interest. The primarybusiness of the joint venture is to develop, license and manage restaurant concepts. The acquisition took placeafter one of the Company’s former partners exercised its right to put its interest to the Company in accordancewith the terms of the joint venture agreement. In accordance with ASC 805, Business Combinations, theCompany accounted for this transaction as a step acquisition, remeasured its previously held investment to fairvalue and recorded the approximately $5 million difference between fair value and its carrying value to the gain(loss) on asset dispositions and impairments, net, line item. The fair values of the assets and liabilities acquiredwere recorded in Starwood’s consolidated balance sheet, including the resulting goodwill of approximately $26million. The results of operations going forward from the acquisition date have been included in the Company’sconsolidated statements of income.

Note 5. Asset Dispositions and Impairments

During the year ended December 31, 2011, the Company sold two wholly-owned hotels for cash proceeds ofapproximately $237 million. These hotels were sold subject to long-term management agreements, and theCompany recorded deferred gains of approximately $66 million relating to the sales. Also during the year endedDecember 31, 2011 the Company sold its interest in a consolidated joint venture for cash proceeds ofapproximately $44 million, with the buyer assuming $57 million of the Company’s debt (see Note 15). TheCompany recognized a pretax loss of $18 million in discontinued operations as a result of the sale (see Note 18).

Additionally, during the year ended December 31, 2011, the Company recorded an impairment charge of$31 million to write-off its noncontrolling interest in a joint venture that owns a hotel in Tokyo, Japan, a $16million loss due to the impairment of fixed assets that were written down in connection with significantrenovations and related asset retirements at two properties and losses relating to the impairment of six hotelswhose carrying value exceeded their fair value. These amounts were partially offset by a $50 million gain as aresult of remeasuring the fair value of its previously held noncontrolling interest in two hotels in which itobtained a controlling interest (see Note 4).

During the year ended December 31, 2010, the Company recorded a net loss on dispositions ofapproximately $39 million, primarily related to a $53 million loss on the sale of one wholly-owned hotel subjectto a long-term management contract, a $4 million impairment of fixed assets that are being retired in connectionwith a significant renovation of a wholly-owned hotel, and a $2 million impairment on one hotel whose carryingvalue exceeded its fair value. These charges were partially offset by a gain of $14 million from insuranceproceeds received for a claim at a wholly-owned hotel that suffered damage from a storm in 2008, a $5 million

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NOTES TO FINANCIAL STATEMENTS

gain as a result of an acquisition of a controlling interest in a joint venture in which we previously held anon-controlling interest (see Note 4) and a $4 million gain from the sale of non-hotel assets.

During the year ended December 31, 2009, the Company recorded impairment charges of $41 millionrelating to the impairment of six hotels. Also during 2009, as a result of market conditions at the time and theimpact on the timeshare industry, the Company reviewed the fair value of its economic interests in securitizedVOI notes receivable and concluded these interests were impaired. The fair value of the Company’s investmentin these retained interests was determined by estimating the net present value of the expected future cash flows,based on expected default and prepayment rates resulting in an impairment charge of $22 million. Additionally,the Company recorded losses of $18 million, primarily related to impairments of hotel management contracts,certain technology-related fixed assets and an investment in which the Company holds a minority interest.

During the years ended December 31, 2011, 2010 and 2009, the Company reviewed the recoverability of itscarrying values of its owned hotels and determined that certain hotels were impaired, as discussed above. Thefair values of the hotels were estimated by using discounted cash flows, comparative sales for similar assets andrecent letters of intent to sell certain assets. Impairment charges included above totaling $7 million, $2 millionand $41 million, relating to six, one and six hotels, were recorded in the years ended December 31, 2011, 2010and 2009, respectively. These assets are reported in the hotels operating segment.

Note 6. Plant, Property and Equipment

Plant, property and equipment consisted of the following (in millions):

December 31,

2011 2010

Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 614 $ 600

Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,066 3,300

Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,859 1,901

Construction work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 170

5,783 5,971

Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . (2,513) (2,648)

$ 3,270 $ 3,323

The above balances include unamortized capitalized computer software costs of $155 million and $132million at December 31, 2011 and 2010 respectively. Amortization of capitalized computer software costs was$32 million, $36 million and $36 million for the years ended December 31, 2011, 2010 and 2009, respectively.

F-19

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

Note 7. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the years ended December 31, 2011 and 2010 is asfollows (in millions):

HotelSegment

VacationOwnership

Segment Total

Balance at January 1, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,332 $151 $1,483

Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 — 26

Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . (8) — (8)

Asset dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10) — (10)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 — 8

Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,348 $151 $1,499

Balance at January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,348 $151 $1,499

Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 — 26

Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . (11) — (11)

Asset dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33) — (33)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) — (1)

Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,329 $151 $1,480

In 2011, the Company early adopted ASU 2011-08 (the “Topic”) to consider impairment for its tworeporting units, hotel and vacation ownership. The Topic allows companies to perform a qualitative assessmentof goodwill, to determine if the two-step goodwill impairment test is necessary. The determination depends onwhether it is more likely than not that the fair value of a reporting unit is greater than the carrying amount. TheCompany concluded that the two-step goodwill impairment test is not required for either the hotel or vacationownership reporting unit. The vacation ownership reporting unit results reflected a 30%, or $237 million, excessof fair value over book value in step 1 of the 2010 impairment test. The Company considered the fact that the2011 results for the vacation ownership business exceeded expectations and evaluated other factors, such asdiscount rates and market rates of return for the business, all of which indicate an excess of fair value over bookvalue. Based on this evaluation of internal and external qualitative factors, the Company concluded the two-stepgoodwill impairment test is not required for the vacation ownership reporting unit.

The Company considered similar factors for the hotel business. In the hotel reporting unit, results reflected a135%, or $8.6 billion, excess of fair value over book value in step one of the 2010 impairment test. The internaland external factors affecting this business indicate that the fair value of the hotel reporting unit continues tosignificantly exceed its carrying value and therefore, the Company concluded the two-step goodwill impairmenttest is not required for the hotel reporting unit.

Prior to the adoption of the Topic in 2011, the Company performed its annual goodwill impairment test as ofOctober 31, 2010 for its hotel and vacation ownership reporting units and determined that there was noimpairment of its goodwill. The fair value was calculated using a discounted cash flow model, in which theunderlying cash flows were derived from management’s current financial projections. The two key assumptionsused in the fair value calculation are the discount rate and the capitalization rate in the terminal period, whichwere 10% and 2%, respectively.

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

Intangible assets consisted of the following (in millions):

December 31,

2011 2010

Trademarks and trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 313 $ 309

Management and franchise agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412 377

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 78

741 764

Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (164) (196)

$ 577 $ 568

The intangible assets related to management and franchise agreements have finite lives, and accordingly, theCompany recorded amortization expense of $29 million, $33 million, and $35 million, respectively, during theyears ended December 31, 2011, 2010 and 2009. The other intangible assets noted above have indefinite lives.

Amortization expense relating to intangible assets with finite lives for each of the years ended December 31,is expected to be as follows (in millions):

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29

2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28

Note 8. Other Assets

Other assets include the following (in millions):

December 31,

2011 2010

VOI notes receivable, net of allowance of $46 and $69 . . . . . . . . . . . . . . . . . . . . . . . . . $ 93 $132

Prepaids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 88

Deposits and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 161

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $355 $381

See Note 10 for discussion relating to VOI notes receivable.

Note 9. Transfers of Financial Assets

As discussed in Note 2, the Company adopted ASU 2009-16 and ASU 2009 -17 on January 1, 2010. As aresult, the Company concluded it has variable interests in the entities associated with its five outstandingsecuritization transactions. As these securitizations consist of similar, homogenous loans, they have beenaggregated for disclosure purposes. The Company applied the variable interest model and determined it is theprimary beneficiary of these VIEs. In making this determination, the Company evaluated the activities thatsignificantly impact the economics of the VIEs, including the management of the securitized notes receivable andany related non-performing loans. The Company also evaluated its retention of the residual economic interests inthe related VIEs. The Company is the servicer of the securitized mortgage receivables. The Company also has the

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

option, subject to certain limitations, to repurchase or replace VOI notes receivable, that are in default, at theiroutstanding principal amounts. Such activity totaled $31 million and $38 million during 2011 and 2010,respectively. The Company has been able to resell the VOIs underlying the VOI notes repurchased or replacedunder these provisions without incurring significant losses. The Company holds the risk of potential loss (orgain) as the last to be paid out by proceeds of the VIEs under the terms of the agreements. As such, the Companyholds both the power to direct the activities of the VIEs and obligation to absorb the losses (or benefits) from theVIEs.

The securitization agreements are without recourse to the Company, except for breaches of representationsand warranties. Based on the right of the Company to fund defaults at its option, subject to certain limitations, itintends 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 flowsderived from them become restricted for use in meeting obligations to the VIE creditors. The VIEs utilize trustswhich have ownership of cash balances that also have restrictions, the amounts of which are reported in restrictedcash. 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 theinvestors in the trusts’ debt (see Note 16). The Company is contractually obligated to receive the excess cashflows (spread between the collections on the notes and third party obligations defined in the securitizationagreements) from the VIEs. Such activity totaled $44 million and $43 million during 2011 and 2010,respectively, and is classified in cash and cash equivalents.

During the year ended December 31, 2011, the Company completed the 2011 securitization ofapproximately $210 million of vacation ownership notes receivable. The securitization transaction did not qualifyas a sale for accounting purposes and, accordingly, no gain or loss was recognized. Of the $210 millionsecuritized in the 2011-A transaction, $200 million was previously unsecuritized and approximately $10 millionhad previously been securitized in the 2003 securitization which was terminated in connection with the 2011securitization. The 2003 securitization was terminated, including pay-down of all outstanding principal andinterest due. The net cash proceeds from the securitization, after termination of the 2003 securitization andassociated deal costs, were approximately $177 million.

During the year ended December 31, 2010, the Company completed the 2010 securitization ofapproximately $300 million of vacation ownership notes receivable. The securitization transaction did not qualifyas a sale for accounting purposes and, accordingly, no gain or loss was recognized. Approximately $93 million ofproceeds from this transaction were used to terminate the securitization completed in June 2009 by repaying theoutstanding principal and interest on the securitized debt. In connection with the termination, a charge of$5 million was recorded to interest expense, relating to the settlement of a balance guarantee interest rate swapand the write-off of deferred financing costs. The net cash proceeds from the securitization after termination ofthe 2009 securitization and associated deal costs were approximately $180 million.

See Note 10 for disclosures and amounts related to the securitized vacation ownership notes receivableconsolidated on the Company’s balance sheets as of December 31, 2011 and 2010.

Prior to the adoption of ASU 2009-16 and 2009-17, the Company completed securitizations of its VOI notesreceivables, which qualified for sales treatment. Retained Interests cash flows were limited to the cash availablefrom the related VOI notes receivable, after servicing and other related fees, absorbing 100% of any credit losseson the related VOI notes receivable and QSPE fixed rate interest expense. The Company’s replacement of thedefaulted VOI notes receivable under the securitization agreements with new VOI notes receivable resulted in netgains of approximately $3 million during 2009, which are included in vacation ownership and residential salesand services in the Company’s consolidated statements of income.

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

In June 2009, the Company securitized approximately $181 million of VOI notes receivable (the “2009-ASecuritization”) resulting in cash proceeds of approximately $125 million. The Company retained $44 million ofinterests in the QSPE, which included $43 million of notes the Company effectively owned after the transfer and$1 million related to the interest only strip. The related loss on the 2009-A Securitization of $2 million wasincluded in vacation ownership and residential sales and services in the Company’s consolidated statements ofincome.

In December 2009, the Company securitized approximately $200 million of VOI notes receivable (the“2009-B Securitization”) resulting in cash proceeds of approximately $166 million. The Company retained$31 million of interests in the QSPE, which included $22 million of notes the Company effectively owned afterthe transfer and $9 million related to the interest only strip. The related gain on the 2009-B Securitization of$19 million is included in vacation ownership and residential sales and services in the Company’s consolidatedstatements of income.

In December 2009, the Company entered into an amendment with the third-party beneficial interest ownerregarding the notes issued in the 2009-A Securitization (the 2009-A Amendment). The amendment to the termsincluded a reduction of the coupon rate and an increase in the effective advance rate. As the increase in the advancerate produced additional cash proceeds of $9 million, this resulted effectively in additional loans sold to the QSPEfrom the original over collateralization. The related gain on the 2009-A Amendment of $4 million was included invacation ownership and residential sales and services in the Company’s consolidated statements of income.

Note 10. Notes Receivable

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

December 31,

2011 2010

Vacation ownership loans-securitized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $510 $467

Vacation ownership loans-unsecuritized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 152

623 619

Less: current portion

Vacation ownership loans-securitized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64) (59)

Vacation ownership loans-unsecuritized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20) (20)

$539 $540

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

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

Year EndedDecember 31,

2011 2010 2009

Vacation ownership loans-securitized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $64 $66 $—

Vacation ownership loans-unsecuritized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 21 48

$85 $87 $48

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

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

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 73 $ 29 $ 102

2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 14 91

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 12 91

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 14 92

Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283 100 383

Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . $ 590 $ 169 $ 759

Weighted Average Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . 12.84% 11.89% 12.58%

Range of interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 to 17% 5 to 17% 5 to 17%

For the vacation ownership and residential segment, the Company records an estimate of expecteduncollectibility on its VOI notes receivable as a reduction of revenue at the time it recognizes profit on atimeshare sale. The Company holds large amounts of homogeneous VOI notes receivable and therefore assessesuncollectibility based on pools of receivables. In estimating loss reserves, the Company uses a technique referredto as static pool analysis, which tracks uncollectible notes for each year’s sales over the life of the respectivenotes and projects an estimated default rate that is used in the determination of its loan loss reserve requirements.As of December 31, 2011, the average estimated default rate for the Company’s pools of receivables was 9.9%.

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

Balance at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $— $ 91 $ 91

Provisions for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 64 64

Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (61) (61)

Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 94 94

Provisions for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 32 46

Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (52) (52)

Adoption of ASU No. 2009-17 . . . . . . . . . . . . . . . . . . . . . . . . . . 77 (4) 73

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9) 9 —

Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 79 161

Provisions for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 27 29

Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (54) (54)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) 4 —

Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $80 $ 56 $136

The primary credit quality indicator used by the Company to calculate the loan loss reserve for the vacationownership notes is the origination of the notes by brand (Sheraton, Westin, and Other) as the Company believesthere is a relationship between the default behavior of borrowers and the brand associated with the vacationownership property they have acquired. In addition to quantitatively calculating the loan loss reserve based on itsstatic pool analysis, the Company supplements the process by evaluating certain qualitative data, including theaging of the respective receivables, current default trends by brand and origination year, and the FICO scores ofthe buyers.

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

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

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

Past due balances of VOI notes receivable by credit quality indicators are as follows (in millions):

30-59 Days 60-89 Days >90 Days Total Past TotalPast Due Past Due Past Due Due Current Receivables

As of December 31, 2011:

Sheraton . . . . . . . . . . . . . . . . . . . . . . . $ 5 $3 $26 $34 $321 $355

Westin . . . . . . . . . . . . . . . . . . . . . . . . 3 2 17 22 345 367

Other . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 4 6 31 37

$ 9 $6 $47 $62 $697 $759

As of December 31, 2010:

Sheraton . . . . . . . . . . . . . . . . . . . . . . . $ 6 $4 $30 $40 $314 $354

Westin . . . . . . . . . . . . . . . . . . . . . . . . 5 3 33 41 342 383

Other . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 4 6 37 43

$12 $8 $67 $87 $693 $780

Note 11. Fair Value

The following table presents the Company’s fair value hierarchy for its financial assets and liabilitiesmeasured at fair value on a recurring basis as of December 31, 2011 (in millions):

Level 1 Level 2 Level 3 Total

Assets:

Interest Rate Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $— $12 $— $12

Forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3 — 3

$— $15 $— $15

The forward contracts are over the counter contracts that do not trade on a public exchange. The fair valuesof the contracts are based on inputs such as foreign currency spot rates and forward points that are readilyavailable 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 deemedinsignificant 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 apresent value amount based on market expectations of the yield curve on floating interest rates, which is readilyavailable on public markets.

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

Note 12. Deferred Gains

The Company defers gains realized in connection with the sale of a property for which the Companycontinues to manage the property through a long-term management agreement and recognizes the gains over theinitial term of the related agreement. As of December 31, 2011 and 2010, the Company had total deferred gainsof $1.018 billion and $1.011 billion, respectively, included in accrued expenses and other liabilities in theCompany’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$87 million, $81 million and $82 million in 2011, 2010 and 2009, respectively.

Note 13. Restructuring, Goodwill Impairment and Other Special Charges (Credits), Net

Restructuring, Goodwill Impairment and Other Special Charges (Credits) by operating segment are asfollows (in millions):

Year Ended December 31,

2011 2010 2009

Segment

Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $70 $(74) $ 21

Vacation Ownership & Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (1) 358

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $68 $(75) $379

During the year ended December 31, 2011, the Company recorded a charge of $70 million related to anunfavorable decision in a lawsuit (see Note 25) and a credit of $2 million to adjust previously recorded reservesto the amounts the Company now expects to pay.

During the year ended December 31, 2010, the Company received cash proceeds of $75 million inconnection with the favorable settlement of a lawsuit. The Company recorded this settlement, net of thereimbursement of legal costs incurred in connection with the litigation, as a credit to restructuring, goodwillimpairment, and other special charges (credits) line item. Additionally, the Company recorded a credit of $8million as a liability associated with an acquisition in 1998 that was no longer deemed necessary (see Note 25).

During the year ended December 31, 2009, the Company completed a comprehensive review of its vacationownership business. The Company decided not to develop certain vacation ownership sites and future phases ofcertain existing projects. As a result of these decisions, the Company recorded a primarily non-cash impairmentcharge of $255 million. The impairment included a charge of approximately $148 million primarily related toland held for development; a charge of $64 million for the reduction in inventory values at four properties; thewrite-off of fixed assets of $21 million; facility exit costs of $15 million and $7 million in other costs.Additionally, as a result of this decision and the economic climate at that time, the Company recorded a $90million non-cash charge for the impairment of goodwill in the vacation ownership reporting unit.

Additionally, in 2009, the Company recorded restructuring and other special charges of $34 million,primarily related to severance charges and costs to close vacation ownership sales galleries, associated with itsongoing initiative of rationalizing its cost structure.

In determining the fair value associated with the impairment charges the Company primarily used theincome and market approaches. Under the income approach, fair value was determined based on estimated futurecash flows taking into consideration items such as operating margins and the sales pace of vacation ownershipintervals, discounted using a rate commensurate with the inherent risk of the project. Under the market approach,fair value was determined with the comparable sales of similar assets and appraisals.

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

The Company had remaining restructuring accruals of $89 million as of December 31, 2011, primarilyrecorded in accrued expenses.

Note 14. Income Taxes

Income tax data from continuing operations of the Company is as follows (in millions):

Year Ended December 31,

2011 2010 2009

Pretax incomeU.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 165 $ 85 $ (76)

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 250 (220)

$ 425 $335 $(296)

Provision (benefit) for income taxCurrent:

U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(215) $ (61) $ (84)

State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21) 18 12

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 43 38

(148) — (34)

Deferred:

U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 22 (117)

State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11) (7) (18)

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 12 (124)

73 27 (259)

$ (75) $ 27 $(293)

No provision has been made for U.S. taxes payable on undistributed foreign earnings amounting toapproximately $2.3 billion as of December 31, 2011 since these amounts are permanently reinvested. If suchearnings were repatriated, additional tax expense may result, although the calculation of such additional taxes isnot practicable.

Deferred income taxes represent the tax effect of the differences between the book and tax bases of assetsand liabilities plus carryforward items. The composition of net deferred tax balances were as follows (inmillions):

December 31,

2011 2010

Current deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $278 $315

Long-term deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639 664

Current deferred tax liabilities (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) (4)

Long-term deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46) (24)

Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $864 $951

(1) Included in the Accrued taxes and other line item in the consolidated balance sheets.

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

The tax effect of the temporary differences and carryforward items that give rise to deferred taxes were asfollows (in millions):

December 31,

2011 2010

Plant, property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (23) $ (17)

Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11) 177

Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 140

Deferred gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350 346

Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 (4)

Receivables (net of reserves) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 85

Accrued expenses and other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 181

Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 79

Net operating loss, capital loss and tax credit carryforwards . . . . . . . . . . . . . . . . . . 257 406

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) (45)

1,089 1,348

Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (225) (397)

Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 864 $ 951

At December 31, 2011, the Company had federal net operating losses, which have varying expiration datesextending through 2031, of approximately $15 million. The Company also had federal general business credits ofapproximately $21million, which have varying expiration dates extending through 2030. The Company expectsto realize substantially all of the tax benefit associated with these attributes.

At December 31, 2011, the Company had state net operating losses, which have varying expiration datesextending through 2028, of approximately $1.6 billion. The Company also had state tax credit carryforwards of$21 million which are indefinite or will fully expire by 2026. The Company has established a valuationallowance against the majority of these attributes as it is unlikely that the tax benefit of these attributes will berealized prior to expiration.

At December 31, 2011 the Company had foreign net operating losses and capital losses, which are indefiniteor have varying expiration dates extending through 2020, of approximately $283 million and $22 million,respectively. The Company also had tax credit carryforwards of approximately $13 million in foreignjurisdictions. The tax credit carryforwards available in foreign jurisdictions are indefinite or will fully expire by2020. The Company has established a valuation allowance against the majority of these attributes as it is unlikelythat the tax benefit of these attributes will be realized prior to expiration.

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

A reconciliation of the tax provision of the Company at the U.S. statutory rate to the provision for incometax as reported is as follows (in millions):

Year Ended December 31,

2011 2010 2009

Tax provision at U.S. statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 149 $117 $(104)U.S. state and local income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19) (2) (3)Tax on repatriation of foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 (19) (45)Foreign tax rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64) (70) (25)Tax on capital gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334 99 —Change in asset basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (130) — (120)Nondeductible goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3 39Change in uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 23 9Tax settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25) (42) 1Tax on asset dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60) 1 (32)Change in valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (304) (99) —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 16 (13)

Provision for income tax (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (75) $ 27 $(293)

The foreign tax rate differential benefit primarily relates to the Company’s operations in Luxembourg andSingapore.

In 2011, the Company completed transactions that involved certain domestic and foreign subsidiaries. Thesetransactions generated capital gains, increased the tax basis in subsidiaries including U.S. partnerships andresulted in the inclusion of foreign earnings for U.S. tax purposes. The capital gains were largely reduced by theutilization of capital losses. Due to the uncertainty regarding the Company’s ability to generate capital gainincome, the deferred tax asset associated with these capital losses was offset by a full valuation allowance priorto these transactions. During 2009, the Company entered into an Italian tax incentive program through which thetax basis of its Italian owned hotels was adjusted resulting in a $120 million tax benefit.

During 2011, the IRS closed its audit with respect to tax years 2004 through 2006 resulting in a $25 milliontax benefit primarily related to the reversal of tax and interest reserves. During 2010, the IRS closed its audit withrespect to tax years 1998 through 2003 and the Company recognized a $42 million tax benefit in continuingoperations primarily associated with the refund of interest on taxes previously paid. Also in 2010, as a result ofthe 1998 through 2003 audit closure, the Company recognized a $134 million tax benefit in discontinuedoperations primarily related to the portion of the tax no longer due.

As of December 31, 2011, the Company had approximately $153 million of total unrecognized tax benefits,of which $42 million would affect its effective tax rate if recognized. A reconciliation of the beginning andending balance of unrecognized tax benefits is as follows (in millions):

Year Ended December 31,

2011 2010 2009

Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 510 $ 999 $1,003Additions based on tax positions related to the current year . . . . . . . . . . 24 29 4Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . 36 18 2Settlements with tax authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (407) (499) (7)Reductions for tax positions in prior years . . . . . . . . . . . . . . . . . . . . . . . (6) (5) (1)Reductions due to the lapse of applicable statutes of limitations . . . . . . (4) (32) (2)

End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 153 $ 510 $ 999

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

It is reasonably possible that approximately $25 million of the Company’s unrecognized tax benefits as ofDecember 31, 2011 will reverse within the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits through income taxexpense. The Company had $74 million and $92 million accrued for the payment of interest as of December 31,2011 and December 31, 2010, respectively. The Company did not have any reserves for penalties as ofDecember 31, 2011 and 2010.

The Company is subject to taxation in the U.S. federal jurisdiction, as well as various state and foreignjurisdictions. As of December 31, 2011, the Company is no longer subject to examination by U.S. federal taxingauthorities for years prior to 2007 and to examination by any U.S. state taxing authority prior to 1998. Allsubsequent periods remain eligible for examination. In the significant foreign jurisdictions in which the Companyoperates, the Company is no longer subject to examination by the relevant taxing authorities for any years priorto 2001.

Note 15. Debt

Long-term debt and short-term borrowings consisted of the following (in millions):

December 31,

2011 2010

Senior Credit Facility:

Revolving Credit Facility, maturing 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ —

Senior Notes, interest at 7.875%, settled 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 609

Senior Notes, interest at 6.25%, maturing 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 504

Senior Notes, interest at 7.875%, maturing 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 497 490

Senior Notes, interest at 7.375%, maturing 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450 450

Senior Notes, interest at 6.75%, maturing 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 400

Senior Notes, interest at 7.15%, maturing 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 245

Mortgages and other, interest rates ranging from 1.00% to 9.00%, various maturities . . . . . . . . 105 159

2,197 2,857

Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (9)

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,194 $2,848

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

Aggregate debt maturities for each of the years ended December 31 are as follows (in millions):

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3

2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 693

$2,197

The Company maintains lines of credit under which bank loans and other short-term debt are drawn. Inaddition, smaller credit lines are maintained by the Company’s foreign subsidiaries. The Company hadapproximately $1.5 billion of available borrowing capacity under its domestic and foreign lines of credit as ofDecember 31, 2011. The short-term borrowings under these lines of credit at December 31, 2011 and 2010 werede minimus.

The Company is subject to certain restrictive debt covenants under its short-term borrowing and long-termdebt obligations including defined financial covenants, limitations on incurring additional debt, ability to paydividends, escrow account funding requirements for debt service, capital expenditures, tax payments andinsurance premiums, among other restrictions. The Company was in compliance with all of the short-term andlong-term debt covenants at December 31, 2011.

During the year ended December 31, 2011, the Company entered into a credit agreement which provided aloan of approximately $38 million, which is due in 2016, and is secured by one of its owned hotels. Proceedsfrom this loan were used to pay off an existing credit agreement that was due in 2012.

During the year ended December 31, 2011, the Company redeemed all of the outstanding 7.875% SeniorNotes due 2012, which had a principal amount of approximately $605 million. In connection with thistransaction, the Company terminated two interest rate swaps related to the 7.875% Senior Notes, which hadnotional amounts totaling $200 million (see Note 23). As a result of the early redemption of the 7.875% SeniorNotes, the Company recorded a net charge of approximately $16 million in interest expense, net of interestincome line item in its statement of income, representing the tender premiums, swap settlements and other relatedredemption costs.

During the year ended December 31, 2011, the Company sold its interest in a consolidated joint venturewhich resulted in the buyer assuming approximately $57 million of the Company’s mortgage debt.

During the year ended December 31, 2011, the Company entered into two interest rate swaps with a totalnotional amount of $100 million, whereby the Company pays floating and receives fixed interest rates (see Note23).

On April 20, 2010, the Company entered into a $1.5 billion senior credit facility. The facility matures onNovember 15, 2013 and replaces the previous $1.875 billion revolving credit agreement, which would havematured on February 11, 2011. The new facility includes an accordion feature under which the Company mayincrease the revolving loan commitment by up to $375 million subject to certain conditions and bankcommitments. The multi-currency facility enhances the Company’s financial flexibility and is expected to beused for general corporate purposes. The Company had no borrowings under the senior credit facility and $171million of letters of credit outstanding as of December 31, 2011.

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

Note 16. Securitized Vacation Ownership Debt

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

December 31,

2011 2010

2003 securitization, interest rates ranging from 3.95% to 6.96%, settled 2011 . . . . . . $ — $ 17

2005 securitization, interest rates ranging from 5.25% to 6.29%, maturing 2018 . . . . 37 55

2006 securitization, interest rates ranging from 5.28% to 5.85%, maturing 2018 . . . . 27 39

2009 securitizations, interest rate at 5.81%, maturing 2016 . . . . . . . . . . . . . . . . . . . . 92 128

2010 securitization, interest rates ranging from 3.65% to 4.75%, maturing 2021 . . . . 190 255

2011 securitization, interest rates ranging from 3.67% to 4.82%, maturing 2026 . . . . 186 —

532 494

Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (130) (127)

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 402 $ 367

During the years ended December 31, 2011 and 2010, interest expense associated with securitized vacationownership debt was $22 million and $27 million, respectively.

Note 17. Other Liabilities

Other liabilities consisted of the following (in millions):

December 31,

2011 2010

Deferred gains on asset sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 933 $ 930

SPG point liability (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 724 702

Deferred revenue including VOI and residential sales . . . . . . . . . . . . . . . . . . . . . . . 17 23

Benefit plan liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 61

Insurance reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 46

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 124

$1,971 $1,886

(a) Includes the actuarially determined liability related to the SPG program and the liability associated with theAmerican Express transaction discussed below.

During the year ended December 31, 2009, the Company entered into an amendment to its existing co-brandedcredit card agreement (“Amendment”) with American Express and extended the term of its co-branding agreementto June 15, 2015. In connection with the Amendment in July 2009, the Company received $250 million in cashtoward the purchase of future SPG points by American Express. In accordance with ASC 470, Debt, the Companyhas recorded this transaction as a financing arrangement with an implicit interest rate of 4.5%. The Amendmentrequires a fixed amount of $50 million per year to be deducted from the $250 million advance over the five yearperiod regardless of the total amount of points purchased. As a result, the liability associated with this financingarrangement is being reduced ratably over a five year period beginning in October 2009. In accordance with theterms of the Amendment, if the Company fails to comply with certain financial covenants, the Company wouldhave to repay the remaining balance of the liability, and, if the Company does not pay such liability, the Company is

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

required to pledge certain receivables as collateral for the remaining balance of the liability. As of December 31,2011, a liability of $72 million related to the Amendment is recorded in other liabilities.

Note 18. Discontinued Operations

Summary of financial information for discontinued operations is as follows (in millions):

Year Ended December 31,

2011 2010 2009

Income Statement DataGain (loss) on disposition, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(13) $168 $76

Income (loss) from operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ (1) $ (2)

During the year ended December 31, 2011, the Company recorded a loss of $13 million, including an $18million pretax loss from the sale of its interest in a consolidated joint venture, offset by a $10 million income taxbenefit on the sale. Additionally, the Company recorded a $5 million charge related to interest on an uncertaintax position associated with a disposition in a prior year.

During the year ended December 31, 2010, the Company recorded a tax benefit of $134 million related tothe final settlement with the IRS regarding the World Directories disposition (see Note 14) and a pretax gain ofapproximately $3 million ($36 million after tax) related to the sale of one wholly-owned hotel for $78 million.The tax benefit was related to the realization of a high tax basis in this hotel that was generated through aprevious transaction.

For the year ended December 31, 2009, the $76 million (net of tax) gain on dispositions includes the gainsfrom the sale of the Company’s Bliss spa business, other non-core assets and three hotels. The operations fromthe Bliss spa business, and the revenues and expenses from one hotel, which was in the process of being sold andwas later sold in 2010, are included in discontinued operations, resulting in a loss of $2 million, net of tax.

Note 19. Employee Benefit Plan

During the year ended December 31, 2011, the Company recorded net actuarial losses of $20 million (net oftax) related to various employee benefit plans. These losses were recorded in other comprehensive income. Theamortization of the net actuarial loss, a component of other comprehensive income, for the year endedDecember 31, 2011 was $1 million (net of tax).

Included in accumulated other comprehensive (loss) income at December 31, 2011 are unrecognized netactuarial losses of $85 million ($75 million, net of tax) that have not yet been recognized in net periodic pensioncost. The actuarial loss included in accumulated other comprehensive (loss) income that is expected to berecognized in net periodic pension cost during the year ended December 31, 2012 is $2 million ($2 million, net oftax).

Defined Benefit and Postretirement Benefit Plans. The Company and its subsidiaries sponsor orpreviously sponsored numerous funded and unfunded domestic and international pension plans. All definedbenefit plans covering U.S. employees are frozen. Certain plans covering non-U.S. employees remain active.

The Company also sponsors the Starwood Hotels & Resorts Worldwide, Inc. Retiree Welfare Program. Thisplan provides health care and life insurance benefits for certain eligible retired employees. The Company hasprefunded a portion of the life insurance obligations through trust funds where such prefunding can beaccomplished on a tax effective basis. The Company also funds this program on a pay-as-you-go basis.

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

The following table sets forth the benefit obligation, fair value of plan assets, the funded status and theaccumulated benefit obligation of the Company’s defined benefit pension and postretirement benefit plans atDecember 31 (in millions):

DomesticPension Benefits

ForeignPension Benefits

PostretirementBenefits

2011 2010 2011 2010 2011 2010

Change in Benefit ObligationBenefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 19 $ 17 $183 $178 $ 20 $ 19

Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — —

Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 10 10 1 1

Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 18 5 1 2

Effect of foreign exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (1) (3) — —

Plan participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 1 1

Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (1) (5) (7) (3) (3)

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 1 — — —

Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20 $ 19 $206 $183 $ 20 $ 20

Change in Plan AssetsFair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . $ — $ — $176 $159 $ 1 $ 1

Actual return on plan assets, net of expenses . . . . . . . . . . . . . . . . . . — — 12 14 — —

Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 8 13 1 2

Plan participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 1 1

Effect of foreign exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (1) (3) — —

Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (1) (5) (7) (3) (3)

Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $190 $176 $ — $ 1

Unfunded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(20) $(19) $ (16) $ (7) $(20) $(19)

Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20 $ 19 $205 $182 n/a n/a

Plans with Accumulated Benefit Obligations in Excess of PlanAssetsProjected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20 $ 19 $140 $121 n/a n/a

Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20 $ 19 $140 $121 n/a n/a

Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $105 $ 97 n/a n/a

The net underfunded status of the plans at December 31, 2011 was $56 million, of which $72 million isrecorded in other liabilities, $3 million is recorded in accrued expenses and $19 million is recorded in otherassets in the accompanying balance sheet.

All domestic pension plans are frozen plans, whereby employees do not accrue additional benefits.Therefore, at December 31, 2011 and 2010, the projected benefit obligation is equal to the accumulated benefitobligation.

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The following table presents the components of net periodic benefit cost for the years ended December 31(in millions):

DomesticPension Benefits

Foreign PensionBenefits

PostretirementBenefits

2011 2010 2009 2011 2010 2009 2011 2010 2009

Service cost . . . . . . . . . . . . . . . . . . . . . . . . . $— $— $— $ — $ — $ 5 $— $— $—

Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 1 10 10 13 1 1 1

Expected return on plan assets . . . . . . . . . . — — — (12) (10) (10) — — —

Amortization of net actuarial loss . . . . . . . . — — — 1 1 5 — — —

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 1 — — — — —

Settlement and curtailment (gain) loss . . . . — — — — — (4) — — —

Net periodic benefit cost . . . . . . . . . . . . . . . $ 1 $ 1 $ 1 $ — $ 1 $ 9 $ 1 $ 1 $ 1

For measurement purposes, a 9% annual rate of increase in the per capita cost of covered health carebenefits was assumed for 2012, gradually decreasing to 5% in 2020. A one-percentage point change in assumedhealth care cost trend rates would have approximately a $0.9 million effect on the postretirement obligation and anominal impact on the total of service and interest cost components of net periodic benefit cost. The majority ofparticipants in the Foreign Pension Plans are employees of managed hotels, for which the Company isreimbursed for costs related to their benefits. The impact of these reimbursements is not reflected above.

The weighted average assumptions used to determine benefit obligations at December 31 were as follows:Domestic

Pension BenefitsForeign Pension

BenefitsPostretirement

Benefits

2011 2010 2011 2010 2011 2010

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.25% 5.00% 4.68% 5.34% 4.00% 4.75%

Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . n/a n/a 3.26% 3.64% n/a n/a

The weighted average assumptions used to determine net periodic benefit cost for the years endedDecember 31 were as follows:

DomesticPension Benefits

Foreign PensionBenefits

PostretirementBenefits

2011 2010 2009 2011 2010 2009 2011 2010 2009

Discount rate . . . . . . . . . . . . . . . . . . . . . 5.00% 5.51% 5.99% 5.34% 5.93% 6.19% 4.75% 5.50% 6.00%

Rate of compensation increase . . . . . . . . n/a n/a n/a 3.64% 3.50% 3.93% n/a n/a n/a

Expected return on plan assets . . . . . . . . n/a n/a n/a 6.52% 6.56% 6.25% 7.10% 7.10% 7.50%

The Company’s investment objectives are to minimize the volatility of the value of the assets and to ensurethe assets are sufficient to pay plan benefits. The target asset allocation is 62% debt securities and 38% equitysecurities.

A number of factors were considered in the determination of the expected return on plan assets. Thesefactors included current and expected allocation of plan assets, the investment strategy, historical rates of returnand Company and investment expert expectations for investment performance over approximately a ten yearperiod.

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NOTES TO FINANCIAL STATEMENTS

The following table presents the Company’s fair value hierarchy of the plan assets measured at fair value ona recurring basis as of December 31, 2011 (in millions):

Level 1 Level 2 Level 3 Total

Assets:

Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55 $ — $— $ 55

Collective Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 5 — 5

Equity Index Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 67 — 67

Bond Index Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 63 — 63

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55 $135 $— $190

The following table presents the Company’s fair value hierarchy of the plan assets measured at fair value ona recurring basis as of December 31, 2010 (in millions):

Level 1 Level 2 Level 3 Total

Assets:

Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $44 $ — $— $ 44

Collective Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 5 — 5

Equity Index Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 72 — 72

Bond Index Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 56 — 56

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $44 $133 $— $177

The mutual funds are valued using quoted market prices in active markets.

The collective trusts, equity index funds and bond index funds are not publicly traded but are valued basedon the underlying assets which are publicly traded.

The following table represents the Company’s expected pension and postretirement benefit plan paymentsfor the next five years and the five years thereafter (in millions):

DomesticPension Benefits

Foreign PensionBenefits

PostretirementBenefits

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1 $ 7 $2

2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1 $ 8 $2

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1 $ 9 $2

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1 $ 9 $2

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1 $10 $1

2017-2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7 $56 $6

The Company expects to contribute $12 million to the plans during 2012. A significant portion of thecontributions relate to the Foreign Pension Plans, which the Company is reimbursed.

Defined Contribution Plans. The Company and its subsidiaries sponsor various defined contributionplans, including the Starwood Hotels & Resorts Worldwide, Inc. Savings and Retirement Plan, which is a“401(k)” plan. The plan allows participation by employees on U.S. payroll who are at least age 21. Eachparticipant may contribute on a pretax basis between 1% and 50% of his or her eligible compensation to the plansubject to certain maximum limits. Eligible employees are automatically enrolled after 90 days (unless they optout). A company-paid matching contribution is provided to participants who have completed at least one year of

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service. The amount of expense for matching contributions totaled $15 million in 2011, $13 million in 2010, and$15 million in 2009. The plan includes as an investment choice, the Company’s publicly traded common stock.The balances held in the Company’s stock were $67 million and $87 million at December 31, 2011 and 2010,respectively.

Multi-Employer Pension Plans. Certain employees are covered by union sponsored multi-employerpension plans pursuant to agreements between the Company and various unions. The Company’s participation inthese plans is outlined in the table below (in millions):

Pension FundEIN/ Pension Plan

Number

Pension Protection ActZone Status Contributions

2011 2010 2011 2010 2009

New York Hotel Trades Council and HotelAssociation of New York City, Inc.Pension Fund . . . . . . . . . . . . . . . . . . . . . . 13-1764242/001 Yellow (a) Yellow (b) $4 $4 $5

Other Funds . . . . . . . . . . . . . . . . . . . . . . . . . 5 5 4

Total Contributions . . . . . . . . . . . . . . . . . . . $9 $9 $9

(a) As of January 1, 2011

(b) As of January 1, 2010

Eligible employees at the Company’s owned hotels in New York City participate in the New York HotelTrades Council and Hotel Association of New York City, Inc. Pension Fund. The Company contributions arebased on a percentage of all union employee wages as dictated by the collective bargaining agreement thatexpires on June 30, 2012. The Company’s contributions did not exceed 5% of the total contributions to thepension fund in 2011, 2010 or 2009. The pension fund has implemented a funding improvement plan and theCompany has not paid a surcharge.

Multi-Employer Health Plans. Certain employees are covered by union sponsored multi-employer healthplans pursuant to agreements between the Company and various unions. The plan benefits can include medical,dental and life insurance for eligible participants and retirees. The Company contributions to these plans, whichwere charged to expense during 2011, 2010 and 2009, was approximately $26 million, $27 million and $29million, respectively.

Note 20. Leases and Rentals

The Company leases certain equipment for the hotels’ operations under various lease agreements. The leasesextend for varying periods through 2016 and generally are for a fixed amount each month. In addition, several ofthe Company’s hotels are subject to leases of land or building facilities from third parties, which extend forvarying periods through 2096 and generally contain fixed and variable components. The variable components ofleases of land or building facilities are primarily based on the operating profit or revenues of the related hotels.

The Company’s minimum future rents at December 31, 2011 payable under non-cancelable operating leaseswith third parties are as follows (in millions):

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84

2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,024

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Rent expense under non-cancelable operating leases consisted of the following (in millions):Year Ended December 31,

2011 2010 2009

Minimum rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $104 $90 $89Contingent rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 6 2Sublease rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) (5) (3)

$109 $91 $88

Note 21. Stockholders’ Equity

Share Repurchases. In December 2011, the Company’s Board of Directors authorized a share repurchaseprogram of $250 million. During the years ended December 31, 2011 and 2010, the Company did not repurchaseany Company common shares. As of December 31, 2011, $250 million of repurchase capacity remainedavailable under this program.

Note 22. Stock-Based Compensation

In 2004, the Company adopted the 2004 Long-Term Incentive Compensation Plan (“2004 LTIP”), whichsuperseded the 2002 Long-Term Incentive Compensation Plan (“2002 LTIP”) and provides the terms of equityaward grants to directors, officers, employees, consultants and advisors. Although no additional awards will begranted under the 2002 LTIP, the Company’s 1999 Long-Term Incentive Compensation Plan or the Company’s1995 Share Option Plan, the provisions under each of the previous plans will continue to govern awards that havebeen granted and remain outstanding under those plans. The aggregate award pool for non-qualified or incentivestock options, performance shares, restricted stock and units or any combination of the foregoing which areavailable to be granted under the 2004 LTIP at December 31, 2011 was approximately 56 million.

Compensation expense, net of reimbursements during 2011, 2010 and 2009 was approximately $75 million,$72 million and $53 million, respectively, resulting in tax benefits of $29 million, $28 million and $21 million,respectively. As of December 31, 2011, there was approximately $76 million of unrecognized compensation cost,net of estimated forfeitures, including the impact of reimbursement from third parties, which is expected to berecognized over a weighted-average period of 1.5 years on a straight-line basis.

The Company utilizes the Lattice model to calculate the fair value option grants. Weighted averageassumptions used to determine the fair value of option grants were as follows:

Year Ended December 31,2011 2010 2009

Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.75% 0.75% 3.50%Volatility:

Near term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.0% 37.0% 74.0%Long term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.0% 45.0% 43.0%

Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 yrs. 6 yrs. 7 yrs.Yield curve:

6 month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.18% 0.19% 0.45%1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.25% 0.32% 0.72%3 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.18% 1.36% 1.40%5 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.13% 2.30% 1.99%10 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.42% 3.61% 3.02%

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NOTES TO FINANCIAL STATEMENTS

The dividend yield is estimated based on the current expected annualized dividend payment and the averageexpected price of the Company’s common shares during the same periods.

The estimated volatility is based on a combination of historical share price volatility as well as impliedvolatility based on market analysis. The historical share price volatility was measured over an 8-year period,which is equal to the contractual term of the options. The weighted average volatility for 2011 grants was 39%.

The expected life represents the period that the Company’s stock-based awards are expected to beoutstanding and was determined based on an actuarial calculation using historical experience, givingconsideration to the contractual terms of the stock-based awards and vesting schedules.

The yield curve (risk-free interest rate) is based on the implied zero-coupon yield from the U.S. Treasuryyield curve over the expected term of the option.

The following table summarizes the Company’s stock option activity during 2011:

Options(In Millions)

Weighted AverageExercise

Price Per Share

Outstanding at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.7 $29.72

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 61.28

Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.3) 31.01

Forfeited, Canceled or Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

Outstanding at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 $30.70

Exercisable at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 $39.53

The weighted-average fair value per option for options granted during 2011, 2010 and 2009 was $21.84,$14.73, and $4.69, respectively, and the service period is typically four years. The total intrinsic value of optionsexercised during 2011, 2010 and 2009 was approximately $62 million, $115 million and $1 million, respectively,resulting in tax benefits of approximately $23 million, $44 million and $0.3 million, respectively.

The aggregate intrinsic value of outstanding options as of December 31, 2011 was $128 million. Theaggregate intrinsic value of exercisable options as of December 31, 2011 was $39 million. The weighted-averagecontractual life was 4.1 years for outstanding options and 3.0 years for exercisable option as of December 31,2011.

The Company recognizes compensation expense, equal to the fair market value of the stock on the date ofgrant for restricted stock and unit grants, over the service period. The weighted-average fair value per restrictedstock or unit granted during 2011, 2010 and 2009 was $60.77, $37.33 and $11.15, respectively. The serviceperiod is typically three or four years except in the case of restricted stock and units issued in lieu of a portion ofan annual cash bonus where the restriction period is typically in equal installments over a two year period, or inequal installments on the first, second and third fiscal year ends following grant date with distribution on thethird fiscal year end.

The fair value of restricted stock and units for which the restrictions lapsed during 2011, 2010 and 2009 wasapproximately $154 million, $62 million and $33 million, respectively.

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NOTES TO FINANCIAL STATEMENTS

The following table summarizes the Company’s restricted stock and units activity during 2011:Number ofRestricted

Stock and Units

Weighted AverageGrant Date Value

Per Share

(In Millions)

Outstanding at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . 8.5 $28.11

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 60.77

Lapse of restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.7) 42.71

Forfeited or Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2) 27.24

Outstanding at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 $29.54

2002 Employee Stock Purchase Plan

In April 2002, the Board of Directors adopted (and in May 2002 the shareholders approved) the Company’s2002 Employee Stock Purchase Plan (the “ESPP”) to provide employees of the Company with an opportunity topurchase shares through payroll deductions and reserved 11,988,793 shares for issuance under the ESPP. TheESPP commenced in October 2002.

All full-time employees who have completed 30 days of continuous service and who are employed by theCompany on U.S. payrolls are eligible to participate in the ESPP. Eligible employees may contribute up to 20%of their total cash compensation to the ESPP. Amounts withheld are applied at the end of every three-monthaccumulation period to purchase shares. The value of the shares (determined as of the beginning of the offeringperiod) that may be purchased by any participant in a calendar year is limited to $25,000. The purchase price toemployees is equal to 95% of the fair market value of shares at the end of each period. Participants maywithdraw their contributions at any time before shares are purchased.

Approximately 110,000 shares were issued under the ESPP during the year ended December 31, 2011 atpurchase prices ranging from $42.33 to $58.05. Approximately 117,000 shares were issued under the ESPPduring the year ended December 31, 2010 at purchase prices ranging from $36.77 to $54.00.

Note 23. 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 cashflow hedges, and their change in fair value is recorded as a component of other comprehensive income andreclassified into earnings in the same period or periods in which the forecasted transaction occurs. To qualify as ahedge, the Company needs to formally document, designate and assess the effectiveness of the transactions thatreceive hedge accounting. The notional dollar amount of the outstanding Euro forward contracts at December 31,2011 are $34 million, with average exchange rates of 1.4, with terms of primarily less than one year. The Yenforward contracts expired during 2011. The Company reviews the effectiveness of its hedging instruments on aquarterly basis and records any ineffectiveness into earnings. The Company discontinues hedge accounting forany hedge that is no longer evaluated to be highly effective. From time to time, the Company may choose tode-designate portions of hedges when changes in estimates of forecasted transactions occur. Each of these hedgeswas highly effective in offsetting fluctuations in foreign currencies.

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

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NOTES TO FINANCIAL STATEMENTS

The Company enters into interest rate swap agreements to manage interest expense. The Company’sobjective is to manage the impact of interest rates on the results of operations, cash flows and the market value ofthe Company’s debt. At December 31, 2011, the Company had six interest rate swap agreements with anaggregate notional amount of $400 million under which the Company pays floating rates and receives fixed ratesof interest (“Fair Value Swaps”). The Fair Value Swaps hedge the change in fair value of certain fixed rate debtrelated to fluctuations in interest rates and mature in 2013 and 2014. The Fair Value Swaps modify theCompany’s interest rate exposure by effectively converting debt with a fixed rate to a floating rate. These interestrate swaps have been designated and qualify as fair value hedges. During the fourth quarter of 2011, theCompany terminated its 2012 interest rate swap agreements, resulting in a gain of approximately $2 million,through interest expense.

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

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

Fair Value of Derivative Instruments(in millions)

December 31, 2011 December 31, 2010

Balance SheetLocation

FairValue

Balance SheetLocation

FairValue

Derivatives designated ashedging instruments

Asset Derivatives

Forward contracts . . . . . Prepaid and other current assets $ 3 Prepaid and other current assets $—

Interest rate swaps . . . . . Other assets 12 Other assets 16

Total assets . . . . . . . . $15 $16

December 31, 2011 December 31, 2010

Balance SheetLocation

FairValue

Balance SheetLocation

FairValue

Derivatives notdesignated as hedginginstruments

Asset Derivatives

Forward contracts . . . . . Prepaid and other current assets $— Prepaid and other current assets $—

Total assets . . . . . . . . $— $—

Liability Derivatives

Forward contracts . . . . . Accrued expenses $— Accrued expenses $ 9

Total liabilities . . . . . . $— $ 9

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

Consolidated Statements of Income and Comprehensive IncomeFor the Years Ended December 31, 2011 and 2010

(in millions)

Balance at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $—

Mark-to-market loss (gain) on forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Reclassification of gain (loss) from OCI to management fees, franchise fees, and otherincome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)

Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $—

Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $—

Mark-to-market loss (gain) on forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)

Reclassification of gain (loss) from OCI to management fees, franchise fees, and otherincome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2)

Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3)

Derivatives Not Designated as HedgingInstruments

Location of Gain or (Loss) Recognizedin Income on Derivative

Amount of Gain or(Loss) Recognized inIncome on Derivative

Year EndedDecember 31,

2011 2010 2009

Foreign forward exchange contracts . . . . . . Interest expense, net $5 $(45) $(15)

Total (loss) gain included in income . . . . . . $5 $(45) $(15)

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

Note 24. Fair Value of Financial Instruments

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

December 31, 2011 December 31, 2010

CarryingAmount

FairValue

CarryingAmount

FairValue

Assets:

Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2 $ 2 $ 10 $ 10

VOI notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 109 132 153

Securitized vacation ownership notes receivable . . . . . . 446 551 408 492

Other notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 26 19 19

Total financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 567 $ 688 $ 569 $ 674

Liabilities:

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,194 $2,442 $2,848 $3,120

Long-term securitized debt . . . . . . . . . . . . . . . . . . . . . . . 402 412 367 373

Total financial liabilities . . . . . . . . . . . . . . . . . . . . . . . $2,596 $2,854 $3,215 $3,493

Off-Balance sheet:

Letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 171 $ — $ 159

Surety bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 21 — 23

Total Off-Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 192 $ — $ 182

The Company believes the carrying values of its financial instruments related to current assets and liabilitiesapproximate fair value. The Company records its derivative assets and liabilities at fair value. See Note 11 forrecorded 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 thefair value of its VOI notes receivable and securitized VOI notes receivable using assumptions related to currentsecuritization market transactions. The amount is then compared to a discounted expected future cash flow modelusing a discount rate commensurate with the risk of the underlying notes, primarily determined by the creditworthiness of the borrowers based on their FICO scores. The results of these two methods are then evaluated toconclude on the estimated fair value. The fair value of other notes receivable is estimated based on terms of theinstrument and current market conditions. These financial instrument assets are recorded in the other assets lineitem 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 debtmarkets. The carrying amount of its floating rate debt is a reasonable basis of fair value due to the variable natureof the interest rates. The Company’s non-public, securitized debt, and fixed rate debt fair value is determinedbased upon discounted cash flows for the debt rates deemed reasonable for the type of debt, prevailing marketconditions and the length to maturity for the debt. Other long-term liabilities represent a financial guarantee thatthe Company expects to fund. The carrying value of this liability approximates its fair value based on expectedfunding amount under the guarantee.

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

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

Note 25. Commitments and Contingencies

The Company had the following contractual obligations outstanding as of December 31, 2011 (in millions):

TotalDue in LessThan 1 Year

Due in1-3 Years

Due in3-5 Years

Due After5 Years

Unconditional purchase obligations (a) . . . . . . . . . . . . . $174 $66 $93 $15 $—

Other long-term obligations . . . . . . . . . . . . . . . . . . . . . 1 1 — — —

Total contractual obligations . . . . . . . . . . . . . . . . . . . . $175 $67 $93 $15 $—

(a) Included in these balances are commitments that may be reimbursed or satisfied by the Company’s managedand franchised properties.

The Company had the following commercial commitments outstanding as of December 31, 2011 (inmillions):

Amount of Commitment Expiration Per Period

TotalLess Than

1 Year 1-3 Years 3-5 YearsAfter

5 Years

Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . $171 $168 $— $— $3

Variable Interest Entities. The Company has evaluated hotels in which it has a variable interest, which isgenerally in the form of investments, loans, guarantees, or equity. The Company determines if it is the primarybeneficiary of the hotel by primarily considering the qualitative factors. Qualitative factors include evaluating if theCompany has the power to control the VIE and has the obligation to absorb the losses and rights to receive the benefitsof the VIE, that could potentially be significant to the VIE. The Company has determined it is not the primarybeneficiary of these VIEs and therefore these entities are not consolidated in the Company’s financial statements. SeeNote 9 for the VIEs in which the Company is deemed the primary beneficiary and has consolidated the entities.

The 18 VIEs associated with the Company’s variable interests represents entities that own hotels for whichthe Company has entered into management or franchise agreements with the hotel owners. The Company is paida fee primarily based on financial metrics of the hotel. The hotels are financed by the owners, generally in theform of working capital, equity, and debt.

At December 31, 2011, the Company has approximately $83 million of investments and a loan balance of$9 million associated with 16 VIEs. As the Company is not obligated to fund future cash contributions underthese agreements, the maximum loss equals the carrying value. In addition, the Company has not contributedamounts to the VIEs in excess of their contractual obligations.

Additionally, the Company has approximately $5 million of investments and certain performanceguarantees associated with two VIEs. During the year ended December 31, 2011 and 2010, respectively, theCompany recorded a $1 million and $3 million charge to selling, general and administrative expenses, relating toone of these VIEs, for a performance guarantee relating to a hotel managed by the Company. The maximumremaining funding exposure of this guarantee is $1 million. The Company’s remaining performance guaranteeshave possible cash outlays of up to $63 million, $62 million of which, if required, would be funded over severalyears and would be largely offset by management fees received under these contracts.

Guaranteed Loans and Commitments. In limited cases, the Company has made loans to owners of orpartners in hotel or resort ventures for which the Company has a management or franchise agreement. Loans

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NOTES TO FINANCIAL STATEMENTS

outstanding under this program totaled $13 million at December 31, 2011. The Company evaluates these loansfor impairment, and at December 31, 2011, believes these loans are collectible. Unfunded loan commitmentsaggregating $19 million were outstanding at December 31, 2011, none of which is expected to be funded in thefuture. These loans typically are secured by pledges of project ownership interests and/or mortgages on theprojects. The Company also has $94 million of equity and other potential contributions associated with managedor joint venture properties, $48 million of which is expected to be funded in 2012.

Surety bonds issued on behalf of the Company at December 31, 2011 totaled $21 million, the majority ofwhich were required by state or local governments relating to the Company’s vacation ownership operations andby its 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 ifcertain performance levels are not met. In limited cases, the Company is obligated to fund shortfalls inperformance levels through the issuance of loans. Many of the performance tests are multi-year tests, are tied tothe results of a competitive set of hotels, and have exclusions for force majeure and acts of war and terrorism.The Company does not anticipate any significant funding under performance guarantees or losing a significantnumber of management or franchise contracts in 2012.

In connection with the acquisition of the Le Méridien brand in November 2005, the Company assumed theobligation to guarantee certain performance levels at one Le Méridien managed hotel for the periods 2007through 2014. During the year ended December 31, 2010, the Company reached an agreement with the owner ofthis property to fully release the Company of its performance guarantee obligation in return for a payment ofapproximately $1 million to the owner. Additionally, in connection with this settlement, the term of themanagement contract was extended by five years. As a result of this settlement, the Company recorded a credit toselling, general, administrative and other expenses of approximately $8 million for the difference between thecarrying amount of the guarantee liability and the cash payment of $1 million.

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

In connection with the sale of 33 hotels in 2006, the Company agreed to indemnify the buyer for certainliabilities, including operations and tax liabilities. At this time, the Company believes that it will not have tomake any material payments under such indemnities.

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

In August 2009, Sheraton Operating Corporation (“Sheraton”) filed a lawsuit as plaintiff in the SupremeCourt of the State of New York (the “Court”) against Castillo Grand LLC (“Castillo”) asserting claims arisingout of a dispute over a hotel development contract. Two earlier lawsuits arising out of the same hoteldevelopment contract filed by Castillo against Sheraton in federal court had been dismissed for lack of subjectmatter jurisdiction. Castillo filed counterclaims in the state court action alleging, among other things, thatSheraton’s breach of contract resulted in design changes and construction delays. The matter was tried to theCourt and, on November 18, 2011, the Court issued its Post Trial Decision ruling in favor of Castillo on some

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NOTES TO FINANCIAL STATEMENTS

claims and counterclaims and in favor of Sheraton on others. Overall, the decision is unfavorable to Sheraton.Judgment has not as yet been entered, pending the Court’s consideration of post-trial applications for the awardof attorney’s fees and expenses. As a result of this decision, the Company recorded a reserve for this matterresulting in a pretax charge of $70 million. The legal decision is not final and Starwood intends to appeal.

Collective Bargaining Agreements. At December 31, 2011, approximately 25% of the Company’s U.S.-based employees were covered by various collective bargaining agreements, providing, generally, for basic payrates, working hours, other conditions of employment and orderly settlement of labor disputes. Generally, laborrelations have been maintained in a normal and satisfactory manner, and management believes that theCompany’s employee relations are satisfactory.

Environmental Matters. The Company is subject to certain requirements and potential liabilities undervarious federal, state and local environmental laws, ordinances and regulations. Such laws often impose liabilitywithout regard to whether the current or previous owner or operator knew of, or was responsible for, the presenceof such hazardous or toxic substances. Although the Company has incurred and expects to incur remediation andother environmental costs during the ordinary course of operations, management anticipates that such costs willnot have a material adverse effect on the operations or financial condition of the Company.

Captive Insurance Company. Estimated insurance claims payable at December 31, 2011 and 2010 were$70 million and $72 million, respectively. At December 31, 2011 and 2010, standby letters of credit amountingto $60 million and $64 million, respectively, had been issued to provide collateral for the estimated claims. Theletters of credit are guaranteed by the Company.

ITT Industries. In 1995, the former ITT Corporation, renamed ITT Industries, Inc. (“ITT Industries”),distributed to its stockholders all of the outstanding shares of common stock of ITT Corporation, then a whollyowned subsidiary of ITT Industries (the “Distribution”). In connection with this Distribution, ITT Corporation,which was then named ITT Destinations, Inc., changed its name to ITT Corporation. Subsequent to theacquisition of ITT Corporation in 1998, the Company changed the name of ITT Corporation to Sheraton HoldingCorporation.

For purposes of governing certain of the ongoing relationships between the Company and ITT Industriesafter the Distribution and spin-off of ITT Corporation and to provide for an orderly transition, the Company andITT Industries have entered into various agreements including a spin-off agreement, Employee Benefits Servicesand Liability Agreement, Tax Allocation Agreement and Intellectual Property Transfer and License Agreements.The Company may be liable to or due reimbursement from ITT Industries relating to the resolution of certainpre-spin-off matters under these agreements. Based on available information, management does not believe thatthese matters would have a material impact on the Company’s consolidated results of operations, financialposition or cash flows. During the year ended December 31, 2010, the Company reversed a liability related to the1998 acquisition (see Note 13).

Note 26. Business Segment and Geographical Information

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

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

NOTES TO FINANCIAL STATEMENTS

The performance of the hotels and vacation ownership and residential segments is evaluated primarily onoperating profit before corporate selling, general and administrative expense, interest expense, net of interestincome, losses on asset dispositions and impairments, restructuring and other special charges (credits) andincome tax benefit (expense). The Company does not allocate these items to its segments.

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

2011 2010 2009

Revenues:

Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,756 $4,383 $4,022

Vacation ownership and residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 868 688 674

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,624 $5,071 $4,696

Operating income:

Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 694 $ 571 $ 471

Vacation ownership and residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 105 73

Total segment operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 854 676 544

Selling, general, administrative and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (156) (151) (139)

Restructuring, goodwill impairment and other special charges, net . . . . . . . . . . . . . . . (68) 75 (379)

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 630 600 26

Equity earnings and gains and losses from unconsolidated ventures, net:

Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 8 (5)

Vacation ownership and residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 1

Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (216) (236) (227)

Loss on asset dispositions and impairments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (39) (91)

Income (loss) from continuing operations before taxes and noncontrollinginterests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 425 $ 335 $ (296)

Depreciation and amortization:

Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 191 $ 207 $ 229

Vacation ownership and residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 27 27

Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 51 53

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 265 $ 285 $ 309

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NOTES TO FINANCIAL STATEMENTS

2011 2010 2009

Capital expenditures:

Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 283 $ 184 $171

Vacation ownership and residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 151 145

Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 42 27

Total (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 477 $ 377 $343

Assets:

Hotel (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,162 $6,440

Vacation ownership and residential (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,207 2,139

Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,191 1,197

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,560 $9,776

(a) Includes $385 million, $227 million, and $196 million of property, plant, and equipment expenditures as ofDecember 31, 2011, 2010, and 2009, respectively. Additional expenditures included in the amounts aboveconsist of vacation ownership inventory and investments in management contracts.

(b) Includes $229 million and $294 million of investments in unconsolidated joint ventures at December 31,2011 and 2010, respectively.

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

The following table presents revenues and long-lived assets by geographical region (in millions):

Revenues Long-Lived Assets

2011 2010 2009 2011 2010

United States . . . . . . . . . . . . . . . . . . . . . . . . $3,561 $3,312 $3,387 $2,023 $2,186

All other international . . . . . . . . . . . . . . . . . 2,063 1,759 1,309 1,506 1,449

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,624 $5,071 $4,696 $3,529 $3,635

There were no individual international countries which comprised over 10% of the total revenues of theCompany for the years ended December 2011, 2010 or 2009, or 10% of the total long-lived assets of theCompany as of December 31, 2011 or 2010.

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NOTES TO FINANCIAL STATEMENTS

Note 27. Quarterly Results (Unaudited)Three Months Ended

March 31 June 30 September 30 December 31 Year

(In millions, except per share data)

2011

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,295 $1,426 $1,372 $1,531 $5,624

Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,175 $1,249 $1,210 $1,360 $4,994

Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . $ 27 $ 150 $ 165 $ 158 $ 500

Net (income) loss from continuing operations attributable tononcontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2 $ — $ — $ — $ 2

Income (loss) from continuing operations attributable toStarwood’s common shareholders . . . . . . . . . . . . . . . . . . . . . $ 29 $ 150 $ 165 $ 158 $ 502

Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1) $ (19) $ (2) $ 9 $ (13)

Net income attributable to Starwood . . . . . . . . . . . . . . . . . . . . . . $ 28 $ 131 $ 163 $ 167 $ 489

Earnings per share: (a)

Basic —

Income (loss) from continuing operations . . . . . . . . . . . . . . . $ 0.16 $ 0.79 $ 0.88 $ 0.82 $ 2.65

Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.01) $ (0.10) $ (0.01) $ 0.05 $ (0.07)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.15 $ 0.69 $ 0.87 $ 0.87 $ 2.58

Diluted —

Income (loss) from continuing operations . . . . . . . . . . . . . . . $ 0.15 $ 0.77 $ 0.85 $ 0.80 $ 2.57

Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.01) $ (0.09) $ (0.01) $ 0.05 $ (0.06)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.14 $ 0.68 $ 0.84 $ 0.85 $ 2.51

2010

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,187 $1,289 $1,255 $1,340 $5,071

Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,102 $1,152 $1,133 $1,084 $4,471

Income (loss) from continuing operations . . . . . . . . . . . . . . . . . $ 28 $ 79 $ (5) $ 206 $ 308

Net (income) loss from continuing operations attributable tononcontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2 $ — $ — $ — $ 2

Income (loss) from continuing operations attributable toStarwood’s common shareholders . . . . . . . . . . . . . . . . . . . . . $ 30 $ 79 $ (5) $ 206 $ 310

Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 35 $ (1) $ 133 $ 167

Net income attributable to Starwood . . . . . . . . . . . . . . . . . . . . . . $ 30 $ 114 $ (6) $ 339 $ 477

Earnings per share: (a)

Basic —

Income (loss) from continuing operations . . . . . . . . . . . . . . . $ 0.16 $ 0.44 $ (0.03) $ 1.13 $ 1.70

Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 0.19 $ 0.00 $ 0.72 $ 0.91

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.16 $ 0.63 $ (0.03) $ 1.85 $ 2.61

Diluted —

Income (loss) from continuing operations . . . . . . . . . . . . . . . $ 0.16 $ 0.42 $ (0.03) $ 1.08 $ 1.63

Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 0.19 $ 0.00 $ 0.70 $ 0.88

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.16 $ 0.61 $ (0.03) $ 1.78 $ 2.51

(a) Amounts presented are attributable to Starwood’s common shareholders.

F-49

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SCHEDULE II

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.VALUATION AND QUALIFYING ACCOUNTS

(In millions)

Additions (Deductions)

BalanceJanuary 1,

Chargedto/reversed

fromExpenses

Chargedto/from Other

Accounts (a)Payments/

OtherBalance

December 31,

2011Trade receivables — allowance for doubtful

accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32 $ 5 $ (1) $ (7) $ 29Notes receivable — allowance for doubtful

accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $202 $ 28 $ — $(55) $175Reserves included in accrued and other liabilities:

Restructuring and other special charges . . . . . . . $ 29 $ 68 $ (7) $ (1) $ 892010Trade receivables — allowance for doubtful

accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33 $ 15 $ (3) $(13) $ 32Notes receivable — allowance for doubtful

accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $139 $ 36 $ 78 $(51) $202Reserves included in accrued and other liabilities:

Restructuring and other special charges . . . . . . . $ 34 $ (75) $ 8 $ 62 $ 292009Trade receivables — allowance for doubtful

accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31 $ 7 $ 5 $(10) $ 33Notes receivable — allowance for doubtful

accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $135 $ 65 $ (1) $(60) $139Reserves included in accrued and other liabilities:

Restructuring and other special charges . . . . . . . $ 41 $379 $(332) $(54) $ 34

(a) Charged to/from other accounts:

Description ofCharged to/fromOther Accounts

2011Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1)Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7)

Total charged to/from other accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (8)

2010Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3)Accrued salaries, wages and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Impact of ASU No. 2009-17 (see Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Total charged to/from other accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 83

2009Plant, property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(178)Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (90)Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (61)Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5)Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Total charged to/from other accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(328)

S-1

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Note: This Annual Report contains forward-looking statements within the meaning of federal securities regulations. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties and other factors that may cause actual results to differ materially from those anticipated at the time the forward-looking statements are made. Further results, performance and achievements may be affected by general economic conditions including the timing and robustness of a recovery from the current global economic downturn, the impact of war and terrorist activity, business and financing conditions, foreign exchange fluctuations, cyclicality of the real estate, including the sale of residential units, and the hotel and vacation ownership businesses, operating risks associated with the sale of residential units, hotel and vacation ownership businesses, relationships with associates, customers and property owners, the impact of the Internet reservation channels, our reliance on technology, domestic and international political and geopolitical conditions, competition, governmental and regulatory actions (including the impact of changes in US and foreign tax laws and their interpretation), travelers’ fears of exposure to contagious diseases, risk associated with the level of our indebtedness, risk associated with potential acquisitions and dispositions and other circumstances and uncertainties. These risks and uncertainties are presented in detail in our filings with the Securities and Exchange Commission. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that results will not materially differ. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

©2012 Starwood Hotels & Resorts Worldwide, Inc. All Rights Reserved. Aloft, Element, Four Points, Le Méridien, Sheraton, St. Regis, The Luxury Collection, W, Westin and their logos are the trademarks of Starwood Hotels & Resorts Worldwide, Inc., or its affiliates.

2012 PROXY STATEMENT & 2011 ANNUAL REPORT

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.CORPORATE HEADQUARTERSStarwood Hotels & Resorts Worldwide, Inc.One StarPointStamford, Connecticut 06902203 964 6000www.starwoodhotels.com

INVESTOR RELATIONSStarwood Hotels & Resorts Worldwide, Inc.One StarPointStamford, Connecticut 06902203 351 [email protected]

INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRMErnst & Young LLP, New York, New York

STOCK REGISTRAR AND TRANSFER AGENTRegistered shareholders with questions concerning stock certificates, account information, dividend payments or stock transfers should contact our transfer agent at:

American Stock Transfer & Trust Company6201 15th AvenueBrooklyn, NY 11219800 350 6202amstock.com

FORM 10-K AND OTHER INVESTOR INFORMATIONA copy of the Annual Report of Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”) or Form 10-K filed with the Securities and Exchange Commission may be obtained through the following channels:

REQUEST ELECTRONIC COPY Onlinestarwoodhotels.comCorporate InformationInvestor RelationsFinancial InformationAnnual Reports

Investor [email protected] 351 3500

REQUEST PRINT COPYOnlinestarwoodhotels.comCorporate InformationRequest Information

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PICTURED FROM TOP LEFT THE ST. REGIS BANGKOK, THAILAND // THE CHATWAL, NEW YORK CITY, A LUXURY COLLECTION HOTEL, UNITED STATES // W RETREAT & SPA BALI – SEMINYAK, INDONESIA // LE MERIDIEN KOH SAMUI RESORT & SPA, THAILAND // THE WESTIN ABU DHABI GOLF RESORT & SPA, UNITED ARAB EMIRATES // SHERATON SEOUL D CUBE CITY HOTEL, SOUTH KOREA // ALOFT JACKSONVILLE TAPESTRY PARK, UNITED STATES // ELEMENT LAS VEGAS SUMMERLIN, UNITED STATES // FOUR POINTS BY SHERATON BARCELONA DIAGONAL, SPAIN

PICTURED ON FRONT COVER W TAIPEI, TAIWAN