2009 PROXY STATEMENT & 2008 ANNUAL REPORT

Dear Fellow Shareholders:
If we learned one thing in 2008, it was to expect the unexpected, to prepare for the worst and to keep our nerve. Business trends deteriorated throughout the year and this negative momentum has continued into 2009. As part of our ongoing efforts to prepare for a worsening macro environment, we began a rigorous cost-cutting program early in 2008, including a review of our spending with a focus on reducing costs, improving productivity and reinvesting against our growth priorities. I am pleased to report that we have been successful in this task. In fact, our cost discipline helped us achieve strong results in each quarter of 2008 despite a rapid deterioration in lodging demand. In 2009, we will continue to focus on managing our costs without compromising our long-term growth plans for the company. I would like to take this opportunity to thank Starwood’s talented team of Associates for delivering excellent results in 2008, despite the weakening environment and the Company’s focus on dramatically reducing overhead and property-level costs. costs and lay the foundation for future growth. Through AVA, we eliminated costs by streamlining activities and removing overlaps in our organization. Let me take a step back to explain why this was needed. Remember that Starwood came together in the late 1990s as a patchwork of organizations—a small lodging REIT acquired Westin, ITT/Sheraton, Vistana and, most recently, Le Meridien. This resulted in a large organization with multiple offices and duplicate functions. While Starwood has performed well in spite of its complex structure, we saw the opportunity to save even more money and become more agile. Equally important, we wanted to ensure our corporate structure was positioned to best support our properties and owners. For example, through the AVA process we eliminated almost 100 positions in our North American Division alone. In addition to focusing on cost cutting, as we went through the process we also looked at identifying areas that could be strengthened to better meet the needs of our owners. This resulted in reorganizing some parts of the owner relations team to improve communication and support. We also centralized many activities such as legal functions, created a single service center for human resources, and are consolidating certain accounts payable and payroll functions in the United States. We also better aligned our development, architecture and design, and hotel opening teams to streamline the process from signing a contract to opening a property. In total, the AVA process to date has generated a 30% reduction in personnel costs across many of our corporate and divisional functions. At Starwood’s Vacation Ownership business, we were able to reduce G&A by 45% and eliminate 35% of our sales force. In addition to the AVA process, our overhead cost reduction efforts also focused on compensation. This included benchmarking most positions, allowing us to re-band jobs and make sweeping changes in equity compensation. Like many companies, we have also frozen salaries for 2009. As mentioned earlier, the net result will be a run-rate savings of $100 million, and this includes only those savings already implemented. The second area of our cost cutting focused on the property level. We began two major initiatives in 2008—one is bottomup and the other is top-down. Between them, we should be able to offset inflationary pressures, significantly helping our results in 2009. To be clear, this is before the impact of any variable cost savings associated with lower occupancy. Our bottom-up approach is called ‘lean operations’ and involves using our talent to reduce work and waste. For example, we refined our staffing model to better match work demand, outsourced bakery and butcher positions, and expanded spans of control for managers and supervisors. The lean operations team is working closely with our Six Sigma team to implement these productivity enhancements across our hotels.

• We grew our managed and franchised revenues by over 5% despite flat worldwide RevPAR. • We added a record 87 hotels to Starwood’s global platform, representing 10% gross unit additions during the year. • We increased our guest satisfaction scores across all of our brands, including strong debuts for aloft and Element. • We sold six assets for cash proceeds of $320 million. • We realigned our corporate and divisional structures, resulting in annual run-rate savings of over $100 million. • We implemented top-down and bottom-up initiatives to significantly reduce property-level costs.
Looking ahead, the good news is that we remain strongly positioned for one of the most challenging demand environments the lodging industry—and the global economy—has ever experienced. In addition to working toward the Five Essentials that will drive our success over the long term, we are continuing to reduce our cost base. Cost control enabled us to weather the deteriorating fundamentals that accelerated throughout 2008. To put the operating environment into perspective, worldwide owned RevPAR grew 5% in the first quarter, but declined 16% in the fourth quarter. While the severity and breadth of the slowdown surprised us, we were well ahead of the curve from a cost reduction perspective which helped drive our better than expected results. Starwood’s efforts to reduce corporate overhead have created immediate savings as well as lasting changes to our way of doing business. We are using what we call Activity Value Analysis, or AVA, which is a rigorous process to address our

Starwood Hotels & Resorts Worldwide, Inc.

The brand teams are also better aligned than ever with our Operations team as we work towards ‘Brilliant Execution. we are working with our owners to share these savings across the managed and franchised system. our balance sheet holds more opportunities to generate cash. ‘Great Talent’ is our fourth essential. Procurement is the third area where we are reducing costs across the system. capital-efficient and long-term. 4. and unionization. We have roughly 100. open. Our goal is to be over 80% fee-driven in the coming years.’ hinges on our ability to realize global growth. Today. and we continue to grow our footprint around the world. Fee growth is driven by three factors: RevPAR growth. and remain focused on our long-term strategy to generate market-leading returns for our shareholders. and our brand teams are hard at work on the innovations that will drive RevPAR outperformance and propel our pipeline. We have been aggressive in our cost containment efforts and dramatically scaled back our capital plans. Examples of this include reducing the number of housekeepers per occupied room and simplifying food and beverage concepts. To summarize. At the same time. 53% of our EBITDA contribution is from fee income. . This is particularly important as we still plan to open 425 hotels over the coming years. We have made substantial progress over the last few years in growing our managed and franchised business and reducing the size of our owned portfolio. While the current environment has created intense pressure for us to manage costs. vendor consolidation. which employs analytics to ‘normalize’ hotel cost performancebased structural variables. up from 18% five years ago. Reducing the size of our owned portfolio and vacation ownership business will take time. and incentive escalation. and develop talented people to operate our properties around the world. we are prepared for a variety of potential scenarios in 2009. this focus on the fee business will result in a sustainable growth engine that throws off significant free cash flow. • Driving RevPAR premiums • Growing our pipeline • Unlocking real estate value Our ability to pull these financial levers relies on our team’s execution against the five essentials of “The Starwood Journey.’ our second essential. selective sales of real estate and prudent allocation of capital will advance our transformation to an asset-light model. ‘Global Growth’ is our third essential. Our efforts thus far have resulted in an increasingly efficient cost structure that should position us to not just survive this economic downturn but allow us to capitalize on the upswing in the future. but are prepared to do more if needed. While we are waiting for capital markets to recover. controlling our costs is just one of four financial levers we have at our disposal to create shareholder value over the long-term. The other three levers are: 5.Our top-down approach is known as normative modeling. We continue to build. in the form of real estate at our owned hotels and inventory at the vacation ownership business. best practices are then rolled out to under-performers. By itself. Brilliant execution means consistently creating brand-relevant guest experiences while being vigilant on costs. renovate and innovate for recovery and beyond. and our brand and operations teams are aligned to open these hotels on-brand and ‘HOT. These efforts have resulted in the ability to negotiate better contract terms for items such as food. Inc. ‘Starwood Class Brands’ is our first essential. SKU rationalization and improved compliance. The contracts are stable. These initiatives—combined with the growth in our managed and franchised business— will result in an increasingly capital-efficient business model. Normalizing further assists us in identifying top performing hotels and performance gaps. and carefully manage costs. Thank you for your continued support. unlock real estate value. and our Human Resources team is driving efforts to improve our ability to attract. Given our success from recent negotiations. flat screen TVs and laptops. At the same time. The fifth essential. This includes introducing more categories to our buying programs. generating ‘Market-Leading Returns. unit additions.000 rooms in our pipeline. retain. 2.’ meaning on time. We have often described the branded global hotel fee business as one of the most attractive business models in the world— and we continue to believe this is true. We have been conservative in our approach to managing our balance sheet and will explore all options to maintain maximum balance sheet flexibility and liquidity. we anticipate additional direct savings of $35 million in 2009. As with lean operations. number of service elevators. such as room size and configuration. on budget and full. 3. Frits van Paasschen Chief Executive Officer Starwood Hotels & Resorts Worldwide.” 1.

Starwood Hotels & Resorts Worldwide. 2009 Proxy Statement & 2008 Annual Report . Inc.

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2009 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT
March 26, 2009 Dear Stockholder: You are cordially invited to attend Starwood’s Annual Meeting of Stockholders, which is being held on Wednesday, May 6, 2009, at 10:00 a.m. (local time), at the St. Regis Washington, D.C., 923 16th and K Streets, N.W., District of Columbia 20006. At this year’s Annual Meeting, you will be asked to (i) elect eleven Directors and (ii) ratify the appointment of Ernst & Young LLP as Starwood’s independent registered public accounting firm for 2009. As owners of Starwood, your vote is important. Whether or not you are able to attend the Annual Meeting in person, it is important that your shares be represented. Please vote as soon as possible. Instructions on how to vote are contained herein. We appreciate your continued support and interest in Starwood. Very truly yours,

Frits van Paasschen Chief Executive Officer

Bruce W. Duncan Chairman of the Board

NOTICE OF 2009 ANNUAL MEETING OF STOCKHOLDERS OF STARWOOD HOTELS & RESORTS WORLDWIDE, INC. A Maryland Corporation DATE: TIME: PLACE: May 6, 2009 10:00 a.m., local time St. Regis Washington, D.C. 923 16th and K Streets, N.W. District of Columbia 20006 To elect eleven Directors to serve until the next Annual Meeting of Stockholders and until their successors are duly elected and qualified. 2. To consider and vote upon the ratification of the appointment of Ernst & Young LLP as Starwood Hotels & Resorts Worldwide, Inc.’s (the “Company”) independent registered public accounting firm for the fiscal year ending December 31, 2009. 3. To transact such other business as may properly come before the meeting or any postponement or adjournment therof. Holders of record of the Company’s stock at the close of business on March 12, 2009 are entitled to vote at the meeting. The Company’s 2008 Annual Report on Form 10-K, which is not a part of the proxy soliciting material, is enclosed. The Annual Report may also be obtained from the Company’s web site at www.starwoodhotels.com/corporate/investor_relations.html. Stockholders may also obtain, without charge, a copy of the Annual Report by contacting Investor Relations at the Company’s headquarters. It is important that your shares be represented and voted at the meeting. You can authorize a proxy to vote your shares by completing and returning the proxy card sent to you. Most stockholders can authorize a proxy over the Internet or by telephone. If Internet or telephone authorization is available to you, instructions are printed on your proxy card. You can revoke a proxy at any time prior to its exercise at the meeting by following the instructions in the accompanying proxy statement. Your promptness will assist us in avoiding additional solicitation costs. 1.

ITEMS OF BUSINESS:

RECORD DATE: ANNUAL REPORT:

PROXY VOTING:

Kenneth S. Siegel Corporate Secretary

March 26, 2009 White Plains, New York

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM . . . . . . . . . . . . STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AUDIT COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXECUTIVE COMPENSATION . . . . . . OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii 1 5 7 11 11 15 15 28 29 31 32 32 34 35 36 40 45 46 46 47 47 47 48 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DIRECTOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . COMPENSATION COMMITTEE REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . SOLICITATION COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NONQUALIFIED DEFERRED COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HOUSEHOLDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .TABLE OF CONTENTS WHO CAN HELP ANSWER YOUR QUESTIONS? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SUMMARY COMPENSATION TABLE . . . . . . . . . . . . . . . . . . . . . . . . . OPTION EXERCISES AND STOCK VESTED . . . . . . . . . . . . . . . THE ANNUAL MEETING AND VOTING — QUESTIONS AND ANSWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE AND GRANTS OF PLAN-BASED AWARDS SECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . GRANTS OF PLAN-BASED AWARDS . . . . . . . . . . . . . . . . . . . . . . . COMPENSATION DISCUSSION & ANALYSIS . . . . . . . .

Inc. 48 Wall Street New York. King & Co.F. New York 10005 Phone Number: 1-800-859-8511 (toll free) ii . or if you have questions about the Annual Meeting or need assistance in voting your shares. Inc.WHO CAN HELP ANSWER YOUR QUESTIONS? If you have any questions about the Annual Meeting. you should contact: D. you should contact: Starwood Hotels & Resorts Worldwide. 1111 Westchester Avenue White Plains.. New York 10604 Attention: Investor Relations Phone Number: 1-914-640-8100 If you would like additional copies of this Proxy Statement or the Annual Report.

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
1111 WESTCHESTER AVENUE WHITE PLAINS, NY 10604

PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD May 6, 2009
THE ANNUAL MEETING AND VOTING — QUESTIONS AND ANSWERS Why did I receive the Notice of Internet Availability of Proxy Materials or this Proxy Statement? Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the “Company” or “Starwood”), has made these materials available to you on the Internet or, upon your request, has delivered printed versions of these materials to you by mail, in connection with the solicitation of proxies by the Board of Directors (the “Board”) for use at the Company’s 2009 Annual Meeting of Stockholders (the “Annual Meeting”), and at any postponement or adjournment of the Annual Meeting. The Company is first making these materials available (and is mailing the Notice of Meeting and Internet Availability of Proxy Materials) on or about March 26, 2009. This Notice contains instructions on how to access the Company’s proxy statement and 2008 Annual Report to Shareholders and vote online. By furnishing this Notice, the Company is lowering the costs and reducing the environmental impact of its Annual Meeting. The Company intends to start mailing a paper or electronic copy of its proxy statement and 2008 Annual Report to those stockholders who have requested a paper or electronic copy on or about March 26, 2009. When and where will the Annual Meeting be held? The Annual Meeting will be held on May 6, 2009 at 10:00 a.m. (local time), at the St. Regis Washington, D.C., 923 16th and K Streets, N.W., District of Columbia 20006. If you plan to attend the Annual Meeting and have a disability or require special assistance, please contact the Company’s Investor Relations department at (914) 640-8100. What proposals will be voted on at the Annual Meeting? At the Annual Meeting, the stockholders of the Company will consider and vote upon: 1. The election of eleven Directors to serve until the next Annual Meeting of Stockholders and until their successors are duly elected and qualified. 2. The ratification of the appointment of Ernst & Young LLP (“Ernst & Young”) as the Company’s independent registered public accounting firm for 2009. 3 Such other business as may properly come before the meeting or any adjournment or postponement thereof. The Board is not aware of any matter that will be presented at the Annual Meeting that is not described above. If any other matter is presented at the Annual Meeting, the persons named as proxies on the enclosed proxy card will, in the absence of stockholder instructions to the contrary, vote the shares for which such persons have voting authority in accordance with their discretion on any such matter. Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials? Pursuant to the rules adopted by the Securities and Exchange Commission, we are providing access to our proxy materials over the Internet. Accordingly, we sent a Notice of Internet Availability of Proxy Materials (the “Notice”) to our stockholders of record and beneficial owners as of the Record Date. All stockholders will have the 1

ability to access the proxy materials on the web site referred to in the Notice or request to receive a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found on the Notice. In addition, stockholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis. How can I get electronic access to the proxy materials? The Notice will provide you with instructions regarding how to: • View our proxy materials for the Annual Meeting on the Internet; and • Instruct us to send our future proxy materials to you electronically by email. Choosing to receive your future proxy materials by email will save us the cost of printing and mailing documents to you and will reduce the impact of our annual stockholders’ meetings on the environment. If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by email will remain in effect until you terminate it. Who is entitled to vote at the Annual Meeting? If you were a stockholder of the Company at the close of business on March 12, 2009 (the “Record Date”), you are entitled to notice of, and to vote at, the Annual Meeting. You have one vote for each share of common stock of the Company (“Shares”) you held at the close of business on the Record Date on each matter that is properly submitted to a vote at the Annual Meeting, including Shares: • Held directly in your name as the stockholder of record, • Held for you in an account with a broker, bank or other nominee, and • Credited to your account in the Company’s Savings and Retirement Plan (the “Savings Plan”). On the Record Date there were 182,496,505 Shares outstanding and entitled to vote at the Annual Meeting and there were 17,058 record holders of Shares. The Shares are the only outstanding class of voting securities of the Company. Who may attend the Annual Meeting? Only stockholders of record, or their duly authorized proxies, may attend the Annual Meeting. Registration and seating will begin at 9:00 a.m. To gain admittance, you must present valid picture identification, such as a driver’s license or passport. If you hold Shares in “street name” (through a broker or other nominee), you will also need to bring a copy of a brokerage statement (in a name matching your photo 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 photo identification along with proof that you are a representative of such stockholder. Please note that cameras, recording devices and other electronic devices will not be permitted at the Annual Meeting. How many Shares must be present to hold the Annual Meeting? The presence in person or by proxy of holders of a majority of the outstanding Shares entitled to vote at the Annual Meeting constitutes a quorum for the transaction of business. Your Shares are counted as present at the meeting if you: • are present in person at the Annual Meeting, or • have properly executed and submitted a proxy card, or authorized a proxy over the telephone or the Internet, prior to the Annual Meeting. 2

Abstentions and broker non-votes are counted for purposes of determining whether a quorum is present at the Annual Meeting. If a quorum is not present when the Annual Meeting is convened, or if for any other reason the presiding officer believes that the Annual Meeting should be adjourned, the Annual Meeting may be adjourned by the presiding officer. If a motion is made to adjourn the Annual Meeting, the persons named as proxies on the enclosed proxy card will have discretion to vote on such adjournment all Shares for which such persons have voting authority. What are broker non-votes? If you have Shares that are held by a broker, you may give the broker voting instructions and the broker must vote as you directed. If you do not give the broker any instructions, the broker may vote at its discretion on all routine matters (i.e., election of Directors and the ratification of an independent registered public accounting firm). For non-routine matters, however, the broker may NOT vote using its discretion. This is referred to as a broker nonvote. How are abstentions, withheld votes and broker non-votes counted? Shares not voted due to withheld votes, abstentions or broker non-votes with respect to the election of a Director or the ratification of the appointment of the independent registered public accounting firm will not have any effect on the outcome of such matters. How many votes are required to approve each proposal? Directors will be elected by a plurality of the votes cast at the Annual Meeting, either in person or represented by properly authorized proxy. This means that the eleven nominees who receive the largest number of “FOR” votes cast will be elected as Directors. Stockholders cannot cumulate votes in the election of Directors. See “What happens if a Director nominee does not receive a majority of the votes cast?” below for information concerning our director resignation policy. Ratification of the appointment of Ernst & Young as the Company’s independent registered public accounting firm requires “FOR” votes from a majority of the votes cast at the Annual Meeting, either in person or represented by properly completed or authorized proxy. If a majority of the votes cast at the Annual Meeting vote “AGAINST” ratification of the appointment of Ernst & Young, the Board and the Audit Committee will reconsider its appointment. 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” than “For” votes is required to tender his or her resignation for consideration by the Board. The Corporate Governance and Nominating Committee will recommend to the Board whether to accept or reject the resignation. The Board will act on the tendered resignation and publicly disclose its decision within 90 days following certification of the election results. The Director who tenders his or her resignation will not participate in the Board’s decision with respect to that resignation. How do I vote? If you are a stockholder of record, you may vote in person at the Annual Meeting. We will give you a ballot when you arrive. If you do not wish to vote in person or if you will not be attending the Annual Meeting, you may vote by proxy. You can vote by proxy over the Internet by following the instructions provided in the Notice, or, if you request printed copies of the proxy materials by mail, you can also authorize a proxy to vote by mail or by telephone. Each Share represented by a properly completed written proxy or properly authorized proxy by telephone or over the Internet will be voted at the Annual Meeting in accordance with the stockholder’s instructions specified in the proxy, unless such proxy has been revoked. If no instructions are specified, such Shares will be voted FOR the election of each of the nominees for Director, FOR ratification of the appointment of Ernst & Young as the 3

4 . However. How does the Board recommend that I vote? The Board recommends that you vote FOR each of the Director nominees and FOR ratification of the appointment of Ernst & Young as the Company’s independent registered public accounting firm for 2009. or by signing and returning a new proxy card with a later date. What does it mean if I receive more than one proxy card? If you receive more than one proxy card from the Company. Please sign and return all proxy cards you receive to ensure that all Shares held by you are voted.Company’s independent registered public accounting firm for 2009 and in the discretion of the proxy holder on any other business that may properly come before the meeting. If you participate in the Savings Plan and have contributions invested in Shares. How can I revoke a previously submitted proxy? You may revoke your proxy and change your vote at any time before the final vote at the Annual Meeting. 2009. your attendance at the Annual Meeting will not automatically revoke your proxy unless you vote at the meeting or specifically request in writing that your prior proxy be revoked. it means your Shares are not all registered in the same way (for example. some are held in your name and others are held jointly with a spouse) and are in more than one account. You may submit a proxy again on a later date on the Internet or by telephone (only your latest Internet or telephone proxy submitted prior to the meeting will be counted). You must return your proxy card to the transfer agent on or prior to May 1. the trustee will vote your Shares in the same proportion as other Shares held in the Savings Plan for which the trustee received timely instructions unless contrary to ERISA (Employee Retirement Income Security Act). the proxy card will serve as a voting instruction for the trustee of the Savings Plan. If your proxy card is not received by the transfer agent by that date or if you sign and return your proxy card without instructions marked in the boxes. or by attending the meeting and voting in person.

The Board observes all criteria for independence established by the NYSE listing standards and other governing laws and regulations. Messrs. banking. Board and committee composition. consulting. directly or as an officer. Subject to applicable law. Aron and Daley and Ms. A material relationship is one that impairs or inhibits — or has the potential to impair or inhibit — a director’s exercise of critical and disinterested judgment on behalf of the Company and its stockholders. the Board took into account that three of the non-employee Directors. with the exception of Mr. The Code of Conduct is posted on the Company’s web site at www. but not limited to. In addition. 2007 to September 24. which are posted on our web site at www. White Plains. The Finance Code of Ethics is posted on the Company’s web site at www.starwoodhotels. Corporate Treasurer. New York 10604. establish and maintain the Company’s internal controls and other procedures with respect to the preparation of periodic reports filed with the SEC. In addition. legal. The charters for the Company’s Audit Committee. and Board evaluations. we have adopted Corporate Governance Guidelines. In accordance with New York Stock Exchange (the “NYSE”) rules. The Disclosure Committee evaluates the effectiveness of the Company’s disclosure controls and procedures on a regular basis and maintains written records of its meetings. and waivers from.CORPORATE GOVERNANCE In addition to our charter and Bylaws. Corporate Controller. van Paasschen.starwoodhotels. charitable or other business relationships each Director may have with the Company. the Board consults with the Company’s counsel to ensure that the Board’s determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent director. With respect to Mr.html.html.” including but not limited to those set forth in pertinent listing standards of the NYSE in effect from time to time.com/corporate/investor_relations. In its annual review of Director independence. Compensation and Option Committee and Corporate Governance and Nominating Committee are posted on its web site at www. The Guidelines provide a framework for the Company’s corporate governance and cover topics including. Duncan. the Board makes an annual determination as to the independence of the Directors and nominees for election as a Director. Mr. comprised of certain senior executives. You may obtain a free copy of any of these posted documents by sending a letter to the Company’s Investor Relations Department. Duncan served as Chief Executive Officer on an interim basis from April 1. The Company intends to post amendments to.html. The Company will continue to monitor developments in the law and stock exchange regulations and will adopt new procedures consistent with new legislation or regulations. accounting. 2007 and 5 . Director share ownership guidelines. As a result of its annual review. The Company has adopted a Finance Code of Ethics applicable to its Chief Executive Officer. van Paasschen is not independent because he is serving as the Chief Executive Officer of the Company. In making this determination. Galbreath. employees are required to report any conduct they believe to be a violation of the Code of Conduct. The Corporate Governance and Nominating Committee is responsible for overseeing and reviewing the Guidelines and reporting and recommending to the Board any changes to the Guidelines. Senior Vice President-Taxes and persons performing similar functions. to address significant corporate governance matters. the Finance Code of Ethics that require disclosure under applicable Securities and Exchange Commission (the “SEC”) rules on its web site. the Board considers any commercial. stockholder or partner of an organization that has a relationship with the Company.html. Chief Financial Officer. Capital Committee.starwoodhotels.com/corporate/investor_relations. Please note that the information on the Company’s web site is not incorporated by reference in this Proxy Statement. to design.com/corporate/investor_relations. earnings releases and other written information that the Company will disclose to the investment community (the “Disclosure Documents”). The Company has a Disclosure Committee. have no relationship with the Company except as a Director and stockholder of the Company and that the remaining seven non-employee Directors have relationships with the Company that are consistent with the NYSE independence standards. the Board considered the fact that Mr. the Board has determined that all of the Directors.com/corporate/investor_relations. 1111 Westchester Avenue.starwoodhotels. No Director will be deemed to be independent unless the Board affirmatively determines that the Director has no material relationship with the Company. are independent directors. the Company has a Code of Business Conduct and Ethics (the “Code of Conduct”) applicable to all employees and Directors that addresses legal and ethical issues employees may encounter in carrying out their duties and responsibilities.

other commitments prevent all Directors from attending each meeting. the Board did not have a “lead” Director but Mr. Quazzo. LLC’s results of operations. are the only companies to transact business with the Company over the past three years in which any of the Company’s independent directors served as a director. Nike. Inc.com. In addition. Mr. Hippeau. In fact. less than 2% for 2007 and slightly more than 2% for 2006. the Board determined that Mr. The Company expects all Directors to attend the Annual Meeting and believes that attendance at the Annual Meeting is as important as attendance at meetings of the Board of Directors and its committees. has served as non-executive Chairman of the Board from May 2005 until March 31. on Transwestern Investment Company.. the Board considered that in January 2008 a fund managed by Transwestern Investment Company. Gap. the Chairman of the Corporate Governance and Nominating Committee served as the lead Director at the executive meetings of the Board. 2007. where Messrs. Amazon..received a salary and other benefits for his services. principal or greater than 10% stockholder. LLC purchased the office building in Phoenix where the Company maintains an office. (ii) in its accounting or tax departments. Prior to serving as Chief Executive Officer on an interim basis. with which the Company co-brands the American Express Starwood Preferred Guest credit card. These relationships are consistent with the NYSE independence standards. Inc. ran meetings of the Board. The Company’s lease for the office space was negotiated and entered into prior to the acquisition with unaffiliated third parties at arms-length and was not amended in connection with the acquisition of the building by the fund. as Chairman.05% of the Company’s and/or each such other entity’s annual consolidated revenues for each of the past three years. in the case of Mr. The Company has adopted a policy which permits stockholders and other interested parties to contact the Board of Directors. which was held on April 30. Duncan was an independent director. Quazzo has informed the Company that he did not derive any direct personal benefit from the office space lease. the Board also has a policy that Directors who change their principal occupation (including through retirement) should voluntarily tender their resignation to the Board.. 2008. an independent Director. Duncan. and Intel Corp. from time to time. in part. Inc. Intel Corp. Ambassador Barshefsky serves solely as a director of American Express and derives no personal benefit from these payments. Amazon. 2007 to the present. Inc. Duncan’s appointment as Chief Executive Officer on an interim basis. The Board has a policy under which Directors who are not employees of the Company or any of its subsidiaries may not stand for re-election after reaching the age of 72. When undertaking its review. Directors who are employees of the Company must retire from the Board upon their retirement from the Company.. and from September 24.. although his compensation does depend. In addition. respectively. However. Quazzo. As a result. Mr. prior to March 31. 2007 and following September 24. the combined annual payments from the Company to each such entity and from each such entity to the Company has been less than . or (iv) where the hire would be in a policy setting position.. Gap. under this policy. The Company has adopted a policy which requires the Audit Committee to approve the hiring of any current or former employee (within the last 5 years) of the Company’s independent registered public accounting firm into any position (i) as a manager or higher. All Directors who were Board members at the time attended the most recent annual meeting of stockholders. Youngblood and Clarke and Ambassador Barshefsky are directors. regulations and related commentary regarding the definition of “independence” for independent registered public accounting firms. served as the Chairman of the Corporate Governance and Nominating Committee in 2008. Duncan.com. Inc. In the case of American Express Company.. Pursuant to the Corporate Governance Guidelines. the Company typically schedules Board of Directors’ and committee meetings to coincide with the dates of its Annual Meetings. executive officer or is a partner. the Audit Committee considers applicable laws. Ryder. 2007 when he was appointed Chief Executive Officer on an interim basis. During Mr. If you are a stockholder or interested party and would like to contact the Board of Directors you 6 .. Mr. and American Express Company. Mr. who was an independent Director prior to his interim appointment as Chief Executive Officer. the combined annual payments from the Company to American Express Company and from American Express Company to the Company has been less than 1% of American Express Company’s annual consolidated revenues for each of the past three years and payments from American Express were less than 4% of the Company’s annual consolidated revenues for 2008. Yahoo! Inc. Inc. Nike. (iii) where the hire would have direct involvement in providing information for use in its financial reporting systems. In the case of each of Yahoo! Inc.

may send a letter to the Board of Directors, c/o the Corporate Secretary, 1111 Westchester Avenue, White Plains, New York 10604 or online at www.hotethics.com. You should specify in the communication that you are a stockholder or an interested party. If the correspondence contains complaints about Starwood’s accounting, internal or auditing matters or directed to the non-management directors, the Corporate Secretary will forward that correspondence to a member of the Audit Committee. If the correspondence concerns other matters, the Corporate Secretary will forward the correspondence to the Director to whom it is addressed or otherwise as would be appropriate under the circumstances, attempt to handle the inquiry directly (for example where it is a request for information or a stock-related matter), or not forward the communication if it is primarily commercial in nature or relates to an improper or irrelevant topic. At each regularly scheduled Board meeting, the Corporate Secretary or his/her designee will present a summary of all such communications received since the last meeting that were not forwarded and shall make those communications available to the Directors upon request. This policy is also posted on the Company’s web site at www.starwoodhotels.com/corporate/investor_relations.html. The Company indemnifies its Directors and officers to the fullest extent permitted by law so that they will be free from undue concern about personal liability in connection with their service to the Company. This is required under the Company’s charter, and the Company has also signed agreements with each of those individuals contractually obligating it to provide this indemnification to them.

ELECTION OF DIRECTORS Under the Company’s charter, each of the Company’s Directors is elected to serve until the next annual meeting of stockholders and until his or her successor is duly elected and qualified. If a nominee is unavailable for election, proxy holders and stockholders may vote for another nominee proposed by the Board or, as an alternative, the Board may reduce the number of Directors to be elected at the meeting. Each nominee has agreed to serve on the Board if elected. Set forth below is information as of February 28, 2009 regarding the nominees for election, which has been confirmed by each of them for inclusion in this Proxy Statement. Directors Nominated at the Annual Meeting will be Elected to Serve Until the 2010 Annual Meeting of Stockholders and Until his or her Successor is Duly Elected and Qualifies Frits van Paasschen, 48, has been Chief Executive Officer of the Company since September 2007. From March 2005 until September 2007, he served as President and CEO of Molson Coors Brewing Company’s largest division, Coors Brewing Company. Prior to joining Coors, from April 2004 until March 2005, Mr. van Paasschen worked independently through FPaasschen Consulting and Mercator Investments, evaluating, proposing, and negotiating private equity transactions. Prior thereto, Mr. van Paasschen spent seven years at Nike, Inc., 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 Vice President, Finance and Planning at Disney Consumer Products and earlier in his career was a management consultant for eight years at McKinsey & Company and the Boston Consulting Group. Mr. van Paasschen has been a Director of the Company since September 2007. Bruce W. Duncan, 57, has been President, Chief Executive Officer and Director of First Industrial Realty Trust, Inc. since January 2009, prior to which time he was a private investor since January 2006. From April to September 2007, Mr. Duncan served as Chief Executive Officer of the Company on an interim basis. He also has been a senior advisor to Kohlberg Kravis & Roberts & Co. 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 apartment company. From January 2003 to May 2005, he was President and Trustee of EQR. Mr. Duncan has served as a Director of the Company since April 1999, and was a Trustee of Starwood Hotels & Resorts, a real estate investment trust and former subsidiary of the Company (the “Trust”), since August 1995. Adam M. Aron, 54, has been Chairman and Chief Executive Officer of World Leisure Partners, Inc., a leisurerelated consultancy, since 2006. From 1996 through 2006, Mr. Aron served as Chairman and Chief Executive Officer of Vail Resorts, Inc., an owner and operator of ski resorts and hotels. Mr. Aron is a director of Norwegian Cruise Line Limited and Prestige Cruise Holdings, Inc. Mr. Aron has been a Director of the Company since August 2006. 7

Charlene Barshefsky, 58, has been Senior International Partner at the law firm of WilmerHale, LLP, Washington, D.C. since September 2001. From March 1997 to January 2001, Ambassador Barshefsky was the United States Trade Representative, the chief trade negotiator and principal trade policy maker for the United States and a member of the President’s Cabinet. Ambassador Barshefsky is a director of The Estee Lauder Companies, Inc., American Express Company and Intel Corporation. Ambassador Barshefsky also serves on the Board of Directors of the Council on Foreign Relations and is a Trustee of the Howard Hughes Medical Institute. She has been a Director of the Company, and was a Trustee of the Trust, since October 2001. Thomas E. Clarke, 57, has been President of New Business Ventures of Nike, Inc., a designer, developer and marketer of footwear, apparel and accessory products, since 2001. Dr. Clarke joined Nike, Inc. in 1980. He was appointed Divisional Vice President in charge of marketing in 1987, Corporate Vice President in 1990, and served as President and Chief Operating Officer from 1994 to 2000. Dr. Clarke previously held various positions with Nike, Inc. primarily in research, design, development and marketing. Dr. Clarke is also a director of Newell Rubbermaid, a global marketer of consumer and commercial products. Dr. Clarke has been a Director of the Company since April, 2008. Clayton C. Daley, Jr., 57, has spent his entire professional career with Procter & Gamble, joining the company in 1974, and has held a number of key accounting and finance positions including Comptroller, U.S. Operations for Procter & Gamble USA; Vice President and Comptroller of Procter & Gamble International and Vice President and Treasurer. Mr. Daley was appointed to his current position as Chief Financial Officer, Procter & Gamble in 1998 and was elected Vice Chair in 2007. Mr. Daley is a director of Boys Scouts of America, Dan Beard Council, and Nucor Corporation. Mr. Daley has been a Director of the Company since November 2008. Lizanne Galbreath, 51, 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 Lang LaSalle where she also served as a Director. From 1984 to 1997, Ms. Galbreath served as a Managing Director then Chairman and Chief Executive Officer of The Galbreath Company, the predecessor entity of Galbreath & Company. Ms. Galbreath has been a Director of the Company, and was a Trustee of the Trust, since May 2005. Eric Hippeau, 57, has been Managing Partner of Softbank Capital, a technology venture capital firm, since March 2000. Mr. Hippeau served as Chairman and Chief Executive Officer of Ziff-Davis Inc., an integrated media and marketing company, from 1993 to March 2000 and held various other positions with Ziff-Davis from 1989 to 1993. Mr. Hippeau is a director of Yahoo! Inc. Mr. Hippeau has been a Director of the Company, and was a Trustee of the Trust since April 1999. Stephen R. Quazzo, 49, is the Chief Executive Officer and has been the Managing Director and co-founder of Transwestern Investment Company, L.L.C., a real estate principal investment firm, since March 1996. From April 1991 to March 1996, Mr. Quazzo was President of Equity Institutional Investors, Inc., a subsidiary of Equity Group Investments, Inc. Mr. Quazzo has been a Director of the Company since April 1999, and was a Trustee of the Trust, since August 1995. Thomas O. Ryder, 64, retired as Chairman of the Board of The Reader’s Digest Association, Inc. in January 2007, a position he had held since January 1, 2006. Mr. Ryder was Chairman of the Board and Chief Executive Officer of that company from April 1998 through December 31, 2005. Mr. Ryder was President, American Express Travel Related Services International, a division of American Express Company, which provides travel, financial and network services, from October 1995 to April 1998. In addition, he is a director of Amazon.com, Inc. and Chairman of the Board of Virgin Mobile USA, Inc. Mr. Ryder has been a Director of the Company, and was a Trustee of the Trust, since April 2001. Kneeland C. Youngblood, 53, is a founding partner of Pharos Capital Group, L.L.C., a private equity fund focused on technology companies, business service companies and health care companies, since January 1998. From July 1985 to December 1997, he was in private medical practice. He is former Chairman of the Board of the American Beacon Funds, a mutual fund company managed by AMR Investments, an investment affiliate of American Airlines. He is also a director of Burger King Holdings, Inc., Gap, Inc., and Energy Future Holdings (formerly TXU Corp.). Mr. Youngblood has been a Director of the Company, and was a Trustee of the Trust, since April 2001. 8

The Board unanimously recommends a vote FOR election of these nominees. Board Meetings and Committees The Board of Directors held 5 meetings during 2008. In addition to meetings of the full Board, Directors attended meetings of individual Board committees. Each Director attended at least 75% of the total number of meetings of the full Board and committees on which he or she serves. The Board has established Audit, Compensation and Option, Corporate Governance and Nominating, and Capital Committees, the principal functions of which are described below. Audit Committee. The Audit Committee, which has been established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is currently comprised of Messrs. Ryder (chairperson), Aron, Clarke, Daley and Youngblood, all of whom are “independent” Directors, as determined by the Board in accordance with the NYSE listing requirements and applicable federal securities laws. The Board has determined that each of Messrs. Ryder and Daley is an “audit committee financial expert” under federal securities laws and has adopted a written charter for the Audit Committee. The Audit Committee provides oversight regarding accounting, auditing and financial reporting practices of the Company. The Audit Committee selects and engages the independent registered public accounting firm to serve as auditors with whom it discusses the scope and results of their audit. The Audit Committee also discusses with the independent registered public accounting firm and with management, financial accounting and reporting principles, policies and practices and the adequacy of the Company’s accounting, financial, operating and disclosure controls. The Audit Committee met 10 times during 2008. Compensation and Option Committee. Under the terms of its charter, the Compensation and Option Committee is required to consist of three or more members of the Board of Directors who meet the independence requirements of the NYSE, are “non-employee directors” pursuant to SEC Rule 16b-3, and are “outside directors” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended. The Compensation and Option Committee is currently comprised of Messrs. Aron (chairperson), Daley, Duncan, Youngblood and Ms. Galbreath, all of whom are “independent” Directors, as determined by the Board in accordance with the NYSE listing requirements. The Compensation and Option Committee makes recommendations to the Board with respect to the salaries and other compensation to be paid to the Company’s executive officers and other members of senior management and administers the Company’s employee benefits plans, including the Company’s Long-Term Incentive Compensation Plans. The Compensation and Option Committee met 7 times during 2008. Capital Committee. The Capital Committee is currently comprised of Ms. Galbreath (chairperson), and Messrs. Clarke, Hippeau and Quazzo. The Capital Committee was established in November 2005 to exercise some of the power of the Board relating to, among other things, capital plans and needs, mergers and acquisitions, divestitures and other significant corporate opportunities between meetings of the Board. The Capital Committee met 6 times during 2008. Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee is currently comprised of Messrs. Quazzo (chairperson), Duncan and Hippeau and Ambassador Barshefsky, all of whom are “independent” Directors, as determined by the Board in accordance with the NYSE listing requirements. The Corporate Governance and Nominating Committee was established in May 2004, combining the functions of the Corporate Governance Committee and the Nominating Committee, to oversee compliance with the Company’s corporate governance standards and to assist the Board in fulfilling its oversight responsibilities. The Corporate Governance and Nominating Committee establishes, or assists in the establishment of, the Company’s governance policies (including policies that govern potential conflicts of interest) and monitors and advises the Company as to compliance with those policies. The Corporate Governance and Nominating Committee reviews, analyzes, advises and makes recommendations to the Board with respect to situations, opportunities, relationships and transactions that are governed by such policies, such as opportunities in which a Director or officer has a personal interest. In addition, the Corporate Governance and Nominating Committee is responsible for making recommendations for candidates for the Board of Directors, taking into account nominations made by officers, Directors, employees and stockholders, recommending Directors for service on Board committees, developing and reviewing background information for candidates, making recommendations to the Board for changes to the Corporate Governance 9

file with the SEC (and provide a copy to the Company) certain reports relating to their ownership of Shares. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires that the Company’s Directors and executive officers. Clarke and Daley are standing for election by the stockholders for the first time. Annually the Corporate Governance and Nominating Committee reviews the qualifications and backgrounds of the Directors. the Corporate Governance and Nominating Committee and the full Board will take into account the nature of and time involved in a Director’s service on other boards in evaluating the suitability of individual Directors and making its recommendations to Company stockholders. The Board seeks to insure that at least 2/3 of the Directors are independent under the Company’s Governance Guidelines (or at least a majority are independent under the rules of the NYSE). and (iv) any other information concerning the nominee that must be disclosed of nominees in proxy solicitations regulated by Regulation 14A of the Exchange Act. Although it has no formal policy regarding stockholder nominees. White Plains. skills and expertise relevant to the business of the Company or candidates that possess a particular geographical or international perspective. and a statement as to the qualification of each nominee. The Board looks for candidates with qualities that include strength of character. Daley was elected a Director by the Board in November 2008. However. Clarke and Daley before making its recommendation to nominate each of them. the overall composition of the Board. (ii) the principal occupation or employment of each such nominee. This year. Clarke was elected a Director by the Board in April 2008 and Mr. Mr. The Board does not believe that its members should be prohibited from serving on boards and/or committees of other organizations. age and business address of each nominee proposed in such notice. The Corporate Governance and Nominating Committee may from time-to-time utilize the services of a search firm to help identify and evaluate candidates for Director who meet the qualifications outlined above. although the Board seeks a diverse group of candidates who possess the background. Messrs. The Corporate Governance and Nominating Committee met 10 times during 2008. and the Board has not adopted any guidelines limiting such activities. (iii) the number of Shares which are beneficially owned by each such nominee and by the nominating stockholder. postage prepaid. 10 . There are no firm prerequisites to qualify as a candidate for the Board. 1111 Westchester Avenue. In addition. if applicable. an inquiring and independent mind. It includes a corporate overview. stockholder nominations must be made in writing. without limitation. Mr. Under the Company’s current Bylaws. all Directors are given written materials providing information on the Company’s business. the Corporate Governance and Nominating Committee believes that stockholder nominees should be reviewed in substantially the same manner as other nominees. Mr. New York 10604. Daley was recommended by a search firm engaged by the Corporate Governance and Nominating Committee to recommend candidates with a strong financial background and international operations experience. The Corporate Governance and Nominating Committee will consider candidates nominated by stockholders. and be received by the Corporate Secretary no later than the close of business on the 75th day nor earlier than the close of business on the 100th day prior to the first anniversary of the preceding year’s annual meeting. and that members of the Company’s Audit Committee meet the financial literacy requirements under the rules of the NYSE and at least one of them qualifies as an “audit committee financial expert” under applicable federal securities laws. and persons who own more than ten percent of the outstanding Shares. Clarke was recommended to the Board by the Chief Executive Officer. such notice shall set forth as to each proposed nominee (i) the name. such person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected. one-on-one meetings with senior management and an orientation meeting. The Corporate Governance and Nominating Committee conducted its own evaluation and interviewed Messrs. including. who believed that he would be a valuable addition to the Board based on his brand and marketing knowledge and experience. and recommends to the full Board the slate of Directors to be recommended for nomination for election at the annual meeting of stockholders. The Company provides a comprehensive orientation for all new Directors. to the Corporate Secretary. Service on boards and/or committees of other organizations should be consistent with the Company’s conflict of interest policies. In accordance with the Company’s current Bylaws.Guidelines as they pertain to the nomination or qualifications of Directors or the size of the Board. delivered or mailed by first class United States mail. practical wisdom and mature judgment.

. . . L. . . . . . . . . . . . SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following tables show the number of Shares “beneficially owned” by (i) all persons known to the Company to be the beneficial owners of more than 5% of the outstanding Shares at December 31. The Board unanimously recommends a vote FOR ratification of the appointment of Ernst & Young as the Company’s independent registered public accounting firm for 2009. .488 10. . . . and will be available to respond to appropriate questions. . . . . . . dated February 17. . . . . . . IL 60602 FMR LLC . . . . . . . . . . . . . the number of Shares that the indicated person had a right to acquire within 60 days of such date. . Named Executive Officers and executive officers (who are not Named Executive Officers) as a group. . Morgan Stanley has sole voting power 11 . certain of its operating units. where applicable. . “Beneficial ownership” includes Shares a stockholder has the power to vote or the power to transfer. . Morgan Stanley filed the Morgan Stanley 13G solely in its capacity as the parent company of. . . . . Boston. . . . . . 13. 18. . . . . the Board and the Audit Committee will reconsider the selection of the independent registered public accounting firm. . . If the appointment of Ernst & Young is not ratified. the Board is asking the stockholders to ratify the selection of Ernst & Young as a matter of good corporate practice. . executive officers and greater than 10 percent beneficial owners were complied with for the most recent fiscal year. . . . . . .73%(3) . the information is based upon Schedules 13G and 13D filed with the SEC. . . based solely on a review of the copies of these reports furnished to the Company for the fiscal year ended December 31. .425. . . .000 8. . The information in the tables is based upon information provided by each Director and executive officer and. . . Two North LaSalle Street. . . . . and (iii) Directors. . . . . . nominees for Director and executive officers whose compensation is reported in this proxy statement (the “Named Executive Officers”). . . . if they desire to do so. will have an opportunity to make a statement. MA 02109 .P . Certain Beneficial Owners Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class Morgan Stanley . . .10%(2) . Suite 600 Chicago. . IL 60606 Harris Associates Inc. . . Percentages are based upon the number of Shares outstanding at January 31.488 Shares. . . 14. at January 31. . . . . 2008. . . . . . . . 14. .10%(1) . plus. . . . . . and also includes stock options and other derivative securities that were exercisable at that date. . . . . Morgan Stanley beneficially owns an aggregate amount of 18. . . . . . . . 2008 and (ii) each of the Directors. . . and indirect beneficial owner of securities held by. . . . . While not required by law. New York 10036 EGI-SSE I. . . . Representatives of Ernst & Young are expected to be present at the Annual Meeting. . .750. . Two North Riverside Plaza. RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board has appointed and is requesting ratification by stockholders of the appointment of Ernst & Young as the Company’s independent registered public accounting firm.156. . . . 2009. . . . or as of that date will become exercisable within 60 days thereafter. 1585 Broadway New York. . . Suite 500 Chicago. . all Section 16(a) filing requirements applicable to its Directors. . . . .168. . . . .20%(4) (1) Based on information contained in a Schedule 13G/A. . 2009.274 7. nominees for Director. and written representations that no other reports were required. . . . . . .To the Company’s knowledge. . . . . . 2009 (the “Morgan Stanley 13G”). . filed with respect to the Company. in the case of the beneficial owners of more than 5% of the outstanding Shares. 82 Devonshire St.030 7. .425. . . . . .

with respect to 11.630 Shares are held by Pyramis Global Advisors. by either providing information or advice to the persons having such power. According to the FMR Schedule 13G.000 Shares. 268.372.425.156.270 Shares.601. SSE has shared voting power and shared dispositive power over 14. Pursuant to the agreement. 119. Johnson 3rd family may be deemed. 2008. an indirect wholly-owned subsidiary of FMR.688 Shares.S. (3) Based on information contained in a Schedule 13G. investment companies (“FIL”) and 258 Shares are held by Strategic Advisers. FMR and Edward C.601 Shares are held by Fidelity Management & Research Company (“Fidelity”). the Company and SSE entered into a confidentiality agreement to facilitate the sharing of information between the Company and SSE. (2) Based on information contained in a Schedule 13D/A. Chairman of FMR. each have sole dispositive power and sole voting power with respect to 12. an indirect wholly-owned subsidiary of FMR. or by exercising the power to vote.750. 12. SSE agreed to restrictions on its use and disclosure of the Company’s confidential information and limitations on its ability to effect a change in control of the Company. Inc. filed with respect to the Company. a registered investment adviser and wholly owned subsidiary of FMR. 2008 (the “SSE 13D”).100 Shares and the sole dispositive power with respect to 211. dated December 31. filed with respect to the Company. (“Harris”) has been granted the power to vote Shares in circumstances it determines to be appropriate in connection with assisting its advised clients to whom it renders financial advice in the ordinary course of business. (4) Based on information contained in a Schedule 13G/A. members of the Edward C. FIL has sole power to vote and direct the voting of 202.P.488 Shares. filed with respect to the Company. On December 29. Harris Associates L. Through ownership of voting common stock and the execution of a certain stockholders’ voting agreement. a foreign based entity that provides investment advisory and management services to non-U.568.568. dated February 13.515 Shares are held by Pyramis Global Advisors Trust Company. shared voting over 909 Shares and sole dispositive power over 18. 211. to form a controlling group with respect to FMR. a wholly-owned subsidiary of FMR LLC (“FMR”). 12 . dated February 17. Harris has sole voting and sole dispositive power with respect to 14. LLC. 2009 (the “FMR 13G”). no power to vote or direct the voting of 9. under the Investment Company Act of 1940.270 Shares are held by Fidelity International Limited.030 Shares. Johnson 3rd. 2009 (the “Harris 13G”)..170 Shares.

. . . . . . . . . . .649(2)(3) 4. . . . Avril. . . . . . .585 for Ms. . . . . . . . . . Clayton C. . Aron. .544 for Mr. McAveety. .247(2)(3) 6. . . . . . . . . . . . . . 44. and 31. . . . . . . 4. . . . . . . . 143. . 41. Quazzo. .287(3)(6) 53. . . Ryder and Youngblood. .738 for Mr. . . . . . Clarke. All Directors. . . . . . . . . . . .852 for Mr. . .082 for Ambassador Barshefsky. .203 for Mr. . . . . . . . . . . . . Frits van Paasschen . . Siegel . . . . . 40. . . . . and 397 Shares owned by Mr. . . .624 for Mr. 12. . Charlene Barshefsky .764 (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (4) (1) Based on the number of Shares outstanding on January 31. . . . . .350(3) 78. . . . .962 for Mr. . Clarke . . . . . (6) Includes 26. . 2009. . . . . . . . . . . . . . as follows: 326. . Nominees for Directors and executive officers as a group (17 persons) .692 for Mr. . . . . . Vasant Prabhu . . . 3. Duncan Revocable Trust of which Mr. . . . Siegel. . . . . . (3) Includes Shares subject to presently exercisable options and options and restricted Shares that will become exercisable or vest within 60 days of January 31. Quazzo . 13 . . . . . . . . . . . . . . Duncan is a Trustee and beneficiary. . Youngblood . . . . . . . . . . . . . . 35. . . . . . . . Ryder .805(3) 1. .044(2)(3) 231. . . . . . . . . . .681(2)(3)(5) 23. . . . Kneeland C. Kenneth S. .311 Shares held by a trust of which Mr. . . . . Prabhu. . . . . . . .330(3) 409. . . . . . . . 73. . . . .463 for Mr. . .092(2)(3) 70. . . . . Hippeau. . . . . . . . . . .692(3) 46. . . .509 for Mr. . . Ryder. Lizanne Galbreath . . . . . . Simon Turner . . . . . . . . Hippeau. . . . . . 2. . . .822 for Ambassador Barshefsky. . . . Eric Hippeau . . . Quazzo’s wife in a Retirement Account. . . . . . . . . . . . . . Duncan is a Trustee and beneficiary. . .239(3) 7. . 174. . . and 1. . . . .201(2)(3) 288. Matthew Avril . . 6. . . . . . 52. . . . . . . 11. . . Galbreath. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aron . . . . . Daley. . van Paasschen. . 51. . . . . . . . . . 2009 and Shares issuable upon exercise of options exercisable within 60 days from January 31. . . . Daley. Thomas E. . . . . . . . . . . . . . . . .512 for Mr. . . . . . . . . . . . . . . . . .579 for Mr. . . . . . . . . . . . . . . . .104 for Mr. . . .330 for Mr. . . . . 18. Philip P. (5) Includes. Duncan. . . . . Jr. . . . . . . Bruce W. . . . . . . Galbreath. 10. . . .984 Shares held by the 2008 Locust Annuity Trust of which Mr. Quazzo is settlor and over which he shares investment control. .168(3) 280 41.474(3) 46. . . . . . . . . . . . . . . . Daley. . . . (2) Amount includes the following number of “phantom” stock units received as a result of the following Directors’ election to defer Directors’ Annual Fees: 17. . . . . . . . McAveety . . . . . Thomas O. . . . . . . . . . .441. (4) Less than 1%. . . . . . . . . . . . . . . 2009. Duncan . . . . . . . . . . . . . . . . . . . . . . . . . . .692 for Mr. . . .581 for Messrs. . . . . 66. . . . . . . Stephen R.Directors and Executive Officers of the Company Name of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class(1) Adam M. . . . . . . . . . . . and 142 for Mr. . . . . . .374 Shares held by The Bruce W. . . . . . . . . . . . . . . . . . . .225(3) 90. . . . . .507 for Ms. . . Duncan.

. . a stock purchase plan meeting the requirements of Section 423 of the Internal Revenue Code. . . 2009 to comply with new NYSE requirements. . . . . Warrants and Rights (b) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) Plan Category Equity compensation plans approved by security holders.472 Shares remain available for issuance under our Employee Stock Purchase Plan. . . . .066 (1) Does not include deferred share units (that vest over three years and may be settled in Shares) that have been issued pursuant to the Annual Incentive Plan for Certain Executives (“Executive AIP”).The following table provides information as of December 31. . . . . . . . . . . . . . . This plan has been amended to provide for a termination date of May 26. . In addition. . . .05 — $25. Equity compensation plans not approved by security holders . . 2008 Number of Securities to be Issued Upon Exercise of Outstanding Options. Warrants and Rights (a) Weighted-Average Exercise Price of Outstanding Options. .05 69. . Total .176. . 14. . . . . . . . . 10.066(1) — 69.726. . . 14 .540.014 $25.726.014 — 14. . .176. . . . . . 2008 regarding Shares that may be issued under equity compensation plans maintained by the Company. . . . . . . The Executive AIP does not limit the number of deferred share units that may be issued. Equity Compensation Plan Information-December 31.

and one element of this endeavor is to bring in key talent from other industries. Specifically. (i) redesigning the compensation structure to achieve cost savings and align total compensation with competitive market data. (iv) structural changes for the 2009 performance year to align the individual performance portion of annual bonuses to the Company’s financial performance. we strive to keep the executive compensation program transparent. enabling the Company to attract. and (v) freezing salaries for all bonus eligible associates in corporate and divisional offices. What the Program Intends to Reward. in line with market practices and consistent with high standards of good corporate governance. The Compensation Committee reviews and sets the Company’s overall compensation strategy for all employees on an annual basis.5-to-1 for senior executives electing to receive a larger portion of their equity awards in options instead of restricted stock. Moreover. the Company’s executive compensation program for our principal executive officer. our compensation program for Named Executive Officers is designed to ensure the following: • Alignment with Stockholders: A significant portion of Named Executive Officer compensation is delivered in the form of equity. for 2009 equity awards the Compensation Committee lowered the exchange ratio for 2009 equity grants from 3-to-1 to 2. COMPENSATION DISCUSSION AND ANALYSIS Introduction The Company’s compensation programs are designed to align compensation with its business objectives and performance. the Company operates in a competitive. In step with this mission and environment. most of which will become effective in 2009. retain. 15 . the Compensation Committee considers the Company’s current compensation programs and whether to modify them or introduce new programs or elements of compensation in order to better meet the Company’s overall compensation objectives. (ii) eliminating tax gross ups in new change in control agreements entered into in 2008. overall program competitiveness must take these other markets into account. (iii) eliminating the payout floor under the Company’s bonus plans for the 2009 performance year. principal financial officer and the Named Executive Officers has the following key objectives: • Attract and Retain: We seek to attract and retain talented executives from within and outside the hospitality industry who understand the importance of innovation. • Align Interests: We endeavor to align the interests of stockholders and our executives by tying executive compensation to the Company’s business results and stock performance. In addition. easily understood. In the course of this review. because of the lower stock price and leverage opportunity. including the Named Executive Officers. Our executive compensation program is strongly weighted toward variable compensation tied to Company results. ensuring that long term compensation is strongly tied to stockholder returns. brand enhancement and consumer experience. These changes include. A. and reward executive officers and other key employees who contribute to the Company’s long-term success and motivate executive officers to enhance long-term stockholder value. During 2008. We are working to reinvent the hospitality industry. These changes were designed to better align compensation with (i) the creation and preservation of shareholder value and (ii) the Company’s financial performance. among other things. the Compensation Committee also reviewed some of the Company’s long-standing compensation practices and decided to make significant changes. dynamic and challenging business environment.EXECUTIVE COMPENSATION I. As a consumer lifestyle company with a branded hotel portfolio at its core. Overview of Starwood’s Executive Compensation Program 1. Therefore. • Motivate: We seek to motivate our executives to sustain high performance and achieve Company financial and strategic/operational goals over the course of business cycles and various market conditions. Program Objectives and Other Considerations Objectives.

The Compensation Committee reviews and considers these tally sheets in making compensation decisions for our Named Executive Officers. Towers Perrin provided advice concerning the total compensation. and development of future talent are key success factors for the Company and a portion of compensation for the Named Executive Officers is dependent on satisfaction of enumerated leadership competencies. • Overall Leadership and Stewardship of the Company: Leadership. outstanding equity awards. the establishment and review of compensation policies and programs for our executive officers and ensuring that these executive officers are compensated in a manner consistent with the objectives and principles outlined above. bonus opportunity and equity awards at these levels. including salary. innovation. if necessary. policies and governance. Roles and Responsibilities Our Compensation and Option Committee (“Compensation Committee”) is responsible for. Pearl Meyer & Partners does not provide any other services to the Company. The Compensation Committee may exercise its discretion in modifying any recommended salary adjustments or awards to these executives. benefits. including base salary. among other things. growth. Management also prepares tally sheets which describe and quantify all components of total compensation for our Named Executive Officers. The Compensation Committee retained Pearl Meyer & Partners to assist in the review and determination of compensation awards to the Named Executive Officers (including the CEO) for the 2008 performance period. together with the Chief Human Resources Officer. but are not limited to. Direct responsibilities include. payout and/or awards for executive officers other than the Chief Executive Officer. Management of the Company retained Towers Perrin in 2008 to perform a comprehensive review of the compensation paid to all associates other than executive officers. • Achievement of Strategic/Operational Objectives. reviews the performance of each other Named Executive Officer and presents to the Compensation Committee his conclusions and recommendations. to ensure achievement of all program objectives and (iii) recommending pay levels. The role of the Company’s management is to provide reviews and recommendations for the Compensation Committee’s consideration. A portion of Named Executive Officer compensation is tied to achievement of specific individual objectives that are directly aligned with execution of our business strategy. The Compensation Committee makes all compensation decisions for our Named Executive Officers.• Achievement of Company Financial Objectives: A portion of Named Executive Officer compensation is tied directly to the Company’s financial performance. 16 . including salary adjustments and annual incentive compensation amounts (as described in more detail in subsection B under the heading Incentive Compensation below). operational excellence. (i) providing an ongoing review of the effectiveness of the compensation programs. deferred compensation. cost containment/efficiency. management fundamentally redesigned the compensation structure for such associates starting in 2009 leading to significant cost savings and reduced overhead. The Compensation Committee approved Pearl Meyer & Partners’ equity program recommendations and compensation awards for the 2008 performance period. and alignment with the Company’s objectives. and reviews and monitors the Company’s performance as it affects the Company’s employees and the overall compensation policies for the Company’s employees. long-term incentive compensation. Towers Perrin worked directly with management on this project and it was implemented by management with the approval of the Compensation Committee. 2. brand enhancement. among others. and to manage operational aspects of the Company’s compensation programs. These objectives may be related to. perquisites and potential severance and change-in-control payments. Pearl Meyer & Partners worked with management and the Compensation Committee in reviewing the compensation structure of the Company and of the companies in the peer group. annual incentive compensation. including competitiveness. As a result of this review. It also monitors the Company’s executive succession plan. teambuilding. Our Chief Executive Officer. customer experience and/or teamwork. (ii) recommending changes.

pay is also structured to award performance but to a lesser degree in order to provide the Named Executive Officers with a minimum amount of compensation when the Company is unable to achieve its financial and strategic goals. Salaries for Named Executive Officers are generally based on the responsibilities of each position and are reviewed annually against similar positions among a group of peer companies developed by the Company and its advisors consisting of similarly-sized hotel and hospitality companies as well as other companies representative of markets in which the Company competes for key executive talent. van Paasschen. In the case of Named Executive Officers other than the Chief Executive Officer.5% for Mr. base salary for 2008 was limited to $1 million in order to keep this element of his compensation below the levels established by Section 162(m) of the Internal Revenue Code of 1986.5% for Mr. as amended (the “Code”). van Paasschen and the Company agreed to a compensation structure which was heavily geared towards performance and long term incentives. Incentive compensation includes annual incentive awards under the Company’s Annual Incentive Plan for Certain Executives (the “Executive Plan”) as well as long-term incentive compensation in the form of equity awards under the Company’s 2004 Long-Term Incentive Plan (“LTIP”). but that is highly dependent on performance. and is generally targeted at the median of the Company’s peer group. but his compensation would be significantly lower if the Company did not perform well or if his employment with the Company was terminated after a short period of time (due to the vesting requirements of the equity awards and generally no acceleration of equity awards for a termination with or without cause). Mr. which limits the deductibility of non-performance-based compensation above that amount. Base Salary. For the other Named Executive Officers. See the Background Information on the Executive Compensation Program — Use of Peer Data section beginning on page 25 below for a list of the peer companies used in this analysis. base salary accounted for approximately 12. As a result. base salary typically accounts for approximately 20% of total compensation at target. including equity awards in the form of restricted stock and stock options and restrictions on selling equity awards for two years (other than to satisfy tax withholding obligations). As a result.B. Incentive compensation typically accounts for approximately 80% of total compensation at target (87. respectively (25% and 62. van Paasschen would benefit greatly in the form of long term incentive compensation (stock options and restricted stock). We describe each of the compensation elements below and explain why we pay each element and how we determine the amount of each element. respectively). Incentive Compensation. van Paasschen. In the case of Mr.5% of total compensation at target for Mr. Primary Elements The primary elements of the Company’s compensation program for our Named Executive Officers are: • Base Salary • Incentive Compensation O Annual Incentive Compensation O Long-Term Incentive Compensation • Benefits and Perquisites Mr. The Company believes it is essential to provide our Named Executive Officers with competitive base salaries that will enable the Company to continue to attract and retain critical senior executives from within and outside the hospitality industry. The Company’s emphasis on incentive compensation results in total compensation at target that is set at approximately the 65th percentile level relative to the Company’s peer group. The Company generally seeks to position base salaries of our Named Executive Officers at or near the market median for similar positions. in the event of strong financial and individual performance. Base salary serves as a minimum level of compensation to Named Executive Officers in circumstances when achieving Company financial and strategic/operational objectives becomes challenging and the level of incentive compensation is impacted.e. Mr. van Paasschen. i. van Paasschen). Elements of Compensation 1.. with annual incentive compensation and long-term incentive compensation accounting for 20% and 60%. The Company believes that this structure allows it to provide 17 . total compensation excluding benefits and perquisites. van Paasschen’s compensation structure was established in 2007 pursuant to his employment agreement.

Annual Incentive Compensation. When the threshold is established at the beginning of a year. Minimum Thresholds. The Company believes that the allocation between base and incentive compensation is appropriate and beneficial because: • it promotes the Company’s competitive position by allowing it to provide Named Executive Officers with competitive compensation if targets are met. • it targets and attracts highly motivated and talented executives within and outside the hospitality industry. representing above-market performance. For the Named Executive Officers. awards are typically paid to Named Executive Officers partly in cash and. Each year. See additional detail regarding these deferred equity awards in the Long-Term Incentive Compensation section below. disability. that may be paid to any executive for any 12-month performance period. As the Company generally sets target incentive award opportunities above market median. To determine the actual bonus to be paid for a year. Generally. if the threshold is met and subject to the maximum described above. depreciation and amortization (“EBITDA”) that the Company must achieve in order for any bonus to be paid under the Executive Plan for that year (the “EP Threshold”). • it aligns senior management’s interests with those of stockholders. • it promotes achievement of business and individual performance objectives. The Executive Plan also specifies a maximum bonus amount. the Compensation Committee also establishes specific annual Company financial and strategic/operational performance targets and a related target bonus amount for each executive. Each Named Executive Officer has an annual opportunity to receive an award under the stockholder-approved Executive Plan. If the EP Threshold under the Executive Plan is met for a year. partly as deferred equity awards in the form of deferred stock units (under the Executive Plan). unless the Compensation Committee otherwise elects. the achievement of the threshold is considered substantially uncertain for purposes of Section 162(m) of the Code.each Named Executive Officer with substantial incentive compensation opportunities if performance objectives are met. If and when earned. retirement or other termination of employment. the Company financial and strategic/ operational goals referenced above are then used to determine a Named Executive Officer’s actual bonus. the Compensation Committee establishes in advance a threshold level of earnings before interest. in dollars. The deferred stock units vest over a three-year period. Additional Criteria. Annual incentives are a key part of the Company’s executive compensation program. and • it provides long-term incentives for Named Executive Officers to remain in the Company’s employ.000. which is one of the requirements for compensation paid under the Executive Plan to be deductible as performance-based compensation under Section 162(m). The incentives directly link the achievement of Company financial and strategic/ operational performance objectives to executive pay. as follows: Financial Goals.500. For 2008. Annual incentives also provide a complementary balance to equity incentives (discussed below). Consistent with maintaining these high standards and 18 . the EP Threshold was $637. The Company financial goals for Named Executive Officers under the Executive Plan consist of operating income and earnings per share targets. These financial and strategic/operational targets are described below. with each criteria accounting for half of the financial goal portion of the annual bonus. the Company financial and strategic/operational goals to achieve such award levels are considered stretch but achievable. pro rata awards may be paid at the discretion of the Compensation Committee in the event of death. the annual incentive award for 2008 was paid under the Executive Plan. However. taxes. a Named Executive Officer will receive payment of an award under the Executive Plan only if he remains employed by the Company on the award payment date.

000 $1. and customer experience. be detailed in the proxy.000 $900. . . This ability is intended to be narrowly and infrequently used and would.200. Actual results for earnings per share. innovation.. Subject to achieving the EP Threshold. $720.e. the bonus payout for the applicable metric is limited to 200% (i. $ 1. “Big 5” refers to each executive’s specific deliverables within the Company’s critical performance categories — operational excellence. an unanticipated and material downturn in the business cycle that triggers.79 $ 3. the Company performance portion is based 50% on earnings per share and 50% on operating income of the Company. . . The portion of annual incentive awards attributable to strategic/operational/talent management performance represents 40% of Mr. .36.000. The table below sets forth for each metric the performance levels for 2008 which would have resulted in 100% payout (i. the performance minimum level that would have resulted in a 50% payout and the performance maximum level that would have resulted in a 200% payout. Avril’s Company financial portion was pro-rated based on his services for SVO. EBITDA (which exceeded the EP Threshold) for purposes of determining bonuses was $1. Actual incentives paid to Named Executive Officers for strategic/operational performance may range from 0% to 175% of the pre-determined target amount for this category of performance. the Company’s vacation ownership subsidiary. the Company financial performance portion is based on 50% on earnings per share and 50% on the net income for SVO. Company operating income and SVO net income were $2. Strategic/Operational Goals.400.500. if applicable.157. . $ 92. the “performance maximum”).300. . the Compensation Committee retains the ability to consider whether an adjustment of the financial goals for any year is necessitated by exceptional circumstances. prior to his promotion in September 2008.e. . . a minimum amount is generally paid on a component of the “Financial Goals” portion of the annual bonus subject to the Compensation Committee applying its discretion to reduce awards.10 Company Operating Income . As part of a structured process that cascades down throughout the Company. the table sets forth the mid-points of performance and payout between the performance minimum to target and from target to performance maximum: Minimum (50%) Mid-point (75%) Target (100%) Mid-point (150%) Maximum (200%) Earnings per Share . From January through September.000. actual incentives paid to Named Executive Officers for financial performance may range from 0% to 200% of the pre-determined target bonus for this category of performance. . growth. Avril.000.000. van Paasschen’s total target opportunity and 50% of the total target opportunities for the other Named Executive Officers. and they integrate and align an executive with the Company’s strategic and operational plan. the financial performance component was paid at 68% of target (61% attributable to SVO for eight months and 82% attributable to corporate for four months). .. and achievement of leadership competency objectives typically accounts for 20% of such evaluation.000 $103. .000 $810. respectively.000. .000. brand enhancement.300. .000 $1. Using the metrics described above resulted in a payout at 82% of target for the Company performance portion of bonuses for the 2008 performance period for the Named Executive Officers other than Mr. . Performance against the financial targets determined 60% of Mr. these objectives are developed at the beginning of the year. The evaluation process for Mr. Avril. For Mr. once a certain level of performance is achieved. .000 and $85.000 SVO Net Income .000. in response. Achievement of “Big 5” objectives typically accounts for 80% of the strategic/operational performance evaluation. In addition. . Further. $819. van Paasschen’s total target opportunity and 50% of the total target opportunities for the other Named Executive Officers.000 $115.000.g. .800.000 For the 2008 performance period.000 $ 138. . .300.012.000 $ 161. an increased focus by the Compensation Committee on the Company’s performance relative to the industry.125. For Named Executive Officers. . “target”). . 19 . Once the EP Threshold is achieved.23 $ 2. .98 $ 2.subject to achieving the EP Threshold. The strategic/operational performance goals for Named Executive Officers under the Executive Plan consists of “Big 5” and leadership competency objectives that link individual contributions to execution of our business strategy and major financial and operating goals.48 $ 2. provided that Mr. e.

including the migration to a new reservation system In light of Mr. Combined with the 82% financial performance component.820. van Paasschen’s accomplishments for the 2008 performance year included the following: • Successfully continued the Company’s focus on building world class brands by launching the Aloft and Element brands with 19 Aloft and Element hotel openings in 2008. the Compensation Committee awarded him a bonus of $1. Mr. representing 91% of target. Prabhu’s 2008 bonus was 91% of target.van Paasschen and the other Named Executive Officers with respect to each executive’s strategic/operational goals is described below. Prabhu’s accomplishments for the 2008 performance year included the following: • Managed through a difficult and fast changing environment. sustaining the Sheraton revitalization plan and increasing guest satisfaction scores across all brands • Achieved strong financial results despite the economic environment and re-evaluated and redeveloped the strategy for the Company’s vacation ownership business • Led the streamlining of the Company’s operations. Siegel’s individual accomplishments for the 2008 performance year included the following: • Led a restructuring of the worldwide legal organization resulting in a consolidation of functions within the United States and an overall 28% reduction in costs • Designed a comprehensive environmental sustainability program utilizing cost effective initiatives and designed the framework for a comprehensive Corporate Social Responsibility program to be implemented by 2010 • Reduced outside legal fees 25% on a global basis and implemented new guidelines for the retention of outside legal counsel. benefits programs leading to cost savings • Continued the strong growth in the Company’s hotel portfolio by opening 87 hotels and signing agreements for an additional 147 hotels • Developed strong relationships at key levels throughout the Company resulting in increased employee satisfaction scores and positive changes to the Company’s culture despite the volatile economic climate In light of Mr. he received a “meets expectations” performance rating and was awarded 100% of his individual bonus target. Mr. van Paasschen’s accomplishments and impact on the Company. delivering strong financial results • Successfully delivered a company income tax rate and property tax rate on the Company’s owned hotels below budget and the target set • Successfully negotiated a settlement with the IRS leading to an expected refund of over $220 million • Ensured adequate liquidity to fund operations at optimal cost by issuing public debt and amending credit facilities prior to the global credit crisis and devised strategies to repatriate offshore cash • Completed major IT initiatives.000 for 2008.S. resulting in significant fee discounts • Played a significant role in on-boarding new members of senior management team and facilitated a seamless transition of the Human Resources function • Successfully managed the legal department in handling development transactions and internal restructurings with minimum use of outside counsel 20 . Prabhu’s accomplishments. Mr. including a major reorganization to eliminate dual roles and overlaps within the organization resulting in significant and ongoing cost savings and sponsored a sea change strategy for U. Mr.

Mr. Mr. In determining the equity awards granted in 2008. Mr. Avril’s accomplishments for the 2008 performance year included the following: • Led a major restructuring and cost containment effort at the Company’s vacation ownership subsidiary. Avril’s 2008 bonus was 74% of target. resulting in significant cash savings and a reduction in the scope of business • Assumed responsibility for the global hotel group and enhanced relationships with key owners • Assumed overall responsibility for the vacation ownership business following the departure of the former CEO of SVO and continued best practices and positive culture despite the difficult economic environment • Played a key role in various initiatives on revenue management. McAveety’s accomplishments in 2008. Overall. Turner the minimum amount permitted under his employment agreement and did not exercise its discretion to award amounts in excess of the minimum. The Compensation Committee awarded Mr. Equity awards are generally granted in February of each year following the announcement of the Company’s earnings for the previous year. he received a “meets expectations” performance rating and was awarded 100% of his individual bonus target. Mr. McAveety’s accomplishments for the 2008 performance year included the following: • Completed a review of the brand management function and led a major restructuring of the group and integrated various functions to drive effectiveness and efficiency • Created a brand design and a brand business service function and aligned the international divisions on structure and approach to create a sense of a single brand team • Focused the brand leadership teams on best practices and prioritized strategic initiatives and approaches • Delivered efficiencies in brand management resulting in significant cost savings In light of Mr. the Compensation Committee paid the majority of the Named Executive Officers individual bonuses that were at target for their individual performance. Mr. Performance reviews and bonus awards for the prior operating year are made at that time. the Compensation Committee considered and took into account the Company’s performance and the individual performance of each Named 21 . Conclusion. Combined with the 68% financial performance component (pro-rated for service as President of SVO from January through September).In light of Mr. resulting in overall bonuses that were below target when combined with the Company financial performance portion. These decisions were made in consideration of the strong individual performance of each of the Named Executive Officers despite the difficult economic climate and multiple changes at the senior executive level resulting in changing roles and responsibilities. Turner was entitled to at least a pro-rated target bonus for 2008. Combined with the 82% financial performance component. Siegel’s 2008 bonus was 91% of target.5% of target for the Named Executive Officers. he received a “meets expectations” performance rating and was awarded 100% of his individual bonus target. Turner joined the Company in May 2008. Mr. he received a “meets expectations” performance rating and was awarded 80% of his individual bonus target. Mr. the annual incentive payments attributable to both Company financial and strategic/operational performance range from 0% — 187. other than the Chief Executive Officer. Combined with the 82% financial performance component. McAveety’s 2008 bonus was 91% of target (pro-rated for his March 2008 start date). reducing overlap across functions and reducing costs in the operations area • Effectively developed succession planning and enhanced the group dynamic with direct reports In light of Mr. Viewed on a combined basis once minimum performance is attained. Pursuant to his employment agreement. Avril’s accomplishments in 2008. Siegel’s accomplishments.

the Chief Executive Officer submits his recommendations to the Compensation Committee for final review and approval. including the Named Executive Officers. In addition. In its review of the overall compensation strategy and program in 2008. the Chief Executive Officer. These changes were designed to better align compensation with (i) the creation and preservation of shareholder value and (ii) the Company’s financial performance. Avril received an additional promotion grant in 2008 reflecting his increased role and responsibilities. In addition. The Compensation Committee changed its philosophy on tax gross ups in change in control agreements and eliminated gross ups for arrangements put in place in 2008 with senior executives. the Compensation Committee made several key changes. including the Company’s performance and individual performance of each Named Executive Officer in 2007. Long-Term Incentive Compensation. With oversight and input from the Compensation Committee. which results in a PMP rating for each executive. Evaluation Process for Strategic/Operational and Other Goals. long-term incentives are a key part of the Company’s executive compensation program. in connection with his promotion to President. Mr. The Compensation Committee also determines. Where necessary to preserve the competitive position of the Company’s compensation scale. This PMP rating corresponds to a payout range under the Executive Plan determined annually by the Compensation Committee for that rating. for 2008 the portion of the Executive Plan payouts based on PMP ratings could range from 0% to 175% of target. Like the annual incentives described above. The Chief Executive Officer conducts this evaluation through the Performance Management Process (“PMP”). McAveety and Turner received sign on grants in 2008 following the commencement of their employment. Long-term incentives are strongly tied to 22 . conducts a formal performance review process each year during which he evaluates how each other Named Executive Officer performed against the officer’s strategic/operational performance goals for the prior year. the Compensation Committee believes that equity award grants in 2008 were appropriate. the extent to which the Company’s financial performance goals were achieved and whether the Company achieved the applicable minimum threshold(s) required to pay awards. In determining the actual award payable to a Named Executive Officer under the Executive Plan. together with the Chief Human Resources Officer. the Chief Executive Officer may recommend a market adjustment to the base amount that is subjected to this percentage. the Compensation Committee believes the actual cash and equity compensation delivered for the 2008 performance year was appropriate in light of the Company’s overall performance and individual executive performance. most of which will be effective for the 2009 performance year. In addition. Other Named Executive Officers. For the 2009 performance year. Messrs. Hotel Group. As noted. Based on the factors set forth above. based on management’s report. At the conclusion of his review.Executive Officer in 2007 as well as the expected performance of the Company for 2008 at the time of grant. Evaluated on this basis. the Compensation Committee considers structural changes to the equity program and the fact that the Compensation Committee targets the median of the peer group for base salary but targets total compensation at the 65% percentile resulting in larger long-term incentive awards. made structural changes to align the individual performance portion of annual bonuses to the Company’s financial performance and lowered the ratio for determining the number of options to be granted from 3-to-1 to 2.5-to-1. Annual Incentive awards made to our Named Executive Officers under the Executive Plan with respect to 2008 performance are reflected in the Summary Compensation Table on page 29 and described in the accompanying narrative. the Compensation Committee reviews the Chief Executive Officer’s evaluation and makes a final determination as to how the executive performed against his strategic/operational goals for the year. the Company froze salaries for all bonus eligible associates in corporate and divisional offices. The Chief Executive Officer also meets in executive session with the Board of Directors to inform the Board of his performance assessments regarding the Named Executive Officers and the basis for the compensation recommendations he presented to the Compensation Committee. Total compensation for this group is evaluated against the peer group identified in this proxy statement. the Compensation Committee also eliminated the minimum payout on the Company financial performance portion by establishing minimum performance measures that must be achieved for any bonus to be paid.

during business downturns. The Compensation Committee has the discretion to accelerate vesting or pay out deferred amounts in cash (without interest and without the percentage increase in value) in a limited number of termination circumstances (e. The Compensation Committee generally grants awards under the LTIP annually to all other Named Executive Officers that are a combination of stock options and restricted stock awards. the Compensation Committee reduced this ratio to 2. most stock options vest in 25% increments annually starting with the first anniversary from the date of grant. In 2008 we used a grant approach in which the award is articulated as a dollar value. an overall award value. the deferred amount is increased by 33% of value. while encouraging long-term retention of executives. The Named Executive Officers are able to elect a greater portion of options (up to 100% options). as defined in the LTIP. For stock options granted in 2008. Under this approach. for 2008 grants. Third. See the section entitled Equity Grant Practices on page 27 below for a description of the manner in which we determine fair market value for this purpose. We generally targeted the value of these awards so that total compensation at target is set at the 65th percentile of our peer group. Primarily in consideration of this vesting risk being applied to already earned compensation (but also taking into account the enhanced stockholder alignment that results from being subject to share performance). approximately 60-65% of total compensation at target is equitybased long term incentive compensation. or earlier in the event of termination of employment. van Paasschen agreed not to sell any Company stock awards or shares received on exercise of options (except as may be withheld for taxes) for the first two years of his employment and thereafter only in consultation with the Board of Directors. Taken together.. In light of the stock price and leverage opportunity. was determined for each executive based upon our compensation strategy and competitive market positioning. as defined in the LTIP. The number of stock options has generally been determined by dividing the remaining 25% of the award value by the fair market value of the Company’s stock on the grant date and multiplying the result by three. As such. The Company seeks to enhance the link to stockholder performance by building a strong retention incentive into the equity program. The number of restricted stock shares is calculated by dividing 75% of the award value by the fair market value of the Company’s stock on the grant date. Vesting occurs in installments for employment over a three-year period. Therefore. these already earned amounts are put at risk through a vesting schedule. stock options expire 8 years from the date of grant. Consequently. Second. Named Executive Officers have a mandatory deferral of 25% of their awards under the Executive Plan in the form of deferred stock units. amounts must be earned based on annual Company financial and strategic/operational performance under the Executive Plan.returns achieved by stockholders. awards granted to associates who are retirement eligible. 23 . involuntary terminations or retirements). though individual awards may have been higher or lower based on individual performance (determined as described in the Executive AIP assessment above). vest in 16 equal quarterly periods. As mentioned above. awards granted to associates who are retirement eligible. Stock options provide compensation only when vested and only if the Company’s stock price appreciates and exceeds the exercise price of the option. The exercise price for each stock option is equal to fair market value of the Company’s common stock on the option grant date. Mr. providing a direct link between the interests of stockholders and the Named Executive Officers. Unexercised. For restricted stock granted in 2008.g. these earned amounts become subject to share price performance. This delayed vesting places an executive’s long-term compensation at risk to share price performance for a significant portion of the business cycle. respectively. vest in sixteen equal quarterly periods. First. unless reduced in the discretion of the Compensation Committee. Restricted stock units and restricted stock provide some measure of mitigation of business cyclicality while maintaining a direct tie to share price. Currently. 75% of restricted stock units and awards vest on the third anniversary of the date of grant and the remaining 25% vests on the fourth anniversary of the date of grant.5 for equity awards made in 2009. in dollars. the awards combine performance-based compensation with a further link to stockholder interests. option awards may not represent any economic value to an executive. Long-term incentive compensation for our Named Executive Officers consists primarily of equity compensation awards granted annually under the Company’s LTIP and secondarily of the portion of the Executive Plan and Executive AIP awards that are deferred in the form of deferred stock units and shares of restricted stock.

McAveety and Turner and the promotion of Mr. Current Benefits. Perquisites. Pursuant to the policy. the Company provides certain limited perquisites to select Named Executive Officers when necessary to provide an appropriate compensation package to those Named Executive Officers. van Paasschen’s employment agreement. The Company provides employee benefits that are consistent with local practices and competitive markets. the Board reviewed the change of control arrangements then in place with the Named Executive Officers and decided to enter into new change of control agreements with the Named Executive Officers at that time. McAveety. 2005. become fully vested upon the eligible employee’s completion of three years of service with the Company. In connection with the hiring of Messrs. The Company also included change of control arrangements in Mr. with an obligation to reimburse for personal use based upon the Company’s operating cost. which included Messrs. were permitted to make additional deferrals of base pay and regular annual incentive awards under our nonqualified deferred compensation plan. For example. The Company maintains a tax-qualified retirement savings plan pursuant to Code section 401(k) for a broadly-defined group of eligible employees that includes the Company’s Named Executive Officers. These matching contributions. do not provide for a tax gross up if the benefits payable thereunder are subject to the 280G excise tax. Eligible employees may contribute a portion of their eligible compensation to the plan on a before-tax basis. the Company matched 100% of the first 2% of eligible compensation and 50% of the next 2% of eligible compensation that an eligible employee contributes. subject to the credit described above. The Company also reimburses Named Executive Officers generally for travel expenses and other out-ofpocket costs incurred with respect to attendance by their spouses at one meeting of the Board each year. This plan is discussed in further detail under the heading Nonqualified Deferred Compensation on page 35. Turner and Avril. medical and dependent care flexible spending accounts and a pre-tax premium payment arrangement. life and disability insurance.086 of which was used. Avril. as adjusted for related investment returns. Beginning in 2008. the benefits provided are reduced until the point that the executive would be better off paying the excise tax rather than reducing benefits. Each of these benefits is provided to a broad group of employees within the Company and our Named Executive Officers participate in the arrangements on the same basis as other employees.. 2.e. the Company adopted a policy proscribing certain terms of severance agreements triggered upon a change in control of the Company. Our Named Executive Officers. Base salary and incentive compensation are supplemented by benefits and perquisites.000 credit (based on the Standard Industry Fare Level formula) for personal use of the Company’s aircraft during the first 12 months of his employment with the Company. On March 25. the Company entered into change of control arrangements with them that were similar to the arrangements in place for the other Named Executive Officers (other than the CEO). i.Benefits and Perquisites. the Company is required to seek stockholder approval of severance agreements with executive officers that provide Benefits (as defined in the policy) in excess of 2. Prior to 2008. Prabhu and Siegel. Instead. subject to certain limitations prescribed by the Code. however. particularly in connection with enabling the executives and their families to smoothly transition from previous positions which may require relocation. The arrangements with Messrs. Change of Control Arrangements Following the consummation of the sale of 33 hotels to Host Hotels & Resorts and the related return of capital to stockholders. van Paasschen with up to a $500. van Paasschen and his immediate family had access to a Company owned or leased airplane on an “as available” basis for personal travel.99 times base salary plus such officer’s most recent bonus. Retirement Benefits. the Company matched 100% of the first 1% of eligible compensation and 50% of the next 6% of eligible compensation that an eligible employee contributes. in addition to certain other eligible employees. assuming such plane was not needed for business purposes. $495. Mr. including group health benefits. As reflected in the Summary Compensation Table below. These change of control arrangements are described in more detail beginning on page 36 under the heading entitled 24 . van Paasschen’s employment agreement provides that the Company will provide Mr. Mr.

the Company amended the employment arrangements with each of the Named Executive Officers (including the CEO). including levels of total compensation. pay mix. and generally affect the timing. Background Information on the Executive Compensation Program 1. The aggregate effect of our change of control provisions is intended to focus executives on maximizing value to stockholders. Siegel’s then unvested restricted stock and options in the event his employment was terminated without cause or by the executive for good reason within two years of the hiring of a new Chief Executive Officer. The Company’s experience has proven that key executives with diversified experience prove to be major contributors to its continued growth and success. The Change of Control Severance Agreements are intended to promote stability and continuity of senior management. 2007. should a change of control occur. stability and continuity and succession planning and to provide assurance to a key executive in a time of uncertainty regarding the Company’s chief executive officer position. The letter agreement provided for the acceleration of 50% of Mr. the Company changed its policy on providing tax gross-ups in change in control agreements. In addition. which includes companies outside the hospitality industry. The special severance will expire on August 14.Potential Payments Upon Termination or Change of Control. These amendments made several technical changes designed to make the employment arrangements with such officers comply with Section 409A and the final regulations issued thereunder. Prabhu clarifying that his severance included the acceleration of 50% of unvested restricted stock and options in the event that his employment was terminated without cause or by him for good reason. Siegel. The executive team and Compensation Committee review the peer group bi-annually to ensure it represents a relevant market perspective. the Compensation Committee reviews data from several major compensation consulting firms that reflects compensation practices for executives in comparable positions in a peer group consisting of companies in the hotel and hospitality industries and companies with similar revenues in other industries relevant to key talent recruitment needs. Avril. Benefit levels have been set to be competitive with peer group practices. In addition. it is able to attract and retain talented executives from outside the hospitality industry. benefits will be paid after a “double trigger” event as described in Potential Payments Upon Termination or Change in Control. the Company entered into a letter agreement with Mr. Additional Severance Arrangements On August 14. The Company believes that the provision of severance pay to these Named Executive Officers upon a change of control aligns their interests with those of stockholders. the Company acknowledges that seeking a new senior position is a long and time consuming process. the Company is able to mitigate executive concern over employment termination in the event of a change of control that benefits stockholders. the change in control arrangements with Messrs. By making severance pay available. The Compensation Committee also reviews Company performance against the performance of companies in this peer group. In addition. The Company believes that by conducting the competitive analysis using a broad peer group. including facilitating a sale of the Company at the highest possible price per share. 25 . 3. As a result. the acceleration of equity compensation vesting in connection with a change of control provides these Named Executive Officers with protection against equity forfeiture due to termination and ample incentive to achieve Company goals. for executive officers hired in 2008. 2009. C. The Compensation Committee utilizes the peer group for a broad set of comparative purposes. which would benefit both stockholders and executives. The purpose of the letter agreement was to support retention. In addition. but not the amount of compensation of such officers under specified circumstances. The clarification formally documented Mr. incentive plan and equity usage and other terms of employment. the Company entered into a letter agreement with Mr. as amended (“Section 409A). Prabhu’s existing severance arrangements as part of his employment by the Company. In connection with Section 409A of the Internal Revenue Code of 1986. Lastly. In addition. Use of Peer Data In determining competitive compensation levels. each severance agreement permits the executive to maintain certain benefits for a period of two years following termination and to receive outplacement services. McAveety and Turner provide that the benefits are to be reduced until the executive is better off paying the excise tax rather than reducing benefits.

Colgate Palmolive Corporation Estee Lauder Cos.Accordingly. Brand Marketing. and prior to that. General Counsel and Secretary. most recently serving with Coors Brewing Company. global lifestyle brands. Staples Inc. Inc. a provider of research and analysis on information technology industries and was a partner in the law firms of Baker & Botts LLP and O’Sullivan Graev & Karabell LLP. compensation paid to the Company’s Named Executive Officers was compared to peer group data reported in 2008 proxy statements. the Company’s President. the Company’s Chief Administrative Officer. We expect that it will be necessary to update the list periodically. Marriott International. The peer group approved by the Compensation Committee for 2008 is set out below. and Senior Vice President of Finance and Chief Financial Officer for Pepsi Cola International. In performing its competitive analysis. Siegel. Simon Property Group Inc. Federal Express Corp. Executive AIP bonuses paid in 2009 for 2008 performance and equity grants awarded in 2008. 26 . During 2008. • Kenneth S.. consisting of salary and target and actual bonus awards in prior years.. Europe. • Philip P. McAveety. Inc. a hotel investment advisory firm and served on the Board of Directors of Four Season Hotels. Avon Products Carnival Corp. the Compensation Committee typically reviews: • base pay. as provided by compensation consulting firms and reflecting 2007 compensation. ranged from the median to the upper quartile. who prior to joining the Company served as Senior Vice President and General Counsel of Gartner. • target and actual total cash compensation. The Company’s Named Executive Officer compensation data taken into account for this comparison included 2008 salary. • Vasant M. Middle East and Africa at Nike. who has over 20 years of experience with consumer-focused. the Company’s Chief Executive Officer. Host Hotels & Resorts Kellogg Corporation Limited Brands Inc. who prior to joining the Company spent over ten years as a principal of Hotel Capital Advisers. Inc. the Company’s Executive Vice President and Chief Financial Officer. • Simon Turner. Nike. MGM Mirage Nike Inc. and the value of option and restricted stock/restricted stock unit awards. Inc. the Company was able to attract and retain: • Frits van Paasschen. a fashion company and Vice President. Walt Disney Co. Williams Sonoma Inc. who prior to joining the Company served as Global Brand Director of Camper. McDonald’s Corp. The competitive position of the Company’s compensation based on total cash (salary and bonus) ranged from the median to the lower quartile while the competitive position of its compensation based on total compensation at target. who prior to joining the Company served as Executive Vice President and Chief Financial Officer of Safeway Inc. Global Development Group. Prabhu. target and actual bonus awards. the Company’s Chief Brand Officer.. President of Information and Media Group for The McGraw Hill Companies. Wyndham Worldwide Corporation Yum Brands Inc. Inc. Inc. Inc. a food and drug retailer. and • direct total compensation consisting of salary. as President and Chief Executive Officer. which includes the equity grants. Starbucks Corp.

On October 22. Qualified performance-based compensation is not subject to the deduction limit if certain requirements are met. including the Named Executive Officers.2. 4. The Company believes that compensation paid under the Executive Plan meets these requirements and is generally fully deductible for federal income tax purposes. Accounting. including the CEO and Named Executive Officers. The timing of this meeting is determined based on factors unrelated to the pricing of equity grants. For the Chief Executive Officer. 3. Accordingly. Beginning on January 1. the Company requires the Executive Officer to sign his 27 . Equity Grant Practices Determination of Option Exercise Prices. and intends to continue taking.000 paid to the chief executive officer and the four other most highly compensated executive officers. The Compensation Committee grants stock options with an exercise price equal to the fair market value of a share of our common stock on the grant date. the multiple is four (4) times base salary. Share Ownership Guidelines In 2007. the fair market value of our common stock on a particular date is determined as the average of the high and low trading prices of a share of the stock on the New York Stock Exchange on that date. Timing of Equity Grants. the Named Executive Officers. reasonably practicable steps to minimize the impact of Section 162(m). A retention requirement of 35% is applied to restricted Shares upon vesting (net shares after tax withholding) and Shares obtained from option exercises until the executive meets the target. Officers have five years from the date of hire or the date they first become subject to the policy to meet the ownership requirements. the Company adopted share ownership guidelines for our executive officers. the date on which the Board approves the employment package becomes the grant date of the newly-hired Executive Officer’s equity compensation awards. or if an executive falls out of compliance. stock equivalents (vested/ unvested units). 2006. 2004. including the Chief Executive Officer. The company entered into amendments to the employments arrangements with its senior officers. the Company began accounting for awards under its LTIP in accordance with the requirements of FASB Statement 123(R) (“SFAS 123(R)”). The Compensation Committee approves equity compensation awards to a newly hired Executive Officer at the time that the Board meets to approve the executive’s employment package. the multiple is five (5) times base salary and for the other Named Executive Officers. the American Jobs Creation Act of 2004 was signed into law. Pursuant to the guidelines. Section 162(m) of the Code generally disallows a federal income tax deduction to public companies for compensation in excess of $1. stock options do not count towards meeting the target. Therefore.000. the Company has historically taken. 2009. if the Company and the new Executive Officer will enter into an employment agreement regarding the employment relationship. Generally. in certain circumstances the Company may approve compensation that does not meet these requirements in order to advance the long-term interests of its stockholders. While final Section 409A regulations were not effective until January 1. the Compensation Committee carefully considers the effect of this provision together with other factors relevant to its business needs. adding Section 409A to the Code and thereby changing the tax rules applicable to nonqualified deferred compensation arrangements effective January 1. In designing the Company’s compensation programs. 2005. A more detailed discussion of the Company’s nonqualified deferred compensation plan is provided on page 35 under the heading Nonqualified Deferred Compensation. and unvested restricted stock (pre-tax) count towards meeting ownership targets. Tax and Accounting Considerations Tax. are required to hold that number of Shares having a market value equal to or greater than a multiple of each executive’s base salary. Under the LTIP. At the same time. the Compensation Committee has determined that each of the Named Executive Officers will participate under the Executive Plan for 2008. the Company believes it was operating in good faith compliance with Section 409A and the interpretive guidance thereunder. However. Shares owned. However. and amended its bonus and compensation plans in December 2008 to meet the requirements of these regulations. The Compensation Committee generally makes annual equity compensation grants to Named Executive Officers at its first regularly scheduled meeting that occurs after the release of the Company’s earnings for the prior year (typically in February).

recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement for the 2009 Annual Meeting of Stockholders. COMPENSATION COMMITTEE REPORT The Compensation and Option Committee of the Board of Directors (the “Board”) of Starwood Hotels & Resorts Worldwide. annual grants are generally made in February. COMPENSATION AND OPTION COMMITTEE Adam M. To respond to this concern. under unusual circumstances grants may be made at other times during the year. Jr. Bruce W. (the “Company”) has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and. The Company’s policy is that the grant date of equity compensation awards is always on or shortly after the date the Compensation Committee approves the grants. the economic downturn at the beginning of the current decade as well as the September 11 terrorist attacks and aftermath had a significant negative impact on the Company (and the hospitality industry generally) and its stock price. For example. Duncan Lizanne Galbreath Kneeland C. virtually all of which had exercise prices above the then-current trading price of the Company’s common stock. II. Daley. as discussed above. the later of the date on which the Executive Officer signs his employment agreement or the date that the Executive Officer begins employment becomes the grant date of these equity compensation awards.employment agreement shortly following the date of Board approval of the employment package. particularly in the case of outstanding option awards. Aron. Chairman Clayton C. Although. based on such review and discussions. restoring financial motivation to succeed and retaining the Company’s top performers. This severely weakened the retention aspect of the Company’s equity awards outstanding at the time. the Company made the 2003 option grants in December 2002 with the intention of keeping executives focused on business results (including the Company’s stock price). Inc. Youngblood 28 .

. . .852 1.876 3. . . Cash incentive awards exclude the following amounts that were deferred into deferred stock units (Executive Plan) or shares of restricted stock (Executive AIP) and increased by 33% in accordance with the Executive Plan and Executive AIP: 29 . . President. . Pursuant to SEC rules.. . Executive Vice President and Chief Financial Officer Kenneth S.134.616 887. . . . For additional information.674 102. .667 612..894 494. .643 568. . in accordance with SFAS 123(R).054 617. 2008. . .440 402. . . Hotel Group since September 2008 . President. .402 93. .492. .000 337. .685 3. .000 — 406. .249 550. . . 2008. General Counsel and Secretary Matthew Avril . See the Grants of Plan-Based Awards Table on page 31 for information on awards granted in 2008. .695 3.806 1. ..539 583. . .623 (1) Represents the expense recognized for financial statement reporting purposes with respect to 2008 for the fair value of restricted stock and restricted stock units granted in 2008 as well as in prior years. . . .013 1.000 270. .. Siegel.136.435.365.809 567.722.424 1. 2007 Vasant Prabhu. Chief Executive Officer since September 24.810 91.586 188.115 763.497.515 51. Pursuant to SEC rules. These amounts reflect the Company’s accounting expense for these awards and do not correspond to the actual value that will be recognized by the Named Executive Officers. refer to Note 21 of the Company’s financial statements filed with the SEC as part of the Form 10-K for the year ended December 31. .375 All other compensation ($)(4) 522.598 2008 407. . ..197 500.698 1.665 . Prabhu and Siegel for 2006 performance).500. These amounts reflect the Company’s accounting expense for these awards and do not correspond to the actual value that will be recognized by the Named Executive Officers.394.896 Bonus ($) — 1.163 3. Philip McAveety . .315 Non-equity incentive plan compensation ($)(3) 1. .179.037 505.913 312.908 23.399 1. refer to Note 21 of the Company’s financial statements filed with the SEC as part of the Form 10-K for the year ended December 31.216. the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.117. .427 255.056 3.067. the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.103 Total ($) 5.530 1. . .618.500 30..690.833 638.350 Option awards ($)(2) 699. . .762 992. . Chief Brand Officer since March 2008 Simon Turner . . . .260 1.. See the Grants of Plan-Based Awards Table on page 31 for information on awards granted in 2008. .896 29.154 Name and principal Position Frits van Paasschen.025 829. SUMMARY COMPENSATION TABLE Salary ($) 1.. Global Development Group since May 2008 2008 376. Chief Administrative Officer..000.764 585. as discussed under the Annual Incentive Compensation section beginning on page 18. .529. . . 2007 and 2006. . (3) Represents cash awards paid in March 2009. Year 2008 2007 2008 2007 2006 2008 2007 2006 2008 .488.864 1.590.937 134. .840 419. . .695 89. (2) Represents the expense recognized for financial statement reporting purposes with respect to 2008 for the fair value of stock options granted in 2008 as well as in prior years.232 496.712 3. For additional information. respectively.642.380 85. 2008 and 2007 with respect to 2008.538 347.135. . .656.800 437.000 403. in accordance with SFAS 123(R). .000 — — — — — — — Stock awards ($)(1) 2.287 480. 1. .164 890.700 3.668.363 3. performance under the Executive Plan (for each of the Named Executive Officers for 2008 and 2007 performance) and the Annual Incentive Plan (for Messrs.927 578.000 601. .III.

. . . . Dividend Equivalents on Restricted Stock ($) (2008) Relocation ($) (2008) Dividend Equivalents on Restricted Stock ($) (2007) Name van Paasschen . . . . . . 104. . . . .000 in the aggregate for 2008. . . . . . . . . .000. . . . . . . . . . .917 76. . . . dividends on restricted stock. 2007 and 2006 but must be identified by type for each Named Executive Officer for whom such amounts were equal to or greater than $10. . This applies to Mr. . catering and aircraft supplies. . . . In that regard. . . . . . . .280 Siegel . . .603 189. . . . life insurance premiums. . . . legal fees paid by the Company. perquisites and personal benefits are not reported for any Named Executive Officer for whom such amounts were less than $10. . . .861 — 63. . . navigation and telecommunications. . .728 — 165. These amounts are included in the All Other Compensation column. . . Avril .275 and the reimbursement of $44. . . . . .480 in 2008 and $165.606 in 2007. . . . . . . . . . . McAveety . . Prabhu .000 134. . . . . . . . . . . . . van Paasschen’s personal use of the Companyowned plane and chartered aircraft was $329. . . . . . . . . . . . . . . . . . . 455. .313 — — Turner .000. . 145. .013 168. . . . . . . .750 183. . . . . . . . . . . . . SEC rules require specification of the cost of any perquisite or personal benefit when this cost exceeds $25. . These amounts are included in the All Other Compensation column. . . 139. . . .125 — — McAveety . .538 150. . . . . . . . . . . . . . . The cost of the Company-owned plane includes the cost of fuel. crew expenses. . . . . . the following table specifies the value for each element of All Other Compensation not specified above other than perquisites and personal benefits that is valued in excess of $10. . . . . . . . . . For 2007. . . . . also includes relocation benefits which had an aggregate cost of $132. . . . . . . .556 for legal fees incurred in connection with the negotiation of his employment agreement. . . . . — 69. . . . . . . . . The net aggregate incremental cost to the Company of Mr. . . . . 30 . . . . which amounts were covered by his credit. .Name 2008 Amount Deferred 2007 Amount Deferred 2006 Amount Deferred van Paasschen . COBRA premiums paid by the Company. and tax and financial planning services. .000 in the aggregate. . . . .328 — — — 111. . . . . . the All Other Compensation column of the Summary Compensation Table includes perquisites and other personal benefits consisting of the following: annual physical examinations. . . . . . . 134. . . . . Company contributions to the Company’s tax-qualified 401(k) plan. . . . . ground services and landing fees. . . . . . . . aircraft cleaning and an allocable share of maintenance.530 24. . . . . .480 Avril . . . . . Avril became an executive officer in September 2008 upon his promotion to President. . . .167 — — (4) Pursuant to SEC rules. . van Paasschen’s personal travel (discussed below). . . . . . . . Siegel .600 — Prabhu . . . . Pursuant to SEC rules. .199 — — (5) Mr. . . . . . . Hotel Group. spousal accompaniment while on business travel. . . . .922 195. 85. . . . . . . . . .

251(9) 375. .360 1.167 416.125 25.61 522.000 703. . .499.375 22. 2/28/2008 2/28/2008 3/03/2008 2008 78. 4/01/2008 4/01/2008 2008 25.861(6) 5. . .021 Prabhu . For restricted stock and restricted stock units.175 Siegel.220(6) 3.234 26. . . .029 1. 31 .742.778(4) 102.165 2/14/2008 2/14/2008 (4) 153.000(8) 3. second. These restricted shares vest in equal installments on the first and second anniversary of the date of grant. which are provided by plan terms.201. 2008. (6) These awards generally vest 75% on the third anniversary and 25% on the fourth anniversary of their grant date. (3) Represents the fair value of the awards disclosed in columns (g) and (h) on their respective grant dates.898 (1) Represents the potential values of the awards granted to the Named Executive Officers under the Executive Plan if the threshold. and vested units are distributed on the earlier of (i) the third fiscal year-end or (ii) a termination of employment.319 53. fair value is calculated in accordance with SFAS 123(R) using a lattice valuation model. 2/28/2008 2/28/2008 3/03/2008 9/02/2008 2008 22. which number of shares was increased by 33%. Mr. . Siegel.32 487.IV. .000. . There can be no assurance that these amounts will correspond to the actual value that will be recognized by the Named Executive Officers.750 4/29/2008 104.61 376.224(7) 53.000 1.009 Turner . 2/28/2008 2/28/2008 3/03/2008 2008 30. (5) On March 3.474(4) 640.359.080. .264 1.350.870 48. See detailed discussion of these awards in section V.000 9.999 259.61 1.006 244.319(7) 725. . in accordance with the Annual Incentive Plan. Dividends are paid to the Named Executive Officers in amounts equal to those paid to holders of shares of Company stock.232(6) 5. third and fourth anniversary of their grant. 2008 award vests 100% on the third anniversary of the grant date. 25% of Messrs. . .696 48.497. .153(4) 2.198 30.501 1. . fair value is calculated in accordance with SFAS 123(R) using the average of the high and low price of the Company’s stock on the grant date.153. .551(5) 40. target and maximum goals are satisfied for all applicable performance measures. No separate Compensation Committee approval was required for these shares.990 McAveety .344(6) 615. (2) The options generally vest in equal installments on the first.61 1. and Prabhu’s annual bonus with respect to 2007 performance was credited to a deferred stock unit account on the Company’s balance sheet.000.658 1. refer to Note 21 of the Company’s financial statements filed with the SEC as part of the Form 10-K for the year ended December 31. . van Paasschen. Avril’s annual bonus with respect to 2007 performance was deferred into restricted stock. 2/28/2008 3/03/2008 2008 2/14/2008 (4) 0 2/14/2008 2/14/2008 (4) 160.25 2. GRANTS OF PLAN-BASED AWARDS Grant Date (or year with respect to non-equity incentive plan award) (b) All Other Stock Awards: Number of Shares of Stock or Units (#) (g) All Other Option Awards: Number of Securities Underlying Options (#) (2) (h) Exercise or Base Price of Option Awards ($/Sh) (i) Grant Date Fair Value of Stock and Option Awards ($) (3) (j) Name (a) Compensation Committee Approval date (c) Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) Threshold Target Maximum ($) (d) ($) (e) ($) (f) van Paasschen . 5/07/2008 2008 135. . . For stock options. . . For additional information. .275.402 179. 25% of Mr. below. Avril’s September 2. .721 1.499. (4) On March 3. .385 Avril .332.003 168. . . These deferred stock units vest in equal installments on the first. which are provided by plan terms.757 2/14/2008 2/14/2008 (5) 8/27/2008 181.667 781. in accordance with the Executive Plan. . which number of shares was increased by 33%. 2008. No separate Compensation Committee approval was required for these shares.220 48. Dividends are paid to the Named Executive Officers in amounts equal to those paid to holders of shares of Company stock. . 2008. second and third fiscal year-ends following the date of grant.861 48.250 2/01/2008 2/01/2008 93.945 1.

. Turner was entitled to receive at least a pro-rata target bonus. .658 582. . .466 138. actual award.000 Turner .167 605.750 139.000. . . The table below presents for each such Named Executive Officer his salary.667 455. . . . The 32 . . .039 Avril . . . Turner’s start date with the Company. . . 1.820. Each equity grant is shown separately for each Named Executive Officer. . Mr.125 85. Turner’s bonus opportunity is pro-rated based on his May 2008 start date.313 104. .000 640. . Award Target Relative to Salary (%) Award Deferred into Restricted Stock/Restricted Stock Units ($) Increased Award Deferred into Restricted Stock/Restricted Stock Units ($) Name Salary ($) Award Target ($) Actual Award ($) van Paasschen . . . . . . . . target as both a percentage of salary and a dollar amount. These awards are reflected in both the Summary Compensation Table on page 29 and the Grants of Plan-Based Awards section on page 31. 625.999 615. . .096 178.848 186. McAveety and Turner’s employment with the Company. The Committee awarded the minimum amount pursuant to the employment agreement and did not exercise any discretion with respect thereto. This table includes unexercised and unvested stock options. . . . . second. unvested restricted stock and unvested restricted stock units. and • the bonuses paid to executive officers performing comparable functions in peer companies. . NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE AND GRANTS OF PLANBASED AWARDS SECTION We describe below the Executive Plan awards granted to our Named Executive Officers for 2008. . . OUTSTANDING EQUITY AWARDS AT FISCAL YEAR -END The following table provides information on the current holdings of stock options and stock awards by the Named Executive Officers. . • the 2008 PMP ratings assigned to such executives. .922 134. Turner received an incentive award in March 2009 relating to his 2008 performance. .000 McAveety . . .667(1) 416. Mr.686 725.542 (1) Amount reflected has been adjusted to reflect pro-rata portion of bonus given Mr. .000 536. . The following factors contributed to the Compensation Committee’s determination of the 2008 Executive AIP awards for these Named Executive Officers: • the Company’s 2008 financial performance as measured by operating income and earnings per share. 615. . 640. (8) Represents the maximum amount payable to any participant under the terms of the Executive Plan. . . .658 Siegel . The options vest in equal installments on the first. (9) Mr. V.250 341. . .039 559.500 281.386 113. . . .000 1. third and fourth anniversaries of their grant. VI. .000 Prabhu . . . Under the terms of his employment agreement. . . the portion of the award that is deferred into restricted stock units and the 33% increase in his restricted stock units. .000. . The restricted stock granted to Mr. each one received equity awards in accordance with his employment agreement.000 200% 100% 100% 100% 75% 100% 2. . Each of the other Named Executive Officers received an award in March 2009 relating to his 2008 performance. . . McAveety generally vests on the third anniversary of the grant date. 725. . . . .150 193. . . 500.250 416.000 145. . . . .(7) Upon the commencement of Messrs. .

300 24.158 453. .635 0 0 22.210 0 0 25. .789 370.738 63.220 48.132 8. .61 2/10/2013 2/07/2014 2/28/2015 2/28/2016 20. . . .90. 4/01/2008 4/01/2008 Turner . .6122 Host shares and $0. . .553 61.903 78.864 39. . 2008. .696 29.32 53. .69 48.861 31.974 0 47. . . .25 4/01/2016 25.695(5) 22.895(3) 2.487 30. . .232(3) 3. . . .518(4) 1. . . .220(3) 3. . . .551(5) 40. .344(3) 366. . . . .861(3) 3.230 30. . Holders of Starwood employee stock options and restricted stock did not receive this consideration while the market price of the Company’s publicly traded shares was reduced to reflect 33 . .230 34.731(5) 30. . .369 5. . . .870 58. . . .929 15. .02 31. . . . .174 618. . .317 9. . . .15 48.39 48. .550 22. .39 48.143. Option awards Number of Securities Underlying Unexercised OptionsExercisable (#)(1)(2) Number of Securities Underlying Unexercised Options Unexercisable (#)(1)(2) Stock awards Number of Shares or Units of Stock That Have Not Vested (#) (1) Market value of shares or Units of Stock That Have Not Vested ($) Name Grant Date Option Exercise Price ($)(1) Option Expiration Date van Paasschen .61 9/24/2015 2/28/2016 63. .921 102. .705 618. .80 65. .621 39. . . . . .341 397. .503 in cash for each of their Class B Shares. .440 61. . .538(3) 1. .412 65. . . Starwood’s stockholders received 0. . . . . .80 65. . . . . 9/24/2007 2/28/2008 9/24/2007 3/03/2008 Prabhu. .319 135.80 65. . .985 552. . . .435(4) 550.816 469. .224 53. . . which was $17. .274(3) 34.903 30. . . .71 48.319(3) 5/07/2016 (1) In connection with the Host Transaction.942 30.635 0 0 0 20.721 45. 2/02/2004 2/18/2004 2/10/2005 2/07/2006 2/28/2007 2/28/2008 2/07/2006 2/28/2007 3/01/2007 2/28/2008 3/03/2008 Siegel . .957 8. . 2/18/2004 2/10/2005 2/07/2006 2/28/2007 2/28/2008 2/07/2006 2/28/2007 3/01/2007 2/28/2008 3/03/2008 Avril .264 25. .956 25. . .072 122. 2/10/2005 2/07/2006 2/28/2007 2/28/2008 2/07/2006 2/28/2007 3/01/2007 2/28/2008 3/03/2008 9/02/2008 McAveety .563 722. 5/07/2008 15. . .491(3) 20. .15 48.649(4) 577.39 48. . .912 42.912 21.928 30. .181 0 9.15 48. .538(3) 1. .945(5) 26.market value of the stock awards is based on the closing price of Company stock on December 31. .738 15.736(3) 34. .71 48.61 2/18/2012 2/10/2013 2/07/2014 2/28/2015 2/28/2016 32.723(3) 1. . .542 22. .61 2/02/2012 2/18/2012 2/10/2013 2/07/2014 2/28/2015 2/28/2016 30.

. . subject to acceleration in the event certain performance criteria are met. . . McAveety’s April 1.356 — — — 31. 2008 award and Mr. . . .540 1. . (4) These deferred restricted stock units vest in equal installments on the first. . . . (ii) shares of restricted Company stock that vested in 2008. . . . The table also discloses the value realized by the Named Executive Officer for each such event. . . (3) These shares of restricted stock or restricted stock units granted prior to 2007 generally vest upon the third anniversary of their grant date. . . . . . . . . . .409 34. . . . . .436. OPTION EXERCISES AND STOCK VESTED The following table discloses. Avril’s September 2. . For awards granted in 2007. . . Option Awards Number of Shares Acquired Upon Value Realized Exercise on Exercise (#) ($) Stock Awards Number of Shares Acquired Upon Value Realized Vesting on Vesting (#) ($) Name van Paasschen . . . — — — 13. .686 — — — — — 254. In order to preserve the value of the Company’s restricted stock and options immediately before and after the Host Transaction. . . . 2008 award will vest on the third anniversary of the grant date. . . . . Avril . . . . . . Prabhu . . Turner . . . . . . .009 — — 34 . . . calculated prior to the deduction of any applicable withholding taxes and brokerage commissions. . McAveety . . . . . . . . . .291. third and fourth anniversary of their grant. . The stock and option information above reflects the number of shares and options granted and the option exercise prices after these adjustments were made. second and third fiscal year-ends following the date of grant. . . . . . For awards granted in 2008. Siegel . .626 — — — 1. . . . . VII. . .055 65. provided that Mr. (2) These options generally vest in equal installments on the first. . . . . for each Named Executive Officer. . . . . .555. . . (5) These shares of restricted stock generally vest in equal installments on the first and second anniversary of their grant. (i) shares of Company stock acquired pursuant to exercise of stock options during 2008. . .801 3. . . . . the Company increased the number of shares of restricted stock and adjusted its stock options to reduce the strike price and increase the number of stock options using the intrinsic value method based on the Company’s stock price immediately before and after the transaction. . . the restricted stock or restricted stock units generally vest 50% on each of the third and fourth anniversaries of their grant date. the restricted stock or restricted stock units generally vest 75% on the third anniversary and 25% on the fourth anniversary of the date of grant. .the payment of this consideration directly to the holders of the Class B Shares. second. . and (iii) shares of Company stock acquired in 2008 on account of vesting of restricted stock units. . . . . . . .

. .686) — — — — — — — — — — — 371. . 500. . The Company does not contribute to the Plan. . . the participant may change the scheduled distribution date or form of payment so long as the change is made at least 12 months in advance of the scheduled distribution date. . . Deferral elections are irrevocable. . .314 — — — — — Deferral elections are made in December for base salary paid in pay periods beginning in the following calendar year. . . to defer up to 100% of their Executive Plan or Executive AIP bonus. Deferral elections are made in June for annual incentive awards that are earned for performance in that calendar year but paid in March of the following year. Turner . Avril . . . . . disability or on account of certain changes in control. . . . . . . . .VIII. . . . including our Named Executive Officers. . . . . If a participant elects to receive distribution upon employment termination. . Withdrawals for hardship that results from an unforeseeable emergency are available. . . . and up to 75% of their base salary for a calendar year. . . . . . . . . If a participant elects an in-service distribution. . Prabhu . . .000 — — — — — — — — — — — (128. . McAveety . . . A participant may elect to receive payment of his account balance in either a lump sum or in annual installments. . . A participant may elect to receive payment on February 1 of a calendar year while still employed or either 6 or 12 months following employment termination. . . . . . Elections as to the time and form of payment are made at the same time as the corresponding deferral election. . . . . . . . . . . . . .000. but no other unscheduled withdrawals are permitted. Payment will be made immediately in the event a participant terminates employment on account of death. . so long as the account balance exceeds $50. . . . . Siegel . Any such change must provide that distribution will commence at least five years later than the scheduled distribution date. . . that election and the corresponding form of payment election are irrevocable. Mr. otherwise payment will be made in a lump sum. . . Executive Contributions in Last FY ($) Registrant Contributions in Last FY ($) Aggregate Earnings in Last FY ($) Aggregate Withdrawals/ Distributions ($) Aggregate Balance at Last FYE ($) Name van Paasschen . NONQUALIFIED DEFERRED COMPENSATION The Company’s Deferred Compensation Plan (the “Plan”) permits eligible executives. . van Paasschen made deferrals under the Plan in 2008 but no other Named Executive Officer did. . 35 . . as applicable. . . . .

The Company may. . . . . .85% 42. . make identical investments pursuant to a variable universal life insurance product. . . . . . . . . . . . . . . both in connection with a change in control and otherwise. . . . . . . . . . . . . but is not required to. . . . . . . Mr. Name of Investment Fund 1-Year Annualized Rate of Return (as of 2/28/09) Nationwide NVIT Money Market — Class V. . . . . . . . . . . if Mr. Prabhu’s employment is terminated by the Company without cause or by Mr. . . . . . .50% 42. van Paasschen’s employment were terminated because of his death or permanent disability. . PIMCO VIT Total Return — Admin Shares . . . International Growth — Series I Shares. . . . . . van Paaschen’s employment agreement. the Company will accelerate the vesting of 50% of Mr. The participant does not actually own the investments that he selects. . . . . .97% 43. . . . .74% 46. . . . The deferrals the participant directs for investment into these funds are adjusted based on a deemed investment in the applicable funds. . . . van Paasschen’s employment is terminated by the Company other than for cause or by Mr. . .42% 46. van Paasschen would be accelerated. . . . . . . . . . . . . . . A. . Fidelity VIP Growth — Service Class . . . . . . . These benefits are described below. . . . Fidelity VIP High Income — Service Class . . . . .19% 0. .54% IX. . . . . . . . . . . . . . . . van Paasschen (or his estate) would be entitled to receive a pro rated target bonus for the year of termination and all of his equity awards would accelerate and vest. . . . van Paasschen’s sign on restricted stock unit award (25. . . he will receive severance benefits of twelve months of base salary and the Company will continue to provide medical benefits coverage for up to twelve months after the date of termination. . Avril’s employment is terminated by the Company without cause. . . . . . .48% 49. Dreyfus IP Small Cap Stock Index — Service Shares . . . . . .97% 42. If Mr. Mr. . . . . Termination Before Change in Control: Involuntary Other than for Cause. . . . . . . . . . . . Prabhu’s unvested 36 . . . Fidelity VIP II Contrafund — Service Class . . . Prabhu voluntarily with good reason. . . . 2008.558 units) would be payable. Death or Disability Pursuant to Mr.The Plan uses the investment funds listed below as potential indices for calculating investment returns on a participant’s Plan account balance. . . . . . . . . . . . van Paasschen for good reason. Voluntary for Good Reason. . . In addition. . . . . . . . . . . . . . . . Oppenheimer Mid Cap VA — Non-Service Shares . . . . . . . . . None of the other equity awards granted to Mr. . . Rowe Price Equity Income — Class II. T. . . . . . . . . . Avril’s employment agreement. . . . . . . . . . . . . . . . Nationwide NVIT Inv Dest Moderate — Class 2 . . . . . . . . . POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL The Company provides certain benefits to our Named Executive Officers in the event of employment termination. . . . . such as distributions under the Company’s tax-qualified retirement savings plan. . . . . disability insurance benefits and life insurance benefits. . . . Dreyfus VIF Appreciation — Initial Shares . Fidelity VIP Overseas — Service Class .94% 19. . . Nationwide NVIT Mid Cap Index — Class I . . . he will receive severance benefits equal to one year’s base salary and he will be reimbursed for COBRA expenses minus his last level of contribution for up to twelve months following termination. . . . . . . . In addition. participants have no direct interest in this life insurance. . . . . . . . . . . . . . . . . . AIM V. . . . . Dreyfus Stock Index — Initial Shares . if Mr. . . . . . . . . . . . . . . . . . . . . . . . . . . the Company will pay Mr.57% 50. . . . . . . . . . . . . . .I. . . . . . if Mr. . . . . . . . When it does. . . . . . .44% 48. . . . . . . These benefits are in addition to benefits available generally to salaried employees. . . . . van Paasschen as a severance benefit (i) two times the sum of his base salary and target annual bonus. 2008. . . . . . . but no acceleration for equity awards granted on or after August 19. . . . . . . . . . . . . . Avril will also be entitled to acceleration of all of his restricted stock and options that were granted prior to August 19. . . . . . . . .63% 36. . . . . (ii) a pro rated target bonus for the year of termination and (iii) Mr. Pursuant to Mr. . Pursuant to his employment agreement. . . . . . . . . . . . . 1. .01% 28. . . . . . . . .

following a Change in Control. Mr. Siegel’s employment agreement. Prabhu’s unvested restricted stock and options. B. the Company and each of Messrs. The Company entered into a letter agreement on August 14. In addition. McAveety relocate to Europe within one year of the termination of his employment Pursuant to Mr. the Company will pay the reasonable costs of relocation costs should Mr. the executive would receive the following in addition to the items described in A. Turner for good reason. Termination in the Event of Change in Control On August 2. with an automatic one-year extension until either the executive or the Company notifies the other that such party does not wish to extend the agreement. Siegel will also be entitled to acceleration of 50% of his then unvested restricted stock and options if he is terminated without cause prior to September 24. reduced to the extent benefits of the same type are received by or made available to the executive from another employer. 2007 confirming the terms of the agreement as it relates to the acceleration of 50% of Mr. Siegel’s employment is terminated by the Company without cause. if earlier. at the target level. the cost of which will not exceed 20% of the executive’s base salary. Mr. 2006. and (B) the aggregate value of all contingent incentive compensation awards allocated or awarded to the executive for all then uncompleted periods under any such plan that the executive would have earned on the last day of the performance award period. Turner’s employment is terminated by the Company other than for cause or by Mr. continued medical benefits for two years. McAveety’s employment is terminated by the Company other than for cause. is contingent only upon the continued employment of the executive until a subsequent date. if Mr. a lump sum amount. Each agreement provides that if. and 37 • • • . outplacement services suitable to the executive’s position for a period of two years or. he will receive severance benefits of twelve months base salary and the Company will continue to provide medical benefits coverage for up to twelve months after the date of termination. in cash. If a Change in Control (as described below) occurs. Prabhu and Siegel entered into severance agreements. 2009. equal to the sum of (A) any unpaid incentive compensation which had been allocated or awarded to the executive for any measuring period preceding termination under any annual or long-term incentive plan and which. in the event Mr. Siegel will receive severance benefits of twelve months of base salary plus 100% of his target annual incentive and the Company will continue to provide medical benefits coverage for up to twelve months after the date of termination. a lump sum payment of the executive’s deferred compensation paid in accordance with Section 409A distribution rules. of the individual and corporate performance goals established with respect to such award. Pursuant to Mr. Turner’s employment agreement. Each severance agreement provides for a term of three years.restricted stock and options. Pursuant to a letter agreement entered into on August 14. 2007. McAveety’s employment agreement. assuming the achievement. he will receive severance benefits of twelve months base salary and the Company will continue to provide medical benefits coverage for up to twelve months after the date of termination. as of the date of termination. the agreement will continue for at least 24 months following the date of such Change in Control. Pursuant to Mr. immediate vesting of stock options and restricted stock held by the executive under any stock option or incentive plan maintained by the Company. if Mr. until the first acceptance by the executive of an offer of employment. above: • • • two times the sum of his base salary plus the average of the annual bonuses earned by the executive in the three fiscal years ending immediately prior to the fiscal year in which the termination occurs. the executive’s employment is terminated without Cause (as defined in the agreement) or with Good Reason (as defined in the agreement).

or O a merger or consolidation effected to implement a recapitalization of the Company in which no person becomes the beneficial owner of 25% or more of the voting power of the Company. to the extent that any executive becomes subject to the “golden parachute” excise tax imposed under Section 4999 of the Code. assuming the achievement. equal to the sum of (A) any unpaid incentive compensation which had been allocated or awarded for any measuring period preceding termination under any annual or long-term incentive plan and which. other than: O a merger or consolidation in which securities of the Company would represent at least 70% of the voting power of the surviving entity. immediate vesting of stock options and restricted stock held under any stock option or incentive plan maintained by the Company. a “Change in Control” is deemed to occur upon any of the following events: • any person becomes the beneficial owner of securities of the Company (not including in the securities beneficially 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. a “Change in Control” does not include a transaction in which Company stockholders continue to hold substantially the same proportionate ownership in the entity which would own all or substantially all of the Company’s assets following such transaction. Mr. or • approval of a plan of liquidation or dissolution by the stockholders or the consummation of a sale of all or substantially all of the Company’s assets. Avril. at the target level. of the individual and corporate performance goals established with respect to such award. a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation. van Paasschen’s employment agreement provides that he would be entitled to the following benefits if his employment were terminated without cause or he resigned with good reason following a Change in Control: • • two times the sum of his base salary plus the average of the annual bonuses earned in the three fiscal years ending immediately prior to the fiscal year in which the termination occurs. and (B) the aggregate value of all contingent incentive compensation awards allocated or awarded to him for all then uncompleted periods under any such plan that he would have earned on the last day of the performance award period. Under the severance agreements. However. provided that no tax gross-up is provided if such payments become subject to the excise tax. If such payments are subject to the excise tax. a majority of the Directors cease to serve on the Company’s Board in connection with a successful hostile proxy contest. is contingent only upon his continued employment until a subsequent date. the benefits under the agreement will be reduced until the point where the executive is better off paying the excise tax rather than reducing the benefits. the executive would receive a gross-up payment in an amount sufficient to offset the effects of such excise tax. a lump sum payment of his deferred compensation paid in accordance with Section 409A distribution rules. McAveety and Turner entered into similar change in control agreements in connection with their employment with the Company. In addition.• immediate vesting of all unvested 401(k) contributions in the executive’s 401(k) account or payment by the Company of an amount equal to any such unvested amounts that are forfeited by reason of the executive’s termination of employment. as of the date of termination. in cash. • • Each of Messrs. other than a sale to an entity in which the Company’s stockholders would hold at least 70% of the voting power in substantially the same proportions as their ownership of the Company immediately prior to such sale. and 38 • • . a lump sum amount.

.4880 867. .000 0 23. . .835 1. . . . . . . . . . .229. . . . . In December 2008.259 1.888 457. (2) In addition. . 2. . . McAveety(1) . . .530 453. . to the extent that Mr. . .000 625. . . .000 500. . . . . . . . Prabhu . . .912 24. . . . The amendments were technical in nature and were designed to meet the guidelines of 409A of the Code.000. . .952 19. . .372 0 0 0 0 0 0 0 0 8. . . . . Turner . Prabhu . . . . . Avril . . . Siegel(1) . the Company amended the employment arrangements and change in control agreements with each of the Named Executive Officers. . . Name Severance Pay ($) Medical Benefits ($) Vesting of Restricted Stock ($) Vesting of Stock Options ($) Total ($) van Paasschen . . . . . . . . . . The actual amounts that would become payable in the event of an actual employment termination can only be determined at the time of such termination. . . . .740 2. . 2. . Siegel. McAveety .000 625. . . . .888 (1) Messrs. . . Name Severance Pay ($) Medical Benefits ($) Vesting of Restricted Stock ($) Vesting of Stock Options ($) Total ($) van Paasschen .000 0 23.658 1. C. . . . . . .734. . McAveety to Europe if he decides to return to Europe within one year of his termination of employment. .• immediate vesting of all unvested 401(k) contributions in his 401(k) account or payment by the Company of an amount equal to any such unvested amounts that are forfeited by reason of his termination of employment.699 18.172.888 39 1. .426 2. In addition.078 725. . . . .818 972. .660 518. . . . . . and includes amounts earned through that date. . . . . . . . van Paasschen becomes subject to the “golden parachute” excise tax imposed under Section 4999 of the Code. . . .649 1. .398. .912 24. The amendments did not change any of the amounts payable to the Named Executive Officers. 8.531. . 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 involuntary termination without cause or a voluntary termination for good reason outside of the change in control context. . . . . . . . .000.130 922. .324 1. . . .658 1. . .101 1. . . . . . .230.668. . . . . . . .951. . Avril and McAveety’s employment agreements provide for payments in the event of involuntary termination other than for cause but do not provide for payments in the event of voluntary termination for good reason.844.000 640. . Termination on Account of Death or Disability The following table discloses the amounts that would have become payable on account of a termination of employment by death or disability. .668. .912(2) 649. . .699 18. . .094. . . Estimated Payments Upon Termination The tables below reflect the estimated amounts payable to the Named Executive Officers in the event their employment with the Company had terminated on December 31. . .122 649.835 2. Siegel. . .972. . . . . . 2008 under various circumstances.000 500.869 3. . .888 . . he would receive a gross-up payment in an amount sufficient to offset the effects of such excise tax. . . . . . .230.288 18. . . . . . the Company would pay the reasonable costs of relocating Mr. Avril(1) . Turner . . . 1. . . .210 0 0 0 0 0 0 0 3. .000 640. .952 19.694. .457. . . . .288 18. . . . . . . . .078 725.488 1. . . .

a 20% excise tax is imposed on the excess amount of such severance pay and other benefits.904 39.217 3. . Avril . Deferred cash amounts are payable in accordance with the Director’s advance election.390.332. payable in four equal installments of Shares issued under our LTIP. The number of Shares to be issued is based on the fair market value of a Share on the previous December 31.210 0 0 0 0 0 0 0 0 128.000 0 47.398 36. . Company employees who serve as members of the Board receive no fees for their services in this capacity. .844. (2) Special Committee. . The current compensation structure is described below. .000 3. . .000 for the chairman of the Audit Committee). . . . .734. . . . .270 5. payable quarterly in Shares. . the Board established the following special committees in 2007-2008: (1) Search Committee.576 37. . . Deferred stock amounts are payable in accordance with the Non-Employee Director’s advance election.730 2.405.836 2.000.259 1. and (3) Transition Committee.798 3. . . In addition.125. DIRECTOR COMPENSATION The Company uses a combination of cash and stock-based awards to attract and retain qualified candidates to serve on the Board. the tax gross-up payment due under the estimate.724. Siegel . . . .741. . . Severance Pay ($) Medical Benefits ($) Vesting of Restricted Stock ($) Vesting of Stock Options ($) Outplacement ($) 401(k) Payment ($) Tax Gross Up ($) Total ($) Name van Paasschen(1) . A.000 0 0 0 0 0 0 3. . .000 for each Chairperson). In 2008. Non-Employee Directors serving as members of the Audit Committee received an additional annual fee in cash of $10.544 0 0 n/a n/a n/a 13. X. . .000 ($25. . . Under the Company’s Director share ownership guidelines. .649 1. .951. .034 3. . . Prabhu . . each Director is required to acquire Shares (or deferred compensation stock equivalents) that have a market price equal to two times the annual Director’s fees paid to such Director. New Directors are given a period of three years to satisfy this requirement. .299. .250. . .835 1. . The chairperson of each other committee of the Board received an additional annual fee in cash of $10.006 145.132 123. .379 5. Non-employee members of the Board (“Non-Employee Directors”) receive compensation for their services as described below. .000.000. . Annual Fees Each Non-Employee Director receives an annual fee in the amount of $80. . . . . . . . . Change in Control The following table discloses the amounts that would have become payable on account of an involuntary termination without cause following a change in control or a voluntary termination with good reason following a change in control. the Chairman of the Board received an additional retainer of $150. . .393.412. A Non-Employee Director may elect to receive up to one-half of the annual fee in cash and to defer (at an annual interest rate of LIBOR plus 11⁄2% for deferred cash amounts) any or all of the annual fee payable in cash. . . . the Company considers the significant amount of time that members of the Board spend in fulfilling their duties to the Company as well as the skill level required by the Company or its Directors. . .530 453. Turner . . . . A Non-Employee Director is also permitted to elect to defer to a deferred unit account any or all of the annual fee payable in shares of Company stock. . van Paasschen.000. . . . . and each member of the 40 .465. van Paasschen’s recent hire.3. .776 (1) If the amount of severance pay and other benefits payable on change in control is greater than three times certain base period taxable compensation for Mr. correspondingly.824 49.301. For 2008. .000 ($25. his base period taxable compensation does not reflect the total compensation paid to him. .000 125. . McAveety . . . . . .776 1. In setting Director compensation.000 3. 8. each member of the Search Committee and Special Committee received an additional fee of $20.093 5. artificially increasing the excise tax that would apply on a change in control and.000 100. . . . .668. . . Because of Mr.

000 25.000 50. For Directors electing stock...721 27.714 408. .077 94. .939 48. . .713 41. each Non-Employee Director received an annual equity grant (made at the same time as the annual grant is made to other employees) under our LTIP with a value of $100. . .000 15. Equity grant In 2008. Other Compensation In 2008. . . The number of stock units is determined by dividing the value ($50.. Mr.902 138. .939 48.595 30.939 48.. . .266 178. ..250 N/A 102. B.500 6.000) by the average of the high and low price on the date of grant (also the exercise price) and multiplying by three.. 20. . . . Daley.611 214. . .699 18. E.043 48. . .250 24. . .246 15. . . .762 222.. . Thomas O. . . . . Clarke .000 20. .. Ryder . other out-of-pocket costs they incur when attending meetings and. .250 11.250 15.756 48. . . Kneeland C.. Quazzo .. the Company reimburses Non-Employee Directors for expenses they incurred related to 2008 meeting attendance. . . the number of shares awarded was determined by dividing the amount by the Fair Market Value (as defined in the LTIP) on the date of grant. The options are fully vested and exercisable upon grant and are scheduled to expire eight years after the grant date.939 48.. .. Starwood Preferred Guest Program Points and Rooms In 2008. . .732 .431 11.077 40. Bruce W.000 55. . D. . The Company also reimburses Non-Employee Directors for travel expenses. .000) by the average of the high and low price on the date of grant. Duncan . . . Lizanne Galbreath . .939 11.684 173... Thomas E. . Aron .. Charlene Barshefsky . the ratio was lowered to 2.000 37. For the 2009 grant.077 94. Daley received a grant of 375. Daley received an annual grant of 750.000 41 94. .939 48.000. . Jean-Marc Chapus .000.753 14. . .939 48. . ..000 40. the Company made available to the Chairman of the Board administrative assistant services and health insurance coverage on terms comparable to those available to Starwood executives until the Chairman turns 70 years old and thereafter on terms available to Company retirees (including required contributions). Name of Director Fees earned or Paid in Cash ($) (1) Stock Awards (2)(3) ($) Option Awards (4) ($) All Other compensation (5) ($) Total ($) Adam M. . . .000 SPG Points in light of his November 2008 election to the Board.218 6..077 54. .939 48. . However. . Youngblood . including attendance by spouses at one meeting each year. for one meeting per year.002 209. . each Non-Employee Director other than Mr. Jr.266 222.Transition Committee received an additional fee of $10. . .939 48.. Eric Hippeau . .077 94. .196 35. The number of options is determined by dividing the value ($50.077 94. . Stephen R.986 11.. The equity grant was delivered 50% in stock units and 50% in stock options..000 55.499 94. . The restricted stock awarded pursuant to the annual grant generally vests upon the earlier of (i) the third anniversary of the grant date and (ii) the date such person ceases to be a Director of the Company. . Attendance Fees Non-Employee Directors do not receive fees for attendance at meetings.000 Starwood Preferred Guest (“SPG”) Points to encourage them to visit and personally evaluate our properties. . . .750 174. . expenses related to attendance by spouses.. .5-to-1. The members of these special committees were able to elect to receive such fees in cash or stock.447 125.. C.715 171. . . We have summarized the compensation paid by the Company to our Non-Employee Directors in 2008 in the table below. These special committee shares generally vest upon the earlier of (i) the third anniversary of the grant date and (ii) the date such person ceases to be a Director of the Company. . Clayton C.

.. . . ..008 10.017 20. Hippeau.. . 7.. in accordance with SFAS 123(R). . .. . Mr. $35.953 44..029 458 458 458 458 1. . . . . 2008. .017 50. Mr. Barshefsky and Mr.015 20. . Clarke. The grant date fair value of these stock awards is set forth below: Director Grant Date Number of Shares of Stock/Units Grant Date Fair Value ($) Ms. . Chapus. . .536. . Ryder. .017 20. . . . . . . . Ryder. 5. 238. .. Daley. . .960 29. Chapus Mr.. Quazzo . . Mr.. . Duncan. . . Duncan. the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions.687 50.017 20. . The grant date fair value of each stock award is set forth below: Director Grant Date Number of Shares of Stock/Units Grant Date Fair Value ($) Adam M. .989 (2) As of December 31. .. .. Jr.008 10.007. . . . Thomas E. Mr. .996 39. ... Mr. Barshefsky and Mr. 5. .000. . refer to Note 21 of the Company’s financial statements filed with the SEC as part of the Form 10-K for the year ended December 31.206 42 . $40. ..977 34. 2/28/2008 3/31/2008 6/30/2008 9/30/2008 12/31/2008 2/28/2008 3/31/2008 6/30/2008 9/30/2008 12/31/2008 2/28/2008 3/31/2008 6/30/2008 4/30/2008 6/30/2008 9/30/2008 12/31/2008 11/5/2008 12/31/2008 1. Ms. . . . . . . Clayton C.292. Aron. . These amounts reflect the Company’s accounting expense for these awards and do not correspond to the actual value that will be recognized by the Directors. Mr. .(1) The following Directors elected to receive stock awards in lieu of cash fees for service on special committees of the Board: Ms. . .657. .872 6. . Charlene Barshefsky . .838.. . . . 2/28/2008 2/28/2008 2/28/2008 2/28/2008 2/28/2008 411 720 822 925 617 19. .000. . . Quazzo. . 34. 2. . .017 50. 13. $20. Ambassador Barshefsky. . For additional information. . Youngblood. .. .. . Aron .. . . Mr.. ...017 20. . . . 0. Mr. Daley. . . . Mr..008 10. . . . 14. . .017 20. Jean-Marc Chapus . .109. . Clarke . . . . . .. .015 20. Chapus. $45.017 20. .265. . Galbreath. 28. . .029 458 153 951 229 229 229 515 142 50. .015 20. . Mr. . .253. . . . . . . .017 6. . . Hippeau . .000. .. . . .029 458 458 458 458 1. . (3) Represents the expense recognized for financial statement reporting purposes with respect to 2008 for the fair value of restricted stock and restricted stock units granted in 2008..000. $30.338. . ... . . Mr. . ... . each Director has the following aggregate number of Shares (deferred or otherwise) outstanding: Mr. Mr. . . . . . . Mr. . Duncan. Mr. .023 10. . Hippeau. .. . Ryder . . Quazzo. . 19. . . . . 2008. and Mr.000. Pursuant to SEC rules. . .360.

. Mr. .029 458 458 458 458 1. All Directors other than Messrs. 40. Daley. . refer to Note 21 of the Company’s financial statements filed with the SEC as part of the Form 10-K for the year ended December 31. 2/28/2008 3/31/2008 3/31/2008 6/30/2008 6/30/2008 9/30/2008 9/30/2008 12/31/2008 12/31/2008 2/28/2008 3/31/2008 6/30/2008 9/30/2008 12/31/2008 2/28/2008 3/31/2008 6/30/2008 9/30/2008 12/31/2008 2/28/2008 3/31/2008 6/30/2008 9/30/2008 12/31/2008 2/28/2008 3/31/2008 6/30/2008 9/30/2008 12/31/2008 2/28/2008 3/31/2008 6/30/2008 9/30/2008 12/31/2008 1.017 20.008 (4) Represents the expense recognized for financial statement reporting purposes with respect to 2008 for the fair value of stock options granted in 2008. . 52. .017 20. . Pursuant to SEC rules.017 20. . 40. Duncan. . As of December 31. . . . .017 20. . Clarke received a grant of 2. . Kneeland C. . .015 20. in accordance with SFAS 123(R).017 20. . . . Eric Hippeau . .581.499 50. .017 50. . . . Ms. . . These amounts reflect the Company’s accounting expense for these awards and do not correspond to the actual value that will be recognized by the Directors. . .029 229 229 229 229 50. Quazzo. . Stephen R. . Galbreath. 35. . Thomas O.962.852 options on April 30. .939.017 50.017 20. .087 options on February 28. Hippeau.581.017 37. . Youngblood. . Ryder. . . . Mr.017 20. .029 458 458 458 458 1.008 10. Duncan . . . 2008 with a grant date fair value of $48.804. 43 . 2008 with a grant date fair value of $48. . the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. 18. .585. . . .015 20.015 20.008 10.017 37. 1. . . .017 20. Mr. . . . . 10. . . . . .015 10. 2008 with a grant date fair value of $14. . . . . . 2008. . Chapus. Mr. 2. Mr.017 37.499 20.499 20.017 20.544 options on November 5. Youngblood . . . 35.082. 51. . For additional information. . . . Mr. Clarke and Daley (who were not Directors at the time) received a grant of 3. .008 10. .015 20. Ryder . . .015 20. .017 50.544.017 20. 95. Clarke.499 20. . Daley received a grant of 1.756.082. .753 and Mr. Mr. .Director Grant Date Number of Shares of Stock/Units Grant Date Fair Value ($) Bruce W. . . .017 20.029 458 858 458 858 458 858 458 858 1. . .017 37.017 20. . Ambassador Barshefsky. .738.579. Lizanne Galbreath .029 458 458 458 458 1. . Aron. . Mr. . 2008. . Mr. each Director has the following aggregate number of stock options outstanding: Mr.029 458 458 458 458 1. Quazzo . .852. . .017 50. . .

000 SPG Points in light of his November 2008 election to the Board) and the cost of an administrative assistant for the Chairman of the Board. . . . . . . . In addition. . . . . . attendance by spouses. . . . . . . . . . . .(5) We reimburse Non-Employee Directors for travel expenses. . . in 2008 Non-Employee Directors received 750. Hippeau . .000 SPG Points valued at $11. . . . . . . . . Name Deferred Dividends on Restricted Stock Units ($) 2008 Administrative Assistant ($) 2008 Duncan . . . . . . SEC rules do not require specification of the value of any type of perquisite or personal benefit provided to the NonEmployee Directors because no such value exceeded $25. . . . .758 11. .620 15. . . . . for one meeting per year. . . 18. . . . .217 67. perquisites and personal benefits are not reported for any Director for whom such amounts were less than $10. . . . . . . . . . . . . . . . . . Youngblood’s account was credited with a larger amount to correct a mistake with the number of points granted in 2007 and Mr. . . . . . .250 (Mr. .000 in the aggregate. . . . the following table specifies the value for each other element of All Other Compensation that is valued in excess of $10. other out-of-pocket costs they incur when attending meetings and. . . . . . . Ryder. Pursuant to SEC rules. . . . . . . . . . . . . Pursuant to SEC rules. . . . .000.689 — — 44 . Non-Employee Directors also receive interest on deferred dividends. . .000 in the aggregate for 2008 but must be identified by type for each Named Executive Officer for whom such amounts were equal to or greater than $10. . . . .000 and not disclosed above. . . . Daley’s account was credited with 375. . . . . . . . . . .

Aron Thomas E. . . but not limited to. . In the first quarter of 2009. including a review of audit and non-audit fees and the written disclosures and letter from Ernst & Young LLP to the Audit Committee pursuant to the Statement on Auditing Standards No. .9 Audit-Related Fees(2) . . . . 2008 with management. . . . the Company’s internal auditors and the independent registered public accounting firm.9 $0. Kneeland C. . . . . . . . . . . . . . . . . . . . or the Exchange Act. . . . . . (i) monitoring the quality and integrity of the Company’s financial statements. .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. Inc. . . Clarke Clayton C. the Audit Committee reviewed and discussed the audited financial statements for the year ended December 31. 2008. . . . Audit Committee of the Board of Directors Thomas O. . . . .0 $0. . . Based on the reviews and discussions referred to above. . . Ryder (chairman) Adam M. . . . . . . . 2008 and 2007 to the Company’s principal accounting firm. . . . . . which is comprised entirely of “independent” Directors. . . . . . . . . are as follows (in millions): 2008 2007 Audit Fees(1) . . as adopted by the Public Company Accounting Oversight Board in Rule 3200T regarding the independent accountants’ communications with the Audit Committee concerning independence. . . . . .4 Total . . . . . . . . . as amended. . . . . . . .3 $6. . . . $6. $4. .9 Tax Fees(3) . . the Audit Committee recommended to the Board of Directors that the financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended December 31. . (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. . . (the “Company”). . Ernst & Young. . . . . the review of quarterly financial statements and assistance with regulatory and statutory filings. .2 $5. serves as an independent and objective party to assist the Board in fulfilling its oversight responsibilities including. . . . 45 . . The Audit Committee (the “Audit Committee”) of the Board of Directors (the “Board”) of Starwood Hotels & Resorts Worldwide. . Youngblood Audit Fees The aggregate amounts paid by the Company for the fiscal years ended December 31. . . the audit of the Company’s internal controls over financial reporting with the objective of obtaining reasonable assurance about whether effective internal controls over financial reporting were maintained in all material respects and for the attestation of management’s report on the effectiveness of internal controls over financial reporting. . . Jr. . . . . The Audit Committee also discussed with the independent registered public accounting firm matters relating to its independence. .2 (1) Audit fees include the fees paid for the annual audit. . . . . . accounting and legal compliance. . . . . . . . . . $0. . . . . as determined by the Board in accordance with the New York Stock Exchange (“NYSE”) listing requirements and applicable federal securities laws. Daley. . The Audit Committee operates under a written charter which meets the requirements of applicable federal securities laws and the NYSE requirements. . . . . . . . 61 Communications with Audit Committees. (ii) monitoring compliance with legal and regulatory requirements. . . . . $0. . . or subject to the liabilities of Section 18 of the Exchange Act. except to the extent that the Company specifically incorporates it by reference into a document filed under the Securities Act of 1933. . . . as amended. . . Ernst & Young LLP. . . .

2008 and 2007 were pre-approved by the Audit Committee or the Board of Directors. and (3) the Company is reasonably capable of pursuing. at the Committee’s option. All audit and permissible non-audit services provided by Ernst & Young to the Company for the fiscal years ended December 31. or (iii) ask the full Board to consider the proposed transaction so the Board may then take either of the actions described in (i) or (ii) above. and no member was an employee or former employee. The Corporate Opportunity Policy is a written policy that provides that the Committee should consider all relevant facts and circumstances to determine whether it should (i) reject the proposed transaction on behalf of Company.(2) Audit-related fees include fees for audits of employee benefit plans. 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. statutory audits required by local laws. (ii) conclude that the proposed transaction is appropriate and suggest that the Company pursue it on the terms presented or on different terms. (3) Tax fees include fees for the preparation and review of certain foreign tax returns. as long as these approvals are presented to the full Audit Committee at its next regularly scheduled meeting. Any person bringing a proposed transaction to the Committee is obligated to 46 . The Audit Committee must approve both the list of non-audit services and the budget for each such service before commencement of the work. No Compensation Committee member had any relationship requiring disclosure under “Certain Relationships and Related Transactions. audit and accounting consultation and other attest services. with the party who brought the proposed transaction to the Company’s attention or with another third party. provided by the Company’s independent registered public accounting firm. in connection with (iii). For audit services (including statutory audit engagements as required under local country laws).” below. make recommendations to the Board. including both audit and non-audit services. During fiscal year 2008. which also must be approved by the Audit Committee before the audit commences. none of our executive officers served on the compensation committee (or its equivalent) or board of Directors of another entity whose executive officer served on our Compensation Committee. and in the case of a Corporate Opportunity suggest that the Company pursue the Corporate Opportunity on its own. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION All members of the Compensation Committee during fiscal year 2008 were independent Directors. Pre-Approval of Services The Audit Committee pre-approves all services. The independent registered public accounting firm also submits an audit services fee proposal. Management and the independent registered public accounting firm must each confirm to the Audit Committee that the performance of the non-audit services on the list would not compromise the independence of the registered public accounting firm and would be permissible under all applicable legal requirements. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Policies of the Board of Directors of the Company The Corporate Governance and Nominating Committee (the “Committee”) is charged with establishing and reviewing (on a periodic basis) the Company’s Corporate Opportunity Policy pursuant to which each Director and executive officer is required to submit to the Committee any opportunity that such person reasonably believes (1) is within the Company’s existing line of business or (2) is one in which the Company either has an existing interest or a reasonable expectancy of an interest. and. The engagement letter must be formally accepted by the Audit Committee before any audit commences. the independent registered public accounting firm provides the Audit Committee with an engagement letter outlining the scope of the audit services proposed to be performed during the year. Management submits to the Audit Committee all non-audit services that it recommends the independent registered 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 report to the Audit Committee at each of its regular meetings as to the non-audit services actually provided by the independent registered public accounting firm and the approximate fees incurred by the Company for those services.

by addressing a request to Investor Relations.F. of the Company’s shares and wish to receive only one copy of the proxy statement and annual report in the future.com/corporate/investor — relations. nominees and fiduciaries for expenses incurred in sending proxy materials to beneficial owners of Shares.html). NY 10604 or by calling (914) 640-8100.000 plus reasonable out-of-pocket expenses. If any other matters properly come before the Annual Meeting. Starwood Hotels & Resorts Worldwide. The Company will reimburse banks. In order to take advantage of this opportunity. but not the record holder. The Company has engaged D. may obtain one. Stockholders of record sharing an address who are receiving multiple copies of proxy materials and annual reports and wish to receive a single copy of such materials in the future should submit their request by contacting us in the same manner. The Company will deliver promptly. to solicit proxies and to assist with the distribution of proxy materials for a fee of $17. The solicitation is being made by mail and may also be made by telephone or in person using the services of a number of regular employees of the Company at nominal cost. 1111 Westchester Avenue. referred to as “householding. a separate copy of the proxy statement and annual report to a stockholder at a shared address to which a single copy of the documents was delivered. now or in the future.” can result in significant cost savings for us. you will need to contact your broker. bank or other nominee to request that only a single copy of each document be mailed to all stockholders at the shared address in the future. upon written or oral request.. Inc. the Company and banks and brokerage firms that hold your shares have delivered only one proxy statement and annual report to multiple stockholders who share an address unless one or more of the stockholders has provided contrary instructions. 47 . HOUSEHOLDING The SEC allows us to deliver a single proxy statement and annual report to an address shared by two or more of our stockholders. King & Co.. You may also obtain a copy of the proxy statement and annual report from the investor relations page on the Company’s web site (www. If you are the beneficial owner. SOLICITATION COSTS The Company will pay the cost of soliciting proxies for the Annual Meeting. including the cost of mailing. it is the intention of the persons named in the enclosed proxy to vote the Shares represented thereby in accordance with their discretion. White Plains. A stockholder who wishes to receive a separate copy of the proxy statement and annual report. OTHER MATTERS The Board is not aware of any matters not referred to in this proxy statement that will be presented for action at the Annual Meeting. Inc.starwoodhotels. without charge. This delivery method.provide any and all information available to the Committee and to recuse himself from any vote or other deliberation. brokerage firms and other custodians.

Inc. 2009 48 . 2010 and on or prior to February 20. If you want to make a proposal or nominate a Director for consideration at next year’s Annual Meeting without having the proposal included in the Company’s proxy materials. By Order of the Board of Directors STARWOOD HOTELS & RESORTS WORLDWIDE. White Plains. Kenneth S. you must comply with the current advance notice provisions and other requirements set forth in the Company’s Bylaws. 2009. Starwood Hotels & Resorts Worldwide. and the proposal must comply with the rules of the SEC. 1111 Westchester Avenue. with certain exceptions if the date of the Annual Meeting is advanced by more than 30 days or delayed by more than 60 days from the anniversary date of the 2009 Annual Meeting.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 the Company’s proxy materials. then it may not be brought before the 2010 Annual Meeting. the Company must receive your proposal by November 26. The fact that the Company may not insist upon compliance with these requirements should not be construed as 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. 2010. Siegel Corporate Secretary March 26.. INC. New York 10604. including that the Company must receive your proposal on or after January 26. If the Company does not receive your proposal or nomination by the appropriate deadline.

From Dulles International Airport (IAD) • Take Dulles Access Road to Route 66 East (14 miles). • Go down two blocks and turn right on New York Avenue again.C. • Stay straight to go onto 14th Street. • Follow to 16th Street. • Cross bridge and stay in left lane which will become 14th Street. which will become I Street. • Turn left on 16th Street — the hotel is located on the right. • Turn right on 16th Street — the hotel is located on the right. From 95 South (Richmond) • Follow I 395 N. • Turn right on 16th Street — the hotel is located on the right. • Go two blocks (past 10th Street). • Follow to 16th Street and turn right — the hotel is located on the right. • Stay on 16th Street for two blocks — the hotel is located on the left. • Take the Roosevelt Bridge and stay in right lane which will become Constitution Avenue. Regis Washington. D. cross bridge into District of Columbia and stay in left lane. • Continue to I Street NW and turn left. stay in right lane. • Turn left on I Street. From Union Station • Take Mass Avenue NW to 16th Street. From 95 North (Baltimore-New York) • Take route 50 West (New York Avenue) to 9th Street NW and turn left. • Turn right on H Street. • Follow route US-1 N toward downtown. 49 . • Go around circle to take 16th Street. • Turn left on 17th Street.General Directions To The St. From National Reagan Airport (DCA) • Take George Washington Parkway North to 395 N.

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the aggregate market value of the Registrant’s voting and non-voting common equity (for purposes of this Annual Report only. 12. 2008 n OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File Number: 1-7959 STARWOOD HOTELS & RESORTS WORLDWIDE. or a smaller reporting company.447.) 1111 Westchester Avenue White Plains.01 per share New York Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer.UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington. see the Proxy Statement for the Company’s Annual Meeting of Stockholders that is currently scheduled for May 6. including zip code) (914) 640-8100 (Registrant’s telephone number. NY 10604 (Address of principal executive offices. par value $0. Document Incorporated by Reference: Document Where Incorporated Proxy Statement Part III (Items 11. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports). Yes n No ¥ As of June 30. 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.019.R. 13 and 14) . 2009 (the “Proxy Statement”). 20549 Form 10-K ¥ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31.C. and (2) has been subject to such filing requirements for the past 90 days. in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes n No ¥ Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.443. INC. 2008. For information concerning ownership of Shares. See the definitions of “large accelerated filer.S. employer identification no. a non-accelerated filer. includes all Shares other than those held by the Registrant’s Directors and executive officers) was $7. the Corporation had outstanding 182.016 shares of common stock. As of February 20. and will not be contained. Act. D.” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 2009. an accelerated filer. ¥ Indicate by check mark whether the registrant is a large accelerated filer. as defined in Rule 405 of the Securities Yes ¥ No n Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. (Exact name of Registrant as specified in its charter) Maryland (State or other jurisdiction of incorporation or organization) 52-1193298 (I.328. which is incorporated by reference under various Items of this Annual Report. (Check one): Large accelerated filer ¥ Accelerated filer n Non-accelerated filer n Smaller reporting company n (Do not check if a smaller reporting company) Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¥ No n Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein. to the best of the Registrant’s knowledge.

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Item 11. . . . . . . . . . . . . . . . . . . . Item 9. . . Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART II Market for Registrants’ Common Equity. . . . . . . . . . . . . . . . . PART III Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . Item 7A. . . . . . . . . 1 1 10 18 24 24 25 28 28 42 44 44 44 46 49 50 50 50 51 . Item 7. Submission of Matters to a Vote of Security Holders . . . . . . . . . Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1. . . . . . . . . . Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . Item 10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 15. . . . . . . . . . . . . . . Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . Item 13. . . . . . . . . . . . . . . . . . . . . . Item 2. . . . Properties . . . . . . . . . . . Item 5. . Selected Financial Data . . Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . Related Stockholder Matters and Issuer Purchases of Equity Securities . . . Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . Item 6. . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 12. . . . . . . . . . . . . . Item 4. . . . . . . . . . . . . . . . Item 8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1A. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . Risk Factors . . . . .TABLE OF CONTENTS Page PART I Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Officers and Corporate Governance . . . . . Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9A. . . . . . . . . . . . . . . . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . Financial Statement Schedules . . . . . Item 14. . . . . . . . . PART IV Exhibits. . . . . . . . . . Item 3. . . . . . .

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including. neither Shares nor Class B Shares are listed or traded on the NYSE. retreats and residences) feature world class design. W» (luxury and upscale full service hotels. which prior to April 10. a Maryland real estate investment trust (the “Trust”). the shares of common stock. the Trust and its respective subsidiaries. resorts and residences) are for connoisseurs who desire the finest expressions of luxury. Item 1. these remarkable hotels and resorts enable the most discerning traveler to collect a world of unique. important emerging markets and yet to be discovered paradises. Management’s Discussion and Analysis of Financial Condition and Results of Operations. the risks and uncertainties set forth below. Such statements appear in several places in this Annual Report. all references to the Corporation include those entities owned or controlled by the Corporation. 2006 included Starwood Hotels & Resorts. St. As of April 10.This Annual Report is filed by Starwood Hotels & Resorts Worldwide. 2006. spectacular settings and impeccable service. Business. all references to the Trust include the Trust and those entities owned or controlled by the Trust. which was sold in the Host Transaction (defined below). in connection with a transaction (the “Host Transaction”) with Host Hotels & Resorts. collectively through April 7. without limitation. From legendary palaces and remote retreats to timeless modern classics. They are distinguished by magnificent decor. Starwood undertakes no obligation to publicly update or revise any forward-looking statements to reflect current or future events or circumstances. 2006. Unless the context otherwise requires. of the Corporation (“Corporation Shares”) and the Class B shares of beneficial interest. Regis» (luxury full-service hotels. On April 7. world class restaurants and “on trend” bars and lounges and its signature Whatever\Whenever» service standard.. including SLT Realty Limited Partnership. Inc. Inc. Our brand names include the following: St. We conduct our hotel and leisure business both directly and through our subsidiaries. They provide flawless and bespoke service to high-end leisure and business travelers. it delivers an emotional experience. PART I Forward-Looking Statements This Annual Report contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.P. captioned “Business Strategy” and Item 7. Until April 7. a Delaware limited partnership (the “Operating Partnership”). the Corporation Shares trade alone under the symbol “HOT” on the New York Stock Exchange (“NYSE”). The Luxury Collection» (luxury full-service hotels and resorts) is a group of unique hotels and resorts offering exceptional service to an elite clientele. Business. All forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements including. “us”. its subsidiary Host Marriot L. without limitation. a Delaware limited partnership (the “Realty Partnership”). 2006. a Maryland corporation (the “Corporation”).01 per share. Whether it’s “behind the scenes” 1 . It’s a sensory multiplex that not only indulges the senses.. including SLC Operating Limited Partnership. and all references to “we”. or the “Company” refer to the Corporation. “Host”). Such forward-looking statements may include statements regarding the intent. Regis hotels are located in the ultimate locations within the world’s most desired destinations. and they typically have individual design characteristics to capture the distinctive personality of each location. General We are one of the world’s largest hotel and leisure companies. par value $0.01 per share. Inc. of the Trust (“Class B Shares”) were attached and traded together and were held or transferred only in units consisting of one Corporation Share and one Class B Share (a “Share”). (collectively. the Shares were depaired and the Corporation Shares became transferable separately from the Class B Shares. authentic and enriching experiences indigenous to each destination that capture the sense of both luxury and place. 2006. belief or current expectations of Starwood. the section of Item 1. “our”. par value $0. As a result of the depairing. its Directors or its officers with respect to the matters discussed in this Annual Report. and certain other subsidiaries of Host Hotels & Resorts. “Starwood”.

Westin is the first global brand to offer in-room spa treatments at every hotel and the first to go smoke-free in North America. Through our brands. Le Méridien» (luxury and upscale full-service hotels. whether city. as you ease on down the road. Each of its hotels. provides new heights. The new Westin Superfoods» menu is the latest way we bring renewal to guests. Aloft offers a sassy. the Link@SheratonSM with Microsoft. At Sheraton. 436 hotels managed by 2 .access at Whappenings. we are well represented in most major markets around the world. Aloft is an experience to be discovered and rediscovered. hotels and vacation ownership and residential operations. music. Bringing a cozy harmony of modern elements to the classic American on-the-road tradition. and thrive while they are away. Westin revolutionized the industry with its famous Heavenly Bed» and Heavenly Bath» and launched a multi-million dollar retail program featuring these products. depicting the importance of the environment in today’s world. At December 31. destination after destination. approachable style and spirited. a haven at the side of the road. with foods considered best for providing disease-fighting and health-enhancing benefits due to their high nutrient and antioxidant content. Primarily all Element hotels are LEED certified. resorts and residences) is a lifestyle brand competing in the upper upscale sector in nearly 30 countries around the globe. a spirited neighborhood outpost.000 rooms in approximately 100 countries. the office. First impressions at any Westin hotel are fueled by signature sensory experiences of light. Every guest at Sheraton hotels and resorts feels a warm and welcoming connection. We offer the entire spectrum of comfort. Element is intuitively constructed with an efficient use of space that encourages guests to stay connected. W hotels delivers an experience unmatched in the hotel segment. fun. a brand introduced in 2006 with the first hotel opened in 2008. and fulfilling. Our most recent innovation. or management or franchise rights with respect to properties in this segment. we help our guests connect to what matters most to them. Four Points» (select-service hotels) delights the self-sufficient traveler with a new kind of comfort. our hotel portfolio included owned. leased. Sheraton» (luxury and upscale full-service hotels. Westin» (luxury and upscale full-service hotels. home and the best spots in town. refreshing. a brand introduced in 2005 with the first hotel opened in 2008. and is comprised of 69 hotels that we own or lease or in which we have a majority equity interest. the feeling you have when you walk into a place and your favorite song is playing — a sense of comfort and belonging. resorts and residences) is our largest brand serving the needs of luxury and upscale business and leisure travelers worldwide. an oasis where you least expect it. which include management and other fees earned from hotels we manage pursuant to management contracts. upscale and intuitively designed hotel experience that allows guests to live well and feel in control. Inspired by Westin. Aloft(SM) (select-service hotels). Sheraton can be found in the most sought-after cities and resort destinations around the world. upscale environment. 2008. Decidedly modern with an emphasis on nature. or our cutting edge music. managed and franchised hotels totaling 942 hotels with approximately 285. Our revenue and earnings are derived primarily from hotel operations. lighting and scent programs. airport or resort has a distinctive character driven by its individuality and the Le Méridien brand values. white tea scent and botanicals. can-do service — all at the honest value our guests deserve. With its underlying passion for food. From full-service hotels in major cities to luxurious resorts by the water. Our hotel business emphasizes the global operation of hotels and resorts primarily in the luxury and upscale segment of the lodging industry. ultra effortless alternative for both the business and leisure traveler. the receipt of franchise and other fees and the operation of our owned hotels. feel alive. Our operations are reported in two business segments. art and style and its classic yet stylish design. encourages hotel guests to come out of their rooms to enjoy the energy and social opportunities of traveling. Fresh. Each hotel offers renewing experiences that inspire guests to be at their best. Our guests start their day feeling energized and finish up relaxed and free to enjoy little indulgences that make their time away from home special. Element(SM) (extended stay hotels). Le Méridien offers a unique experience at some of the world’s top travel destinations. Element hotels promote balance through a thoughtful. resorts and residences) is a European-inspired brand with a French accent. We seek to acquire interests in. provides a modern.

including sites held for development. in which the supply of sites suitable for hotel development has been limited and in which development of such sites is relatively expensive. The strength of our brands is evidenced. Our luxury and upscale hotel and resort assets are well positioned throughout the world. Starwood Vacation Ownership (and its predecessor. Starwood’s largest brands. Frequent Guest Program. see Item 2 Properties. see the notes to financial statements of this Annual Report. White Plains. 2008. Inc. our revenues and earnings are derived from the development. as well as land held for future vacation ownership projects. For a discussion of our revenues. coupled with strong brands and brand recognition. Our upscale and luxury brands continue to capture market share from our competitors by aggressively cultivating new customers while maintaining loyalty among the world’s most active travelers. Mexico. Starwood Preferred Guest» (“SPG”). Arizona. of this Annual Report. ownership and operation of vacation ownership resorts. in part. The Phoenician in Scottsdale.us on behalf of third-party owners (including entities in which we have a minority equity interest) and 437 hotels for which we receive franchise fees. outstanding customer service. At December 31. we had 26 owned vacation ownership resorts and residential properties. China. and the Bahamas. Generally these resorts are marketed under the brand names described above. the program has grown to include more than 47 million members and continues to be cited for its hassle-free award redemption. in the United States. and the St. Significant Presence in Top Markets. and our telephone number is (914) 640-8100. by the superior ratings received from our hotel guests and from industry publications. Regis in Beijing. Our principal executive offices are located at 1111 Westchester Avenue. Sheraton Hotels & Resorts and Westin Hotels & Resorts. have been serving guests for more than 60 years. made headlines when it launched in 1999 with a breakthrough policy of no blackout dates and no capacity controls. indulgent experiences and airline miles with 33 participating airlines. New York 10604. Due to the global economic crisis and its impact on the long-term growth outlook for the timeshare industry. Competitive Strengths Management believes that the following factors contribute to our position as a leader in the lodging and vacation ownership industry and provide a foundation for our business strategy: Brand Strength. Our loyalty program. allowing members to redeem free nights anytime. marketing and selling of residential units at mixed use hotel projects owned by us as well as fees earned from the marketing and selling of residential units at mixed use hotel projects developed by third-party owners of hotels operated under our brands. dedicated member website and innovative promotions and benefits for elite members. during the fourth quarter of 2008 we evaluated all of our existing vacation ownership projects. For additional information concerning our business. Vistana. Additionally. depth and growing demand for luxury and upscale hotels and resorts. The Corporation was incorporated in 1980 under the laws of Maryland. profits. marketing and selling vacation ownership interests (“VOIs”) in the resorts and providing financing to customers who purchase such interests. The program yields repeat guest business by uniting a world of distinctive hotels and rewarding customers with the rewards and recognition they want — from points that can be used for free hotel stays. the most significant of which are two projects in Mexico and the Caribbean. These assets are primarily located in major cities and resort areas that management believes have historically demonstrated a strong breadth. including the St. Regis in New York. Our revenues and earnings are also derived from the development. We have thereby decided not to pursue or continue development of several projects. New York. These are among the leading hotels in the industry and are at the forefront of providing the highest quality and service. the Hotel Gritti Palace in Venice. Our properties are consistently 3 . anywhere. Italy. Since then. assets and geographical segments. We operate a distinguished and diversified group of hotel properties throughout the world. We have assumed a leadership position in markets worldwide based on our superior global distribution. Premier and Distinctive Properties.) has been selling VOIs for more than 20 years.

. .. .. . employee benefits.. . . .. We currently have approximately half of the base of rooms compared to our major competitors. . . . . .. .. . . . The Aloft brand will provide a youthful alternative to the “commodity lodging” of currently existing brands in the select-service market segment. . . . Management believes that the diversity of our brands.000 47. . . . . . . Europe. . . . This diversity limits our exposure to any particular lodging or vacation ownership asset.. Scale. .700 12. . . While we focus on the luxury and upscale portion of the full-service lodging. . Diversification of Cash Flow and Assets. . . ... . . . . . . . . . . The following tables reflect our hotel and vacation ownership and residential properties by type of revenue source and geographical presence by major geographic area as of December 31. . . . .. . . We also believe that our scale will contribute to lower our cost of operations through purchasing economies in areas such as insurance. ... . .. .. Business Segment and Geographical Information Incorporated by reference in Note 24. . . . . .. .. . . . . . . . . as we increase our room count. . revenue sources and geographic locations provide a broad base from which to enhance revenue and profits and to strengthen our global brands. . . . . . . . . . . . 4 . . .... . market segments served. . . . . . . .. .. . management and franchise fees and the sale of VOIs. energy. . . As one of the largest hotel and leisure companies focusing on the luxury and upscale full-service lodging market. . .. 436 437 69 26 968 149.. . . our brands cater to a diverse group of sub-markets within this market. .600 62. .. . .200 292. . . . .. . . . . technology. . . . 2008: Number of Properties Rooms Managed and unconsolidated joint venture hotels . . .. . our economies of scale should provide a favorable impact to our operations given our existing cost structure. . . . . . .. the St. .. . . . . . . in the consolidated financial statements set forth in Part II.. .. ... . . . 512 254 143 59 968 169. . fixtures and equipment and operating supplies. . upscale hotels for extended stay travel. .. Latin America . . . . . . . .. .. . residential units and residential branding fees. . . and the Element brand will provide modern.. Vacation ownership resorts and residential properties . For example. . . brand or geographic region. . . . .700 292.. . .recognized as the best of the best by readers of Condé Nast Traveler. . . . .. . including owned hotels’ operations. . . . . . . . . . . . . These operations are in geographically diverse locations around the world..300 23.. .. .. . . . Franchised hotels .. . . . . . .. . . . . . . . . .. . We feel we are well-positioned for further significant growth based on the number of hotels and rooms in our system. . . .. . ... who are among the world’s most sophisticated and discerning group of travelers. . vacation ownership and residential markets. . . . .. Owned hotels(a) . . . . . . . . . telecommunications. .. . . . . We derive our cash flow from multiple sources within our hotel and vacation ownership and residential segments. . ... Asia Pacific . . . .. . .... ... .. . . . . we have the scale to support our core marketing and reservation functions. . . . . Africa and the Middle East . .. . .. .. . Financial Statements and Supplementary Data.. .900 111.000 Number of Properties Rooms North America (and Caribbean) . Total properties . . . . .. . . . .. . food and beverage. .. . . . . .600 7. . .. Regis hotels cater to high-end hotel and resort clientele while Four Points by Sheraton hotels deliver extensive amenities and services at more affordable rates. . Item 8. .. ... . . .. .. and as a result. .. . . . . majority owned and leased hotels. . . .. . . . furniture... . . .. . . ... ..000 Total. . . . . . . . Business Segment and Geographical Information.. .. . . . . .. (a) Includes wholly owned. . .. . .. ... .

This allows us to expand the presence of our lodging brands and gain additional cash flow generally with modest capital commitment. We plan to meet these objectives by leveraging our global assets. Regis New York and establishing the LM 100. cash and debt assumption.1 billion in stock. • Increasing operating efficiencies through increased use of technology. RemèdeSM Spas and their branded amenities. our newest innovation. so as to sell additional products and services to existing customers. a group of cultural innovators and artists who will offer their creativity and develop original and interactive programs for Le Méridien hotels. thereby expanding our market presence. enhancing the exposure of our hotel brands and providing additional income through franchise and license fees. the Superfoods» menu. the Sheraton Service Promise SM and the Four Points by Sheraton Four Comfort Bed (SM). We plan to accomplish this in the following ways: (i) by continuing our tradition of innovation started with the Heavenly Bed» and Heavenly Bath». which may include selectively acquiring interests in additional assets and disposing of non-core hotels (including hotels where the return on invested capital is not adequate) and “trophy” assets that may be sold at significant premiums. improve occupancy rates and create additional marketing opportunities.Business Strategy We have implemented a strategy of reducing our investment in owned real estate and increasing our focus on the management and franchise business. including: • Continuing to build our brands to appeal to upscale business travelers and other customers seeking fullservice hotels in major markets by establishing emotional connections to our brands by offering signature experiences at our properties. the Westin Heavenly Spa. vacation ownership resorts and branded residential projects. developing vacation ownership resorts and selling VOIs. we have sold 56 hotels for approximately $5 billion. such as restaurant. Aloft and Element. Aloft’s “see green” program created to introduce and promote ecologically friendly programs and services. The implementation of our strategy and financial planning are impacted by the uncertainty relating to geopolitical and economic environments around the world and their consequent impact on travel in their respective regions and the rest of the world. Management has identified several growth opportunities with a goal of enhancing our operating performance and profitability. and upscale restaurants in certain of our branded hotels. • Continuing to grow our frequent guest program. As a result. thereby increasing occupancy rates while providing our customers with benefits based upon loyalty to our hotels. including the Sheraton Shine» by Bliss bath product line. beverage and parking revenue from our hotels and resorts. the Sheraton Sweet SleeperSM Bed. • Optimizing use of our real estate assets to improve ancillary revenue. • Franchising certain of our brands to third-party operators. (ii) with such ideas as Westin being the first major brand to go “smokefree” in North America. • Establishing relationships with third parties to enable us to provide attractive restaurants. • Continuing to expand our role as a third-party manager of hotels and resorts. Growth Opportunities. programs and other amenities at our branded properties such as our partnering with Jean Georges Vongerichten and his worldclass restaurant concepts. including the roll out of our new brands. • Enhancing our marketing efforts by integrating our proprietary customer databases. and (iii) by placing Bliss» Spas. for approximately $4. the opening of Adour with Alaine Ducasse at the St. In furtherance of this strategy. our primary business objective is to maximize earnings and cash flow by increasing the number of our hotel management contracts and franchise agreements. and 5 . • Expanding our internet presence and sales capabilities to increase revenue and improve customer service. and licensing certain of our brands to third parties in connection with luxury residential condominiums. broad customer base and other resources and by taking advantage of our scale to reduce costs. and investing in real estate assets where there is a strategic rationale for doing so. including 33 properties to Host in 2006. since 2006. • Expanding our branded hotels to further our strategy of strengthening brand identity. the Link@Sheraton(SM).

ordinances and regulations (“Environmental Laws”). the ability to earn and redeem loyalty program points and other factors. airports. Management believes that we compete favorably in these areas. For example. residential. restaurant and meeting facilities and services. Our vacation ownership and residential business depends on our ability to obtain land for development of our vacation ownership and residential products and to utilize land already owned by us but used in hotel operations. the introduction of better and more efficient management techniques and practices and/or the injection of capital for renovating. and • Portfolios of hotels or hotel companies that exhibit some or all of the criteria listed above. Environmental Matters We are subject to certain requirements and potential liabilities under various federal. We may also selectively choose to develop and construct desirable hotels and resorts to help us meet our strategic goals. such as the construction of a dual hotel campus in Lexington. Such laws often impose liability without regard to whether the owner or operator knew of. expanding or repositioning the property. or was responsible for. tourist attractions or universities. where the purchase of several hotels in one transaction enables us to obtain favorable pricing or obtain attractive assets that would otherwise not be available or realize cost reductions on operating the hotels by incorporating them into the Starwood system. storage or disposal facility.• Leveraging the Bliss and Remède product lines and distribution channels. most recently unveiling our Sheraton Shine» by Bliss bath product line. price. destination resorts or conference centers that have favorable demographic trends and are located in markets with significant barriers to entry or with major room demand generators such as office or retail complexes. resort and vacation ownership operator and developer. and ownership companies (including hotel REITs). the presence of such hazardous or toxic substances. Massachusetts featuring both an Aloft hotel and an Element hotel. under a variety of brands that compete directly with our brands. state and local environmental laws. Changes in the general availability of suitable land or the cost of acquiring or developing such land could adversely impact the profitability of our vacation ownership and residential business. Competition The hotel industry is highly competitive. including facilities owned by local interests and facilities owned by national and international chains. Persons who arrange for the disposal or treatment of hazardous or toxic wastes may be liable for the costs of removal or remediation of such wastes at the treatment. Our properties compete with other hotels and resorts in their geographic markets. • Major tourist hotels. several are large national and international chains that own and operate their own hotels. under or in such property. Our principal competitors include other hotel operating companies. Competition is generally based on quality and consistency of room. While some of our competitors are private management firms. The presence of hazardous or toxic substances may adversely affect the owner’s ability to sell or rent such real property or to borrow using such real property as collateral. We encounter strong competition as a hotel. We intend to explore opportunities to expand and diversify our hotel portfolio through internal development. as well as manage hotels for third-party owners and develop and sell VOIs. minority investments and selective acquisitions of properties domestically and internationally that meet some or all of the following criteria: • Luxury and upscale hotels and resorts in major metropolitan areas and business centers. • Undervalued hotels whose performance can be increased by re-branding to one of our hotel brands. attractiveness of locations. a current or previous owner or operator of real property may become liable for the costs of removal or remediation of hazardous or toxic substances on. national and international hotel brands. availability of a global distribution system. 6 . • Hotels or brands which would enable us to provide a wider range of amenities and services to customers or provide attractive geographic distribution.

these hotels are generally not operating at full capacity and. Finally as we pursue our strategy of reducing our investment in owned real estate assets. Comparability of Owned Hotel Results We continually update and renovate our owned. In addition. but not limited to. Environmental Laws are not the only source of environmental liability. While undergoing renovation. USTs or CFCs. In connection with our ownership. a Sheraton Resort in Las Vegas. govern. Regulation and Licensing of Gaming Facilities We have a minority interest in the gaming operations of the Planet Hollywood Hotel & Casino. radon or poor drinking water quality.regardless of whether such facility is owned or operated by such person. management anticipates that such costs will not have a material adverse effect on our operations or financial condition. Generally. ceiling coverings. and in the future may incur. which may be present in electrical equipment. among other things. such as the occurrence of natural disasters may cause a full or partial closure or sale of a hotel. Under the common law. our revenues and operating income have been lower in the first quarter than in the second. These laws also govern emissions of and exposure to asbestos fibers in the air. Our Nevada casino gaming operations are subject to the Nevada Gaming Control Act and the regulations promulgated thereunder (the “Nevada Act”). possession. distribution and transportation in interstate commerce of gaming devices. decorative treatments and piping located at certain of our hotels) in the event of damage or demolition. Nevada and we and certain of our affiliates and officers have obtained from the Nevada Gaming Authorities (herein defined) the various registrations. PCBs and CFCs). The ownership and/or operation of casino gaming facilities in the United States where permitted are subject to federal. the periods during which our properties experience higher revenue activities vary from property to property and depend principally upon location. Other Environmental Laws require abatement or removal of certain asbestos-containing materials (“ACMs”) (limited quantities of which are present in various building materials such as spray-on insulation. respectively. operation and management of our properties. and the licensing and 7 . the operation and subsequent removal or upgrading of certain USTs and the use of equipment containing CFCs also are regulated by Environmental Laws. the sale of such assets can significantly reduce our revenues and operating income. and such events can negatively impact our revenues and operating income. poor indoor air quality. state and local regulations which under federal law. as such. ACMs. and the recording and reporting of currency transactions. costs related to cleaning up contamination resulting from historic uses of certain of our current or former properties or our treatment. leased and consolidated joint venture hotels. A number of our hotels have underground storage tanks (“USTs”) and equipment containing chlorofluorocarbons (“CFCs”). permits and licenses required to engage in these gaming activities in Nevada. these renovations can negatively impact our owned hotel revenues and operating income. however. we could be held liable for costs of remedial or other action with respect to PCBs. tiles. floor coverings. We use certain substances and generate certain wastes that may be deemed hazardous or toxic under applicable Environmental Laws. or certain renovations or remodeling. storage or disposal of wastes at facilities owned by others. Other events. the ownership. the gaming authorities may require us to terminate the employment of any person who refuses to file the appropriate applications or disclosures. Although we have incurred and expect to incur remediation and various environmental-related costs during the ordinary course of operations. Environmental Laws also regulate polychlorinated biphenyls (“PCBs”). owners and operators of real property may face liability for personal injury or property damage because of various environmental conditions such as alleged exposure to hazardous or toxic substances (including. third or fourth quarters. The casino gaming licenses are not transferable and must be renewed periodically by the payment of various gaming license fees and taxes. The gaming authorities may deny an application for licensing for any cause which they deem reasonable and may find an officer or key employee unsuitable for licensing or unsuitable to continue having a relationship with us in which case all relationships with such person would be required to be severed. manufacture. Seasonality and Diversification The hotel industry is seasonal in nature. approvals. and we from time to time have incurred.

We have a Nevada “shelf” approval for certain public offerings that expires in November 2010. registrations and approvals held by us and our affiliates and officers could be limited. redemption. the immediate purchase of such securities for cash at fair market value. and after receipt of notice that a person is unsuitable to be an equity or debt security holder or to have any other relationship with us. liquidation or similar transaction. conversion. (v) fail to pursue all lawful efforts to require such unsuitable person to relinquish his securities including. or any other action which the Nevada Commission finds to be inconsistent with holding our voting securities for investment purposes only. any beneficial ownership of our debt or equity voting securities beyond such periods or periods of time as may be prescribed by the Nevada Commission may be guilty of a gross misdemeanor. the election of a majority of the members of either our Board of Directors. if necessary. be investigated and be found suitable to own such debt security. without prior approval of the Nevada Commission. a supervisor could be appointed by the Nevada Commission to operate the gaming property and. management. under certain circumstances. bylaws. Any suspension or revocation of the licenses. the gaming licenses. The Nevada Commission also may in its discretion require the holder of any debt security of a registered company to file an application. or the appointment of a supervisor. consolidation. Nevada law requires any person who acquires more than 5 percent of any class of our voting securities to report the acquisition to the Nevada Commission and we also must report the acquisition within ten days of becoming aware of this fact. would not have a material adverse effect on us given the limited nature and extent of the investment by us in casino gaming. earnings generated during the supervisor’s appointment (except for reasonable rental value of the affected gaming property) could be forfeited to the State of Nevada. The Nevada Gaming Authorities may investigate and require a finding of suitability of any holder of any class of our voting securities at any time. Any person found unsuitable who holds.regulatory control of the Nevada Gaming Commission (the “Nevada Commission”) and the Nevada State Gaming Control Board (the “Nevada Board”). we either (i) pay to the unsuitable person any dividend. suspended or revoked and we and the persons involved could be subject to substantial fines for each separate violation. directly or indirectly. interest or any distribution whatsoever. or. Persons seeking approval to control a registered publicly traded corporation must satisfy the Nevada Commission as to a variety of stringent standards prior to assuming control of such corporation. certain loans. an “institutional investor. Any person who becomes a beneficial owner of more than 10 percent of any class of our voting securities must apply for finding of suitability by the Nevada Commission within 30 days after the Nevada Board Chairman mails a written notice requiring such filing. Further. conditioned. exchange. sales of securities and similar financing transactions by us must be reported to or approved by the Nevada Commission. Any beneficial owner of our voting securities who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission or by the Chairman of the Nevada Board may be found unsuitable. policies or operations or any of our casino gaming operations. Furthermore. or any form of takeover without the prior approval of the Nevada Commission. An institutional investor will not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing. management or consulting agreements. If it were determined that applicable laws or regulations were violated. The applicant must pay the costs and fees incurred by the Nevada Board in connection with the investigation. (iv) make any payment to the unsuitable person by way of principal. directly or indirectly. Regulations of the Nevada Commission provide that control of a registered publicly traded corporation cannot be changed through merger. We are also required to submit certain financial and operating reports to the Nevada Commission. We could be subject to disciplinary action if. (ii) recognize any voting right by such unsuitable person in connection with such securities. leases.” as defined by the Nevada Act. any change in our corporate charter. as well as certain county government agencies (collectively referred to as the “Nevada Gaming Authorities”). that acquires more than 10 percent but no more than 19 percent of our voting securities may apply to the Nevada Commission for a waiver of such finding of shareholder suitability requirements if such institutional investor holds the voting securities for investment purposes only. acquisition or assets. registrations or approvals. The failure of a person to obtain such approval prior to assuming 8 . (iii) pay the unsuitable person remuneration in any form. Under certain circumstances.

You may also read and copy any document we file with the SEC at its public reference rooms in Washington. We also manage gaming operations at the Sheraton Cairo Hotel. working hours. (iv) employ a person in the foreign operation who has been denied a license or finding of suitability in Nevada on the ground of personal unsuitability. Regulations of the Nevada Commission also prohibit certain repurchases of securities by registered publicly traded corporations without the prior approval of the Nevada Commission. Transactions covered by these regulations are generally aimed at discouraging repurchases of securities at a premium over market price from certain holders of more than 3 percent of the outstanding securities of the registered publicly traded corporation. of whom approximately 36% were employed in the United States.” Generally a plan of recapitalization is a plan proposed by the management of a registered publicly traded corporation that contains recommended action in response to a proposed corporate acquisition opposed by management of the corporation if such acquisition would require the prior approval of the Nevada Commission.starwoodhotels. Our filings with the SEC are also available at the New York Stock Exchange. (iii) engage in activities that are harmful to the State of Nevada or its ability to collect gaming taxes and fees.gov. Licensees are subject to disciplinary action by the Nevada Commission if they (i) knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation.000 to pay the expenses of investigation by the Nevada Board of the Licensees’ participation in such foreign gaming. quarterly and special reports. 2008. Such regulations may impact the timing of consummating any such transaction. the Licensees may engage in gaming activities outside the State of Nevada without seeking the approval of the Nevada Commission provided (i) such activities are lawful in the jurisdiction where they are to be conducted. Any person who is licensed. For more information on obtaining copies of our public filings at the New York Stock Exchange. generally. approximately 145. Our SEC filings are also available on our website at http://www.sec. and thereafter maintain. You may also obtain a copy of our filings free of charge by calling Investor Relations at (914) 640-8165. required to be licensed. proxy statements and other information with the Securities & Exchange Commission (“SEC”). Towers & Casino in Gaza. or. 2008. for basic pay rates. Egypt. The regulations of the Nevada Commission also require approval for a “plan of recapitalization. required to be registered. Our SEC filings are available to the public over the Internet at the SEC’s web site at http://www. Once such revolving fund is established. or is under common control with such persons (collectively “Licensees”). At December 31. Generally.-based employees were covered by various collective bargaining agreements providing. The revolving fund is subject to an increase or decrease in the discretion of the Nevada Commission.S. Please call the SEC at (800) SEC-0330 for further information on the public reference rooms. approximately 37% of the U. you should call (212) 656-5060. owned and managed hotels and vacation ownership resorts. D. labor relations have been maintained in a normal and satisfactory manner.html as soon as reasonably practicable after they are filed with or furnished to the SEC. and who proposes to become involved in a gaming operation outside the State of Nevada is required to deposit with the Nevada Board. and management believes that our employee relations are satisfactory. Employees At December 31. and (ii) the Licensees comply with certain reporting requirements imposed by the Nevada Act.000 people were employed at our corporate offices. a revolving fund in the amount of $10.control over the registered publicly traded corporation may constitute grounds for finding such person unsuitable. Where You Can Find More Information We file annual.C. 9 . (ii) fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations. registered.com/ corporate/investor relations. other conditions of employment and orderly settlement of labor disputes.

• changes in operating costs including. but most allow the hotel owner to replace us in certain circumstances. Our hotel management contracts are typically long-term arrangements. • decreases in the demand for transient rooms and related lodging services. food costs. renovations and investments. • the availability and cost of capital to allow us and potential hotel owners and franchisees to fund construction. Vacation Ownership and Residential Operations We Are Subject to All the Operating Risks Common to the Hotel and Vacation Ownership and Residential Industries. which may impact our ability to recover indemnity payments that may be owed to us and their ability to fund amounts required under development. • domestic and international political and geopolitical conditions. Risks Relating to Hotel. among other things. 10 . including. • the financial condition of third-party property owners. such as the bankruptcy of the hotel owner or franchisee. timeshare. among others. • the costs and administrative burdens associated with compliance with applicable laws and regulations. project developers and franchisees. safety and environmental laws. Our ability to meet these financial and performance criteria is subject to. • cyclical over-building in the hotel and vacation ownership industries. franchisees and homeowner associations which may result in litigation. insurance and unanticipated costs such as acts of nature and their consequences. • the impact of internet intermediaries on pricing and our increasing reliance on technology. Resort. including condominium hotels. • travelers’ fears of exposures to contagious diseases. • changes in travel patterns. rules and regulations and other governmental and regulatory action.Item 1A. but not limited to. • impact of war and terrorist activity (including threatened terrorist activity) and heightened travel security measures instituted in response thereto. privacy. energy. franchising. labor costs (including the impact of unionization). including the severity and duration of the current downturn in the US and global economies. • restrictive changes in zoning and similar land use laws and regulations or in health. management and franchise agreements and in most cases our recourse is limited to the equity value said party has in the property. • decreases in demand or increases in supply for vacation ownership interests. We are also impacted by our relationships with owners and franchisees. the risks described in this section. and • the financial condition of the airline industry and the impact on air travel. workers’ compensation and health-care related costs. and regulations under the Office of Foreign Control and the Foreign Corrupt Practices Act. upon a sale of the property. the failure to meet certain financial or performance criteria and in certain cases. including a reduction in business travel as a result of general economic conditions. our operating results would be adversely affected if we could not maintain existing management. licensing labor and employment. • foreign exchange fluctuations. Additionally. franchise or representation agreements or obtain new agreements on as favorable terms as the existing agreements. • disputes with owners of properties. Operating risks common to the hotel and vacation ownership and residential industries include: • changes in general economic conditions. Risk Factors.

Moreover. We Must Compete for Customers. Our properties compete for customers with other hotel and resort properties. We cannot assure you that any of our current arrangements will continue or that we will be able to enter into future collaborations. with respect to our vacation ownership resorts and residential projects. Following the acquisition of the Le Méridien 11 . and leases for each of our lodging facilities are influenced by contract terms offered by our competitors. Litigation has been and may continue to be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. There is no guarantee that such trademark registrations will be granted. businesses participating in the Troubled Asset Relief Program (TARP) face restrictions on the ability to travel and hold conferences or events at resorts and luxury hotels. or apartments. We cannot assure you that all of the steps we have taken to protect our trademarks in the United States and foreign countries will be adequate to prevent imitation of our trademarks by others. depth and duration has had a negative impact on the hotel and vacation ownership and residential industries. The unauthorized reproduction of our trademarks could diminish the value of our brand and its market acceptance. Accordingly. In addition. Litigation of this type could result in substantial costs and diversion of resources. The Current Slowdown in the Lodging Industry and the Global Economy Generally Will Continue to Impact Our Financial Results and Growth. competitive advantages or goodwill. Many economists have reported that the U. As a result. Residential properties using our brands could become less attractive due to changes in mortgage rates and the availability of mortgage financing generally.S. The negative publicity associated with such companies holding large events has also resulted in cancelations and reduced bookings. Significant Owners of Our Properties May Concentrate Risks. franchise agreements. We rely on trademark laws to protect our proprietary rights. Any Failure to Protect Our Trademarks Could Have a Negative Impact on the Value of Our Brand Names and Adversely Affect Our Business. From time to time.We utilize our brands in connection with the residential portions of certain properties that we develop and license our brands to third parties to use in a similar manner for a fee. or enter into new agreements in the future on terms that are as favorable to us as those that exist today. Substantial increases in air and ground travel costs and decreases in airline capacity have reduced demand for our hotel rooms and interval and fractional timeshare products. The success of our business depends in part upon our continued ability to use our trademarks to increase brand awareness and further develop our brand in both domestic and international markets. In connection with entering into management or franchise agreements. and. Generally there has not been a concentration of ownership of hotels operated under our brands by any single owner. among other things. may result in counterclaims or other claims against us and could significantly harm our results of operations. our financial results have been impacted by the economic slowdown and both our future financial results and growth could be further harmed if the economic slowdown continues for a significant period or becomes worse. vacation ownership and residential industries are highly competitive. The present economic slowdown and the uncertainty over its breadth. New or revised regulations on businesses participating in the TARP and the negative publicity associated with conferences and events could continue to impact our financial results. which could adversely affect our business. with owners reselling their VOIs. we apply to have certain trademarks registered. We Must Compete for Management and Franchise Agreements. we may be required to make investments in or guarantee the obligations of third parties or guarantee minimum income to third parties. as a result of the impact on the lodging industry. market absorption or oversupply in a particular market. and they may improve their facilities. we and our third party licensees may not be able to sell these residences for a profit or at the prices that we or they have anticipated. reduce their prices or expand or improve their marketing programs in ways that adversely affect our operating results. Some of our competitors may have substantially greater marketing and financial resources than we do. the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States. we may be required to pay out on certain performance and other guarantees that are contained in our third party contracts. We believe our trademarks are an important component of our business. renew agreements. The hotel. We compete with other hotel companies for management and franchise agreements. Monitoring the unauthorized use of our intellectual property is difficult. including fractional ownership. and many European countries are in a recession. The terms of our management agreements. In addition. Our present growth strategy for development of additional lodging facilities entails entering into and maintaining various arrangements with property owners.

These agencies hope that consumers will eventually develop brand loyalties to their reservations system rather than to our lodging brands. As the percentage of internet bookings increases. to the extent the property owners and we cannot fund expenditures from cash generated by operations. modernized and refurbished.com». single ownership groups own significant numbers of hotels operated by us. When interest rates increase. The hospitality industry continues to demand the use of sophisticated technology and systems including technology utilized for property management. procurement. reduced room rates or other significant contract concessions from us. This creates an ongoing need for cash and. We are subject to the risks that generally relate to investments in real property because we own and lease hotels and resorts. the cost of acquiring. the development and maintenance of these technologies may require significant capital. Any of these factors could have a material adverse impact on our results of operations or financial condition.. however. there can be no assurance that we will achieve the benefits that may have been anticipated from any new technology or system.com» and Priceline. Third Party Internet Reservation Channels May Negatively Impact Our Bookings. Sometimes this taking is for less compensation than the owner believes the property is worth. If our properties do 12 . interest rate levels and the availability of financing. and there is the risk that advanced new technologies will be introduced. For our owned. Moreover. The Hotel Industry Is Seasonal in Nature. Although we expect to derive most of our business from traditional channels and our websites. funds must be borrowed or otherwise obtained. reservation systems. third or fourth quarters.e. zoning. under eminent domain laws. Some of our hotel rooms are booked through third party internet travel intermediaries such as Travelocity. to maintain our vacation ownership business and residential projects. While the risks associated with such ownership are no different than exist generally (i. the property owners and we have to spend money periodically to keep the properties well maintained. Further. we need to spend money to develop new units. Finally. some of these internet travel intermediaries are attempting to commoditize hotel rooms by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”) at the expense of brand identification.brand business and the Host Transaction. the financial position of the owner. There can be no assurance that as various systems and technologies become outdated or new technology is required we will be able to replace or introduce them as quickly as our competition or within budgeted costs and timeframes for such technology. modify or renovate hotels. Our Businesses Are Capital Intensive. operation of our customer loyalty program. if the amount of sales made through internet intermediaries increases significantly. Real Estate Investments Are Subject to Numerous Risks. new or existing real estate zoning or tax laws can make it more expensive and/or time-consuming to develop real property or expand. it becomes more difficult both to acquire and to sell real property. tax and eminent domain laws. equity real estate investments are difficult to sell quickly and we may not be able to adjust our portfolio of owned properties quickly in response to economic or other conditions. Events over the past few months. insurance. The hotel industry is seasonal in nature. We Place Significant Reliance on Technology. and the expenses incurred. a variety of other factors affect income from properties and real estate values. In addition. the periods during which we experience higher revenue vary from property to property and depend principally upon location. brand assurance and compliance. these intermediaries may be able to obtain higher commissions. managed and franchised properties to remain attractive and competitive. including to comply with legal requirements such as privacy regulations and requirements established by third parties such as the payment card industry. distribution and guest amenities. they are more concentrated. Accordingly. our financial results have been impacted by the cost and availability of funds and the carrying cost of VOI and residential inventory.com». expanding or renovating real property increases and real property values may decrease as the number of potential buyers decreases. Expedia. developing. including the failures and near failures of financial services companies and the decrease in liquidity and available capital have negatively impacted the capital markets for hotel and real estate investments. These technologies can be expected to require refinements. as financing becomes less available. In addition. including governmental regulations. Our revenue historically has been lower in the first quarter than in the second. governments can take real property. The investment returns available from equity investments in real estate depend in large part on the amount of income earned and capital appreciation generated by the related properties. For example. our business and profitability may be significantly harmed. the overall state of the relationship with the owner and their participation in optional programs and the impact on cost efficiencies if they choose not to participate). Similarly. In addition. Further.

or new interpretations would depend upon the specific requirements enacted and cannot be determined at this time. could affect the operation of our hotels and/or result in significant additional expense and operating restrictions on us. New project development has a number of risks. hurricanes. including debt service and capital expenditures. New or revised laws and regulations or new interpretations of existing laws and regulations. or other environmental and health concerns may be adopted or become applicable to the Company. air quality. 13 . We intend to develop hotel and resort properties. ordinances and regulations of various federal. or were responsible for. For example. we could be liable for the costs of removing or cleaning up wastes at the disposal or treatment facility. regulation. 2008 included 254 owned. In addition. managed or franchised properties in Europe. These laws could impose liability without regard to whether we knew of. Some states are also considering or have undertaken actions to regulate and reduce greenhouse gas emissions. and • governmental restrictions on the nature or size of a project or timing of completion. In addition. even if we never owned or operated that facility. coastal zones and threatened or endangered species. local and foreign governments regulate our properties and could make us liable for the costs of removing or cleaning up hazardous or toxic substances on. will in fact be developed. Other laws.not generate revenue sufficient to meet operating expenses. If we arrange for the disposal or treatment of hazardous or toxic wastes. ordinances and regulations could require us to manage. • receipt of zoning. ordinances and regulations. our income will be adversely affected. under. • so-called acts of God such as earthquakes. • ability to raise capital. as suitable opportunities arise. could jeopardize our ability to develop. Africa and the Middle East (including 17 properties with majority ownership). Budgeting and Other Risks. including sites held for development of vacation ownership resorts. International Operations Are Subject to Special Political and Monetary Risks. the presence of hazardous or toxic substances. or in property we currently own or operate or that we previously owned or operated. The presence of hazardous or toxic substances. abate or remove lead or asbestos containing materials. the operation and closure of storage tanks are often regulated by federal. The cost impact of such legislation. Certain laws. state. We cannot assure you that any development project. We have significant international operations which as of December 31. including risks associated with: • construction delays or cost overruns that may increase project costs. and if developed. the owners and developers of new-build properties that we have entered into management or franchise agreements with are subject to these same risks which may impact the amount and timing of fees we had expected to collect from those properties. such as those related to climate change. the time period or the budget of such development may be greater than initially contemplated and the actual number of units or rooms constructed may be less than initially contemplated. • development costs incurred for projects that are not pursued to completion. existing environmental laws and regulations may be revised or new laws and regulations related to global climate change. local and foreign laws. managed or franchised properties in the Asia Pacific region (including 4 properties with majority ownership). 59 owned. Environmental Regulations. Similarly. state. or the failure to properly clean up such substances when present. sell or rent the real property or to borrow using the real property as collateral. Hotel and Resort Development Is Subject to Timing. occupancy and other required governmental permits and authorizations. legislative proposals that would impose mandatory requirements on greenhouse gas emissions continue to be considered in Congress. use. particularly those governing the management or preservation of wetlands. sell or rent our real property. • defects in design or construction that may result in additional costs to remedy or require all or a portion of a property to be closed during the period required to rectify the situation. floods or fires that could adversely impact a project. and 143 owned. taking into consideration the general economic climate. could limit our ability to develop. Environmental laws. managed or franchised properties in Latin America (including 10 properties with majority ownership). use. including VOIs and residential components of hotel properties.

or realize equity investments from such projects. we are subject to: (i) the risk that cash flow from operations will be insufficient to meet required payments of principal and interest. downgrades of our public debt ratings by rating agencies could increase our cost of capital. depending on the nature of any further sanctions that might be imposed. Delays. both we and current and potential hotel owners must have access to capital. could result in an acceleration of all or a substantial portion of our debt. if not cured or waived. However. see Item 7. Although we anticipate that we will be able to repay or refinance our existing indebtedness and any other indebtedness when it matures. some international jurisdictions restrict the repatriation of non-U.S. sales in international jurisdictions typically are made in local currencies. and local law. For a more detailed description of the covenants imposed by our credit agreements. (ii) restrictive covenants. and our activities in that country are in full compliance with U. Other than Italy. a country that the United States has identified as a state sponsor of terrorism. As a result. if necessary. our activities in Syria may reduce demand for our stock among certain investors. operations. recover loans and guarantee advances. civil unrest. may be impaired or such financing may not be available on terms favorable to us and (ii) a substantial decrease in operating cash flow. Syria.S. The availability of funds for new investments and maintenance of existing hotels depends in large measure on capital markets and liquidity factors over which we have little control. as well as refurbish and improve existing hotels. investments in. or the exportation of services to. our activities in Syria may be adversely affected. The United States may impose further sanctions against Syria at any time for foreign policy reasons. terrorism. entities to pay dividends and remit earnings to affiliated companies unless specified conditions have been met. our international properties are geographically diversified and are not concentrated in any particular region.S. there can be no assurance that we will be able to do so or that the terms of such refinancings will be favorable. Recent events have made the capital markets increasingly volatile. refinancing of debt or otherwise may also affect our ability to raise new capital. and other risks that are not present in U.-origin goods to Syria and the operation of government-owned Syrian air carriers in the United States except in limited circumstances. In addition. as could other changes in the international regulatory climate and international economic conditions. In addition. which subject us to risks associated with currency fluctuations. 14 . In addition. A breach of a covenant could result in an event of default. expropriation and nationalization as well as the impact in cases in which there are inconsistencies between U. where our risks are heightened due to the 6 properties we owned as of December 31. In order to fund new hotel investments. Debt Financing As a result of our debt obligations. law and the laws of an international jurisdiction. including covenants relating to certain financial ratios and (iii) interest rate risk. Our leverage may have important consequences including the following: (i) our ability to obtain additional financing for acquisitions. EBITDA (as defined in our credit agreements) or a substantial increase in our expenses could make it difficult for us to meet our debt service requirements and restrictive covenants and force us to sell assets and/or modify our operations. If so. These risks include the risk of war.International operations generally are subject to various political. earnings. that. Currency devaluations and unfavorable changes in international monetary and tax policies could have a material adverse effect on our profitability and financing plans. the United States has imposed limited sanctions as a result of Syria’s support for terrorist groups and its interference with Lebanon’s sovereignty. increased costs and other impediments to restructuring such projects may affect our ability to realize fees. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Cash Used for Financing Activities in this Annual Report.S.S. Starwood subsidiaries generated approximately $4 million of revenue from management and other fees from hotels located in Syria. including a prohibition on the exportation of U. In addition. The United States does not prohibit U. geopolitical. Our ability to recover loans and guarantee advances from hotel operations or from owners through the proceeds of hotel sales. This amount constitutes significantly less than 1% of our worldwide annual revenues. Risks Relating to Operations in Syria During fiscal 2008. 2008. capital expenditures or other purposes.S.S. Various other international jurisdictions have laws limiting the ability of non-U. many current and prospective hotel owners are finding hotel financing to be increasingly expensive and difficult to obtain. working capital.

there is a limit as well as various sub-limits on the amount of insurance proceeds we will receive in excess of applicable deductibles. there may be overall limits under the policies. our “all-risk” property policies provide that coverage is available on a per occurrence basis and that. all of the claims from each of our properties resulting from a particular insurable event must be combined together for purposes of evaluating whether the annual aggregate limits and sub-limits contained in our policies have been exceeded and any such claims will also be combined with the claims of owners of managed hotels that participate in our insurance program for the same purpose. the claims from each affected hotel will be added together to determine whether the per occurrence limit. expediting costs or landscaping replacement. 15 . Although we expect to realize the economic value of our vacation ownership note portfolio even if future note sales are temporarily or indefinitely delayed. or prevent us from selling our vacation ownership notes entirely. Sub-limits exist for certain types of claims such as service interruption. certain forms of terrorism such as nuclear. Generally. Similarly. debris removal. Should an uninsured loss or a loss in excess of insured limits occur. Our vacation ownership business provides financing to purchasers of our vacation ownership and fractional units. under those circumstances. our results to differ materially from anticipated results. we could lose all or a portion of the capital we have invested in a hotel or resort. have been reached and if the limits or sub-limits are exceeded each affected hotel will only receive a proportional share of the amount of insurance proceeds provided for under the policy. In addition. such as natural disasters. we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. annual aggregate limit or sub-limits. Some Potential Losses are Not Covered by Insurance We carry insurance coverage for general liability. business interruption and other risks with respect to our owned and leased properties and we make available insurance programs for owners of properties we manage. if insurable events occur that affect more than one of our owned hotels and/or managed hotels owned by third parties that participate in our insurance program. wars (including the potential for war). In addition. Our property policies also provide that for the coverage of critical earthquake (California and Mexico). there are also other risks including but not limited to war. Terrorist Activity and War Our financial and operating performance may be adversely affected by so-called acts of God. We may also encounter challenges with an insurance provider regarding whether it will pay a particular claim that we believe to be covered under our policy.Volatility in the Credit Markets Will Continue to Adversely Impact Our Ability to Sell the Loans That Our Vacation Ownership Business Generates. and may cause in the future. Risks Relating to So-Called Acts of God. and the dollar amounts of these sub-limits are significantly lower than the dollar amounts of the overall coverage limit. hurricane and flood. These policies offer coverage terms and conditions that we believe are usual and customary for our industry. Therefore. as well as the anticipated future revenue from the hotel or resort. claims by third party owners will reduce the coverage available for our owned and leased properties. depending on the type of claim. political unrest and other forms of civil strife and geopolitical uncertainty have caused in the past. terrorist activity (including threats of terrorist activity). political risks. In that event. Market conditions over the past year and further volatility and deterioration during the last few months may delay or even prevent 2009 sales until the markets stabilize. Increased volatility in the credit markets will likely continue to impact the timing and volume of the timeshare loans that we are able to sell. in locations where we own and/or operate significant properties and areas of the world from which we draw a large number of customers. property. biological or chemical terrorism. for each occurrence. some environmental hazards and/or acts of God that may be deemed to fall completely outside the general coverage limits of our policies or may be uninsurable or may be too expensive to justify insuring against. such delays could reduce or postpone future gains and could result in either increased borrowings to provide capital to replace anticipated proceeds from such sales or reduced spending in order to maintain our leverage and return targets. In addition. and we attempt to sell interests in those loans in the securities markets.

are in markets which may not benefit us as much as other markets during an economic recovery or could be sold at significant premiums. We are focused on restructuring and enhancing real estate returns and monetizing investments and from time to time. we may be unable to take action without the approval of our joint venture partners. and expect to continue to invest. 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 our business directly. or be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives. There can be no assurance that we will be able to identify acquisition or investment candidates or complete transactions on commercially reasonable terms or at all. Consequently. Although we believe that we are in material compliance with all applicable federal.Acquisitions/Dispositions and New Brands We will consider corporate as well as property acquisitions and investments that complement our business. There can be no assurance regarding the level of acceptance of these brands in the development and consumer marketplaces. there can be no assurance that any anticipated benefits will actually be realized. Similarly. we will not have recovered the marketing. We also acquire. actions by a co-venturer might subject hotels and resorts owned by the joint venture to additional risk. Additionally. we could become liable for our partner’s share of joint venture liabilities. the laws of most states in which we sell VOIs grant the purchaser the right to rescind the purchase contract at any time within a statutory rescission period. we will be competing for these opportunities with third parties who may have substantially greater financial resources or different or lower acceptable financial metrics than we do. Aloft and Element. and such costs will be incurred again in connection with the resale of the repossessed VOI. state. We have developed and launched two new hotel brands. and provide financing to purchasers of VOIs. In addition. should a joint venture partner become bankrupt. Further. we have from time to time invested. that we will be able to complete dispositions on commercially reasonable terms or at all or that any anticipated benefits will actually be received. our joint venture partners could take actions binding on the joint venture without our consent. develop and operate vacation ownership resorts. changes in these requirements or a determination by a regulatory authority that we were not in compliance. no longer complement our business. joint venture investments may involve risks such as the possibility that the co-venturer in an investment might become bankrupt or not have the financial resources to meet its obligations. If transactions are consummated. Alternatively. as a co-venturer. or have economic or business interests or goals that are inconsistent with our business interests or goals. or that the ability to obtain such financing will not be restricted by the terms of our debt agreements. may attempt to sell these identified properties and assets. however. and may develop and launch additional brands in the future. there can be no assurance that we will be able to obtain additional financing for acquisitions or investments. These activities are all subject to extensive regulation by the federal government and the states in which vacation ownership resorts are located and in which VOIs are marketed and sold including regulation of our telemarketing activities under state and federal “Do Not Call” laws. sales and operations are currently subject. We bear the risk of defaults under purchaser mortgages on VOIs. which typically entitle the buyer to ownership of a fully-furnished resort unit for a one-week period (or in the case of fractional ownership interests. selling (other than commissions in certain events). Joint venturers often have shared control over the operation of the joint venture assets. In many cases. increased regulations of telemarketing activities could adversely impact the marketing of our VOIs. In particular. There can be no assurance. Therefore. that the cost incurred in developing the brands will be recovered or that the anticipated benefits from these new brands will be realized. there is no assurance that the 16 . could adversely affect us. and general and administrative costs associated with such VOI. generally for three or more weeks) on either an annual or an alternate-year basis. We periodically review our business to identify properties or other assets that we believe either are non-core. local and foreign laws and regulations to which vacation ownership marketing. Accordingly. Our Vacation Ownership Business is Subject to Extensive Regulation and Risk of Default We market and sell VOIs. If a VOI purchaser defaults on the mortgage during the early part of the loan amortization period.

As a result. Evolving Government Regulation Could Impose Taxes or Other Burdens on Our Business. the Trust is more likely than are other REITs to face interpretative issues for which there are no clear answers. Subsequent to the Host Transaction. Privacy Initiatives We collect information relating to our guests for various business purposes. the Trust is no longer owned by us and we are not subject to this risk for actions following the transaction. Over the last few years we have been pursuing a strategy of reducing our investment in owned real estate and increasing our focus on the management and franchise business. Competition for such personnel is intense. Accordingly. including executive officers (See Item 10. structure and operations. In addition. We then remit these taxes to the various tax authorities. it is possible that they may seek to collect the additional tax payment from us and we would not be able to collect these taxes from the customers. payment of damages or restrictions on our use or transfer of data. There can be no assurance that we will continue to be successful in attracting and retaining qualified personnel. This increase will require us to recruit and train a substantial number of new associates to work at these hotels as well as increasing our capabilities to enable hotels to open on time and successfully. Since January 2004. there can be no assurance that our senior management will be able to successfully execute and implement our growth and operating strategies. Ability to Manage Growth Our future success and our ability to manage future growth depend in large part upon the efforts of our senior management and our ability to attract and retain key officers and other highly qualified personnel. we would be liable to pay a significant amount of taxes for those years. non-compliance with applicable privacy regulations by us (or in some circumstances noncompliance by third parties engaged by us) or a breach of security on systems storing our data may result in fines. We believe that for the taxable years ended December 31. including marketing and promotional purposes. Several jurisdictions have stated that they may take the position that the tax is also applicable to the intermediaries’ gross profit on these hotel transactions. however. they should seek the additional tax payments from the intermediary. 1995 through April 10. There can be no assurance that our strategy will be successful. If the Trust failed to qualify as a REIT for any prior tax year. Executive Officers and Corporate Governance” of this Annual Report). in the event of such defaults. “Directors. Tax Risks Failure of the Trust to Qualify as a REIT Would Increase Our Tax Liability. as amended.sales price will be fully or partially recovered from a defaulting purchaser or. 2006. The collection and use of personal data are governed by privacy laws and regulations enacted in the United States and other jurisdictions around the world. we have experienced significant changes in our senior management. we are planning on substantially increasing the number of hotels we open every year and increasing the overall number of hotels in our system. The imposition of additional taxes or causing us to change the way we conduct our business could cause us to have to pay taxes that we currently do not collect or pay or increase the costs of our services or increase our costs of operations. properties and services to our guests. Due to the complexities of our ownership. We cannot be sure that these interpretations are accurate or that the responsible taxing or other governmental authority is in agreement with our views. Compliance with applicable privacy regulations may increase our operating costs and/or adversely impact our ability to market our products. If jurisdictions take this position. To the 17 . the Trust qualified as a REIT under the Internal Revenue Code of 1986. Qualifying as a real estate investment trust (a “REIT”) requires compliance with highly technical and complex tax provisions that courts and administrative agencies have interpreted only to a limited degree. Privacy regulations continue to evolve and on occasion may be inconsistent from one jurisdiction to another. the date which Host acquired the Trust. that our allowance for losses will be adequate. We rely upon generally available interpretations of tax laws and other types of laws and regulations in the countries and locales in which we operate. Our current business practice with our internet reservation channels is that the intermediary collects hotel occupancy tax from its customer based on the price that the intermediary paid us for the hotel room.

beneficial ownership of 15% or more of our outstanding Corporation Shares or (ii) ten business days after the commencement of or announcement of an intention to make a tender offer or exchange offer. However. England and have leased Bliss Spas in nine of the W Hotels. it is possible that we might have additional tax exposure. such as a classified board. two in New York. senior to the rights of holders of our shares. The preferred stock purchase rights would cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our Board of Directors. 2008. including voting rights. we own. without a vote of shareholders. predominantly under seven brands. Item 2. Certain provisions of Maryland law permit our Board of Directors. our charter contains provisions relating to restrictions on transferability of the Corporation Shares. quality and variety of services offered in the markets in which they are located. Regis hotels. our shareholders will be entitled to purchase from us a newly created series of junior preferred stock. As permitted under the Maryland General Corporation Law. the consummation of which would result in the acquiring person becoming the beneficial owner of 15% or more of our outstanding Corporation Shares.200. consisting of one billion shares of common stock and 200 million shares of preferred stock. Although obsolescence arising from age. We are one of the largest hotel and leisure companies in the world. Our Board of Directors May Implement Anti-Takeover Devices and our Charter and Bylaws Contain Provisions which May Prevent Takeovers. we believe that any additional tax would be the responsibility of the intermediary. which provisions may be amended only by the affirmative vote of our shareholders holding two-thirds of the votes entitled to be cast on the matter.000. to establish the preferences and rights of any preferred or other class or series of shares to be issued and to issue such shares.000. facilities. managed or franchised hotels with approximately 285. Since our Board of Directors has the power to establish the preferences and rights of additional classes or series of shares without a shareholder vote. among other things. lease or manage Remède Spas in four of the St. to implement possible takeover defenses that are not currently in place. our Board of Directors may give the holders of any class or series preferences. such actions could have a material adverse effect on our business. or obtained the right to acquire. New York and one in London. physical condition. Our Shareholder Rights Plan Would Cause Substantial Dilution to Any Shareholder That Attempts to Acquire Us on Terms Not Approved by Our Board of Directors. We adopted a shareholder rights plan which provides. Our hotel business included 942 owned. In such event. We also lease three stand-alone Bliss Spas. Our Board of Directors has the authority. We consider our hotels and resorts. without stockholder approval. size. The issuance of preferred shares or other shares having special preferences or rights could delay or prevent a change in control even if a change in control would be in the interests of our shareholders. and style can adversely affect our Resorts. with operations in approximately 100 countries. that when specified events occur. our Bylaws provide that directors have the exclusive right to amend our Bylaws. 18 . Risks Relating to Ownership of Our Shares Our Board of Directors May Issue Preferred Stock and Establish the Preferences and Rights of Such Preferred Stock. powers and rights. Properties. The preferred stock purchase rights are triggered by the earlier to occur of (i) ten days after the date of a public announcement that a person or group acting in concert has acquired. In addition.000 rooms and our owned vacation ownership and residential business included 26 vacation ownership resorts and residential properties at December 31. For further information see Item 7. including vacation ownership resorts (together “Resorts”). Our charter provides that the total number of shares of stock of all classes which the Corporation has authority to issue is 1. 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 resorts to more moderately priced hotels. In addition. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources in this Annual Report. generally to be premier establishments with respect to desirability of location. condition of facilities. Starwood and third-party owners of managed and franchised Resorts expend substantial funds to renovate and maintain their facilities in order to remain competitive. results of operations and financial condition.extent that any tax authority succeeds in asserting that the hotel occupancy tax applies to the gross profit on these transactions.

. . . . . . . . . . . . . We manage hotels worldwide. . . . . . . at December 31. . . . . . . . . . . .800 4 — 10 — 8 — — 4 26 100 — 2. . . . . . as well as 19 . . . . Le Méridien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .200 7. incentive and marketing fees combined with demonstrated sales and marketing expertise and operations-focused management designed to enhance profitability. .9% 19. . . . . . . . . . . . . .000 rooms worldwide. . . .200 Managed and Franchised Hotels. . . . . . . . . . . . . . . . . . In 2008. . . . . . . . . . . . . . . . . . . . .2% 17. . .700 143. . . Regis and Luxury Collection . . . . . . . . public relations and national and international media advertising. . . . . . . . . . . . Hotel Business 76 26 162 107 409 134 17 11 942 13. . . . . . . . such as Starwood. . . . . . . . . . . . . . . . . . . . . For additional fees. . . . . . . . . . .300 23. we generated management fees by geographic area as follows: United States . . . W. . . . . . . . centralized reservations and other centralized administrative functions. . . . . . . .500 2. . . . . . Sheraton . . . . 2008: Hotels Properties Rooms VOI and Residential(a) Properties Rooms St. . . . . . . . . . . . . Americas (Latin America. . . . . . . . . . . . 36. . . . . that offer both hotel management services and wellestablished worldwide brand names appeal to hotel owners by providing the full range of management. . . . . . . . . . . . . . . 2008. Some of our management contracts permit the hotel owner to terminate the agreement when the hotel is sold or otherwise transferred to a third party. . . . . . . . . . . . . . . . . . . When a management company does not offer a brand affiliation. . . . .300 — 4. . . . marketing and reservation services. . . . . . 2008. . . . . . . . . . . . . . . . . . .500 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3% Total . . . . . . Management believes that companies. . . . . the hotel owner often chooses to pay separate franchise fees to secure the benefits of brand marketing. . . Europe . . including centralized reservations. . . . . . . . Aloft. Four Points . . . . . . Total . . . . . . . . .400 284. . . sales and marketing. Middle East and Africa .000 rooms left the system. . . . . . . . . . . . We prepare and implement annual budgets for the hotels we manage and are responsible for allocating property-owner funds for periodic maintenance and repair of buildings and furnishings. . particularly in the sales and marketing area. . . .400 27. 100. .500 — — 300 7. . .000 rooms and 36 managed and franchised hotels with approximately 11. . . . . . . . . . . . . . . . . . . Managed Hotels. . . . . . . . . In our experience. . . . . . . . . . . . . .1% 19. . . . . . . . During the year ended December 31. In addition to our owned and leased hotels. . . . . . . . .The following table reflects our hotel and vacation ownership properties. . . . Asia Pacific . . . . . . . . . . . . by brand as of December 31. . . (a) Includes sites held for development. . . . . . . . . . . . . . . usually under a long-term agreement with the hotel owner (including entities in which we have a minority equity interest). . Our responsibilities under hotel management contracts typically include hiring. . . we opened 84 managed and franchised hotels with approximately 20. .0% Management contracts typically provide for base fees tied to gross revenue and incentive fees tied to profits as well as fees for other services. . . . . . . . . . . . . Caribbean & Canada). . . . . . . . . . . . . . . . . . . . . . owners seek hotel managers that can provide attractively priced base. . . . . . . . . .5% 7. . . . . . . . . . . . . . we managed 436 hotels with approximately 150. . . .800 64. . . . . . we provide centralized reservation services and coordinate national advertising and certain marketing and promotional services. . . . . . . . . . . . Hotel and resort properties in the United States are often owned by entities that do not manage hotels or own a brand name. . . . . . . . . . . . . . . . training and supervising the managers and employees that operate these facilities. . . . . Hotel owners typically enter into management contracts with hotel management companies to operate their hotels. . . . . Westin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Independent / Other . . . . . . . . . .

. .. . . . . respectively). . .. . Le Méridien. . We approve certain plans for.8% . .. . 2008. Americas (Latin America. .... . Historically. . . . We franchise our Sheraton.. and 26 franchised hotels with approximately 8. . ..2% 5.000 rooms... 2008. . .. . .. a franchisee may also purchase hotel supplies.. 2007 and 2006 were $2. . . . In addition. . .. 2007 and 2006. Luxury Collection. . . . many hotel owners seek equity. . . .000 rooms left our system.. . .. .587 billion and $1. .. . .. . .. . . . . . .. . . sales and marketing. . . . . . . .259 billion. . . . . we have derived the majority of our revenues and operating income from our owned.. . . IL .. there were 437 franchised properties with approximately 111.. . . . . . . . . However.. . . . . . .. .. Asia Pacific . . . . . The following represents our top five markets in the United States by metropolitan area as a percentage of our total owned. . . . .5% 6.. . . .. . ... . . Aloft and Element brand names and generally derive licensing and other fees from franchisees based on a fixed percentage of the franchised hotel’s room revenue.. . . Four Points by Sheraton. . . 9. .. . In addition. . . . . . . . . . . .. . .. . . . during the year ended December 31. . .000 rooms. .. .. . . . . . . . ... Owned.. . ... . In addition. including centralized reservations. Westin. Phoenix. . . Four Points by Sheraton. we embarked upon a strategy of selling a significant number of hotels. . 0. . . Total .. . Caribbean & Canada)... in part. . . . leased and consolidated joint venture hotels in North America were $1.. Europe . . . . 2008 with Comparable Data for 2007(1) Metropolitan Area 2008 Revenues 2007 Revenues New York. . . .. . .6% 3. 20 13... . . . respectively (total revenues from our owned. . .. . . .. . .. . .. .000 rooms left our system.... .. . . as well as fees for other services.. . During the year ended December 31. . . . . . . . 2008. . .. . . Brand Franchising and Licensing.. .... . . .. 13. NY . .. The majority of these hotels were sold subject to long-term management or franchise contracts. . . . .. In addition..1% 5. . . . ... leased and consolidated joint venture hotels worldwide for the years ending December 31. . . . 100. . ... . . . . . . . Element.. . .. . . . . . ... . . . . . .. Middle East and Africa . . . . . . a small portion of which opened in 2008 and the majority of which will open in the future.. . . . .. .. we signed franchise agreements for 76 hotels with approximately 13.1% .6% 3. . . . . . . .. . . At December 31. . . .. 2008. .427 billion. .. we opened 51 franchised hotels with approximately 9.000 rooms operating under the Sheraton. . .. .. . . . ... from certain Starwood-approved vendors.. . 2008 (with comparable data for 2007): Top Five Domestic Markets in the United States as a % of Total Owned Revenues for the Year Ended December 31.. . . . .. . . . ... . . . . . . debt or other investments from us to help finance hotel renovations or conversions to a Starwood brand so as to align the interests of the owner and Starwood. . . .9% 13. . . ... . .. .. . . .. . . . . .1% 6. . . ..3% 5. . . .. . .. we generated franchise fees by geographic area as follows: United States . . .. ..7% . .. . including brand-specific products. . ... . . . . . . . we have sold 56 wholly owned hotels which has substantially reduced our revenues and operating income from owned.000 rooms. . 2008.. . . ... . .. . .if we fail to meet established performance criteria. . or will retain a particular management contract. . . . . whether we will be offered. Our ability or willingness to make such investments may determine.. . . .. during 2008.8% . . .. .. . . . . . . ... ... leased and consolidated joint venture revenues for the year ended December 31. . . ..8% . will accept.429 billion and $2. . .7% 5. 60. . . . .692 billion. .. . .. . . . . Westin. ... . . and 10 managed hotels with approximately 3. . . beginning in 2006. . . . .... $2. $1. . . During the year ended December 31. .. .. Luxury Collection and Le Méridien brands.. . .6% . . .. Aloft. .. . Total revenues generated from our owned. . . . ... . franchised hotels and review their design. . . . . . . . . . .0% In addition to the franchise contracts we retained in connection with the sale of hotels discussed earlier. . . . Leased and Consolidated Joint Venture Hotels. . . . .. . . . . . .. . . . . we opened 33 managed hotels with approximately 11. . . . leased and consolidated joint venture hotels and a significant portion of these results are driven by these hotels in North America.. 15. . .. a portion of which opened in 2008 and a portion of which will open in the future. . public relations and national and international media advertising... . . AZ . Hawaii .. . . . .. . . Since the beginning of 2006.. . .. . .. . . . Chicago.881 billion for 2008. . .000 rooms. . . we signed management agreements for 71 hotels with approximately 23.. and the location of. . .. . CA . leased and consolidated joint venture hotels. . during 2008.. San Francisco. ..

. ..... 9... ... .. . .. .. ... . .. . MA Philadelphia. John. . New York St.. ...The following represents our top five international markets by country as a percentage of our total owned. . .... . MA Philadelphia. AZ New York... Aspen St... . .3% (1) Includes the revenues of hotels sold for the period prior to their sale..... IL New York.. . . Virgin Islands New York. . CO San Francisco.... . ... . . .. Mexico . Regis Resort.. . . .. . .. IL San Francisco.. . .... we currently own or lease 69 hotels as follows: Hotel Location Rooms U... PA 229 179 260 647 507 520 410 258 369 318 423 98 275 759 1068 450 397 175 665 394 312 270 251 136 136 123 177 . .. .6% 5.. CA Scottsdale. .0% 8.. .. . . San Francisco The Phoenician W New York — Times Square W Chicago Lakeshore W San Francisco W Los Angeles Westwood W Chicago City Center W New York — The Court and Tuscany W New Orleans W New Orleans. . Australia .5% 5.. . .. GA San Diego.. MA Philadelphia.. . . .....8% 3. ..... United Kingdom ... . John Resort & Villas Sheraton Manhattan Hotel Sheraton Kauai Resort Sheraton Steamboat Springs Resort Sheraton Newton Hotel Sheraton Suites Philadelphia Airport Aloft Lexington Aloft Philadelphia Airport Element Lexington Four Points by Sheraton Philadelphia Airport 21 New York.2% 8. ...... .... . . CO Boston.. . Hotels: The St.. .. . NY Chicago. NY New Orleans. . CA Los Angeles. .S... . .. . .... ... PA Lexington. . . .. . . . ..... leased and consolidated joint venture revenues for the year ended December 31..... NY Aspen. Regis Hotel.. GA Maui. . . .. .... ... ..... CA St. . ... .. . Italy . .. .... .1% 4.. ... . .. 2008 (with comparable data for 2007): Top Five International Markets as a % of Total Owned Revenues for the Year Ended December 31.. . ... . . .... LA Atlanta. .. ... .4% 4. French Quarter W Atlanta The Westin Maui Resort & Spa The Westin Peachtree Plaza. .3% 3..... Regis Hotel. .. . ... . . HI Atlanta. NY Kauai.. .. HI Steamboat Springs. .0% 8. . 2008 with Comparable Data for 2007(1) Country 2008 Revenues 2007 Revenues Canada .. . . Following the sale of a significant number of our hotels in the past three years... . ... PA Lexington.. CA Chicago. . . Atlanta The Westin Horton Plaza San Diego The Westin San Francisco Airport The Westin St. ..... . . .... CA San Francisco. . LA New Orleans. . .. .

Argentina Mexico City. MN Boston. Spain Nadi. Ireland Toronto. Italy Los Cabos. Regis Grand Hotel. Vienna Hotel Goldener Hirsch Hotel Maria Cristina The Westin Excelsior. Canada Montreal. Austria Vienna. Peru Rascafria. Florence The Westin Resort & Spa Cancun The Westin Denarau Island Resort The Westin Dublin Hotel Sheraton Centre Toronto Hotel Sheraton On The Park Sheraton Rio Hotel & Resort Sheraton Diana Majestic Hotel Sheraton Ambassador Hotel Sheraton Lima Hotel & Convention Center Sheraton Santa Maria de El Paular Sheraton Mencey Hotel Sheraton Fiji Resort Sheraton Buenos Aires Hotel & Convention Center Sheraton Maria Isabel Hotel & Towers Sheraton Gateway Hotel in Toronto International Airport Le Centre Sheraton Montreal Hotel Sheraton Paris Airport Hotel & Conference Centre Sheraton Brussels Hotel and Towers Four Points by Sheraton Sydney The Park Lane Hotel. Mexico Puerto Vallarta. Los Cabos The Westin Resort & Spa. Australia London. England 150 252 941 135 251 276 189 143 265 161 107 91 181 147 138 140 69 136 319 243 279 171 379 273 163 1377 557 559 107 229 431 44 286 264 739 755 474 825 252 511 630 302 22 . IL San Francisco. Rome The Westin Resort & Spa. PA King of Prussia. Belgium Sydney. MA Chicago. Brazil Milan. Canada Sydney. Italy Florence. Fiji Dublin. Canada Paris. Australia Rio de Janeiro. Rome Grand Hotel Hotel Gritti Palace Park Tower Hotel Alfonso XIII Hotel Imperial Hotel Bristol. PA Rome. Mexico Florence. CA Scranton.Hotel Location Rooms Four Points by Sheraton Tucson University Plaza Four Points by Sheraton Minneapolis Gateway Hotel The Boston Park Plaza Hotel & Towers Tremont Hotel Clarion Hotel Cove Haven Resort Pocono Palace Resort Paradise Stream Resort Park Ridge Hotel & Conference Center International Hotels: St. Spain Santa Cruz De Tenerife. London Tucson. AZ Minneapolis. Italy Buenos Aires. Spain Vienna. Puerto Vallarta The Westin Excelsior. Fiji Buenos Aires. Austria San Sebastian. Mexico Toronto. France Brussels. Mexico Nadi. Italy Venice. Austria Salzburg. Spain Rome. Mexico Lima. PA Scranton. PA Scranton. Italy Monterrey. Italy Cancun. Argentina Seville.

. . .An indicator of the performance of our owned. . . . . CO. . . . . The Phoenician in Scottsdale.. . . . . . . . .45 $235. . . . . . . by total room nights available for a given period. . . . . . . .3% 1. . . MA. At December 31. . . . . North America (31 hotels with approximately 13. . . . . . . . . . . . . . including VOI construction at the Sheraton Vistana Villages in Orlando. . . . . . .1% . These capital expenditures include construction costs at the Sheraton Suites in Philadelphia.. . . . . ADR . . . . . . . . . PA. . 73. John Resort and Villas in the Virgin Islands. .1% 72. . . . in Philadelphia. . .. average daily rates (“ADR”) and average occupancy rates on a year-to-year basis for our 59 owned. . provide financing to customers who purchase such ownership interests. we had 26 residential and vacation ownership resorts and sites in our portfolio with 21 actively selling VOIs and residences. . Vacation Ownership and Residential Business We develop. . . . . . the Westin Riverfront Resort in Avon. . . . . . . . . . . . . ADR . . . . the Westin St. . .1 (1) REVPAR is calculated by dividing room revenue. . .000 rooms) REVPAR . . . . $168. for vacation ownership capital expenditures. . . . . . . . 2008 and 2007: Year Ended December 31. . The following table summarizes REVPAR. . .01 . . Occupancy . . .7% . . . 3 sites being held for possible future development and 2 that have sold all existing inventory. . . . . .. . 71. 2008. . . . . . . . . . .. . . . . respectively. . . own and operate vacation ownership resorts. . Occupancy . . . . . . NY. . AZ. . During 2008 and 2007. . . . . . . . . . . . . which is derived from rooms and suites rented or leased. . . . . . . .3% 2. . . .. . . . . . $237. REVPAR may not be comparable to similarly titled measures such as revenues. . During the years ended December 31. In consideration. . . . . . . . . .62 $154. . . $230. . . . . . . Occupancy . . . . as it measures the period-over-period growth in rooms revenue for comparable properties. . . . . . we invested approximately $363 million and $448 million. .40 . . . . . in many cases. .. . . . . . International (28 hotels with approximately 8. . . 67. . market and sell the VOIs in the resorts and. . .000 rooms) REVPAR . . . . . . This is particularly the case in the United States where there is no impact on this measure from foreign exchange rates. . we invested approximately $282 million and $211 million. . . . FL.07 . . . . . . . . . . . . for capital improvements at owned hotels. . . . or for hotel stays at Starwood properties. .2% 1. . . . . . . . . . . PA. . .91 $223. . . .1% 3.6 1. $154. .3 0. . . . We have entered into licensing agreements for the use of certain of our brands to allow the owners to offer branded condominiums to prospective purchasers. . . . . . . Aloft Philadelphia. 2008 2007 Variance Worldwide (59 hotels with approximately 21. . . . . .1% 1. . From time to time. . . . . . .18 . . . . . . . . . . . .93 $171. . . .8% 75. Sheraton in Fiji. . . . . . . . . . . . . . . 2008 and 2007. . . . . Owners of VOIs can trade their interval for intervals at other Starwood vacation ownership resorts.68 . . . . . . . . The licensing arrangement generally terminates upon the earlier of sell-out of the units or a specified length of time. .9% 0. . . . . 23 . . we typically receive a licensing fee equal to a percentage of the gross sales revenue of the units sold. . . . . . . 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 a residential component. . .14 $181. . .000 rooms) REVPAR . . . for intervals at certain vacation ownership resorts not otherwise sponsored by Starwood through an exchange company. $178. $241. . . . leased and consolidated joint venture hotels is revenue per available room (“REVPAR”)(1). Sheraton Steamboat Resort in Colorado.0% 1. respectively. W Times Square in New York. . . . . leased and consolidated joint venture hotels (excluding 19 hotels sold or closed and 10 hotels undergoing significant repositionings or without comparable results in 2008 and 2007) (“Same-Store Owned Hotels”) for the years ended December 31. . . . . . . . .26 $242. . . . .54 . . . . . and the Aloft and Element hotels in Lexington. . . . . . . . . . . .0% 69. . ADR ..

Not applicable. CA. which information is incorporated herein by reference. HI. as well as construction costs at the St. 24 . Commitments and Contingencies. We recorded an impairment charge of $72 million in 2008. As a result of the current economic crisis and its impact on the timeshare industry.the Westin Nanea Ocean Resort Villas in Maui. As a result of that comprehensive review. Submission of Matters to a Vote of Security Holders. of this Annual Report for information regarding the executive officers of the Registrants. primarily related to the impairment of two vacation ownership projects. Item 10. Item 8. the Westin Desert Willow Villas in Palm Desert. we decided to abandon several projects where we had not yet begun full scale development. and the Westin Lagunamar Ocean Resort in Cancun. Regis Bal Harbour Resort in Miami Beach. Legal Proceedings. one in Mexico and the other in the Caribbean. Item 4. Financial Statements and Supplementary Data. in the consolidated financial statements set forth in Part II. Item 3. FL. Executive Officers of the Registrants See Part III. Incorporated by reference to the description of legal proceedings in Note 23. we evaluated all of our existing vacation ownership projects as well as our plans for projects not yet under development.

. . .. . . . . . . . .63 As of February 20. . .. . . . . . . Holders . . . . . . . . . . . . . . . . . . . . . . . (b) The Corporation declared a dividend in the fourth quarter of 2007 to shareholders of record on December 31. .. . . .. . . . . . . . . . . . we completed the redemption of the remaining 25. . . . . .90(b) (a) The Corporation declared a dividend in the fourth quarter of 2008 to shareholders of record on December 31. . . . .. . . . . . . . Market Information The Corporation Shares are traded on the New York Stock Exchange (the “NYSE”) under the symbol “HOT. . . Second quarter . . . . . . . . . . . . . .35 $59.78 $52. . . . . . 2008. . . . . . . . . . . we redeemed all of the Class A Exchangeable Preferred Shares of the Trust (“Class A EPS”) (approximately 562.06 $56. . . . . . Second quarter . . . .. . . . .. . . . . . . . . . the high and low sale prices per Corporation Share on the NYSE Composite Tape. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . First quarter . . . . . . . . . . . . . . . 2007 Fourth quarter . . . . . . . .000 shares) and Realty Partnership units (approximately 40. . . .. . . . . . . .” The following table sets forth. .000 outstanding shares of Class B Exchangeable Preferred Shares of the Trust (“Class B EPS”) for approximately $1 million in cash. which was paid in January 2009. . . . . . . . . . . . Also in 2006. . Market for Registrants’ Common Equity. . . . . . . . . . . . . . . . . . . . . . 2008 and 2007: Dividends Declared 2008 Annual dividend . .000 SLC Operating Limited Partnership units for approximately $56 million 25 . . . . which was paid in January 2008. . . .. . . . . . . . . .97 $25. . . . . . . . . . . . . . .55 $43. . .000 units) for approximately $34 million in cash. . . . . . . for the fiscal periods indicated. . .63 $65.90(a) $0. Dividends Made/Declared The following table sets forth the frequency and amount of dividends made by the Corporation to holders of Corporation Shares for the years ended December 31. . Conversion of Securities. . .. . .65 $10. . . . . . . . . . . . we redeemed approximately 926.00 $62. . . . . $28. . .. . . . . . . . . . . .07 $42. . . . . . . .89 $37. . . In 2006. SLC Operating Limited Partnership units are convertible into Corporation Shares at the unit holder’s option. . .. .. 2007. . . $0. . . . . . . . . . . . . . . . . . in connection with the Host Transaction. . Related Stockholder Matters and Issuer Purchases of Equity Securities. . . . . . .. . . . .. . .. . . 2007 Annual dividend . . . .PART II Item 5. . . . . . . . . . . .. . ..45 $74.. . . there were approximately 17. . . . . . . . . . . . . . . . . . . . . . . . . . . . Sale of Unregistered Securities In 2006. . . . ... . . . . . Third quarter . . provided that we have the option to settle conversion requests in cash or Corporation Shares. . . .. . . . 2009. . .29 $55. . High Low 2008 Fourth quarter . . . .35 $69. . .. . .. . . . . . . . . . . . .. . . . . . .. . . . .83 $75.. . . .. . . . . .. . . .000 holders of record of Corporation Shares. .. . Third quarter . . . . . . . . First quarter . . ..95 $38. . . . . . . . . .

Issuer Purchases of Equity Securities Pursuant to the Share Repurchase Program. and there were approximately 178. 2008 and 2007.6 million Corporation Shares in the open market for an aggregate cost of $593 million during 2008. We did not repurchase any Corporation Shares during the three months ended December 31. As of December 31.000 and 179. 2008. 26 . no repurchase capacity remained available under our Share Repurchase Authorization. respectively. Information relating to securities authorized for issuance under equity compensation plans is provided under Item 12 of this Annual Report and is incorporated herein by reference. 2008.in cash. Starwood repurchased 13.000 of these units outstanding at December 31.

2003 and that all dividends and other distributions were reinvested.97 142. 2006 have been adjusted based on the value shareholders received for their Class B shares.51 76.60 182. The graph assumes that the value of the investments was 100 on December 31. The comparisons are provided in response to SEC disclosure requirements and are not intended to forecast or be indicative of future performance. 2008. In addition.00 100.31 147.70 27 .87 145. 300 Starwood 250 S&P 500 S&P 500 Hotel 200 150 100 50 0 2003 2004 2003 DOLLARS 2005 2004 2005 2006 2006 2007 2007 2008 2008 Starwood S&P 500 S&P 500 Hotel 100.STOCKHOLDER RETURN PERFORMANCE Set forth below is a line graph comparing the cumulative total stockholder return on the Corporation Shares (and Shares until April 7.69 110.46 116.82 223. 2006) against the cumulative total return on the S&P 500 and the S&P 500 Hotel Index (the “S&P 500 Hotel”) for the five fiscal years beginning December 31.92 134. the Share prices for the periods prior to the Host Transaction on April 10.33 68.66 169.00 164.05 148. 2003 and ending December 31.73 89.00 100.41 160.

. . The following financial and operating data should be read in conjunction with the information set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto appearing elsewhere in this Annual Report and incorporated herein by reference. . . . . . . . . Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. . . . . . . .622 $9. . .298 $3. . . the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and costs and expenses during the reporting periods. . . . . . . . Selected Financial Data. goodwill and intangible assets. investments. . Cash from (used for) investing activities . retirement benefits and contingencies and litigation. . . . . .402 $(2. . bad debts. .153 $ 619 $ 858 $ 254 $ 543 $ 1. . . .827 $ 2. . . . .42 per Corporation Share. .01 $ 500 $ 1. frequent guest program liability. . .37 $ 2. . . . .Item 6. . . . . .635) $ 276 $5. .280 $12. . . including those relating to revenue recognition. . . property and equipment. . 2008 Year Ended December 31. Management’s Discussion and Analysis of Financial Condition and Results of Operations. . . . . . .590 $1. . . . . . . . . . . . . . .907 $6. . . . . . . . On an ongoing basis. . restructuring costs. . .84 $ 0. . . . . . . .84(a) $ 0. . . .502 $3. . . .72 $ 764 $ 578 $ 85 $ (415) $ (253) $ (273) $ 176 $ 172 $ 0. . . . 2006 2005 (In millions) 2004 Balance Sheet Data Total assets . . except per Share data) 2004 Income Statement Data Revenues. . . . . . in February and March 2006. . . . . . . $5. . . which have been prepared in accordance with accounting principles generally accepted in the United States. . . . . . . .823 Item 7. . . . . . 2008 2007 At December 31. management evaluates its estimates and judgments. .368 $ 822 $ 653 $ 423 $ 369 $ 1. . .57 $ $ $ $ 646 (172) (243) 172 $ 884 $ (215) $ (712) $ 90 $ 5. . . .42 per Share. . 28 . . Diluted earnings per Share from continuing operations . 2007 2006 2005 (In millions. . .115 $ 5. .979 $ 839 $ 1. . . .88 $ 1. . . . . . The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. . . . income taxes. In December 2006. self-insurance claims payable. . . . . Cash distributions and dividends declared per Share . $9. . the Trust declared distributions totaling $0. . . . Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) discusses our consolidated financial statements. the Corporation declared a dividend of $0. Income from continuing operations . . . . . . .977 $5. . . .494 $12. . . . . . . . . . . .84 (a) In connection with the Host Transaction. Long-term debt. net of current maturities and including exchangeable units and Class B preferred shares . . . . . .90 $ 0. the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. inventories. Operating Data Cash from operating activities . . . . . . .926 $ 3. . . . . . . . Aggregate cash distributions paid .703 $9. . . financing operations. . . . . . . Operating income . . . plant. . Actual results may differ from these estimates under different assumptions and conditions.90 $ 0. . . . Cash used for financing activities . . . . . . . .

Residential fee revenue is recorded in the period that a purchase and sales agreement exists. For any time during the year. • Vacation Ownership and Residential — We recognize revenue from VOI sales and financings and the sales of residential units which are typically a component of mixed use projects that include a hotel. the fee to the owner is deemed fixed and determinable and collectibility of the fees is reasonably assured. in particular. during periods prior to year-end. REVPAR is a leading indicator of revenue trends at owned. we record reserves against these revenues based on expected default levels. and an incentive fee. Leased and Consolidated Joint Ventures — Represents revenue primarily derived from hotel operations. usually under long-term contracts. leased or consolidated joint venture hotels and resorts. Franchise fees are generally based on a percentage of hotel room revenues. Such revenues are impacted by the state of the global economies and. incentive fees are recognized for the fees due and earned as if the contract was terminated at that date. These revenues are impacted by global economic conditions affecting the travel and hospitality industry as well as relative market share of the local competitive set of hotels. the incentive fees recorded may not be indicative of the eventual incentive fees that will be recognized at year-end as conditions and incentive hurdle calculations may not be final. which is generally based on a percentage of gross revenues. the period of cancellation with refund has expired and receivables are deemed collectible. The following is a description of the composition of our revenues: • Owned. termination fees and the amortization of deferred gains related to sold properties for which we have significant continuing involvement. exclusive of any termination fees due or payable. delivery of services and obligations has occurred. and (5) other revenues which are ancillary to our operations. Westin. Since the reimbursements are made based upon the costs incurred with no added margin. franchise fees received in connection with the franchise of our Sheraton. Our fees from these agreements are generally based on the gross sales revenue of units sold. these revenue sources are affected by conditions impacting the travel and hospitality industry as well as competition from other hotel management and franchise companies. Four Points by Sheraton. 29 . Generally. Our revenues are primarily derived from the following sources: (1) hotel and resort revenues at our owned. (4) revenues from managed and franchised properties. leased and consolidated joint venture properties. as well as interest rate and other economic conditions affecting the lending market. leased and consolidated joint venture hotels as it measures the period-overperiod growth in rooms revenue for comparable properties. These costs relate primarily to payroll costs at managed properties where we are the employer. economy. Le Méridien and Luxury Collection brand names. • Management and Franchise Revenues — Represents fees earned on hotels managed worldwide. Revenue is recognized when rooms are occupied and services have been rendered. Therefore.CRITICAL ACCOUNTING POLICIES We believe the following to be our critical accounting policies: Revenue Recognition. offset by payments by us under performance and other guarantees. Revenue is generally recognized upon the buyer demonstrating a sufficient level of initial and continuing investment.S. including the rental of rooms and food and beverage sales from owned. which may result in differences in the timing and amount of revenues recognized from the projects. revenues are recognized when the services have been rendered. Management fees are comprised of a base fee. these revenues and corresponding expenses have no effect on our operating income and our net income. which is generally based on the property’s profitability. (3) management and franchise revenues. • Revenues from Managed and Franchised Properties — These revenues represent reimbursements of costs incurred on behalf of managed hotel properties and franchisees. (2) vacation ownership and residential revenues. Changes in costs could lead to adjustments to the percentage of completion status of a project. the U. when the provisions of our management contracts allow receipt of incentive fees upon termination. As with hotel revenues discussed above. We have also entered into licensing agreements with third-party developers to offer consumers branded condominiums or residences. We determine the portion of revenues to recognize for sales accounted for under the percentage of completion method based on judgments and estimates including total project costs to complete. Additionally.

we recognize interest income on a cash basis. For impaired loans. We consider properties to be assets held for sale when management approves and commits to a formal plan to actively market a property or group of properties for sale and a signed sales contract and significant non-refundable deposit or contract break-up fee exist. the average estimated default rate for our pools of receivables was 7. Assets Held for Sale. Upon designation as an asset held for sale. managed and franchised properties as well as through other redemption opportunities with third parties.9%. For the vacation ownership and residential segment. The operations of the properties held for sale prior to the sale date are recorded in discontinued operations unless we will have continuing involvement (such as through a management or franchise agreement) after the sale. For the hotel segment. We apply the loan impairment policy individually to all loans in the portfolio and do not aggregate loans for the purpose of applying such policy. at the time. we measure the impairment of a loan based on the present value of expected future cash flows discounted at the loan’s original effective interest rate or the estimated fair value of the collateral. As of December 31. SPG members earn points based on spending at our properties. Any gain realized in connection with the sale of a property for which we have significant continuing involvement (such as through a long-term management agreement) is deferred and recognized over the initial term of the related agreement. We. appraisals and. we use a technique referred to as static pool analysis. A 10% reduction in the “breakage” of points would result in an estimated increase of $85 million to the liability at December 31. and we stop recording depreciation expense. Changes to our plans. as incentives to first time buyers of VOIs and residences and through participation in affiliated programs. can have a material impact on the carrying value of the asset. Actual expenditures for SPG may differ from the actuarially determined liability. less estimated costs to sell. if appropriate. If the expected undiscounted future cash flows are less than the net book value of the assets. the excess of the net book value over the estimated fair value is charged to current earnings. we record an estimate of expected uncollectibility on our VOI notes receivable as a reduction of revenue at the time we recognize profit on a sale of a vacation ownership interest. SPG is our frequent guest incentive marketing program. We evaluate the carrying value of our longlived assets based on our plans. current estimated net sales proceeds from pending offers. Revenue is recognized by participating hotels and resorts when points are redeemed for hotel stays. including an estimate of the “breakage” for points that will never be redeemed. a change in the projected default rate can have a significant impact to our loan loss reserve requirements. Loan Loss Reserves.1% change estimated to have an impact of approximately $3 million. The total actuarially determined liability as of December 31.Frequent Guest Program. such as conversion to airline miles. 2008 and 2007 is $662 million and $536 million. Given the significance of our respective pools of VOI notes receivable. through the services of third-party actuarial analysts. we establish a specific impairment reserve for the difference between the recorded investment in the loan and the present value of the expected future cash flows or the estimated fair value of the collateral. Long-Lived Assets. for such assets and such qualitative factors as future development in the surrounding area. including a decision to dispose of or change the intended use of an asset. 30 . respectively. leased. with a 0. 2008. In estimating our loss reserves. which tracks uncollectible notes for each year’s sales over the life of the respective notes and projects an estimated default rate that is used in the determination of our loan loss reserve requirements. determine the fair value of the future redemption obligation based on statistical formulas which project the timing of future point redemption based on historical experience. We evaluate the carrying value of our long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value of the assets if certain trigger events occur. we record the carrying value of each property or group of properties at the lower of its carrying value which includes allocable segment goodwill or its estimated fair value. For loans that we have determined to be impaired. We hold large amounts of homogeneous VOI notes receivable and therefore assess uncollectibility based on pools of receivables. Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions. and an estimate of the points that will eventually be redeemed as well as the cost of reimbursing hotels and other third parties in respect of other redemption opportunities for point redemptions. status of expected local competition and projected incremental income from renovations. Properties are charged based on hotel guests’ qualifying expenditures. 2008. Points can be redeemed at substantially all of our owned.

” and Financial Accounting Standards Board Interpretation (“FIN”) No. “Accounting for Income Taxes.” requires that an estimated loss from a loss contingency should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Income Taxes. 109. the outcomes of which are subject to significant uncertainty. “Accounting for Uncertainty in Income Taxes” (“FIN 48”). 48. 5. among other factors. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. We are subject to various legal proceedings and claims. We provide for income taxes in accordance with SFAS No. Changes in these factors could materially impact our financial position or our results of operations. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. We evaluate. Statement of Financial Accounting Standards (“SFAS”) No. “Accounting for Contingencies.Legal Contingencies. the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. 31 .

. . . Management Fees. 2008 when compared to $2.2% to $168. . . . . . . . . . . or $31 million. from Prior from Prior 2008 2007 Year Year Owned. . . . . . These sold or closed hotels had revenues of $77 million in the year ended December 31. . . . 2008 Compared with Year Ended December 31. . . .042 $5. .046 billion in the same period of 2007 due primarily to a decrease in REVPAR.1% in the year ended December 31. .025 1. . . The increase in management fees. . to $2. . . . due to the severe economic crisis in the United States.429 834 1. Franchise Fees and Other Income . Revenues at our Same-Store Owned Hotels (59 hotels for the year ended December 31. . . . . . 2008 when compared to the corresponding 2007 period. . Georgia. Leased and Consolidated Joint Venture Hotels. . . 2008. REVPAR declined in most of our major international markets. 2007 and 2006. . . . . REVPAR at our Same-Store Owned Hotels decreased 1. .907 $2. . Year Ended December 31. The increase was due to the net addition of 48 managed and franchised hotels to our system. 2008 compared to $121 million in the corresponding period of 2007. .5%. . . . .0)% 2. REVPAR declined in most of our major domestic markets. . due to the global economic crisis. . . .5% (4. The decrease in vacation ownership and residential sales and services was primarily due to an overall decline in demand as a result of the economic climate. . REVPAR at Same-Store Owned Hotels in North America decreased 1. The decrease in REVPAR at these Same-Store Owned Hotels resulted from a 1. . . . The decline in the vacation ownership business was partially offset by strong results in the residential 32 . .18 for the corresponding 2007 period and a decrease in occupancy rates to 71. . 2008. . . . . . . . . which represents vacation ownership revenues before adjustments for percentage of completion accounting and rescission. . . excluding the 19 hotels sold or closed and 10 additional hotels undergoing significant repositionings or without comparable results in 2008 and 2007) decreased 1.7% in the same period in 2007. . .8% (26. . . . . . . . . . decreased 26% in the year ended December 31. . . . .865 $6. 2008 when compared to 72. . 2007 Continuing Operations Increase/ Percentage Year Ended Year Ended (Decrease) Change December 31. sales in Hawaii were negatively impacted by the sell out of our largest project on Maui in early 2008.93 for the year ended December 31. . REVPAR at our international SameStore Owned Hotels increased by 0. 2008 when compared to the same period of 2007. Originated contract sales of VOI inventory. franchise fees and other income was primarily a result of a $35 million increase in management and franchise revenue to $717 million for the year ended December 31.1% for the year ended December 31. REVPAR for Same-Store Owned Hotels internationally increased 0. . .259 857 749 2. leased and consolidated joint venture hotels was partially due to lost revenues from 19 wholly owned hotels sold or closed in 2008 and 2007. Once again.6% excluding the unfavorable effects of foreign currency translation. . . .015 billion for the year ended December 31. . Kauai. . December 31. . Vacation Ownership and Residential . .9)% 9. . Other income decreased $13 million primarily due to $18 million of income recognized in 2007 from the sale of a managed hotel that resulted in a payment of an $18 million fee to us. 2008 when compared to the same period in 2007. . . .RESULTS OF OPERATIONS The following discussion presents an analysis of results of our operations for the years ended December 31. New York. . . . . Total Revenues . .9% for the year ended December 31.0% increase in ADR to $237. including the United Kingdom and Italy. 2008 and 2007.0)% The decrease in revenues from owned. . . $2. . . . Hawaii and New York. . . .45 for the year ended December 31. . . 2008 when compared to the same period of 2007. . Other Revenues from Managed and Franchise Properties . . Additionally. . . . .153 $(170) 23 (276) 177 $(246) (7. including Atlanta. 2008 compared to $235. . . . . . and the timing of revenue recognition from ongoing projects under construction which are being accounted for under percentage of completion accounting. . . and globally.

. The increase in amortization expense was primarily due to the write-off. Other revenues and expenses from managed and franchised properties increased primarily due to an increase in the number of our managed and franchised hotels. general. $619 $858 $(239) (27. . through amortization expense. . including $62 million of severance and related charges associated with our ongoing initiative of rationalizing our cost structure in light of the current economic climate. . . Regis Singapore Residences. Net . administrative and other expenses was primarily a result of our focus on reducing our cost structure in light of the declining business conditions in this current economic climate. we began an activity value analysis project to review our cost structure across a majority of our corporate departments and divisional headquarters. .1)% The decrease in selling. 2007. . We have completed the first two phases of that program which has resulted in the majority of these cost savings and additional phases are expected to be completed in early 2009. . Administrative and Other .9)% The decrease in operating income was primarily due to the decrease in vacation ownership sales and services as well as the decrease in revenues from owned. .6% The increase in depreciation expense was due to an increase in capital spending on our owned hotels partially offset by the impact of hotels sold or held for sale. we recorded restructuring and other special charges of $141 million. 2007 Increase/ (Decrease) from Prior Year Percentage Change from Prior Year Depreciation and Amortization . . 2008 to $49 million when compared to $18 million in 2007 was primarily related to fees earned from the St. Bal Harbour was closed for business on July 1. Beginning in the middle of 2008. . 2007. which opened during the year and a nonrefundable license fee received in connection with another residential project. these revenues and corresponding expenses have no effect on our operating income and our net income.branding business. 2007 Increase/ (Decrease) from Prior Year Percentage Change from Prior Year Selling. 2008 Year Ended December 31. . Regis hotel along with branded residences and fractional units. 2007 Increase/ (Decrease) from Prior Year Percentage Change from Prior Year Restructuring and Other Special Charges. . Since the reimbursements are made based upon the costs incurred with no added margin. 33 . $323 $306 $17 5. Year Ended December 31. and the majority of its employees were terminated. 2008 Year Ended December 31. We also recorded impairment charges of approximately $79 million primarily related to the decision not to develop two vacation ownership projects as a result of the current economic climate and its impact on business conditions in the timeshare industry (see Note 13 of the consolidated financial statements). . . 2008 Year Ended December 31. . of an investment in a management contract during 2008. During the year ended December 31. . These revenues represent reimbursements of costs incurred on behalf of managed hotel and vacation ownership properties and franchisees and relate primarily to payroll costs at managed properties where we are the employer. . . $141 $53 $88 n/a During the year ended December 31. . . 2008 Year Ended December 31. leased and consolidated joint venture hotels discussed above. 2008. . we recorded $53 million in net restructuring and other special charges primarily related to accelerated depreciation of property. . . . . Year Ended December 31. . . General. Year Ended December 31. Year Ended December 31. . . $477 $508 $(31) (6. The increase in residential fees for the year ended December 31. The hotel was demolished and we are in the process of building a St. plant and equipment at the Sheraton Bal Harbour in Florida (“Bal Harbour”) and demolition costs associated with our redevelopment of that hotel. 2007 Increase/ (Decrease) from Prior Year Percentage Change from Prior Year Operating Income . . .

Offsetting these benefits in 2007 were a $97 million charge associated with adjustments to the tax benefit from the Host Transaction and a $13 million charge associated with changes in uncertain tax positions. . in 2008. .8)% The decrease in income tax expense is primarily related to a decrease in pretax income and certain other one time tax benefits. . . . and an $11 million write-off of our investment in a joint venture in which we hold minority interest (see Note 5 of the consolidated financial statements). . at several properties owned by joint ventures in which we hold minority interests. 2008. 2008 Year Ended December 31. the gain on dispositions includes a $124 million gain ($129 million pre tax) on the sale of three properties which were sold unencumbered by management or franchise 34 . The 2007 expense was favorably impacted by a $158 million benefit related to the reversal of capital and net operating loss valuation allowances and a $28 million benefit associated with our election to claim foreign tax credits generated in 1999 and 2000. These benefits were partially offset by a $16 million charge for the basis difference on certain asset sales and a $7 million charge related to amortization of prepaid taxes in connection with certain related party transactions during 2008. Year Ended December 31. . . . . on the sale of several hotels in an unconsolidated joint venture as well as decreased operating results. in 2007. . .114 billion respectively. . . Net . we recorded a net loss of $98 million primarily related to $64 million of impairment charges on five hotels.24% at December 31. . . . During 2007. a $20 million benefit related to lower foreign taxes. 2007 Increase/ (Decrease) from Prior Year Percentage Change from Prior Year Equity Earnings and Gains and Losses from Unconsolidated Ventures. . . 2008 Year Ended December 31. . . Our weighted average interest rate was 5. 2008 as compared to 25. Net . 2007. . December 31. . . Increase/ Percentage Change Year Ended (Decrease) Year Ended December 31. $76 $189 $(113) (59.0% in the year ended December 31. 2008 Year Ended December 31. .8% The increase in net interest expense was primarily due to increased borrowings to fund our share repurchase program. .8)% The decrease in equity earnings and gains and losses from unconsolidated joint ventures was primarily due to our share of non-recurring gains. The effective tax rate decreased to 23. a $22 million impairment of our investment in vacation ownership notes receivable that we have previously securitized. . . These losses were offset in part by $20 million of net gains primarily on the sale of assets in which we held a minority interest and a gain of $6 million as a result of insurance proceeds received for property damage caused by storms at two owned hotels in prior years. 2007 Increase/ (Decrease) from Prior Year Percentage Change from Prior Year Income Tax Expense . Year Ended December 31. . . Net of Tax For the year ended December 31. The average debt balance during 2008 and 2007 was $3. . $(98) $(44) $(54) n/a During 2008.8% in 2007. from Prior from Prior Year Year 2007 2008 Loss on Asset Dispositions and Impairments. .52% at December 31. $207 $147 $60 40.Year Ended December 31. . . .802 billion and $3. $16 $66 $(50) (75. . . . Discontinued Operations. . . we recorded a net loss of $44 million primarily related to a net loss of $58 million on the sale of eight wholly-owned hotels and a loss of approximately $7 million primarily related to charges at three other properties. . . . 2008 versus 6. . The 2008 tax rate was favorably impacted by a $31 million benefit related to the reversal of capital and net operating loss valuation allowances. and a $14 million benefit associated with tax on the repatriation of foreign earnings. . 2007 Increase/ (Decrease) from Prior Year Percentage Change from Prior Year Net Interest Expense . .

REVPAR at Same-Store Owned Hotels in North America increased 7. The increase in management fees.contracts. The decrease in revenues from sold or closed hotels was partially offset by improved results at our remaining owned.025 billion for the year ended December 31. Austria and Italy. we adopted FIN 48 and recorded a benefit of $35 million to the beginning balance of retained earnings. These sold or closed hotels had revenues of $121 million in the year ended December 31. 2007.8% decrease in revenues from our owned. a 2. Year Ended December 31. Discontinued operations for the year ended December 31.2% increase in ADR to $222. 2007 when compared to 71.895 billion in the same period of 2006 due primarily to an increase in REVPAR. as compared to $34 million in the corresponding period of 2006. 2007 when compared to $1. Revenues from the amortization of the deferred gain associated with the Host Transaction were $49 million in the year ended December 31. 2007.8% excluding the favorable effects of foreign currency translation. Revenues reflected a 9.6% for the year ended December 31. New York. The $263 million decrease in revenues from owned. REVPAR growth was particularly strong at our owned hotels in Australia. REVPAR growth was particularly strong at our owned hotels in Kauai. Net of Tax On January 1. 2007 when compared to $1.005 billion in the corresponding period of 2006. 2007 when compared to $693 million in the corresponding period of 2006. The increase in management and franchise fees also resulted from the full year impact of revenues from the 33 hotels sold to Host in the second quarter of 2006.865 billion for the year ended December 31. Total revenues. 2007 and 2006. REVPAR at our international Same-Store Owned Hotels increased by 15.2% in the year ended December 31. a 20. that impacts the tax liability associated with the disposition of one of our businesses several years ago.0% increase in vacation ownership and residential revenues to $1. 2007. 2007 totaled $63 million. leased and consolidated joint venture hotels. franchise fees and other income to $834 million for the year ended December 31. The increase in REVPAR at these Same-Store Owned Hotels was attributed to a 9. leased and consolidated joint venture hotels was primarily due to lost revenues from 56 wholly owned hotels sold or closed in 2007 and 2006. 2007 when compared to the corresponding 2006 period. including other revenues from managed and franchised properties. 2007 when compared to $2. Management fees from these hotels in the year ended December 31. California and New Orleans. Cumulative Effect of Accounting Change. Louisiana. 2007 Compared with Year Ended December 31. 2007.1%.3% for the year ended December 31.429 billion for the year ended December 31. San Francisco.31 for the corresponding 2006 period and due to a slight increase in occupancy rates to 72. The increase was due to the strong growth in REVPAR at existing hotels under management and the net addition of 34 managed and franchised hotels to our system. to $2. REVPAR at our Same-Store Owned Hotels increased 10.068 billion for the year ended December 31. franchise fees and other income of $141 million was primarily a result of a $123 million increase in management and franchise revenue to $687 million for the year ended December 31. as compared to $44 million in the same period of 2006. Hawaii. an increase of $174 million when compared to 2006 levels. the loss on disposition represented a $1 million tax assessment associated with the disposition of our gaming business in 1999. REVPAR for Same-Store Owned Hotels internationally increased 7. 2007 when compared to $1. New York.692 billion in the corresponding period of 2006.2% to $160. 2007 when compared to the same period of 2006. 2007. excluding 56 hotels sold or closed and 8 hotels undergoing significant repositionings or without comparable results in 2007 and 2006) increased 9.589 billion in the corresponding period of 2006. 2008 also includes a $49 million tax charge as a result of a 2008 administrative tax ruling for an unrelated taxpayer.38 for the year ended December 31.153 billion. For the year ended December 31. Revenues at our Same-Store Owned Hotels (66 hotels for the year ended December 31.4% increase in management fees. were $6. compared to $570 million in the corresponding period of 2006. 2006 Continuing Operations Revenues. 2007 when compared to the same period of 2006.6% in the same period in 2006. or $173 million. 35 .03 for the year ended December 31. 2007 compared to $203. and an increase of $276 million in other revenues from managed and franchised properties to $1. leased and consolidated joint venture hotels to $2.

The increase in vacation ownership and residential sales and services of $20 million was primarily due to the revenue recognition from ongoing projects under construction in Hawaii which were accounted for under percentage of completion accounting. and at the St. Depreciation and Amortization. Additionally. The hotel was demolished and we are in the process of building a St. Since the reimbursements are made based upon the costs incurred with no added margin. decreased 3. 2007 when compared to the same period in 2006 as the mix of products sold during 2007 differed from that sold in 2006. Regis in New York compared to 2006 which included $94 million in revenues from the sale of residential units at the St. administrative and other expenses. During the year ended December 31. Originated contract sales of VOI inventory. which represents vacation ownership revenues before adjustments for percentage of completion accounting and rescission. during the year ended December 31. Regis Museum Tower in San Francisco. We sold or closed 45 wholly owned hotels during 2006. was $508 million in the year ended December 31. these revenues and corresponding expenses have no effect on our operating income and our net income. 36 . by a decrease in residential sales as the year ended December 31. Additionally. Regis hotel along with branded residences and fractional units. sales and profits in Hawaii were negatively impacted by a decline in closing rates (the percentage of tours that were converted to actual sales of vacation ownership intervals) in the second half of 2007 due to the impending sell out of our project on Maui. no depreciation was recognized for either the year ended December 31. and other brand initiatives. Depreciation expense was $280 million during the year ended December 31. 2007 or 2006 for those hotels. consistent with the corresponding period of 2006. General. During the year ended December 31. primarily due to an increase in the number of our managed and franchised hotels. This net increase was offset. plant and equipment at the Sheraton Bal Harbour in Florida (“Bal Harbour”) and demolition costs associated with our redevelopment of that hotel.Other income increased $19 million and includes $18 million of income earned in the first quarter of 2007 from our carried interest in a managed hotel that was sold in January 2007. we recorded $20 million in net restructuring and other special charges primarily related to transition costs associated with the acquisition of the Le Méridien brand and management and franchise business (“the Le Méridien Acquisition”) in November 2005 and severance costs primarily related to certain executives in connection with the continued corporate restructuring that began at the end of 2005. in part. in part. 2007. by the reversal of accruals for a lease we assumed as part of the merger with Sheraton Holding Corporation (“Sheraton Holding”) and its subsidiaries (formerly ITT Corporation) in 1998 as the lease matured at the end of 2006 and the accruals exceeded our maximum remaining obligation under the lease. respectively. We did not sell any such receivables in 2007 and therefore no gain was recognized. where only a few residential units remained available for sale in 2007. These charges were offset.589 billion for the year ended December 31. Restructuring and Other Special Charges. The increase was primarily due to investments in our global development capability and costs associated with the launch of our new brands. which includes costs and expenses from our Bliss spas and from the sale of Bliss products. Selling. Selling. 2007. Regis in New York. However. These increases were partially offset by lost fees from contracts that were terminated in the last 12 months. Administrative and Other. Other revenues and expenses from managed and franchised properties increased to $1. and the majority of its employees were terminated. Aloft and Element. general. 2007 and 2006. which sold out in 2006. 2006. partially offset by higher sales and profits at other timeshare projects.865 billion from $1. the majority of these hotels were classified as held for sale as of December 31. we recorded $53 million in net restructuring and other special charges primarily related to accelerated depreciation of property. 2006. 2005 and consequently. we recorded a gain of $17 million on the sale of $133 million of vacation ownership receivables. Bal Harbour was closed for business on July 1. 2007 when compared to $466 million in the same period in 2006. Net. 2007 included $3 million of revenues from the sale of residential units at the St.8% in the year ended December 31. 2007. These revenues represent reimbursements of costs incurred on behalf of managed hotel and vacation ownership properties and franchisees and relate primarily to payroll costs at managed properties where we are the employer.

including the sale of ten wholly-owned hotels.97% at December 31. Net. a $34 million benefit associated with our election to claim foreign tax credits in 2006 and 2005 and a $32 million benefit associated with the Trust prior to its acquisition by Host. we recorded a net loss of $3 million primarily related to several offsetting gains and losses. Net Interest Expense. the loss on disposition represented a $1 million tax assessment associated with the disposition of our gaming business in 1999. 2007. These losses were offset in part by $20 million of net gains primarily on the sale of assets in which we held a minority interest and a gain of $6 million as a result of insurance proceeds received for property damage caused by storms at two owned hotels in prior years. 2007. franchise fees and other income. 2007 as compared to $215 million in the same period of 2006. consistent with the corresponding period of 2006. We recorded income tax expense from continuing operations of $189 million for the year ended December 31. Offsetting these benefits were a $97 million charge associated with the Host Transaction and a $13 million charge associated with interest accrued for uncertain tax positions.52% at December 31. During 2006. 2006. we adopted FIN 48 and recorded a benefit of $35 million to the beginning balance of retained earnings. a $28 million benefit associated with our election to claim foreign tax credits generated in 1999 and 2000 and a $35 million benefit associated with the utilization of capital losses. 2007 versus 6.3% or $19 million to $858 million for the year ended December 31. 2007. primarily due to the increase in management fees. we recorded a net loss of $44 million. 37 . Loss on Asset Dispositions and Impairments. impairment charges related to various properties. Income Tax Expense. 2007 compared to a benefit of $434 million in the corresponding period of 2006. a $59 million benefit due primarily to the completion of various state and federal income tax audits of prior years. 2007 when compared to $839 million in the same period in 2006. Net. primarily related to a net loss of $58 million on the sale of eight wholly owned hotels and a loss of approximately $7 million primarily related to charges at three other properties. These losses were primarily offset by a gain of $29 million on the sale of our interests in two joint ventures and a $13 million gain as a result of insurance proceeds received as reimbursement for property damage caused by Hurricane Wilma. partially offset by the restructuring and other special charges and the decline in revenues from owned. and an adjustment to reduce the previously recorded gain on the sale of a hotel consummated in 2004 as certain contingencies associated with the sale became probable in 2006. Equity earnings and gains and losses from unconsolidated joint ventures increased to $66 million for the year ended December 31. which were sold unencumbered by management agreements. the loss on disposition represented a $2 million tax assessment associated with the disposition of our gaming business in 1999. Cumulative Effect of Accounting Change. For the year ended December 31. Our weighted average interest rate was 6. including the Sheraton Cancun which was damaged by Hurricane Wilma in 2005. 2006. leased and consolidated joint venture hotels discussed above. The 2007 expense was favorably impacted by a $114 million benefit related to the reversal of capital loss valuation allowance. 2007 from $61 million in the same period of 2006 partially due to our share of gains on the sale of several hotels in an unconsolidated joint venture during 2007. The decrease was also due to an increase in capitalized interest related to vacation ownership projects under construction and a decrease in our overall interest rate. Equity Earnings and Gains and Losses from Unconsolidated Ventures. Operating Income. Discontinued Operations For the year ended December 31. The 2006 tax benefit includes a one-time benefit of approximately $524 million realized in connection with the Host Transaction.Amortization expense was $26 million in the year ended December 31. Net of Tax On January 1. During 2007. Operating income increased 2. primarily due to $37 million of expenses recorded in the first quarter of 2006 related to the early extinguishment of debt in connection with two transactions whereby we defeased and were released from certain debt obligations that allowed us to sell certain hotels that previously served as collateral for such debt. Net interest expense decreased to $147 million for the year ended December 31.

. . . . . Subtotal . . Total Capital Expenditures . 2006. . . . . . . . . . . . . . . . . The ratio of our current assets to current liabilities was 0. . . . . . . . . . . . . . . . . . . . These payments and the deposits collected from sales during the rescission period are the primary components of our restricted cash balances in our consolidated balance sheets. . in cumulative effect of accounting change. . . . . . . . . net on the consolidated balance sheet. . property and income taxes and share repurchases. . . . 152 and recorded a charge of $70 million. . .On January 1. We believe that our existing borrowing availability together with capacity for additional borrowings and cash from operations will be adequate to meet all funding requirements for our operating expenses. . . . . Subtotal . . In addition. . . . . . LIQUIDITY AND CAPITAL RESOURCES Cash From Operating Activities Cash flow from operating activities is generated primarily from management and franchise revenues. . . . . . . . State and local regulations governing sales of VOIs and residential properties allow the purchaser of such a VOI or property to rescind the sale subsequent to its completion for a pre-specified number of days. . Net capital expenditures for inventory (excluding St. . . . . . . . . . . . . . we experience significant declines in business and leisure travel. . . . . . . . we adopted SFAS No. . . . . . . . . . . net of a $46 million tax benefit. . . . . (1) Represents gross inventory capital expenditures of $254 less cost of sales of $123. cash payments received from buyers of units under construction are held in escrow during the period prior to obtaining a certificate of occupancy. . . . . . . . operating income from our owned hotels and sales of VOIs and residential units. dividend payments and share repurchases in the foreseeable future. . . . . . . Consistent with industry practice. . . . Cash From Investing Activities Gross capital spending during the full year ended December 31. At December 31. . . . . . . . . .81 and 0. . . . . . . . . . . . . . . . . Capital expenditures for inventory — St. . . . . . In a recessionary economy. . . . . . . . . . . . . . . . . . (2) Includes $3 million of expenditures that are classified as Plant. . . . . . . . . . . . . . . 38 $279 84 363 110 131 148 389 65 $817 . . . principal and interest payments on debt. . . . . . . . .87 as of December 31. . . . . . Corporate and information technology . . . . . . . The majority of our cash flow is derived from corporate and leisure travelers and is dependent on the supply and demand in the lodging industry. . . . . . . . . Regis Bal Harbour)(1) . . . a practice that is common in our industry. . . . . Vacation Ownership and Residential Capital Expenditures: Capital expenditures (includes land acquisitions) . . property and equipment. . . . . . . . . . . . . Other sources of cash are distributions from joint-ventures. . . . . Leased and Consolidated Joint Venture Hotels . . we sweep the majority of the cash at our owned hotels on a daily basis and fund payables as needed by drawing down on our existing revolving credit facility. . . . . . . . . These are the principal sources of cash used to fund our operating expenses. . . . . . . capital expenditures. . The impact of declining demand in the industry and higher hotel supply in key markets could have a material impact on our sources of cash. . . Our day-to-day operations are financed through a net working capital deficit. . . . . . . . . . . Regis Bal Harbour . . . . . . . . . . . . . . . dividend payments. . interest payments on debt. . . . capital expenditures. . . . . . . . . . . . . . . 2008 was as follows (in millions): Capital Expenditures: Owned. . . . . . respectively. 2008 and 2007. we had short-term restricted cash balances of $96 million and $196 million. . 2008 and 2007. . . . . . . . . . . . respectively. . Development Capital(2) . . . . . servicing financial assets and interest income. . . . . . . . . . . .

we currently expect to spend approximately $175 million for investment projects. CA. we have sold 56 hotels realizing proceeds of approximately $5 billion in numerous transactions (see Note 5 of the consolidated financial statements). PA. MA. as well as construction costs at the St. NY. are in markets which may not benefit us as much as other markets during an economic recovery or could be sold at significant premiums. In addition. technology spend and other core and ancillary business acquisitions and investments and provide for general corporate purposes (including dividend payments and share repurchases) through our credit facilities described below. are also considered discretionary. we have made loans to third-party owners. maintenance. HI. The Phoenician in Scottsdale. we have scaled back our plans for capital expenditures in 2009. Regis Bal Harbour. which are primarily related to new projects that we expect will generate a return. the Westin Riverfront Resort in Avon. CO. surety bonds outstanding. and from cash generated from operations. Sheraton Steamboat Resort in Colorado. including construction of the St. and renovations that we believe is necessary to stay competitive in the markets we are in. FL. We currently anticipate that our defensive capital expenditures for 2009 (excluding vacation ownership and residential inventory) will be approximately $150 million for maintenance. equity and other potential contributions. unfunded loan commitments. construction of the St. Investment spending on gross VOI inventory was $402 million. the Westin Desert Willow Villas in Palm Desert. Since 2006. Aloft Philadelphia. made minority investments in joint ventures and provided certain guarantees and indemnifications. and the Aloft and Element hotels in Lexington. renovations. Our capital expenditure program includes both offensive and defensive capital. that we will be able to complete future dispositions on commercially reasonable terms or at all. VOI and residential construction. life and safety issues. hotel renovations. Regis Bal Harbour Resort in Miami Beach. the Westin St. through the assumption of debt. John Resort and Villas in the Virgin Islands. 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). We are focused on enhancing real estate returns and monetizing investments. no longer complement our business.Gross capital spending during the year ended December 31. capital improvements. We intend to finance the acquisition of additional hotel properties (including equity investments). AZ. the Westin Nanea Ocean Resort Villas in Maui. Other than capital to address fire. As a result of the global economic climate. The majority of this capital would be discretionary and would be unrelated to fire. The inventory spend included VOI construction at the Sheraton Vistana Villages in Orlando. See Note 23 of the consolidated financial statements for discussion regarding the amount of loans we have outstanding with owners. through the net proceeds from dispositions. There can be no assurance. 39 . in Philadelphia. and investments in hotels and joint ventures. and the Westin Lagunamar Ocean Resort in Cancun. performance guarantees and indemnifications we are obligated under. In order to secure management or franchise agreements. and technology capital. however. which was offset by cost of sales of $123 million associated with VOI sales. Sheraton in Fiji. Defensive spend is related to repairs. we consider defensive capital to be discretionary and reductions to this capital program could result in decreases to our cash flow from operations. The offensive capital expenditures. W Times Square in New York. PA. FL. life and safety issues. as hotels in certain markets could become less desirable. 2008 included approximately $282 million in renovations of our wholly owned assets including construction costs at the Sheraton Suites in Philadelphia. Regis Bal Harbour and various joint ventures and other investments.

Mortgages and Other . We have reviewed the financial covenants associated with our Facilities. . . . . . . . . . . Term Loans . . . Total/Average . . . . . . . 2009 is expected to be repaid using cash balances generated from operations and proceeds from our Facilities. 2008 and 2007. . . . . . .48% 7. Mortgages and Other . . . 40 .3 4. we evaluated the commitments of each of the lenders in our Revolving Credit Facilities (the “Facilities”). . . . . . . . and. . . we do not currently expect to receive proceeds from securitizations in 2009. Total Debt Total Debt and Average Terms . . . Our debt was downgraded by S&P in the fourth quarter of 2008 and by Fitch in 2009. . . . . We have historically securitized our VOI notes receivable as a financing mechanism.35% 5. given unpredictable market conditions. . due to the liquidity crisis and unfavorable markets we have not securitized any notes receivable since 2006. . . .80% 2. . . . .3 9. . . . . we are exploring a variety of avenues to sell vacation ownership receivables.1 1. As of December 31. . Although conditions remain uncertain in the asset backed securities market. . all of which is nonrecourse. . . . . . . . . . . . . . . . . .0 1. . . . . 2008: Amount Outstanding at December 31. . . . . . . we were in compliance with this covenant and expect to remain in compliance through the end of 2009. . .Cash Used for Financing Activities The following is a summary of our debt portfolio (including capital leases) as of December 31. . . . selling.631 $2. . .43% 7. . . primarily due to the trends in the lodging industry and the impact of the current market conditions on our ability to meet our future debt covenants. which cannot be currently estimated. . . 2008. . . . general and administrative costs and postponing discretionary capital expenditures. .14% 7. However. 2008(a) (Dollars in millions) Interest Rate at December 31.249 128 $2. . . . .32% 2. . . . . Our Facilities are used to fund general corporate cash needs. . . . . . . . . Fitch BB+ (negative outlook). . . . . .5 3.008 2. . . However. . . We have the ability to manage the business in order to reduce our leverage ratio by reducing operating costs.24% 2. Our current credit ratings and outlook are as follows: S&P BB+ (negative outlook). . . the most restrictive being the leverage ratio. Moody’s Baa3 (under review for possible downgrade). .377 $4. The term loan maturity of $500 million on June 29. .9 (a) Excludes approximately $642 million of our share of unconsolidated joint venture debt. . Due to the current credit liquidity crisis. . However. . . In addition. . . . . .2 5. . . . . we have availability of over $1. . . As of December 31. . . . . . Total/Average . . . there can be no assurance that we will stay below the required leverage ratio if the current economic climate continues to worsen. . . 2008 Average Maturity (In years) Floating Rate Debt Senior Credit Facilities: Revolving Credit Facilities .16% 5. . . . . issuances. . . .375 43 $1. . . $ 213 1.5 5. . . . . . . . . . . . . . 2008. . . . . . Fixed Rate Debt Senior Notes .5 billion under the Facilities. and terms entered into for the years ended December 31. . . . . . . . See Note 15 of the consolidated financial statements for specifics related to our financing transactions. . . . we have reviewed our debt covenants and restrictions and do not anticipate any issues regarding the availability of funds under the Facilities. . . . . . . . The impact of the ratings could impact our current and future borrowing costs. . .

. Other long-term obligations . our expected income tax refund of over $200 million in 2009 (see Note 14 of the consolidated financial statements). .363 $1. . . . 2008. In addition. . . . . 2008 which includes $35 million from international revolving lines of credit). . . . . including $102 million of short-term and long-term restricted cash). which. . . . the Board of Directors authorized an additional $1 billion in Share repurchases under our existing Corporate Share Repurchase Authorization (the “Share Repurchase Authorization”). together with our significant cash balances (approximately $491 million at December 31. . are subject to general conditions in or affecting the hotel and vacation ownership industries and to general economic. of which $226 million has been paid through December 31. (2) Excludes sublease income of $2 million. . . . legislative and regulatory factors beyond our control. . to pay interest on or to refinance our indebtedness depends on our future performance and financial results. . . .158 98 4 $5. . In November 2007. Refer to Note 14 of the consolidated financial statements for additional discussion on this matter. . . . . the table excludes amounts related to the construction of our St. . .268 $506 — 90 35 — $631 $1. 2008. refinance all or a portion of our existing debt or obtain additional financing at unfavorable rates. available borrowings under the Facilities and other bank credit facilities (approximately $1. . . . . . . Unconditional purchase obligations(3) . there can be no assurance that we will be able to refinance our indebtedness as it becomes due and. . financial. . . and capacity for additional borrowings will be adequate to meet anticipated requirements for scheduled maturities. Capital lease obligations(2) . . competitive. . . marketing and advertising program expenditures. Total contractual obligations .585 billion at December 31.601 (1) The table below excludes unrecognized tax benefits that would require cash outlays for $503 million. . . . interest and scheduled principal payments and share repurchases for the foreseeable future. we may be required to sell additional assets at lower than preferred amounts. 2008. . . . . . Regis Bal Harbour project that has a total project cost of $780 million. .90 per share was paid in January 2009 to shareholders of record as of December 31. on favorable terms. .101 — 200 59 3 $1. A dividend of $0. . .006 2 1. . . . . (3) Included in these balances are commitments that may be reimbursed or satisfied by our managed and franchised properties. . . If we are unable to generate sufficient cash flow from operations in the future to service our debt. . if refinanced. Operating lease obligations . . We had the following contractual obligations(1) outstanding as of December 31. We had the following commercial commitments outstanding as of December 31. there can be no assurance that in our continuing business we will generate cash flow at or above historical levels. political. the Board of Directors of Starwood further authorized the repurchase of up to an 41 . . Our ability to make scheduled principal payments. Stock Sales and Repurchases Share Repurchases. reduce capital expenditures. . . that currently anticipated results will be achieved or that we will be able to complete dispositions on commercially reasonable terms or at all. .90 per share was paid in January 2008 to shareholders of record as of December 31. . . . 2008 (in millions): Amount of Commitment Expiration Per Period Less Than After 1 Year 1-3 Years 3-5 Years 5 Years Total Standby letters of credit . . . dividends. other discretionary investments. In April of 2007.500 — 170 2 1 $1. However. management believes that our cash flow from operations and asset sales. 2008 (in millions): Total Due in Less Than 1 Year Due in 1-3 Years Due in 3-5 Years Due After 5 Years Debt . . capital expenditures. . . . to a certain extent.673 $ 899 2 698 2 — $1. $115 $115 $— $— $— A dividend of $0. In addition. .Based upon the current level of operations. . working capital. . . 2007. . . . . . . . the timing of which is uncertain. . . $4.

Item 7A. we repurchased approximately 13. In limited instances.additional $1 billion of Corporation Shares under the Share Repurchase Authorization. The aggregate dollar equivalent of the notional amounts of the forward contracts was approximately $376 million and they expire in 2009. 42 . we seek to reduce earnings and cash flow volatility associated with changes in interest rates and foreign currency exchange rates by entering into financial arrangements intended to provide a hedge against a portion of the risks associated with such volatility.000 SLC Operating Limited Partnership units. letters of credit of $115 million. 2008. and they expire in 2009. These items are more fully discussed earlier in this section and in the Notes to Financial Statements and Item 8 of Part II of this report. Off-Balance Sheet Arrangements Our off-balance sheet arrangements include retained interests in securitizations of $19 million.6 million shares at a total cost of approximately $593 million. Quantitative and Qualitative Disclosures about Market Risk. At December 31. unconditional purchase obligations of $98 million and surety bonds of $91 million. there was no availability remaining under the Share Repurchase Authorization. 2008. 2008. and we do not engage in such transactions for trading or speculative purposes. As of December 31. we had outstanding approximately 183 million Corporation Shares and 178. We continue to have exposure to such risks to the extent they are not hedged. we were party to the following derivative instruments: • Forward contracts to hedge forecasted transactions for management and franchise fee revenues earned in foreign currencies. • Forward foreign exchange contracts to manage the foreign currency exposure related to certain intercompany loans not deemed to be permanently invested. We enter into a derivative financial arrangement to the extent it meets the objectives described above. At year-end 2008. The aggregate dollar equivalent of the notional amounts was approximately $55 million. During the year ended December 31.

. . .70 $ — — (1) — — $ $ $ $ $ $ (1) — — (1) — — $ $ $ $ 43 . . . .16% $1. . . . . . . . . Fixed (JPY) to Fixed (USD) . . . . . . . . Fixed (SGD) to Fixed (THB) . . . . . Fixed (AUD) to Fixed (USD) . . . . . . . Average Exchange rate . . .29 $ — . . . . .01 — . .28 $ — .41 $ (1) $ 15 $ 15 $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — . . . . Fixed (JPY) to Fixed (SGD) . . . . . . 2008 Total Fair Value at December 31. . . Average Exchange rate .The following table sets forth the scheduled maturities and the total fair value of our debt portfolio and other financial instruments as of year-end 2008 (in millions. Fixed (GBP) to Fixed (EUR) . . . . . . . . Average Exchange rate . . . . . . . . . . . . . . . . Fixed (AUD) to Fixed (EUR) . . . . . Fixed (CAD) to Fixed (USD) .84 $ $ — — $ 8 $ — $ — $ — $ — $ — $ $ — $ 22 $ 6 $ 5 $ 43 $ 27 $ 6 $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ (1) . . . Forward Foreign Exchange Hedge Contracts: Fixed (EUR) to Fixed (USD) . .377 7. . . . . . . . . . .631 $ 51 $ — $ — $ — $ — $ — $ 5 1. . . . . . . . Average Exchange rate . . . . . . . .43% $1. . .81 $ 5 $ 4 $ — $ — $ — $ — $ — $ $ 1 $198 $ — $ — $ — $ — $ — $ (1) 1. . . . . . . . . . . . . Average Exchange rate . . . . . . . . . . . Average interest rate . . . . . Fixed (CAD) to Fixed (USD) . . . . . . . . . . . . . . Floating rate . Forward Foreign Exchange Contracts: Fixed (EUR) to Fixed (USD) . . . . . . Average Exchange rate . Fixed (CLP) to Fixed (USD). . . . . . .00 $ $ — — $ 18 $ 12 $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — . . . . . Average Exchange rate . . .631 2. . . . . . . . Average interest rate . . . . . . . Fixed (ARS) to Fixed (USD) . . . . . . . Average Exchange rate . . . . . . . . . . . . . . .39 1 . . . Average Exchange rate . . . . . . 2009 2010 2011 2012 2013 Total at December 31. . . . . . . . . . . . . . . . . . . . . .599 $1. . $ 6 $500 $ 5 $500 $ 8 $588 $804 $ 43 $653 $ — $901 $ — $2. . Fixed (JPY) to Fixed (THB) . . . . . . 2008 Thereafter Liabilities Fixed rate . . . . . . . excluding interest rates): Expected Maturity or Transaction Date At December 31. . . . Fixed (MYR) to Fixed (USD) . .

Financial Statements and Supplementary Data. Because of its inherent limitations. the Company’s internal control over financial reporting is effective.Item 8. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions. Item 9A. The Company’s management assessed the effectiveness of the Company’s internal controls over financial reporting as of December 31. as of December 31. In making this assessment. • Provide reasonable assurance that the transactions are recorded as necessary to permit the preparation of financial statements in accordance with GAAP. The financial statements and supplementary data required by this Item are included in Item 15 of this Annual Report and are incorporated herein by reference. 2008. Management’s Report on Internal Control over Financial Reporting Management of Starwood Hotels & Resorts Worldwide. use or disposition of the Company’s assets that could have a material effect on the financial statements. 44 . of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31. management believes that. 2008. Controls and Procedures. Inc. Management has engaged Ernst & Young LLP. and its subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting. and the receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company. internal control over financial reporting may not prevent or detect misstatements. as such term is defined in Exchange Act Rule 13a-15(f) or 15(d)-15(f). 2008. or that the degree of compliance with policies or procedures may deteriorate. Not applicable. the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be included in the Company’s SEC reports. the Company’s management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. Its report is included herein. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”) and includes those policies and procedures that: • Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company. Evaluation of Disclosure Controls and Procedures The Company’s management conducted an evaluation. and • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition. under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer. to attest to the Company’s internal control over financial reporting. Item 9. Based on this evaluation. the independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K. Based on our assessment and those criteria.

equity and cash flows for each of the three years in the period ended December 31. in all material respects. 2008. comprehensive income. use or disposition of the company’s assets that could have a material effect on the financial statements.’s (the “Company”) internal control over financial reporting as of December 31. testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. 2008 of the Company and our report dated February 26. and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition. based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Inc. We believe that our audit provides a reasonable basis for our opinion. (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles. internal control over financial reporting may not prevent or detect misstatements. or that the degree of compliance with the policies or procedures may deteriorate. projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions. /s/ New York. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that. The Company’s management is responsible for maintaining effective internal control over financial reporting. effective internal control over financial reporting as of December 31. the consolidated balance sheets of the Company as of December 31. 2009 Ernst & Young LLP 45 . 2008 and 2007 and the related consolidated statements of income. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders of Starwood Hotels & Resorts Worldwide. and performing such other procedures as we considered necessary in the circumstances. in accordance with the standards of the Public Company Accounting Oversight Board (United States). We also have audited. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company. and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. accurately and fairly reflect the transactions and dispositions of the assets of the company. the Company maintained. Also. In our opinion. based on the COSO criteria. Inc. We have audited Starwood Hotels & Resorts Worldwide. 2008. Because of its inherent limitations. expressed an unqualified opinion thereon. New York February 26. in reasonable detail. 2009. assessing the risk that a material weakness exists.

Changes in Internal Controls There has not been any change in our internal control over financial reporting identified in connection with the evaluation that occurred during the year ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, those controls. Item 10. Directors, Executive Officers and Corporate Governance.

The Board of Directors of the Company is currently comprised of 10 members, each of whom is elected for a one-year term. The following table sets forth, for each of the members of the Board of Directors as of the date of this Annual Report, certain information regarding such Director.
Name (Age) Principal Occupation and Business Experience Service Period

Frits van Paasschen (47)

Adam M. Aron (54)

Charlene Barshefsky (58)

Chief Executive Officer of the Company since September 2007. Prior to joining Starwood, Mr. van Paasschen served as President and CEO of Coors Brewing Company. From April 2004 to March 2005, Mr. van Paasschen worked independently through FPaasschen Consulting and Mercator Investments. From 1997 to 2004, Mr. van Paasschen held various positions at Nike, Inc., most recently as Corporate Vice President/General Manager, Europe, Middle East and Africa. From 1995 to 1997, Mr. van Paasschen served as Vice President, Finance and Planning at Disney Consumer Products and earlier in his career was a management consultant for eight years at McKinsey & Company and the Boston Consulting Group. Chairman and Chief Executive Officer of World Leisure Partners, Inc., a leisure-related consultancy, since 2006. From 1996 through 2006, Mr. Aron served as Chairman and Chief Executive Officer of Vail Resorts, Inc., an owner and operator of ski resorts and hotels. Mr. Aron is a director of Norwegian Cruise Line Limited and Prestige Cruise Holdings, Inc. Senior International Partner at the law firm of WilmerHale, LLP, Washington, D.C. since September 2001. From March 1997 to January 2001, Ambassador Barshefsky was the United States Trade Representative, the chief trade negotiator and principal trade policy maker for the United States and a member of the President’s Cabinet. Ambassador Barshefsky is a director of The Estee Lauder Companies, Inc., American Express Company and Intel Corporation. Ambassador Barshefsky also serves on the Board of Directors of the Council on Foreign Relations and is a Trustee of the Howard Hughes Medical Institute. She has been a Director of the Company, and was a Trustee of the Trust, since October 2001.

CEO and Director since September 2007

Director since August 2006

Director and Trustee(1) since October 2001

46

Name (Age)

Principal Occupation and Business Experience

Service Period

Thomas E. Clarke (57)

Clayton C. Daley, Jr. (57)

Bruce W. Duncan (57)

Lizanne Galbreath (51)

Eric Hippeau (57)

President of New Business Ventures of Nike, Inc., a designer, developer and marketer of footwear, apparel and accessory products, since 2001. Dr. Clarke joined Nike, Inc. in 1980. He was appointed Divisional Vice President in charge of marketing in 1987, Corporate Vice President in 1990, and served as President and Chief Operating Officer from 1994 to 2000. Dr. Clarke previously held various positions with Nike, Inc. primarily in research, design, development and marketing. Dr. Clarke is also a director of Newell Rubbermaid, a global marketer of consumer and commercial products. Spent his entire professional career with Procter & Gamble, joining the company in 1974, and has held a number of key accounting and finance positions including Comptroller, U.S. Operations for Procter & Gamble USA; Vice President and Comptroller of Procter & Gamble International and Vice President and Treasurer. Mr. Daley was appointed to his current position as Chief Financial Officer, Procter & Gamble in 1998 and was elected Vice Chair in 2007. Mr. Daley is a director of Boys Scouts of America, Dan Beard Council, Cancer Family Care and Nucor Corporation. President, CEO and Director of First Industrial Realty Trust, Inc. since January 2009 prior to which time he was a private investor since January 2006. From April to September 2007, Mr. Duncan served as Chief Executive Officer of the Company on an interim basis. He also has been a senior advisor to Kohlberg Kravis & Roberts & Co. 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 apartment company. From January 2003 to May 2005, he was President and Trustee of EQR. 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 Lang LaSalle where she also served as a Director. From 1984 to 1997, Ms. Galbreath served as a Managing Director then Chairman and CEO of The Galbreath Company, the predecessor entity of Galbreath & Company. Managing Partner of Softbank Capital Partners, a technology venture capital firm, since March 2000. Mr. Hippeau served as Chairman and Chief Executive Officer of Ziff-Davis Inc., an integrated media and marketing company, from 1993 to March 2000 and held various other positions with ZiffDavis from 1989 to 1993. Mr. Hippeau is a director of Yahoo! Inc.

Director since April 2008

Director since November 2008

Chairman of the Boards since May 2005; Director since April 1999; Trustee(1) since August 1995

Director and Trustee(1) since May 2005

Director and Trustee(1) since April 1999

47

Name (Age)

Principal Occupation and Business Experience

Service Period

Stephen R. Quazzo (49)

Thomas O. Ryder (64)

Kneeland C. Youngblood (53)

Managing Director, Chief Executive Officer and cofounder of Transwestern Investment Company, L.L.C., a real estate principal investment firm, since March 1996. From April 1991 to March 1996, Mr. Quazzo was President of Equity Institutional Investors, Inc., a subsidiary of Equity Group Investments, Inc. Retired as Chairman of the Board of The Reader’s Digest Association, Inc. on January 1, 2007. Prior to his retirement, Mr. Ryder was Chairman of the Board of Reader’s Digest Association, Inc. since January 1, 2006 and Chairman of the Board and Chief Executive Officer from April 1998 through December 31, 2005. Mr. Ryder was President, American Express Travel Related Services International, a division of American Express Company, which provides travel, financial and network services, from October 1995 to April 1998. He is a director of Amazon.com, Inc. and Chairman of the Board of Virgin Mobile USA, Inc. A founding partner of Pharos Capital Group, L.L.C., a private equity fund focused on technology companies, business service companies and health care companies, since January 1998. From July 1985 to December 1997, he was in private medical practice. He is former Chairman of the Board of the American Beacon Funds, a mutual fund company managed by AMR Investments, an investment affiliate of American Airlines. He is also a director of Burger King Holdings, Inc., Gap, Inc., and Energy Future Holdings (formerly TXU Corp.).

Director since April 1999; Trustee(1) since August 1995

Director and Trustee(1) since April 2001

Director and Trustee(1) since April 2001

(1) Prior to the Host Transaction, the Trust was a subsidiary of the Corporation and directors may have also served as Trustees of the Trust. On April 10, 2006, in connection with the Host Transaction, the Trustees resigned. Executive Officers of the Registrants The following table includes certain information with respect to each of the Company’s executive officers.
Name Age Position

Frits van Paasschen . . . . . . . . . . . Matthew E. Avril . . . . . . . . . . . . Vasant M. Prabhu . . . . . . . . . . . . Kenneth S. Siegel . . . . . . . . . . . . Simon M. Turner . . . . . . . . . . . . Philip P. McAveety . . . . . . . . . . . Jeffrey M. Cava . . . . . . . . . . . . .

47 49 49 53 47 42 57

Chief Executive Officer and a Director President, Hotel Group Executive Vice President and Chief Financial Officer Chief Administrative Officer, General Counsel and Secretary President, Global Development Executive Vice President and Chief Brand Officer Executive Vice President and Chief Human Resources Officer

Frits van Paasschen. See Item 10. Directors, Executive Officers and Corporate Governance above. Matthew E. Avril. Mr. Avril has been President, Hotel Group, since September 2008. From January 1, 2004 until September 2008, he was President & Managing Director of Operations for Starwood Vacation Ownership. Philip P. McAveety. Mr. McAveety has been Executive Vice President and Chief Brand Officer since April 2008. Prior to joining the company, Mr. McAveety was Global Brand Director of Camper, a fashion footwear 48

Jeffrey M. Mr. Turner has been President. Prabhu served as Executive Vice President and Chief Financial Officer for Safeway Inc. Mr. he was a principal of Hotel Capital Advisers. Prabhu was previously the President of the Information and Media Group at the McGraw-Hill Companies. Mr. Middle East and Africa at Nike. Mr. Siegel is also a Trustee and Chairman of Cancer Hope Network.” Item 11. “Board Meetings and Committees”. based in both New York and London. Inc. from September 2000 through December 2003. The remaining information called for by Item 10 is incorporated by reference to the information under the following captions in the Proxy Statement: “Corporate Governance”. From July 1987 to May 1996. From August 1983 to May 1992 he was a partner at Booz Allen Hamilton. From November 2000 to May 2006.” “Option Exercises and Stock Vested. a provider of research and analysis on information technology industries.. Mr. Training and Development for ITT Sheraton Corporation. He was also a member of the board of Fairmont Raffles Hotels International and was chairman of the Audit Committee. a non-profit entity. a hotel investment advisory firm. and a Trustee of the American Hotel & Lodging Educational Foundation. Inc.. Prior to that time. Kenneth S. serving as a member of the Human Resources Committee and the Audit Committee. Executive Compensation. Siegel was formerly the Senior Vice President and General Counsel of Gartner. Europe. Simon M. Inc. Mr. Mr.” “Potential Payments upon Termination or Change-in-Control. Mr. Cava served as Executive Vice President and Chief Human Resources Officer for Wendy’s International. Consumer Products Group. Siegel has been Chief Administrative Officer and General Counsel since May 2006. Inc.. Mr. Mr. “Election of Directors”.” “Summary Compensation Table. Mr. Siegel was a Partner in the law firm of Baker & Botts.. a Trustee of Minority Corporate Counsel Association. Mr.. an information services company. from June 2003 to May 2008. Cava has been Executive Vice President and Chief Human Resources Officer.company.” and “Director Compensation. from June 1998 to August 2000. Prabhu is a director of Mattel. Siegel. Inc. an international management consulting firm.” 49 .” “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards.. from January 2000 to November 2000. and held several senior positions at divisions of PepsiCo. Siegel held the position of Executive Vice President and General Counsel. General Counsel and Corporate Secretary of IMS Health Incorporated. and its predecessors from February 1997 to December 1999. Prior to joining the Company. Inc. Inc. In February 2001. Vasant M. Cava was Vice President & Chief Human Resources Officer for Nike Inc. Prior to that time. and. Vice President Human Resources for The Walt Disney Company. from June 1992 to May 1998. Brand Marketing. Global Development since May 2008. From July 1997 until December 2006.” “Compensation Committee Report. LLP. he served as Vice President. Mr. he served as Senior Vice President.” “Nonqualified Deferred Compensation. since May 2008. from January 2007 until March 2008.” “Compensation Discussion and Analysis. “Section 16(a) Beneficial Ownership Reporting Compliance. Corporate Governance We have submitted the CEO certification to the NYSE pursuant to NYSE Rule 303A. During this period. he was also appointed as the Secretary of the Company. Inc.12(a) following the 2008 Annual Meeting of Shareholders.” “Grants of Plan-Based Awards. and Vice President of Global Staffing. Cava. The information called for by Item 11 is incorporated by reference to the information under the following captions in the Proxy Statement: “Executive Compensation. Prabhu has been the Executive Vice President and Chief Financial Officer since January 2004. Turner served on the board of directors of Four Season Hotels. From June 1996 to April 2008. Mr.” “Outstanding Equity Awards at Fiscal Year-End. Mr. Turner. Prabhu. Turner was a member of the Investment Banking Department of Salomon Brothers. Prior to joining Wendy’s.

The information called for by Item 12 is incorporated by reference to the information under the caption “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information-December 31. “Audit Fees” and “Pre-Approval of Services in the Proxy Statement. Principal Accountant Fees and Services. The information called for by Item 13 is incorporated by reference to the information under the captions “Certain Relationships and Related Transactions” and “Corporate Governance” in the Proxy Statement.Item 12. The information called for by Item 14 is incorporated by reference to the information under the captions.” 50 . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Certain Relationships and Related Transactions and Director Independence. Item 13. 2008” in the Proxy Statement. Item 14.

. . . . . Schedule: Schedule II — Valuation and Qualifying Accounts . . . . . . . . INDEX TO FINANCIAL STATEMENTS AND SCHEDULE Page Report of Independent Registered Public Accounting Firm. . . . . . . . INC. . . 2007 and 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008. . . . . . . . . . . . . . . . . . . Notes to Financial Statements . . . . . . . . . . . . . . . . . . F-2 F-3 F-4 F-5 F-6 F-7 F-8 S-1 F-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 and 2006 . . . . . . 2008.STARWOOD HOTELS & RESORTS WORLDWIDE. . Consolidated Statements of Comprehensive Income for the Years Ended December 31. . . . . . . . . . . . . . . . . . . . 2008. . . . . . . Consolidated Statements of Income for the Years Ended December 31. . . . . . . . . . . . . 2008. . . . . . . . . . . . . . . . . . . . . . . . 2007 and 2006 . . Consolidated Statements of Cash Flows for the Years Ended December 31. . . . 2007 and 2006 . . . . . . . . . . . Consolidated Statements of Equity for the Years Ended December 31. . . . . . . . . . . 2008 and 2007 . . . . . . . . . . . . . Consolidated Balance Sheets as of December 31. . . . . . . .

2006 and SFAS No. on January 1. As discussed in Note 2 to the consolidated financial statements. An audit includes examining. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 2009 expressed an unqualified opinion thereon. 2008. generally accepted accounting principles. 2007. An audit also includes assessing the accounting principles used and significant estimates made by management. 2008 and 2007. 2006. These financial statements and schedule are the responsibility of the Company’s management. Inc. Our audits also included the financial statement schedule listed in the Index at Item 15(a). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. in accordance with the standards of the Public Company Accounting Oversight Board (United States). and cash flows for each of the three years in the period ended December 31. 2008. We also have audited. and SFAS No. 152. presents fairly in all material respects the information set forth therein. evidence supporting the amounts and disclosures in the financial statements. the consolidated financial position of the Company at December 31. on December 31. 2009 Ernst & Young LLP F-2 . We have audited the accompanying consolidated balance sheets of Starwood Hotels & Resorts Worldwide. 158. the Company adopted Financial Accounting Standards Board Interpretation No. 2008. Statement of Financial Accounting Standards (“SFAS”) No. New York February 26. Accounting for Real Estate Time-Sharing Transactions. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.S. equity. In our opinion. as well as evaluating the overall financial statement presentation. Also. We believe that our audits provide a reasonable basis for our opinion. Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. and the related consolidated statements of income. Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. when considered in relation to the basic financial statements taken as a whole. in our opinion. Inc. Share-Based Payment. comprehensive income. 123 (revised 2004). the financial statements referred to above present fairly. (the “Company”) as of December 31. in all material respects. on January 1. on a test basis. in conformity with U. 48. the related financial statement schedule. the Company’s internal control over financial reporting as of December 31. 2008 and 2007. based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26. 109.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of Starwood Hotels & Resorts Worldwide. and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31. /s/ New York.

. . . . .. . . . ... . . . . . . . . ... . . .. . . . . . . .. . . . . . . ... .274 346 391 2. . . . . .. . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .. . . . . . INC. . . . ... . . .. . .. . . .. . .. . . .599 10 2. . . . . . Additional paid-in capital . . . . .. . .. . . .. . . . . . . . . .. .. . . .. . . . . . . . . . .. . . . . . . . . . . . . . . . . .. . . . . ... . . .. Other liabilities . . . 2 493 (391) 1. . . . . . . . . . . . . . . . . . . . . . . . .. .. . . . .. . . . . .. . . . . . CONSOLIDATED BALANCE SHEETS December 31.520 26 Minority interest . . .. . . . .. .. . . . Total stockholders’ equity . . . . .. . . . .. . .. . . . . .... . . . ... . .. . . . . .. . . Total current assets . . . . . .. . . . . . . . . . . . . . .. . . .. . . . . . ... . . . . . . . . .. . . . . . . . . . .. . .. .. Accounts payable . . . . .. . . . . . . . . . . . . . . . . .824 423 3. . . Restricted cash . . .998. .. . . . . . . . . . . . . . . . . .. . .. . . . . . . . . . . . . .. .. . .. . . . . . .. . . . . . . . wages and benefits . .. . . . .703 $ 151 196 627 714 136 1. . . . . . .590 28 1. . . . . . .. . . . . . . .. . . . . . . . . . ... . . . . . . . .. . . . . ... . . . . . .353 2.. . . . .. .. . . .827. . . .. . . . . . Accounts receivable. . Assets held for sale . .059 23 $ 5 201 1. .. . Long-term debt . . .. . . . . . . . . . . .. . property and equipment. . . .. . .. . . . . authorized 1. . . .. . . .000. net . . . . . . . .. .. . . . . . . .. . . Accrued expenses . . . Inventories . . . . . . . . . . . . . . .. . . . .. . . . . . . . . . . . . . .. . . . . ... . ... .. . . . . . .01 par value. . . . ... . .502 26 1.. . . ... . . . . .. . . .. . . .000 shares outstanding 182. . . ... . . . . . . Investments . . . . .621 $9. . . . . . . . .302 729 494 $9. . . .STARWOOD HOTELS & RESORTS WORLDWIDE. . . .. . . Accrued taxes and other . . . .. . .. . . . .. . . . . . . . .. Deferred income taxes. . . . . net. . . .. . . . . . . . . . . . . . . . . . . . ... . . 2008 2007 (In millions. . . . . . . . . . . . . .. . . . . Total current liabilities . . . .. . . . .. . . .. . . .. . . . . . Commitments and contingencies Stockholders’ equity: Corporation common stock. . . . . .. . . . . . . . . . .. .. .. .076 $9. .. . . . . . . . . . . . .. . . . . . . . . . . . . .622 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Short-term borrowings and current maturities of long-term debt . . .. . . . . . . . . .. . .. .688 3. .. . . . . . . . . . . .. . . . . . .. $0. . Other assets . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .. . . $ 389 96 552 986 143 2. . . . .. . . . . . .. . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . .. . .. . . . . . . . . . . . . .. . . . . . . . . . Deferred tax assets . . . . . .. . ... . . . .. .. . . . . . .. . . . . . . . . . . . .166 372 3. . . . . .. . . . . . . .622 The accompanying notes to financial statements are an integral part of the above statements. .. .850 — 2. .. . . . . .843 8. .. . . . . . . . . . . . . . .. . . .. .. . . . . . . .. . . . . . . . .175 405 315 2. . . .483 and 190. . . .. . . . . . . . ... . .. F-3 . .235 639 682 $9. . .585 shares at December 31.. . . . . . . . . .. . . . Plant. . . . . . . . . . .. . . .. . . . .. . . net of allowance for doubtful accounts of $49 and $50 . . . . . . . . . . Goodwill and intangible assets. . . . . . . . . . .. .. . . Accrued salaries. .101 3.. . . . . . . Prepaid expenses and other . .. . . . . . . . ... . . . . . . . . . . Accumulated other comprehensive loss . .. . . . .. . .. . .. .. . . . . . .. . . . . . . . .703 2 868 (147) 1. . .. . . . . .801 7. . . . . . . . . . . . . . . . . . .517 1. . . . . . . . . .. . . . $ 506 171 1. . . . . Retained earnings . . except share data) ASSETS Current assets: Cash and cash equivalents . . ..000. . . . . . . .. . 2008 and 2007 respectively . . . .. . .

. . . . . . . . .. .. . . . . . . . . . .. . . . . . . . . .. . .. . . ..91 $ 5. . . . . . . . .. . . . . . . . .. . . 0. . . . . . Cumulative effect of accounting change . .. . . .865 5. . . . . . . . . . . . . . . Income from continuing operations .. leased and consolidated joint venture hotels . . . . . . . . .722 583 477 141 291 32 2. .907 . . Minority equity in net income . .. . . . . . . ... . . $2. . . . . . . . . .. . . . . . .. . . . .. . .. .042 5. . . . . . . . . .. . . . INC. . . . .. . . . . . . 857 . . .. . . .90 The accompanying notes to financial statements are an integral part of the above statements. . $ 0.025 834 1. .. . . . . . .. . $ 1. . . . . . Net income . . CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31. . .. . . . . . . . . . 1. . . . . . . . . . . . . . . . . . . . . . . Other expenses from managed and franchised properties .. .. . .. . .. . . . .57 — — $ 2. . . . . .. . . . . net . . . administrative and other . .288 619 16 (207) (98) 330 (76) — 254 $2. . . . . . .40 Discontinued operations . .01) (0. . . . .STARWOOD HOTELS & RESORTS WORLDWIDE. . . . . . Distribution and dividends declared per Share. . . . . .77 181 185 Weighted average number of Shares . . . 749 . . . . . . . . . . . .. . . . . . . . .. . .. Income from continuing operations before taxes and minority equity . . . F-4 .. . . .. . .40 .259 . .042 5. .. . . .. . . . .. . .. . . . . . . . . . . . . . . . . . . . . . . .043 $ 5.. . . . . . . . . . . . . . . Amortization . . . . . . ... . . . . .. . . . Vacation ownership and residential sales and services . . . . net of interest income of $3. .. . . . . . . .. . . . .. .25 (0.. . . . . . . . . . . — Net income . . . . . . . . . . . . . . . . . . . . . . . . . . — . . .. . . . . .. . . . . . . . . . . .. Interest expense. . . . . . .. . .. . . . .. . . . 2. . . $ 1. . . . $21 and $29 . . . . .865 6. . .153 1. . . .. . . .. . . . .. . . . . . . . .. . .. . . . . . .. . .84 Operating income . . .. . . . . . . . .692 1. . . . . Loss on asset dispositions and impairments. . . . . . . . .. . ... . . . Selling. $1 and $2 . . . . . .. . . . . . . . . . .. . . . . . . .. . .589 5.979 2. . . . . .67 — — $ 2. . . . . . . . . . . .. . Restructuring and other special charges. . . . . . . . . . . .31) $ 4. . . ... . . . Equity earnings and gains and losses from unconsolidated ventures. . . . .. . . . . .805 758 508 53 280 26 1.. . .. . . .. . . .. . . Cumulative effect of accounting change. . . . . .. . .. . . . . . .01) (0. . . . leased and consolidated joint venture hotels . .57 203 211 $ 0. . . . .. . . . . . . . . .. .. . . . .005 693 1. . . .. . . . . . . .. .. . . . 0. . . net .01 (0. . . . general. . . .. . . .. . . . . . . . . . . . . . Cost and Expenses Owned. . . except per share data) Revenues Owned. .. . . . . . . . . .81 Earnings (Losses) Per Share — Diluted Continuing operations . . . . . . .429 1.. .90 $2. . . .. . . . . . . .. . . . . . ... . . . . . . .. . . . . . . . .. . . . . .. .33) $ 4. . — .. $ 1. . . . . .. . . . . . . . . . . Management fees. . . Other revenues from managed and franchised properties . Discontinued operations . . . . . . net . . . . . . . . . . . . Net income . . . . .. . . .023 736 466 20 280 26 1.589 5. . . . .. . . . . .37 . . . . . . . . Depreciation . . . . . . .. .. . . . . . . . . franchise fees and other income . . . . . . .. . . . . . Vacation ownership and residential . . . .69 213 223 $ 0. . . . . .. . . Discontinued operations: Gain (loss) on dispositions. .. . net of tax .67 $ 2. . .. . .. . . . . . . . .295 858 66 (147) (44) 733 (189) (1) 543 (1) — $ 542 $ 2. . .. $ 1. . .. . . . . . . . . . . . . . . . . 75 .. . .. Income tax (expense) benefit . .115 (2) (70) $1. . . .41 Cumulative effect of accounting change . . . . . .. . . . . . . .. . . . . . . .. . . . . .. . . . . . . . Weighted average number of Shares assuming dilution . . . . . . . . . .140 839 61 (215) (3) 682 434 (1) 1. 2008 2007 2006 (In millions. . . . . . . . . .. . . . .. . . . . . . . . $ 329 Earnings (Losses) Per Share — Basic Continuing operations . . . . . . . . . . . . . net of tax expense of $54. . .

F-5 . . . . . . . . . . .STARWOOD HOTELS & RESORTS WORLDWIDE. . . . INC. Unrealized losses on investments . . . . CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31. . . . . Other comprehensive income (loss). . . . . . . . . . . . . . .043 72 29 2 — (1) 102 $1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 2007 2006 (In millions) Net income . . . . . . $ 329 (190) — (58) 6 (2) (244) $ 85 $542 84 — 3 — (6) 81 $623 $1.145 The accompanying notes to financial statements are an integral part of the above statements. . . . . . . . . . . . Pension liability adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in fair value of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . net of taxes: Foreign currency translation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recognition of accumulated foreign currency translation adjustments on sold hotels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income . . . . .

2008. . ESPP stock issuances . . . . . . 48 implementation .STARWOOD HOTELS & RESORTS WORLDWIDE. . . . . . . . . net . . Balance at December 31. . . . . . . . 2008 . . . . . Foreign currency translation .286 — 358 7 (1. . . . . . . . . . 123(R) . Net income . . . . . . . . . . . this balance is comprised of $304 million of cumulative translation adjustments. . Dividends declared . . . . . . .353 329 — — — — — — — (165) $1. F-6 . . ESPP stock issuances . . . . net . . . . . (b) Stock option and restricted stock award transactions are net of a tax benefit of $33 million. . . $65 million and $143 million in 2008. Unrealized loss on securities. . .412 — (53) (2. . . respectively. . . . . . . . . . . . . Distributions declared . . . . . . . Redemption of convertible debt . . . . . . Tax adjustments related to the disposition of the Trust . . . Net income . . . . .043 — (83) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — $— (1) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — $— — — — — — — — 213 — 7 — (29) — — — — — — 191 — 6 — (14) — — — — — 183 (2) — — — — — — 2 — — — — — — — — — — 2 — — — — — — — — — $ 2 (37) — — — — — — 2. . . Foreign currency translation . . Class B EPS and Partnership Units . . . . net . . . . . . . Change in fair value of derivatives . Implementation of SFAS No. The book value of the Trust associated with this sale was removed through retained earnings up to the amount of retained earnings that existed at the sale date with the remaining balance reducing additional paid-in capital. . . Share repurchases . . CONSOLIDATED STATEMENTS OF EQUITY Exchangeable Accumulated Units and Other Additional Class B EPS Class A EPS Shares Deferred Comprehensive Retained Paid-in Loss(a) Earnings Shares Amount Shares Amount Shares Amount Capital(b) Compensation (In millions) Balance at December 31. . . . . . . . . . . . . . . 158. Implementation of SFAS No. . . 2005 . . . The accompanying notes to financial statements are an integral part of the above statements.787) 4 — — — — — 868 — 212 6 (593) — — — — — $ 493 — — — — — — — — — — — — — — — — — — — — — — — — — — — — $— — 72 29 2 (8) (1) — (228) — — — — — — 84 (6) 3 — (147) — — — — (190) (2) 6 (58) — $(391) — — — — — — (182) 948 542 — — — — 35 — — — (172) 1. Stock option and restricted stock award transactions. . . . . . . . . . . . . . . . (c) As part of the Host Transaction. 2007 .368) 588 7 (1. . ESPP stock issuances . . . . . . . . . . Pension adjustments. . . .263) — $(53) — 53 — — — — — $(322) — — — — — — — $ 170 1. . . . . . . . . Balance at December 31. . Balance at December 31. . . . and 2006. . . INC. . . . . . . . . . . . . — — — — — — — — $— — — — — — — — 1 — — — — — — — $— — — — — — — — 217 — — — 15 — (22) 3 $ 4 — — — — — — — $ 5. . . net . . net . Dividends declared . net. . . Conversion or redemption and cancellation of Class A EPS. . . Stock option and restricted stock award transactions. . . . . . . . . . . . . . . . Stock option and restricted stock award transactions.517 (a) As of December 31. . . . Share repurchases . . . . . . . . . . . Foreign currency translation . . . . Recognition of accumulated foreign currency translation adjustments on sold hotels . . the Company sold the Class A Shares of the Trust and shareholders sold the Class B Shares of the Trust. . . . . . . Unrealized loss on investments . . . . . . Unrealized loss on securities. . . Disposition of the Trust(c) . . . . . 2007. Pension adjustments . . . . . . . . . . . . . . . . 2006 . . $4 unrealized net gain on securities and $91 million of cumulative pension adjustments. . See Note 1 for additional information on the Host Transaction. . FIN No. . Net income . . . Minimum pension liability adjustment . . . . . . . . . . . . . . Share repurchases . . . . net .

. . . . . . . . . . . . . . .. . . .STARWOOD HOTELS & RESORTS WORLDWIDE. . . . . . . . . . . . . . . . . . . . $ 186 $ 58 $ 164 $ 128 $ 247 $ 249 The accompanying notes to financial statements are an integral part of the above statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . net . . . . .. . . . . Financing Activities Revolving credit facility and short-term borrowings (repayments). . . . . . . . . . . .. . . . . . Dividends/distributions paid .. . . . . . . .. . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . Investing Activities Purchases of plant. . . . . . . . . . . . net . . . . . . . .. . . . .. Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest . . . .043 2 — 70 103 (87) 306 5 (7) (8) (62) 25 — (30) (18) 3 (620) (35) 49 (82) (11) 12 (64) (109) 15 500 (371) 1. . . . . . . . . . . . . . . . . . . . . . . . . . .287) (80) (2. . . . . . . .. . . . . . . . .. . .. . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exchange rate effect on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash (used for) from investing activities . . . . . . . Increase (Decrease) in cash and cash equivalents . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of VOI notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for doubtful accounts . . . . . . . . . . . net. . .. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 2008 2007 2006 (In millions) Operating Activities Net income . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .. . . . . Loss on asset dispositions and impairments. . . . .. . . . . . . Cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . .787) (13) (712) 11 (32) 183 $ 151 $ 1. . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share repurchases . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . net . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . .. . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VOI notes receivable activity. . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . Cash and cash equivalents — end of period . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess stock based compensation tax benefit . . . . . . . . .400 (799) (90) 190 46 (1. . . . . . net of acquired cash . . . . . . . . . . . . . . . . .. . . . $ 329 (75) — — 68 (16) 323 5 74 (5) (83) 64 — 21 (4) 98 24 102 34 (280) 2 85 (22) (150) 52 646 (476) 320 (2) 5 — (37) 39 (21) (172) (570) 986 (4) (172) 120 16 (593) (26) (243) 7 238 151 $ 389 $ 542 — 1 — 99 (46) 306 4 48 11 (81) 43 1 10 (2) 44 (142) 134 (34) (143) (2) 177 210 (209) (87) 884 (384) 133 (10) 55 (74) (49) 112 2 (215) 341 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. Adjustments to net income: Discontinued operations: (Gain) loss on dispositions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31. . . Accrued income taxes . net of refunds . . . . . . . . . . . . . . . . . . Proceeds from investments.. . . . . . .. . . . . . . . Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt repaid . . . . . . . . net . . . . . . . . . . . . Proceeds from stock option exercises . . . . . . . . . . . . . . . . property and equipment Proceeds from asset sales. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .. . . . . . . Inventories . . . . . . . . . . . .. . . . . . . . . Long-term debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . .515 (19) 114 (25) (61) 252 (3) 1. . . . .. . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . .402 73 2 (1. . . . . . Amortization of deferred gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . net . . . . . . . . . . .. . . .635) 19 (714) 897 $ 183 . . . . . . . . . . . . . . . . . . Changes in working capital: Restricted cash . . . . . . . . . . . . . . . . . . . Cash and cash equivalents — beginning of period . . . . . . . . . . . . . . . . . Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. . . . . . . . . . . . . . . . . . . . . Cash from operating activities . . . . . . . . . . . . . . . . . .. . . . . . . . . . . net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority equity in net income . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . Purchases of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable . . . . . . . . . . . . . . . . . .. net Non-cash foreign currency (gains) losses. . . . . . . . . net . . . . . . . . . . . . . . . . . Non-cash portion of income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . Non-cash portion of restructuring and other special charges (credits). . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other . . . . . . . . . . . .. . . Amortization of deferred loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . INC. . . . . . . . . . . . . . Collection of notes receivable . . . . . . . . . . . . . . . . . . . . . . . . Issuance of notes receivable . . . . . .. . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . Other. . . Income taxes. .. . . .. . . . . . . . . . . Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . .534) (276) 380 87 (1. . . . . . . . . . . . Distributions in excess (deficit) of equity earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other adjustments relating to discontinued operations. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . Excess stock-based compensation tax benefit . . . . . . . . . . . . . . Cash used for financing activities . . F-7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . .. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . .

with the Trust surviving as a subsidiary of Host. among other things. (i) a subsidiary of Host was merged with and into the Trust. and its subsidiaries (the “Corporation”). liabilities. (“SVO”) include the acquisition. collectively through April 7. the Trust formed the Corporation and made a distribution to the Trust’s shareholders of one share of common stock. the Corporation Shares and the Class B Shares traded together on a one-for-one basis. and certain other subsidiaries of Host Hotels & Resorts. Starwood is one of the world’s largest hotel and leisure companies. 2006 included Starwood Hotels & Resorts (the “Trust”). development and operation of vacation ownership resorts. revenues and expenses of majority-owned subsidiaries over which the Company exercises control. marketing and selling vacation ownership interests (“VOIs”) in the resorts.P. L. in connection with the transaction (the “Host Transaction”) with Host Hotels & Resorts. Pursuant to a reorganization in 1999. Significant Accounting Policies Principles of Consolidation. (collectively. 2006. certain subsidiaries of Host acquired the Trust and Sheraton Holding from the Corporation.. in connection with the Host Transaction. consisting of one Corporation Share and one Class B Share (the “Shares”). which is comprised of a worldwide hospitality network of almost 970 full-service hotels. the Corporation Shares trade alone under the symbol “HOT” on the New York Stock Exchange (“NYSE”). of the Trust (a “Trust Share”). In 1980. Intercompany transactions and balances have been eliminated in consolidation. The Trust was formed in 1969 and elected to be taxed as a real estate investment trust under the Internal Revenue Code. The Company’s principal business is hotels and leisure. As part of the Host Transaction. Prior to the Host Transaction discussed below and in detail in Note 5. F-8 . neither Shares nor Class B Shares are listed or traded on the NYSE. As a result of the depairing. The accompanying consolidated financial statements of the Company and its subsidiaries include the assets. the Shares were depaired and the Corporation Shares became transferable separately from the Class B Shares. On April 7. vacation ownership resorts and residential developments primarily serving two markets: luxury and upscale. Cash and Cash Equivalents. Inc. all references to the Corporation include those entities owned or controlled by the Corporation. In the 1999 reorganization. which prior to April 10. 2006. NOTES TO FINANCIAL STATEMENTS Note 1. of the Corporation (a “Corporation Share”) for each common share of beneficial interest. nor is the Company required to include a guarantor footnote containing certain financial information for Sheraton Holding Corporation (“Sheraton Holding”). Unless the context otherwise requires.STARWOOD HOTELS & RESORTS WORLDWIDE. Inc. par value $0.01 per share. All references to “Starwood” or the “Company” refer to the Corporation. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Note 2. INC. which indirectly held all outstanding shares of the new Class A shares of beneficial interest of the Trust (“Class A Shares”). par value $0. Inc. As of April 10. 2006. 2006. The principal operations of Starwood Vacation Ownership. the financial statements for the Trust are no longer required to be consolidated or presented separately. the Trust became a subsidiary of the Corporation. On April 10. and providing financing to customers who purchase such interests. Inc. “Host”) described below. a former subsidiary of the Corporation. (ii) all the capital stock of Sheraton Holding was sold to Host and (iii) a subsidiary of Host was merged with and into SLT Realty Limited Partnership (the “Realty Partnership”) with the Realty Partnership surviving as a subsidiary of Host. Basis of Presentation The accompanying consolidated financial statements represent the consolidated financial position and consolidated results of operations of Starwood Hotels & Resorts Worldwide. each Trust Share was converted into one share of the new non-voting Class B Shares of beneficial interest in the Trust (a “Class B Share”). its subsidiary Host Marriot. As a result of the Host Transaction (as defined below) in April 2006. the Trust and its respective subsidiaries.01 per share.

if the Company exercises F-9 . INC. are recorded in discontinued operations unless the Company will have continuing involvement (such as through a management or franchise agreement) after the sale. 2008 and 2007. If the Company’s interest exceeds 50% or in certain cases. the legal rescission period has expired and the deed of trust has been recorded in governmental property ownership records. 2007 and 2006. first-out) or market. a change in the projected default rate can have a significant impact to its loan loss reserve requirements. See additional information regarding the Company’s VIEs in Note 23. For the vacation ownership and residential segment. At December 31. the Company uses a technique referred to as static pool analysis. respectively. Hotel inventory also includes linens. silver. Given the significance of the Company’s respective pools of VOI notes receivable. The operations of the properties held for sale prior to the sale date. hotel inventory and Bliss inventory. The Company applies the loan impairment policy individually to all loans in the portfolio and does not aggregate loans for the purpose of applying such policy. 2008. Assets Held for Sale. 2008 and 2007. Inventories are comprised principally of VOIs of $729 million and $620 million as of December 31. Investments. an Interpretation of ARB No. Normal replacement purchases are expensed as incurred. respectively. glass. the Company establishes a specific impairment reserve for the difference between the recorded investment in the loan and the present value of the expected future cash flows or the estimated fair value of the collateral. VOI and residential inventory is carried at the lower of cost or net realizable value and includes $25 million. 2008 and 2007. china. Restricted cash primarily consists of deposits received on sales of VOIs and residential properties that are held in escrow until a certificate of occupancy is obtained. “Consolidation of Variable Interest Entities. The Company considers properties to be assets held for sale when management approves and commits to a formal plan to actively market a property or group of properties for sale and a signed sales contract and significant non-refundable deposit or contract break-up fee exist. the average estimated default rate for the Company’s pools of receivables was 7. utensils and guest room items. the Company recognizes interest income on a cash basis. uniforms. the Company had short-term restricted cash balances of $96 million and $196 million. residential inventory of $203 million and $33 million at December 31. respectively. 51. 46. For the hotel segment. the Company records the carrying value of each property or group of properties at the lower of its carrying value which includes allocable segment goodwill or its estimated fair value. respectively. the Company measures loan impairment based on the present value of expected future cash flows discounted at the loan’s original effective interest rate or the estimated fair value of the collateral. NOTES TO FINANCIAL STATEMENTS — (Continued) Restricted Cash. which tracks uncollectible notes for each year’s sales over the life of the respective notes and projects an estimated default rate that is used in the determination of its loan loss reserve requirements. Upon designation as an asset held for sale. For impaired loans.STARWOOD HOTELS & RESORTS WORLDWIDE. All other joint venture investments are accounted for under the equity method of accounting when the Company has a 20% to 50% ownership interest or exercises significant influence over the venture.1% change estimated to have an impact of approximately $3 million. less estimated costs to sell.” for all ventures deemed to be variable interest entities (“VIEs”). if material. and the Company stops recording depreciation expense. The Company holds large amounts of homogeneous VOI notes receivable and therefore assesses uncollectibility based on pools of receivables. $37 million and $22 million of capitalized interest incurred in 2008. Hotel inventory includes operating supplies and food and beverage inventory items which are generally valued at the lower of FIFO cost (first-in. As of December 31.9%. Any gain realized in connection with the sale of a property for which the Company has significant continuing involvement (such as through a long-term management agreement) is deferred and recognized over the initial term of the related agreement (See Note 12). the Company records an estimate of expected uncollectibility on its VOI notes receivable as a reduction of revenue at the time it recognizes profit on a timeshare sale. Bliss inventory is valued at lower of cost or market. For loans that the Company has determined to be impaired. Investments in joint ventures are accounted for using the guidance of the revised Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. Loan Loss Reserves. Significant purchases of these items with a useful life of greater than one year are recorded at purchased cost and amortized over their useful life. In estimating loss reserves. with a 0. Inventories.

such as conversion to airline miles. Properties are charged based on hotel guests’ expenditures. In accordance with the guidance in SFAS No. The Company’s management and franchise agreements require that the Company be reimbursed currently for the costs of operating the program. In assessing potential impairment for these investments. Gains or losses on the sale or retirement of assets are included in income when the assets are sold provided there is reasonable assurance of the collectibility of the sales price and any future activities to be performed by the Company relating to the assets sold are insignificant. property and equipment are capitalized. the Company will consider these factors as well as forecasted financial performance of its investment. Goodwill and intangible assets arise in connection with acquisitions. Goodwill and Intangible Assets.STARWOOD HOTELS & RESORTS WORLDWIDE. Costs for normal repairs and maintenance are expensed as incurred. property and equipment. including the acquisition of management contracts. 3 to 7 years for information technology software and equipment and the lesser of the lease term or the economic useful life for leasehold improvements. 141. Property and Equipment. which is dependent on the performance of the investment as well as the volatility inherent in external markets for these types of investments. or upon the occurrence of a trigger event. if any. 144. SPG members earn points based on spending at the Company’s properties. Impairment charges. fixtures and equipment. the Company may have to record impairment charges. The Company reviews all goodwill and intangible assets for impairment by comparisons of fair value to book value annually. Starwood Preferred Guest» (“SPG”) is the Company’s frequent guest incentive marketing program. F-10 . INC. if appropriate. the results of the joint venture are consolidated herein. If the expected undiscounted future cash flows are less than the net book value of the assets. respectively. For assets in use when the trigger events specified in Statement of Financial Accounting Standards (“SFAS”) No. The fair market value of investments is based on the market prices for the last day of the period if the investment trades on quoted exchanges. fair value is estimated based on the underlying value of the investment. Fair value is based upon discounted cash flows of the assets at rates deemed reasonable for the type of asset and prevailing market conditions. Plant. determines the fair value of the future redemption obligation based on statistical formulas which project the timing of future point redemption based on historical experience. appraisals and. equipment and fixtures. 142. The Company evaluates the carrying value of its assets for impairment. leased. applicable to major project expenditures are recorded at cost. as incentives to firsttime buyers of VOIs and residences. “Goodwill and Other Intangible Assets. the expected undiscounted future cash flows of the assets are compared to the net book value of the assets. 2007 and 2006. through the services of third-party actuarial analysts.” occur. Plant. “Accounting for the Impairment or Disposal of Long-Lived Assets. and through participation in affiliated partners’ programs such as co-branded credit cards. For non-traded investments. NOTES TO FINANCIAL STATEMENTS — (Continued) control over the venture. All other investments are generally accounted for under the cost method. including capitalized interest of $10 million. “Business Combinations. The Company. If these forecasts are not met. are recognized in operating results. current estimated net sales proceeds from pending offers.” and SFAS No.” the Company does not amortize goodwill and intangible assets with indefinite lives. Intangible assets with finite lives are amortized on a straightline basis over their respective useful lives. Revenue is recognized by participating hotels and resorts when points are redeemed for hotel stays. These capitalized costs may include structural improvements. including an estimate of the “breakage” for points that will never be redeemed. Frequent Guest Program. Points can be redeemed at substantially all of the Company’s owned. 3 to 10 years for furniture. and an estimate of the points that will eventually be redeemed as well as the cost of reimbursing hotels and other third parties in respect of other redemption opportunities for point redemptions. Depreciation is recorded on a straight-line basis over the estimated useful economic lives of 15 to 40 years for buildings and improvements. the excess of the net book value over the estimated fair value is charged to current earnings. managed and franchised properties as well as through other redemption opportunities with third parties. $10 million and $5 million incurred in 2008. The cost of improvements that extend the life of plant.

The Company provides for income taxes in accordance with SFAS No. INC. is included in accrued expenses. SFAS No. respectively. “Accounting for Contingencies. Foreign Currency Translation. based on market conditions. promotion. net loss of $11 million in 2007 and a net gain of $8 million in 2006. 109. Beginning in January 2008. The total actuarially determined liability as of December 31. franchise fees and other income. respectively. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred.STARWOOD HOTELS & RESORTS WORLDWIDE. These forward contracts have been designated as cash flow hedges under the provisions of SFAS No. Actual expenditures for SPG may differ from the actuarially determined liability. Gains and losses 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.” The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. The Company evaluates. Income Taxes.” requires that an estimated loss from a loss contingency be accrued with a corresponding charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. the Company entered into forward contracts to hedge fluctuations in forecasted transactions based on foreign currencies that are billed in United States dollars. to manage interest rate exposure. The Company periodically enters into interest rate swap agreements. 2008 and 2007 is $662 million and $536 million. among other factors. These forward contracts do not qualify as hedges under the provisions of SFAS No. As a forecasted transaction occurs. and their change in fair value is recorded as a component of other comprehensive income. Derivative Financial Instruments. NOTES TO FINANCIAL STATEMENTS — (Continued) including marketing. the outcomes of which are subject to significant uncertainty. Gains and losses from foreign exchange rate changes related to intercompany receivables and payables that are not of a long-term investment nature are reported currently in costs and expenses and amounted to a net gain of $5 million in 2008. Legal Contingencies. The Company periodically enters into forward contracts to manage foreign exchange risk based on market conditions. the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. The net settlements paid or received under these agreements are accrued consistent with the terms of the agreements and are recognized in interest expense over the term of the related debt. The Company does not enter into derivative financial instruments for trading or speculative purposes and monitors the financial stability and credit standing of its counterparties. All foreign currency hedging instruments have an inverse correlation to the hedged assets or liabilities. Balance sheet accounts are translated at the exchange rates in effect at each period end and income and expense accounts are translated at the average rates of exchange prevailing during the year. 133. “Accounting for Income Taxes. of which $232 million and $182 million. The Company enters into foreign currency hedging contracts to manage exposure to foreign currency fluctuations. the gain or loss is reclassified from other comprehensive income to management fees. Changes in these factors could materially impact the Company’s financial position or its results of operations. and performing member services for the SPG members. F-11 . The liability for the SPG program is included in other long-term liabilities and accrued expenses in the accompanying consolidated balance sheets. communications with. The national currencies of foreign operations are generally the functional currencies. 133. The Company is subject to various legal proceedings and claims. 5. Changes in the fair value of the derivative instruments are classified in the same manner as the classification of the changes in the underlying assets or liabilities due to fluctuations in foreign currency exchange rates.

Revenue is recognized when rooms are occupied and services have been rendered. (3) management and franchise revenues. leased or consolidated joint venture hotels and resorts. the Company adopted the fair value recognition provisions of SFAS No. Stock-Based Compensation. (2) vacation ownership and residential revenues. from owned. $40 million and $30 million in 2008. The Company’s policy is to issue new shares upon exercise. “Accounting for Sales of Real Estate. 2007 and 2006. Revenue Recognition. revenues are recognized when the services have been rendered. leased and consolidated joint venture properties. The Company has determined that a lattice valuation model would provide a better estimate of the fair value of options granted under its long-term incentive plans than a Black-Scholes model and therefore. Under the modified prospective method of adoption selected by the Company. 152. The fees from these arrangements are generally based on the gross sales revenue of the units sold. all revenue and profit are initially deferred and recognized in earnings through the percentage-of-completion method. Taxes collected from customers and submitted to taxing authorities are not recorded in revenue. the period of cancellation with refund has expired and receivables are deemed collectible.” and SFAS No. 2006. • Vacation Ownership and Residential — The Company recognizes revenue from VOI and residential sales in accordance with SFAS No. The lattice valuation option pricing model requires the Company to estimate key assumptions such as expected life. The Company’s revenues are primarily derived from the following sources: (1) hotel and resort revenues at the Company’s owned. 66. 123(R). F-12 . The following is a description of the composition of revenues for the Company: • Owned. On January 1. based on both historical information and management judgment regarding market factors and trends. SFAS No. 123(R) requires the Company to calculate the fair value of share-based awards on the date of grant. Please refer to Note 21. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the new rate is enacted. Accounting for Stock-Based Compensation” (“SFAS 123(R)”). 123(R) been applied from its original effective date. the fee to the owner is deemed fixed and determinable and collectibility of the fees is reasonably assured. 123. Stock-Based Compensation. Generally. “ShareBased Payment. If the actual forfeitures differ from management estimates. Interest income associated with timeshare notes receivable is also included in vacation ownership and residential sales and services revenue and totaled $57 million. INC. compensation cost recognized is the same that would have been recognized had the recognition provisions of SFAS No. SFAS 123(R) requires the measurement and recognition of compensation expense for all share-based awards to be based on estimated fair values of the share award on the date of grant. respectively. (4) revenues from managed and franchised properties. Leased and Consolidated Joint Ventures — Represents revenue primarily derived from hotel operations. volatility. NOTES TO FINANCIAL STATEMENTS — (Continued) Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.” as amended. risk-free interest rates and dividend yield to determine the fair value of share-based awards. “Accounting for Real Estate Time Sharing Transactions. Residential fee revenue is recorded in the period that a purchase and sales agreement exists. including the rental of rooms and food and beverage sales. a revision of the FASB Statement No. The Company has also entered into licensing agreements with third-party developers to offer consumers branded condominiums or residences. net of estimated forfeitures. additional adjustments to compensation expense are recorded. for all options granted subsequent to January 1. delivery of services and obligations has occurred.STARWOOD HOTELS & RESORTS WORLDWIDE. For sales that do not qualify for full revenue recognition as the project has progressed beyond the preliminary stages but has not yet reached completion. 2005 the lattice valuation model was utilized. and (5) other revenues which are ancillary to the Company’s operations. The Company amortizes the share-based compensation expense over the period that the awards are expected to vest. The Company recognizes sales when the buyer has demonstrated a sufficient level of initial and continuing investment.

property taxes and certain other carrying costs incurred during the construction process are capitalized as incurred. W. Selling and marketing costs capitalized under this methodology were approximately $7 million and $6 million as of December 31. Estimated costs of these self-insurance programs are accrued. • Revenues from Managed and Franchised Properties — These revenues represent reimbursements of costs incurred on behalf of managed hotel properties and franchisees. including communication and production costs. The Company capitalizes direct costs attributable to the sale of VOIs until the sales are recognized. internet and print advertisements. exclusive of any termination fees due or payable. Estimated insurance claims payable represent expected settlement of outstanding claims and a provision for claims that have been incurred but not reported. respectively. the Company provides insurance coverage for workers’ compensation. “Reporting on Advertising Costs. Insurance Retention. These estimates are based on the Company’s assessment of potential liability using an analysis of available information including pending claims. 152. radio. 93-7.” If it becomes apparent that the media campaign will not take place. incentive fees are recognized for the fees due and earned as if the contract was terminated at that date. Regis. Costs eligible for capitalization follow the guidelines of SFAS No. Such costs associated with completed VOI and residential units are expensed as incurred. all costs are expensed at that time. and all such capitalized costs are included in prepaid expenses and other assets in the accompanying consolidated balance sheets. termination fees and the amortization of deferred gains related to sold properties for which the Company has significant continuing involvement. including television. “Accounting for Franchise Fee Revenue. the Company incurred approximately $146 million. NOTES TO FINANCIAL STATEMENTS — (Continued) • Management and Franchise Revenues — Represents fees earned on hotels managed worldwide. Luxury Collection. The Company enters into multi-media ad campaigns. Development costs include both hard and soft construction costs and together with real estate costs are allocated to VOIs and residential units on the relative sales value method. Westin. which is generally based on the property’s profitability. these revenues and corresponding expenses have no effect on the Company’s operating income or net income. Real estate and development costs are valued at the lower of cost or net realizable value. a significant portion of which was reimbursed by managed and franchised hotels. property and general liability claims arising at hotel properties owned or managed by the Company through policies written directly and through reinsurance arrangements. Costs associated with these campaigns. Since the reimbursements are made based upon the costs incurred with no added margin. VOI and Residential Inventory Costs. when the provisions of the management contracts allow receipt of incentive fees upon termination. Costs Incurred to Sell VOIs. Base fee revenues are recognized when earned in accordance with the terms of the contract. historical experience and current cost trends. franchise fees received in connection with the franchise of the Company’s Sheraton. Four Points by Sheraton. INC.” as the fees are earned and become due from the franchisee. usually under long-term contracts.STARWOOD HOTELS & RESORTS WORLDWIDE. the Company charges the unrecoverable direct selling and marketing costs to expense and records forfeited deposits as income. During the years ended December 31. Franchise fees are generally based on a percentage of hotel room revenues and are recognized in accordance with SFAS No. The amount of the ultimate liability may vary from these estimates. These costs relate primarily to payroll costs at managed properties where the Company is the employer. 2007 and 2006. 2008 and 2007. Interest. $116 million and $135 million of advertising expense. Advertising Costs. For any time during the year. Through its captive insurance company. If a contract is cancelled. which is generally based on a percentage of gross revenues. Le Méridien. 2008. based on the analysis of third-party actuaries. offset by payments by the Company under performance and other guarantees. and an incentive fee. Aloft and Element brand names. respectively. St. Management fees are comprised of a base fee. 45. F-13 . are aggregated and expensed the first time that the advertising takes place in accordance with the American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) No.

140-4 in December 2008 and it did not have a material impact on its consolidated financial statements. NOTES TO FINANCIAL STATEMENTS — (Continued) Retained Interests. which did not have any impact on the Company’s financial statements. the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 125” and FIN No.” which provides a one year deferral of the effective date of SFAS No. The Company periodically sells notes receivable originated by its vacation ownership business in connection with the sale of VOIs. INC. Effective January 1. 99-20-1 amends the impairment guidance in EITF Issue No. including sponsors that have a variable interest in a variable interest entity. SFAS No. 162. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. the FASB issued SFAS No. “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. 99-20” (“FSP EITF No. 99-20-1”). respectively. In May 2008. 2008. These retained interests are treated as “available-for-sale” transactions under the provisions of SFAS No. 157 for non-financial assets and non-financial liabilities. Effective November 15. Actual results could differ from those estimates. In December 2008. 99-20. 157. Therefore. 157. “Fair Value Measurements” (“SFAS No. 162. The Company had Retained Interests of $19 million and $40 million at December 31. establishes a framework for measuring fair value under generally accepted accounting principles F-14 . The Company adopted FSP EITF No. Reclassifications. 46(R)-8. “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” (“FSP No. 2008. This FSP No. a replacement of SFAS No.” The Company reports changes in the fair values of these Retained Interests considered temporary through the accompanying consolidated statement of comprehensive income. Adopted Accounting Standards In January 2009. The Company adopted FSP No. the FASB issued FSP No. Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. A change in fair value determined to be other-than-temporary is recorded as a loss in the Company’s consolidated statement of income. 46 (R) “Consolidation of Variable Interest Entities” to require public enterprises. to provide additional disclosures about their involvement with variable interest entities. 140-4 and FIN No. “Accounting for Certain Investments in Debt and Equity Securities. 157”). In February 2008. the Company adopted SFAS No. 2008 and 2007.STARWOOD HOTELS & RESORTS WORLDWIDE. 2008. “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 157-2. “Effective Date of FASB Statement No. the FASB issued Financial Statement of Position (“FSP”) Issue No. “Amendments to the Impairment Guidance of EITF Issue No. 157 with respect to its financial assets and liabilities only. except those that are recognized or disclosed in the financial statements at fair value at least annually. the Company has adopted the provisions of SFAS No. 140-4”) which amends FASB No. the Financial Accounting Standards Board (“FASB”) issued FSP No. Impact of Recently Issued Accounting Standards. The Company retains interests in the assets transferred to qualified and non-qualified special purpose entities which are accounted for as over-collateralizations and interest only strips. EITF 99-20-1. Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 157 defines fair value. FSP EITF No. 99-20-1 in December 2008 and it did not have a material impact on the consolidated financial statements. 140-4 is effective in reporting periods ending after December 15. 115.

of which the first two are considered observable and the last unobservable. The standard describes a fair value hierarchy based on three levels of inputs. NOTES TO FINANCIAL STATEMENTS — (Continued) and enhances disclosures about fair value measurements. 159. • Level 2 — Inputs other than Level 1 that are observable. Under this consensus. 06-11 “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (“EITF 06-11”). such as quoted prices for similar assets or liabilities. 2007. 66. 159”) This standard permits entities to choose to measure financial instruments and certain other items at fair value and is effective for the first fiscal year beginning after November 15. 115” (“SFAS No. See Note 11 for additional information. in and of itself does not constitute a prohibited form of continuing involvement that would preclude partial sales treatment under FASB Statement No. is to be reported as an adjustment to the opening balance of retained earnings in the year of adoption. 2007 and should be applied prospectively for income tax benefits derived from dividends declared after adoption. “Applicability of the Assessment of a Buyer’s Continuing Investment under FASB Statement No. 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. F-15 . 2007 and interim periods within those fiscal years. The Company adopted EITF 07-6 on January 1. EITF 07-6 will be effective for new arrangements entered into in fiscal years beginning after December 15. 159 on January 1. INC. and the effect of the first remeasurement to fair value. either directly or indirectly. 2008. or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees under certain equity-based benefit plans should be recognized as an increase in additional paid-in capital. The adoption of EITF 06-8 did not have a significant impact on the Company’s financial statements or require a cumulative effect adjustment. quoted prices in markets that are not active. 2008 and it did not have a material impact on the consolidated financial statements. if any. SFAS No. EITF 07-6 establishes that a buy-sell clause. the Emerging Issues Task Force of the FASB (“EITF”) reached a consensus on EITF issue No. The consensus is effective in fiscal years beginning after December 15. that may be used to measure fair value as follows: • Level 1 — Quoted prices in active markets for identical assets or liabilities. for Sales of Condominiums” (“EITF 06-8”). The Company adopted SFAS No. 66. The adoption of this statement did not have a material impact on the Company’s consolidated financial statements. and did not elect the fair value option for any of its assets or liabilities. 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. 2008 and it did not have an impact on the Company’s consolidated financial statements. should be reported as a cumulative — effect adjustment to the opening balance of retained earnings. 06-8. “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 159 is not expected to have a material impact on the Company’s consolidated financial statements. The cumulative effect of applying EITF 06-8. In December 2007. if any. 66 in order for profit to be recognized under the percentage of completion method. • Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Accounting for Sales of Real Estate. The adoption of SFAS No. Valuation techniques used to measure fair value under SFAS No. 2007. Fair value is defined under SFAS No. the FASB issued SFAS No. 159 must be applied prospectively. The Company adopted EITF 06-11 on January 1. In June 2007. EITF 06-8 will require condominium sales to meet the continuing involvement criterion of SFAS No. In November 2006.STARWOOD HOTELS & RESORTS WORLDWIDE. 07-6 “Accounting for the Sale of Real Estate Subject to the Requirements of FASB Statement No. the FASB ratified the consensus reached by the EITF on Issue No. 66 When the Agreement Includes a Buy-Sell Clause” (“EITF 07-6”). EITF 06-8 will be effective for annual reporting periods beginning after March 15. the FASB ratified the consensus reached by the EITF on Issue No. In February 2007.

as amended by SFAS No. 67. SFAS No. NOTES TO FINANCIAL STATEMENTS — (Continued) In June 2006. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. the recognition of changes in inventory cost estimates. The Company adopted FIN 48 on January 1. INC. 133 for all financial statements issued for fiscal years and interim periods beginning after November 15. 2008. Under SFAS No. The Company is currently evaluating the impact that SFAS No. 161.” in association with the issuance of AICPA SOP 04-2. recovery or repossession of VOIs. the Company recognizes sales when the period of cancellation with refund has expired. 66. In March 2008. “Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. Future Adoption of Accounting Standards In April 2008. “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. (iii) how derivative instruments and related hedged items affect an entity’s financial statements. which amends SFAS No. In accordance with SFAS No. The Company adopted SFAS No.STARWOOD HOTELS & RESORTS WORLDWIDE. FIN 48 specifically prohibits the use of a valuation allowance as a substitute for derecognition of tax positions. selling and marketing costs. For sales that do not qualify for full revenue recognition as the project has progressed beyond the preliminary stages but has not yet reached completion. as a cumulative effect of accounting change in its 2006 consolidated statement of income. “Determination of the Useful Life of Intangible Assets (“FSP No. 142-3 is effective for financial statements issued for fiscal years beginning after December 15. This interpretation. Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. “Accounting for Uncertainty in Income Taxes” (“FIN 48”). the FASB issued SFAS No. net of a $46 million tax benefit. The Company is currently evaluating the impact that FSP No. the calculation of accounting for uncollectible notes receivable. 152. 2006 and recorded a charge of $70 million. 161 will have on its consolidated financial statements.” FSP No. “Accounting for Costs and Initial Rental Operations of Real Estate Projects. all revenue and associated direct expenses are initially deferred and recognized in earnings through the percentage-of-completion method. 133.” These statements were issued to address the diversity in practice caused by a lack of guidance specific to real estate time-sharing transactions. is more-likely-than-not to be sustained upon examination. and. receivables are deemed collectible and the buyer has demonstrated a sufficient level of initial and continuing involvement. and recorded an increase of approximately $35 million as a cumulative-effect adjustment to the beginning balance of retained earnings. 2008 and interim periods within those fiscal years. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. 2007. The standard also requires a change in the classification of the provision for loan losses for VOI notes receivable from an expense to a reduction in revenue. 152 on January 1. based solely on its technical merits. the FASB issued FSP No. Among other things. 142-3 will have on its consolidated financial statements. See Note 14 for additional information. 152. (ii) how derivative instruments and related hedge items are accounted for under SFAS No. 161 requires enhanced disclosure related to derivatives and hedging activities. 142-3. the standard addresses the treatment of sales incentives provided by a seller to a buyer to consummate a transaction. 161”). “Accounting for Real Estate Time-Sharing Transactions. 48. 161. among other things. 142. Recognition (step one) occurs when an enterprise concludes that a tax position. entities are required to provide enhanced disclosures relating to: (i) how and why an entity uses derivative instruments. SFAS No. and it has expanded disclosure requirements. the FASB issued Interpretation No. 66. 133” (“SFAS No. creates a two step approach for evaluating uncertain tax positions. associations and upgrade and reload transactions. FSP No. the FASB issued SFAS No. and SFAS No. F-16 . 142-3”). 161 must be applied prospectively to all derivative instruments and nonderivative instruments that are designated and qualify as hedging instruments and related hedged items accounted for under SFAS No. “Goodwill and Other Intangible Assets. In December 2004. 133”).

“Business Combinations. SFAS No.” The primary requirements of SFAS 141(R) are as follows: (i. the Company completed the redemption of the remaining 25. 2007 2006 Per Per Per Earnings Shares Share Earnings Shares Share Earnings Shares Share 2008 Basic earnings from continuing operations . (iii. . . On March 15. the note holders had the right to convert their notes into Shares at the stated conversion rate. . On May 5. “Business Combinations. 2008. or SFAS No. . . . including goodwill. For the period prior to the F-17 . Convertible debt .37 $543 $5. 2006. Under the terms of the indenture. with only limited exceptions even if the acquirer has not acquired 100% of its target. .25 $1. 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. the Company had contingently convertible debt. In April 2006. The concept of recognizing contingent consideration at a later date when the amount of that consideration is determinable beyond a reasonable doubt. 1 million Shares and 2 million Shares were excluded from the computation of diluted Shares in 2008. . 128. 160. . respectively.000 shares of Class A and Class B EPS are included in the computation of basic Shares for the year ended December 31. . 2006. . . . the FASB issued SFAS No. . 141 (revised 2007) (SFAS 141(R)). . As a consequence. . INC. .) All transaction costs will be expensed as incurred.01 Approximately 7 million Shares. . Effect of dilutive securities: Employee options and restricted stock awards .” SFAS No. . . .) Upon initially obtaining control. 2006. .000 shares of Class B Exchangeable Preferred Shares of the Trust (“Class B EPS”) for approximately $1 million.” utilized the if-converted method to calculate dilution once certain trigger events were met. will no longer be applicable. (ii.STARWOOD HOTELS & RESORTS WORLDWIDE. the FASB issued SFAS No. In December 2007. Prior to June 5. . 2008. “Earnings per Share. .” which is a revision of SFAS 141. the Company gave notice of its intention to redeem the convertible debt on June 5. Adoption is prospective and early adoption is not permitted. Under the terms of the convertible indenture. Diluted earnings from continuing operations . . . prior to this redemption date. .115 — — $2. “Non-controlling Interests in Consolidated Financial Statements — An Amendment of ARB No. . and assumed liabilities. 2006.40 $543 — — 203 8 — 211 $2. The Company does not believe that SFAS 160 will have a material impact on the consolidated financial statements. .000 shares of Class A Exchangeable Preferred Shares of the Trust (“Class A EPS”) for approximately $33 million. . 2006. the current step acquisition model will be eliminated. Note 3. . as their impact would have been anti-dilutive. 160.57 $1. . . in accordance with SFAS No. . NOTES TO FINANCIAL STATEMENTS — (Continued) In December 2007. the terms of which allowed for the Company to redeem such instruments in cash or Shares. One of the trigger events for the Company’s contingently convertible debt was met during the first quarter of 2006 when the closing sale price per Share was $60 or more for a specified length of time. 160 is effective for fiscal years beginning on or after December 15. SFAS 141 (R) is effective as of the beginning of an entity’s first fiscal year beginning after December 15.67 $1. Earnings per Share The following is a reconciliation of basic earnings per Share to diluted earnings per Share for income from continuing operations (in millions. 157. . except per Share data): Year Ended December 31. $254 — — $254 181 4 — 185 $1. The Company. . . 2007 and 2006. the Company settled conversions by paying the principal portion of the notes in cash and the excess amount of the conversion spread in Corporation Shares. . . the Company completed the redemption of the remaining 562. . .) Contingent consideration arrangements will be fair valued at the acquisition date and included on that basis in the purchase price consideration. . . the acquiring entity in a business combination must recognize 100% of the fair values of the acquired assets. For the period prior to the redemption dates. 51. . . . .115 213 9 1 223 $5.

123(R). Significant Acquisitions Acquisition of the Sheraton Full Moon Maldives Resort and Spa During the fourth quarter of 2008. 2006. The sale resulted in the recognition of a gain by the joint venture. Acquisition of an interest in a Joint Venture that Purchased the Sheraton Grande Tokyo Bay Hotel During the first quarter of 2007. and as such. NOTES TO FINANCIAL STATEMENTS — (Continued) conversion dates. In addition to the purchase of these assets. this adjustment did not result in any incremental fair value. among other things. and terminated CRR’s rights to solicit guests at three Westin properties in Mexico. Development of Restaurant Concepts with Chef Jean-Georges Vongerichten In May 2006. the Company completed a transaction to. the transaction included the settlement of all pending and threatened legal claims between the parties and the exchange of a new issue of CRR notes with a lower principal amount for notes the Company previously held from an affiliate of CRR. the diluted stock options increased by approximately 1 million Corporation Shares effective as of the closing of the Host Transaction. operate. the Company partnered with Chef Jean-Georges Vongerichten and a private equity firm to create a joint venture that will develop. no additional compensation cost was recognized.503 in cash for each of their Class B Shares. the Company purchased the Sheraton Steamboat Resort & Conference Center for approximately $58 million in cash from a joint venture in which the Company held a 10% interest. Total consideration of approximately $41 million was paid by Starwood for these items. The F-18 . in accordance with the stock option agreements. Starwood’s shareholders received 0. Note 4. In connection with the Host Transaction. Holders of Starwood employee stock options did not receive this consideration while the market price of the Company’s publicly traded shares was reduced to reflect the payment of this consideration directly to the holders of the Class B Shares. and the Company’s portion of the gain was approximately $7 million. In accordance with SFAS No. purchase certain assets from Club Regina Resorts (“CRR”) in Mexico. the company entered into a joint venture that acquired the Sheraton Full Moon Maldives Resort and Spa. The company invested approximately $28 million in this venture in exchange for a 45% ownership interest. The Company invested approximately $19 million in this venture in exchange for a 25. the Company modified the conversion rate of the contingently convertible debt in accordance with the indenture. including operating the existing Spice Market restaurant located in New York City. In order to preserve the value of the Company’s options immediately before and after the Host Transaction. These assets included land and fixed assets adjacent to The Westin Resort & Spa in Los Cabos. Acquisition of Certain Assets from Club Regina Resorts In December 2006. Mexico. INC. the Company adjusted its stock options to reduce the strike price and increase the number of stock options using the intrinsic value method based on the Company’s stock price immediately before and after the transaction. The portion related to the legal settlement was expensed. in order to preserve the value of the contingently convertible debt discussed above. Acquisition of the Sheraton Steamboat Resort and Conference Center During the second quarter of 2007. manage and license world-class restaurant concepts created by JeanGeorges Vongerichten. approximately 1 million Shares were included in the computation of diluted Shares for the year ended December 31. As a result of this adjustment. which was recorded as a reduction in the basis of the assets purchased by the Company.STARWOOD HOTELS & RESORTS WORLDWIDE. own. the Company entered into a joint venture that acquired the Sheraton Grande Tokyo Bay Hotel. This hotel has been managed by the Company since its opening and will continue to be operated by the Company under a long-term management agreement with the joint venture. Furthermore.1% ownership interest.6122 Host shares and $0.

The fair values of the hotels were estimated by using comparative sales for similar assets and recent letters of intent to sell certain assets. Based on Host’s closing price on April 7. This investment was fully written off as the joint venture’s lenders began foreclosure proceedings on the underlying assets of the venture. primarily related to a net loss of $58 million on the sale of eight wholly owned hotels and a loss of approximately $7 million primarily related to charges at three other properties. Westin.8 billion in the form of Host common stock valued at $2. the Company reviewed the fair value of its economic interests in securitized VOI notes receivable and concluded these interests were impaired.1 billion. 2006. including debt assumption (based on Host’s closing stock price on April 7. the final hotel in Venice. 2006. Italy was sold to Host for net proceeds of approximately $74 million in cash. Additionally. In addition. the Company recorded a net loss of $44 million. Starwood directly received approximately $738 million of consideration in the first phase. including Sheraton Holding and the Trust. the Corporation assumed from its subsidiary. the Company recorded a loss of $11 million primarily related to an investment in which the Company holds a minority interest. $77 million in debt assumption and $61 million in Host common stock. 2008 related to these retained interests. The fair value of the Company’s investment in these retained interests was determined by estimating the net present value of the expected future cash flows. based on expected default and prepayment rates (See Note 10.STARWOOD HOTELS & RESORTS WORLDWIDE. During 2007. The stock and cash transaction was valued at approximately $4. the Company consummated the Host Transaction whereby subsidiaries of Host acquired 33 properties and the stock of certain controlled subsidiaries. INC.54 billion. As the sale of the Class B shares involved a transaction with Starwood’s shareholders. During 2008.07. this consideration had a per — Class B share value of $13. 2006 of $20. the venture may own and operate freestanding restaurants outside of Starwood’s hotels. the Company sold The Westin Turnberry for net cash proceeds of $99 million. as a result of the current economic climate. Starwood invested approximately $22 million in this venture for a 32. In the first phase of the transaction. 2008 associated with these hotels. During the third quarter of 2008. During the second quarter of 2006. Asset Dispositions and Impairments During 2008. the Company reviewed the recoverability of its carrying values of its owned hotels and concluded that five hotels were impaired. These assets are reported in the Hotels operating segment.68 billion and $119 million in cash for their Class B shares. including $600 million in cash. Le Meridien and St. Regis. In connection with the first phase of the transaction. debentures with a principal balance of $600 million. including Sheraton Holding and the Trust. These assets are reported in the Vacation Ownership and Residential operating segment. were acquired by Host for consideration valued at $3. Sheraton Holding. During the fourth quarter of 2008. in which the Company has no intention to invest significant capital and operating income has deteriorated significantly. Note 5. These losses were offset in part by $20 million of net gains primarily on the sale of assets in which the Company held a minority interest and a gain of $6 million as a result of insurance proceeds received for property damage caused by storms at two owned hotels in prior years. On June 13.53). It is reasonably possible that there will be additional impairments on owned hotels in 2009 if economic conditions worsen. On May 3. 28 hotels and the stock of certain controlled subsidiaries. These hotels are non-Starwood branded hotels.7% equity interest. as a result of current market conditions and its impact on the timeshare industry. four additional hotels located in Europe were sold to Host for net proceeds of approximately $481 million in cash. An impairment charge of $64 million was recorded in the year ended December 31. Starwood shareholders received approximately $2. 2006. NOTES TO FINANCIAL STATEMENTS — (Continued) concepts owned by the venture will be available for Starwood’s upper-upscale and luxury hotel brands including W. This sale was subject to a long term management contract and the Company recorded a deferred gain of $27 million in connection with the sale.) The Company recorded an impairment charge of $22 million in the year ended December 31. the book value of the Trust associated with this sale was treated as a non-reciprocal transaction with owners and was removed through retained earnings up to the amount of retained earnings that existed at the sale date with the F-19 .

consequently. a joint venture. the Company recorded a $5 million adjustment to reduce the gain on the sale of a hotel consummated in 2004 as certain contingencies associated with that sale became probable in 2006. The sale of this hotel is expected to be completed in 2009. During 2006. the Company recorded an impairment charge of $11 million related to the Sheraton Cancun in Cancun. The portion of the transaction between the Company and Host was recorded as a disposition under the provisions of SFAS No. the Company recorded a loss of approximately $23 million primarily in connection with the impairment of two properties. This portion of the transaction was treated as a non-cash exchange by Starwood and. the Westin Cancun. Mexico that was damaged by Hurricane Wilma in 2005 and was completely demolished in order to build additional vacation ownership units. the Company entered into a purchase and sale agreement for the sale of a hotel for total consideration of $10 million. In addition. was excluded from the consolidated statement of cash flows. The entire tax benefit of the loss was offset by a valuation allowance due to the uncertainty of realizing the tax benefit of this capital loss carryforward before its expiration in 2011. 144. In September 2006. This transaction also generated a capital loss. Note 6. This loss was offset by a gain of approximately $29 million on the sale of the Company’s interests in two joint ventures. Also in 2006. Arizona and the Company realized net proceeds of approximately $45 million. This impairment charge was offset by a $13 million gain as a result of insurance proceeds received primarily for the Sheraton Cancun and the Company’s other owned hotel in Cancun. NOTES TO FINANCIAL STATEMENTS — (Continued) remaining balance reducing additional paid in capital. The Company sold all of the Host common stock in the second quarter of 2006 and recorded a net gain of approximately $1 million. Assets Held for Sale During the first quarter of 2008. net of carry back and 2006 utilization. the Company’s share of the gain on the sale of approximately $46 million was deferred and is being recognized in earnings over the remaining 21 years of the management contract. long-term management contract. The Company recorded an impairment charge of approximately $1 million in the first quarter of 2008 related to this hotel. The Company recorded a net loss of approximately $7 million associated with these sales. completed the sale of the Westin Kierland hotel in Scottsdale. the calculated gain on the sale of approximately $962 million has been deferred and is being amortized over the initial management contract term of 20 years. the Company sold ten additional hotels in multiple transactions for approximately $437 million in cash.4 billion for federal tax purposes. one of which has been demolished and is being rebuilt under the Aloft and Element brands and another which represents land that was sold to a developer who is building two Starwood branded hotels on the site. See Note 14. INC. in which the Company has a minority interest. of $2. The Company continues to manage the hotel subject to a newly amended. as reimbursement for property damage caused by the same storm.STARWOOD HOTELS & RESORTS WORLDWIDE. Accordingly. As Starwood sold these hotels subject to long-term management contracts. The Company received a non-refundable deposit from the prospective buyer during the first quarter of 2008. F-20 . Also during 2006.

. . . . INC. .. . . . . . 2008 and 2007 respectively. . . . . . ... . . . .. . . . .. ... . .. respectively. . . .. . Construction work in process . .444 . Amortization of capitalized computer software costs was $24 million. Buildings and improvements.... . . The other intangible assets noted above have indefinite lives. . . . . .. .. . Asset dispositions .. . .STARWOOD HOTELS & RESORTS WORLDWIDE. . . . . . . . . . . .214 (2.706 (18) (51) 2 $1. . .. 354 Other . . .. .. . . . . . .. . . . . . . . ..690 221 Less accumulated depreciation and amortization . . .. .471) $ 3. . . . . . . ... . . F-21 . . .... . .. . . .. .. . .. . . . . .... . . .. . .. . . . . . . . .. . .. . . ... . . . . 2008. . Plant.. . . . . . . . . . . . .. . . . . . . . .850 Unamortized capitalized computer software costs were $129 million and $104 million at December 31. . . the Company recorded amortization expense of $32 million. .. . . . . . . . . Goodwill and Intangible Assets The changes in the carrying amount of goodwill for the year ended December 31. . 199 6. during the years ended December 31. . and accordingly.... . . . Furniture.. . ... . . . . .. . . . . . .. 2008 . . . . . Cumulative translation adjustment . .... . . .. . . . . . . . 2008 2007 Trademarks and trade names .. . . . . .. . Other . .. . . . . 2008 are as follows (in millions): Hotel Segment Vacation Ownership Segment Total Balance at January 1.. . . . . . . . . . .. . ... . . . . .599 $ 714 3. property and equipment. $ 635 . 2007 and 2006. . . . .. .. . . .. . . $23 million and $22 million for the years ended December 31. . . . . . . . . . 2007 and 2006 respectively Note 8.589 1. . . . . . .. .. . .. . . . . . . ... . .. . . .. . .. . .. .. ... . . . . .. . . . . . . .. . . . . Property and Equipment Plant. . .070 (2. . . . . .465 (18) (51) 2 $1. . . . . . . consisted of the following (in millions): December 31. NOTES TO FINANCIAL STATEMENTS — (Continued) Note 7. . 1. .. .. . . ... . . . .. ... . . .. . 759 (163) $ 596 $ 320 310 90 720 (124) $ 596 The intangible assets related to management and franchise agreements have finite lives. . . .. . $1. . . .. . . . .. $ 315 Management and franchise agreements . .. . fixtures and equipment . .. . 3. . . . . . . . . . . . 2008... . . . . . .792 . . Intangible assets consisted of the following (in millions): December 31. . 2008 2007 Land and improvements . .. . excluding assets held for sale.364) $ 3.... .. .... . .. . 2008 . . ... . 6. . .. . . .. .. . . . . . . $26 million and $25 million... .398 $241 — — — $241 $1. . . . . . . 90 Accumulated amortization . . . .639 Balance at December 31. .. .. ... ... . .. ... . . . .. . . .. . .

. . . .. . ... . .. NOTES TO FINANCIAL STATEMENTS — (Continued) 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): 2009 2010 2011 2012 2013 . . .. .. .. ... “Goodwill and Other Intangible Assets”. .. the Company performed its annual impairment test of goodwill for both of its reporting segments and concluded that the goodwill was not impaired. ... However. . .. . 2008 2007 VOI notes receivable.. . .... . $581 (91) 490 (54) 8 $444 $484 (68) 416 (50) 7 $373 The current maturities of net VOI notes receivable are included in accounts receivable in the Company’s balance sheets... . . Other Assets Other assets include the following (in millions): December 31. . .. ... ... .. . . . .. . .. . ... Prepaid taxes . .......... . . ... ... .1% change estimated to have an impact of approximately $3 million.. . ... ....... . .... .. ........ . ..... .. Allowance for uncollectible VOI notes receivable .... .. . . . ... . . ... .. .... .... . ..... . .. ... . . ... . as the Company holds large amounts of similar VOI notes receivable.. .. .. . . . . ..... . ... ............ .. ...... a change in the projected default rate can have a significant impact to its loan loss reserve requirements. .... . .... . .... .. .... the Company assesses its loan loss reserves based on pools of receivables.... .. . .... . . ..... net .. .. based on the economic climate and the deterioration of results in the hotel and timeshare industry.. .. . . .. .. . .. .. .... . . . $444 32 130 76 $682 $373 41 — 80 $494 Total .. . . ... ... . . 2008 and 2007 are the following fixed rate notes receivable related to the financing of VOIs (in millions): December 31.. .... .. . . .... . .... .. . ... . .. . ...... ... .. .. .. the average estimated default rate for the Company’s pool of receivables was 7............ .. . ...... .. .. . ..... . . . .. .. Less current maturities of gross VOI notes receivable .. . . . ..... . .. It is reasonably F-22 ...... Included in these balances at December 31......... .. . . ...... .. .. .... .... . . .... . ... . . . ... Note 9.. .... ... .... .. ... . .... . .... ... . Current portion of the allowance for uncollectible VOI notes receivable. ... . . .. As discussed in Note 2. ... ... . . . . . . .. . ... . .. . ..... .... .. . .STARWOOD HOTELS & RESORTS WORLDWIDE.. . . .. .... .. . . ... . .... ... ...... . .... ..... .. . 2008 2007 Gross VOI notes receivable .. ... . .. .... Net VOI notes receivable .. . Given the significance of the Company’s respective pools of VOI notes receivable......... . .. ........ .... . it is reasonably possible that the fair value of goodwill related to the hotel and vacation ownership segment could continue to decline in the near term.. ... . . ... .. . . ... .... . . with a 0.. . . .9%.. . ... .... . ... .. . . .. . net . ... .. .. $28 $28 $27 $27 $27 In accordance with SFAS No.... . . . . ...... . ... .... ............ .. Long-term portion of net VOI notes receivable . ... .. ...... .. .. . 2008... ... ..... INC. .. . .... . ..... . .. ..... ..... 142.. . Deposits and other .. . Other notes receivable.. .. .. .. .. ... . .. ... ........ .... As of December 31. ... .. ..... ..

. .. . .. . . . .. .... . .. . . . .. .. . .. . ..... . . . ... . . 2008 2007 Due Due Due Due Due Due in 1 year. . .. . . . . and have been. . ... ... . . ... ... . . ... in 3 years . . absorbing 100% of any credit losses on the related VOI notes receivable and QSPE fixed rate interest expense. . .... . . ... . the Company transfers a pool of VOI notes receivable to special purpose entities (together with the special purpose entities in the next sentence. With respect to those transactions still outstanding at December 31.. . To accomplish these securitizations. . . .. . . . .. . . . . . . . .. .. . . . ... as defined in SFAS No.. .. . .. beyond 5 years . . . . . .. .. .. .. .. Provision for loan losses . . .. . . . . ... . . .. . . .... . . . .. . . .... . . .. . ... . . .... . .. . . . . . 125” (“SFAS No... INC. .. . . .. .. .. . .... . . . . . .. . . .. . . . . .. . . . . . . . the “SPEs”) and the SPEs transfer the VOI notes receivable to qualifying special purpose entities (“QSPEs”)... . . ... .. . . .. . 140”). . .. .. . . the Company has not recognized any servicing assets or liabilities.. . .. The Company continues to service the securitized VOI notes receivable pursuant to servicing agreements negotiated at armslength based on market conditions. 140. provides credit enhancement to the third-party purchasers of the related QSPE beneficial interests. ... . . ... . . . . . . . . . . the Company retains economic interests (the “Retained Interests”) in securitized VOI notes receivables through SPE ownership of QSPE beneficial interests. . . . . Balance at December 31. . .. .. . . . . ... Retained Interests cash flows are limited to the cash available from the related VOI notes receivable. .. 2008 2007 Range of stated interest rates . .. . .... . . the Company securitizes. . Notes Receivable Securitizations $ 68 73 (50) $ 91 From time to time. .. . . . .STARWOOD HOTELS & RESORTS WORLDWIDE... .. . . ... . .. .. . . .. . . .. . .. . . . . . . in 5 years . . ... . . . . .. . . . ... . in 2 years . .. . accounted for as sales in accordance with SFAS No. . . . . . ... . . ..9% 0% .... . ..... its fixed rate VOI notes receivable. . . . 2008.. ...... . . . . . . . . . $ 54 47 52 64 66 298 $581 $ 50 35 38 50 56 255 $484 Total gross VOI notes receivable . 2008. . . . . .. . Note 10. .. . in 4 years . ...18% 11.. ... . . The maturities of the gross VOI notes receivable are as follows (in millions): 0% .. .. ... . ... . . With respect to those transactions still outstanding at December 31..... .. .. . 2008 . . . . the Company transfers a pool of VOI notes receivable to SPEs and the SPEs transfer the VOI notes receivable to a third party purchaser. . .. .. .. .18% 11. .. . after servicing and other related fees. . . The activity in the allowance for VOI loan losses was as follows (in millions): Balance at January 1. . . . . ... . . . . .. . . . . which are comprised of subordinated interests and interest only strips in the related VOI notes receivable. . ... . . . . the Retained F-23 . . . .. . . . .. . . ... All of the Company’s VOI notes receivable securitizations to date have qualified to be. . . . . . “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a Replacement of FASB Statement No. 2008 . .. The Retained Interests... accordingly.. . . . 140... ... . . . . . .. Write-offs of uncollectible receivables . .8% December 31. .. . . . . .. . . . . .. Weighted average interest rate.. without recourse. . .. ... . . . . The interest rates of the owned VOI notes receivable are as follows: December 31. .. .... . NOTES TO FINANCIAL STATEMENTS — (Continued) possible that the carrying value of the VOI notes receivable could materially change in 2009 if the economy continues to worsen. . . .. ...... . .. . To accomplish these securitizations. . . . . .... . . . .. . .. . . . . . . . ... . ... .. . . . ...

The Company’s replacement of the defaulted VOI notes receivable under the securitization agreements with new VOI notes receivable resulted in net gains of approximately $4 million. Key assumptions used in measuring the fair value of the Retained Interests at the time of the 2006 Securitization and at December 31. Gross credit losses for all VOI notes receivable that have been securitized totaled $31 million. based on current trends and historical experience. In September 2006. if necessary. In addition. 2007 and 2006. The Company has been able to resell the VOIs underlying the VOI notes repurchased or replaced under these provisions without incurring significant losses. the Company repurchased all of the VOI notes receivables still outstanding ($20 million) that had been securitized in 2001 for $18 million. the Company estimates the fair value of its Retained Interests using a discounted cash flow model.STARWOOD HOTELS & RESORTS WORLDWIDE. NOTES TO FINANCIAL STATEMENTS — (Continued) Interests are classified and accounted for as “available-for-sale” securities in accordance with SFAS No. the aggregate net present value and carrying value of Retained Interests for the Company’s three outstanding note securitizations was approximately $19 million. 2008 was approximately $5 million. $2 million and $1 million during 2008. $21 million and $15 million during 2008. 2006. 115. to repurchase or replace defaulted VOI notes receivable at their outstanding principal amounts. 2007 and 2006. 2008. 2007 and 2006.4%. which are included in vacation ownership and residential sales and services in the Company’s consolidated statements of income. respectively. and an expected weighted average remaining life of prepayable notes receivable of 73 months. $33 million and $36 million from the Retained Interests during 2008. with the following key assumptions used in measuring the fair value: an average discount rate of 17. annual prepayments. 140. Such activity totaled $23 million. $4 million and $4 million related to these VOI notes receivable during 2008. These key assumptions are based on the Company’s prior experience. and expected gross VOI notes receivable balance defaulting as a percentage of the total initial pool of 14. 2007 and 2006. At December 31. $23 million and $17 million during 2008.8%. The Company received aggregate cash proceeds of $26 million.” and SFAS No. “Accounting for Certain Investments in Debt and Equity Securities. All assumptions used in the models are reviewed and updated. an average expected annual prepayment rate including defaults of 20. The change in the fair value of the Retained Interests was determined to be other than temporary and an impairment charge of $22 million was recorded in the fourth quarter of 2008 (see Note 5). The Company’s securitization agreements provide the Company with the option. the aggregate outstanding principal balance of VOI notes receivable that have been securitized was $228 million. were as follows: discount rate of 10%. in November 2006 the Company securitized approximately $133 million of VOI notes receivable (the “2006 Securitization”) resulting in net cash proceeds of approximately $116 million. INC. The Company received aggregate servicing fees of $3 million. 2008. respectively. respectively. As of December 31. which yields an average expected life of the prepayable VOI notes receivable of 94 months. relating to the 2006 Securitization.2%. The principal amounts of those VOI notes receivables that were more than 90 days delinquent at December 31. In accordance with SFAS No. respectively. F-24 . respectively. At the time of each VOI notes receivable securitization and at the end of each financial reporting period. the related gain of $17 million is included in vacation ownership and residential sales and services in the Company’s consolidated statements of income. 2007 and 2006. 152. subject to certain limitations.

. . . . . Annual prepayment rate: 100 basis points-dollars . Liabilities: Forward contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0. . . . . . . . . . . . 2008. . . . .9 . . . . . . . . . . . . 200 basis points-percentage . . 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0. . 200 basis points-dollars . . . 100 basis points-percentage . . . . . . . . .4% . . . . . . . . . . . Note 11. . . . $— — $— $— $ 6 — $ 6 $ 3 $— 19 $19 $— $ 6 19 $25 $ 3 The forward contracts are over the counter contracts that do not trade on a public exchange. . . . . . . . . . . . . . . . . . 2008 (in millions): Level 1 Level 2 Level 3 Total Assets: Forward contracts. . . . . . . . . . . . . . . . . The factors may not move independently of each other. . The fair values of the contracts are based on inputs such as foreign currency spot rates and forward points that are readily available on public markets. . . . . .STARWOOD HOTELS & RESORTS WORLDWIDE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 . . . . . . . . . . . . . . . . .4 . . . . . . . 200 basis points-dollars . . . . . . . . . . . . . . . . . The methodology applied unfavorable changes for the key variables of expected prepayment rates. . . . . . . . . . . . . . . . . . . . . . 49. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Company considered both its credit risk. . . . . . . . . . . . . . Fair Value . . . . . . . . . . . . . . . . . . . The decreases in value of the Retained Interests that would result from various independent changes in key variables are shown in the chart that follows (in millions). . . . . . and as such. . . . . . . . . . . . as well as its counterparties’ credit risk in determining fair value and no adjustment was made as it was deemed insignificant based on the short duration of the contracts and the Company’s rate of short-term debt. . . . . . . . . . . . . . . . . . $ 4. . . . . . . . . . . . . . . . . . . . . . .4% . . . F-25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6% . . . . . . . . . . . . . . 100 basis points-percentage . . . . the following table presents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31. . . . . . . . . . . . Discount rate: 100 basis points-dollars . . . are classified as Level 2. . . . . . . . . 4. . . . . . . . . . . . . . . . INC. . . . . . . . . Retained Interests.8 . . . . . . . 100 basis points-percentage . . Gross annual rate of credit losses: 100 basis points-dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . discount rates and expected gross credit losses as of December 31. . . . . . . . $ 8. . NOTES TO FINANCIAL STATEMENTS — (Continued) The Company completed a sensitivity analysis on the net present value of the Retained Interests to measure the change in value associated with independent changes in individual key variables. . . .7% . . . . . . 200 basis points-percentage . . . . . . . . . . . . . . . . . . 3. . . .0% In accordance with SFAS No. . . 200 basis points-dollars . . . . . . . . . . . . .7 . . . 157. 1. . . . . . . . . . . . . . . . . . . . . . . . . . .9% . . . . . $ 0. . . . . 27. . 200 basis points-percentage . . . . . $ 0. . . . . . . . . . . .

. . .STARWOOD HOTELS & RESORTS WORLDWIDE.... Also in 2008.. .... . ..... . an average expected annual prepayment rate... as a result of the global economic climate.... ... For each hotel..... .. and an expected weighted-average remaining life of prepayable notes receivable of 73 months... 2007 and 2006. Regis hotel along with branded residences and fractional units. F-26 . As a result of this analysis... . . .. the Company had total deferred gains of $1. . . .. . . . .. and non recoverable intangible assets. . . .. the Company recorded a $60 million restructuring charge in connection with its ongoing initiative of rationalizing its cost structure in light of the decline in growth in its business units. . . . .. ... whether their fair values exceeded their carrying values. .. .. and settlements . ... . .. . $81 million and $62 million in 2008.. .. resulting in an impairment charge of approximately $72 million.8%. . 2008 (in millions): Balance at January 1... ... . . . ...151 billion and $1. . .. .. .. ... . The following table presents a reconciliation of the Company’s Retained Interests measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31.. . In addition. . . 2008 and 2007. . . . . . .. Note 13. . ... . Amortization of deferred gains is included in management fees. .. . The increase in deferred gain amortization in 2008 and 2007 is primarily due to the Host Transaction discussed in Note 5.. . which is considered Level 3. ... .216 billion. .. Net During the year ended December 31. . .. . .. . .. . .. .. . the Company decided not to pursue or continue development at primarily two main projects. . . Note 12. Restructuring and Other Special Charges. . .. respectively. . .. 2008 . The charge primarily related to costs associated with the closure of three vacation ownership call centers and nine sales centers as well as severance costs associated with the reduction in force at the Company’s corporate offices.. ... . . . . . . .. Included in other comprehensive income. ... . See Note 10 for the impact on the fair value based on changes to the assumptions... Transfers in and/or out of Level 3 ... .. .. . due to the global economic climate and its impact on the timeshare industry.. ... of 20. .. the construction of the property has not been completed and the lenders have begun the foreclosure process. fixed assets. .. . . . the Company recorded a $2 million restructuring charge related to further demolition costs at the Sheraton Bal Harbour Beach Resort (“Bal Harbour”).. . ... respectively.. Purchases...... The following key assumptions are used in measuring the fair value: an average discount rate of 17. the Company evaluated all of its existing vacation ownership projects to determine if such projects were still economically viable.... INC... The controlling partners will not make additional capital contributions or pay the debt service... NOTES TO FINANCIAL STATEMENTS — (Continued) The Company estimates the fair value of its Retained Interests using a discounted cash flow model with unobservable inputs. .. The fair value was determined using a discounted cash flow method based on the alternative and best use for the respective project sites. .. . . . .. . and if so. issuances.. . . . .. franchise fees and other income in the Company’s consolidated statements of income and totaled approximately $83 million. As of December 31. ... . .. included in accrued expenses and other liabilities in the Company’s consolidated balance sheets.. . . .. . .. .. . Total losses (realized/unrealized) Included in earnings . ... .. . . . 2008. Deferred Gains The Company defers gains realized in connection with the sale of a property for which the Company continues to manage the property through a long-term management agreement and recognizes the gains over the initial term of the related agreement. .. . . which is being redeveloped as a St. . .. . . ..4%.. including defaults. .. . the Company deemed that its minority investments in two joint venture hotel projects were other-than-temporarily impaired and recorded an impairment charge of $7 million. . This charge relates to the impairment of land. $ 40 (17) (4) — — $ 19 Balance at December 31. .. ... In 2008. 2008 .

. . . . 2006. . . . 2008. Bal Harbour was closed for business on July 1. . . . . Consulting fees associated with cost reduction initiatives . . . . . . This charge was partially offset by a $2 million refund related to a terminated life insurance policy. . . Total . . demolition. . . . 100 Total . . . . . . . Regis hotel along with branded residences and fractional units. . . . . . and severance costs. The charge primarily related to accelerated depreciation. . . . . $ 41 Vacation Ownership & Residential . . . . . . . . . . . . . . . . $141 $53 — $53 $20 — $20 The Company had remaining accruals of $41 million as of December 31. . the Company recorded a charge of approximately $7 million related to severance costs primarily related to certain executives in connection with the continued corporate restructuring that began at the end of 2005. . . and the majority of employees were terminated. . . . During the year ended December 31.STARWOOD HOTELS & RESORTS WORLDWIDE. . . . . . . . NOTES TO FINANCIAL STATEMENTS — (Continued) During the year ended December 31. . . . . . . . . . . . . . the Company incurred and paid approximately $21 million of transition costs associated with the Le Méridien Acquisition. . . . . . . . INC. . . . . . 2007. Non-Cash Reversal of December 31. . . . . . . . . . . . Bal Harbour demolition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Closure of vacation ownership facilities. . . . . . . . . 2007. . 2008 (in millions): December 31. . . . . . 2008 2007 2006 Segment Hotel . . . . 2007 Expenses Payments Other Accruals 2008 Retained reserves established by Sheraton Holding prior to its merger with the Company in 1998 . . . . . . . . . . . . . . . Severance . . . . . . . . . Impairments . . . . . . $ 8 1 — — — — $ 9 $ — 2 5 39 16 79 — $ (3) (2) (20) (1) — $(26) — — — $ 4 (8) (79) $(83) — — — $ 8 — 3 23 7 — $41 — — — $141 F-27 . . . . . . . . . . . . . . . . . Restructuring and Other Special Charges by operating segment are as follows: Year Ended December 31. . . of which approximately $4 million related to compensation expense due to the accelerated vesting of previously granted stock-based awards. the Company recorded net restructuring and other special charges of approximately $53 million primarily related to the Company’s redevelopment of the Sheraton Bal Harbour Beach Resort. . . . . . . . . . . The following table summarizes activity in the restructuring and other special charges related accounts during the year ended December 31. which are primarily recorded in accrued expenses and other liabilities. . . . . . . . . . . . . . . . These charges were offset by the reversal of $8 million of accruals for a lease the Company assumed as part of the merger with Sheraton Holding in 1998 as the reserve exceeded the Company’s maximum obligation. . The Company demolished the hotel in late 2007 and plans to rebuild a St. . . . . . Also during 2006. . . .

. . . . . . . . . . (238) . . . . . . . . . . . . . . . . . . . . . . .. $ (12) 33 48 69 28 (23) 2 7 $ 76 $ 166 8 157 331 (105) — (37) (142) $ 189 $ 104 31 51 186 (517) (84) (19) (620) $(434) No provision has been made for U.316 (615) $ 701 Less valuation allowance . . . . . . . . . . . . . . . . . . . . . The Company also had foreign net operating loss and tax credit carryforwards of approximately $32 million and $19 million.. . . . . . . . . . . . . . . . State and local . . .4 billion. . . . . . . . . . . . . . . Deferred tax assets (liabilities) include the following (in millions): December 31. . . . . . . .. . . . . capital loss and tax credit carryforwards . . . . . . . . . $195 135 $330 $ 517 216 $ 733 $ 556 126 $ 682 Provision (benefit) for income tax Current: U. . . . 2008 2007 2006 Pretax income U. . . . Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. . . . property and equipment . . . . . . . . . . Deferred: U. . . . Foreign. . . . . . . 2008. . .. . . . . . . . . . . . . . . . . . . .. . . . . . . . . 132 . . . . . . . . 105 . . . . . . . . . . . . . . . . NOTES TO FINANCIAL STATEMENTS — (Continued) Note 14. . . . . . .. . . . . . . . . ... . 98 1. . . . . . . . . . . . . . . . . . . . .S. . . . .STARWOOD HOTELS & RESORTS WORLDWIDE. . . . . . . .. . . . .. . .. . . . . . . . taxes payable on undistributed foreign earnings amounting to approximately $807 million as of December 31.. . 2008 since these amounts are permanently reinvested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . federal . . . . . .. State and local . . . 10 . . . . . . . . . . .. Income Taxes Income tax data from continuing operations of the Company is as follows (in millions): Year Ended December 31. . . . . . . . . respectively. . . . . . . . . .101 (488) $ 312 15 160 100 723 (102) 108 1. . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . Other . . . . . . . . . Employee benefits . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 605 . . . . . . . . . . . . . . . . Intangibles .. . .. . . . . . . . . . . . . .S. . . .. . . . . . . .. . . . . . $ 613 At December 31. . Net operating loss. . and federal tax credit carryforwards of $79 million. Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the Company had federal and state net operating losses of approximately $29 million and $2. . . . . $ 389 . . . . . . . . . . . . .. . . . . . . . . . . . INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . federal . . . . . . . . . . respectively. . . . . . . . . . . . . . . . . Deferred income . . . . . . . . . . . . . . . . The F-28 . . . . .S. . . . . . . . . . . . . . .. . . 2008 2007 Plant. . . . . . . . . . . . . . . . . . . . . . . . . Allowances for doubtful accounts and other reserves . . . . . . . . . . . . . . . . . . . . . . . . .S. . Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . .. .

S. . . the Company and the IRS reached an agreement in principle to settle the litigation pertaining to the tax treatment of this transaction. . . . . The Company generated a federal capital loss in connection with the Host Transaction which was originally estimated at approximately $2. . . the Company applied substantially all of its federal net operating loss carryforwards against the gain and accrued interest. . . . . . . . . . . The Company recorded $551 million of income taxes relating to this transaction. . . . . . . . . . . . . . . . . . . . . Through December 31. . . . . During 2007. . . . $ 76 F-29 $ 257 13 — (29) 12 13 2 (3) 97 (2) (158) — (13) $ 189 $ 239 (10) (32) (16) (15) — (59) (356) (1. . . . . . statutory rate to the provision for income tax as reported is as follows (in millions): Year Ended December 31. . . . . INC. . . .017) (41) 884 — (11) $ (434) . . statutory rate . . . . . . . . . — Tax settlements . . . . 7 Other . . . As such. . . . . . . . . . . . . . . In January 2009. . . . . . . . . . . . .4 billion at December 31. . . . 4 Provision for income tax (benefit). The Company paid the entire current liability to the IRS in October 2005 in order to eliminate any future interest accruals associated with the pending dispute. . . . . . . . . . . . . . . . .S. (10) Tax benefits recognized on Host Transaction . . . . . . . . . . .4 billion in that year. state and local income taxes . . . . The Company has established a valuation allowance against substantially all of the tax benefit for the remaining federal and state carryforwards as it is unlikely that the benefit will be realized prior to their expiration. . . . . . . . . the Company completed its 2006 tax return which included the Host Transaction and adopted FIN 48. . . . . . As a result of an August 2005 United States Tax Court decision against another taxpayer. resulting in a revised amount of $1. 9 Exempt Trust income . . . . . . . . . . approximately $558 million of this loss has been utilized to offset 2008 and prior years’ capital gains. . . . . . . the Company decided to treat this transaction as if it were taxable in 1998 for accounting purposes. . . . the Company filed a petition in United States Tax Court to contest the IRS’s proposed adjustment. . . . . . . . . . . . in 2002 the IRS proposed an adjustment to fully tax the gain in 1998. which expire by 2027. . . . . . . . . . . . . . . . . the entire tax benefit of the losses has been offset by a valuation allowance. . 2006. . . . .6 billion at December 31. . . . The Company is currently considering certain tax-planning strategies that may allow it to utilize these tax attributes within the statutory carryforward period. As a result. . 2006. . . . . . . . . The Company expects to finalize the details of the agreement and obtain the refund during 2009. . . . A reconciliation of the tax provision of the Company at the U. While the Company strongly believes this transaction was completed on a tax-deferred basis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Basis difference on asset sales . . (31) Tax expense amortization from intercompany transactions . . . . . . . . . . . the Company reduced its original estimate of this capital loss and corresponding valuation allowance by approximately $1. . . . . . . . . . . . . . . . the Company disposed of ITT World Directories. . . . . . . . . . . . .S. which would increase Starwood’s taxable income by approximately $1. . . . . . . . . Due to the uncertainty of realizing the tax benefit of the federal and state capital loss carryforwards. . . . . . . . . . . . . substantially all of which expire in 2011. . . . The Company also had state capital losses related to the Host Transaction of approximately $981 million. . . . . . . . . . . . . . . . . . . . . . . . . . . NOTES TO FINANCIAL STATEMENTS — (Continued) Company expects to realize future tax benefits from substantially all its federal and state net operating losses tax. . . . . . . . . . . . . 16 Change in of valuation allowance . . . . . . . In February 1998. . . . . . . . $115 U. . . . The remaining $818 million of capital loss is available to offset federal capital gains through 2011. — Tax benefit on the deferred gain from asset sales. . . . . . . . . 2008 2007 2006 Tax provision at U. . . . . . . . (20) Change in uncertain tax positions . . . . . . . . . (14) Foreign tax rate differential . 2008. . — Tax on repatriation of foreign earnings . . . . . . . . . . . . . . resulting in a $360 million net current liability. . . . During 2004. . . . . . . . . . . . .STARWOOD HOTELS & RESORTS WORLDWIDE. . . . .2 billion. . . . . . . .

S. the pretax gain has been deferred and is being recognized over the life of the contract. The net charge was comprised of a $114 million charge related to a reduction to the amount of capital loss generated in the transaction offset by a $17 million tax benefit related to other aspects of the transaction.S. As the Company sold these hotels subject to long-term management contracts. In addition. NOTES TO FINANCIAL STATEMENTS — (Continued) During 2007.4 billion federal capital loss.0 billion of total unrecognized tax benefits. As a result of this analysis. Accordingly.017 billion resulted from the Host Transaction. was recorded for these foreign tax credits. respectively for these foreign tax credits. As discussed above. These gains were completely offset by the capital loss generated in the Host Transaction. During 2007. net of carrybacks and 2006 utilization. As discussed above. Therefore. The Company also recognized a $9 million tax benefit during 2006 related to the reversal of previously accrued income taxes after an evaluation of the applicable exposures and the expiration of the related statutes of limitations. During 2008. during 2008 and 2007. As a valuation allowance fully offsets the capital loss carryforward. partially offset by current tax liabilities generated as a result of the transaction. In addition. INC. the Company completed certain transactions that generated capital gains for U. state income tax audits for various jurisdictions and tax years were completed during 2006. As a result of the implementation of FIN 48 in 2007. The Company had not previously accrued this benefit since the realization of the benefit was determined to be unlikely. As of December 31. As a result. a $28 million tax benefit. During 2008 and 2007. during 2006. during 2006. the Company also recorded a $114 million tax benefit for the reversal of the capital loss valuation allowance. the Company had approximately $1. during 2007. of which $150 million would affect its effective tax rate if recognized. the Company recognized a $35 million cumulative effect adjustment to the beginning balance of retained earnings in the period. The remaining benefit consisted of an adjustment to deferred income taxes for the increased tax basis of certain retained assets. During 2007. Additional tax benefits of $1. the Company recognized a net $97 million tax charge during 2007 as an adjustment to the original tax benefit accrued in 2006. the Company recorded tax benefits of $31 million and $35 million. the Company has established a deferred tax asset and recognized the related tax benefit of approximately $10 million for the book-tax difference on the deferred gain. 2008. the Company recorded a $50 million tax benefit. the Company completed the Host Transaction during the second quarter of 2006 which included the sale of 33 hotel properties. Pursuant to FIN 48. Therefore. 2002 and 2003 tax returns and issued its final audit adjustments to the Company. As a result of the completion of these audits. the gain of approximately $962 million has been deferred and is being recognized over the life of those contracts. During 2006. primarily associated with interest due on existing uncertain tax positions. the Company is required to accrue tax and associated interest and penalty on uncertain tax positions. the IRS completed its audits of the Company’s 2001. foreign tax credits generated in prior years on its federal tax return. As discussed in Note 5. to reverse the capital loss valuation allowance. the Company expects to resolve the tax litigation related to the ITT World Directories transaction during 2009 and expects to reduce that amount of unrecognized tax benefits by approximately $499 million. As a result.STARWOOD HOTELS & RESORTS WORLDWIDE. The Company does not expect other significant increases or decreases to the amount of F-30 . the Company determined that it could claim the credits for the 2005 and 2006 tax years. net of incremental taxes and interest. tax purposes. the Company has established a deferred tax asset and recognized the related tax benefit of approximately $359 million for the book-tax difference on the deferred gain. consisting primarily of the tax benefit of $832 million on the $2. The Company had not previously accrued this benefit since the realization of the benefit was determined to be unlikely. the Company sold the Westin Turnberry subject to a long-term management contract. Accordingly. respectively. the Company had not previously accrued a benefit for the capital loss since the realization was determined to be unlikely. the Company determined that it can realize the credits for the 1999 and 2000 tax years. the Company completed its 2006 tax return which included the Host Transaction. Therefore. the Company completed an evaluation of its ability to claim U. a $15 million and $19 million tax benefit was recorded for 2006 and 2005. the Company recorded a $13 million charge.

. . . . . . . . . Additions based on tax positions related to the current year . . . . . Additions for tax positions of prior years . 2008. INC. . . . . . . . . . . Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at December 31. . . respectively. . . . . . . . . . . . . . . . . . . federal taxing authorities for years prior to 2004 and to examination by any U. . . . . . 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .STARWOOD HOTELS & RESORTS WORLDWIDE. . . . . . . . . . . . . . . . . . . . . as well as various state and foreign jurisdictions. . . . . . . . . . . . .S. . . A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in millions): Balance at January 1. . . . . . . . . . . . . . Balance at December 31. . . . Settlements with tax authorities . . . . . . . . . . . . Additions based on tax positions related to the current year . . . . . . . All subsequent periods remain eligible for examination. . . . . . . . . . . . . . . . . . . . state taxing authority prior to 1998. . . . . . . . . . . . . . . 2008. . . . . . . . . . . . . . . . . . . . . . . . federal jurisdiction. . . $ 964 6 1 (2) — (1) $ 968 $ 968 41 2 (3) (4) (1) $1. . . . . . . . . Reductions due to the lapse of applicable statutes of limitation . In the significant foreign jurisdictions in which the Company operates. the Company is no longer subject to examination by the relevant taxing authorities for any years prior to 2001. . . . . . . . . . . the Company is no longer subject to examination by U. . . . . . . . . . . . . . . F-31 . . . . . . . . . . . . Balance at January 1. .S. . . . . NOTES TO FINANCIAL STATEMENTS — (Continued) unrecognized tax benefits within 12 months of December 31. . . . . . . . . . . . . . .S. . . . . . . As of December 31. . The Company had $76 million and $29 million accrued for the payment of interest and no accrued penalties as of December 31. . . . . . . . . . . . . . . . . . . . . . 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007. The Company is subject to taxation in the U. . . . Reductions due to the lapse of applicable statutes of limitation . . . . . 2008 and December 31. . . . .003 The Company recognizes interest and penalties related to unrecognized tax benefits through income tax expense. . . . . . . . . . Settlements with tax authorities . . . . . . . . . . . . . . . . 2007 . . . . 2007. . . . . . . . . . . . . . . . . . . . . . . . . . Reductions for tax positions of prior years . . Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . ... . . . . .. . . . . .88% to 2. 2011 . ... . . The Company was in compliance with all of the short-term and long-term debt covenants at December 31. . ...008 (506) $3. . . .. . .. . . The Company maintains lines of credit under which bank loans and other short-term debt are drawn. .. Debt December 31. .. ... . . . . . . . . .. . . . ... . . .. . . interest at 6. . . . . limitations on incurring additional debt... . .... . maturing 2018 . . . . .... . .. . . . .. .. . .. fair value approximates carrying value due to the variable nature of the interest rates.. .. . . . .. interest at 7. . . .. .. . .. . . maturing 2015.. . The Company is subject to certain restrictive debt covenants under its short-term borrowing and long-term debt obligations including defined financial covenants. .. .. .. .. the Company does not anticipate any issues regarding the availability of funds under the revolving credit facilities. .. tax payments and insurance premiums. . . ... . . .2 billion and $3. .80% to 8.. maturing 2013 . . .. In addition. ... . . . . . .. . . . .. . The estimated fair value of debt at December 31. .. 2008. . . . . . . . . . . respectively. . . .. among other restrictions. . . smaller credit lines are maintained by the Company’s foreign subsidiaries. .. . ... . . .. . .. . . . . .. F-32 . ... . . . . . . . . . Senior Notes. . . . . . . . . . .. . . .875%. .. . . . . .. .. .008 Due to the current credit liquidity crisis.56%. .STARWOOD HOTELS & RESORTS WORLDWIDE. . Senior Notes (former Sheraton Holding notes). INC. . ...595 (5) $3. ..375 799 449 601 400 171 4. . The Company had approximately $1.69% at December 31. . . . .. . .. . . . . .... . . . . maturing 2009 and 2010 (2. .2008. . . .. . .. . escrow account funding requirements for debt service. . interest rates ranging from 5.. . . . .. . fair value is determined based upon discounted cash flows for the debt at rates deemed reasonable for the type of debt and prevailing market conditions and the length to maturity for the debt... . 2008) . . maturing 2012 . . . .. . . . . . . . .. .502 $ 787 1. . interest rates ranging from 1. . . . . . . . . .. . . . . . capital expenditures. . . . . . 2010 . . .25%. .. . . . .. interest at 6.. For non-public fixed rate debt. 2008 2007 Long-term debt and short-term borrowings consisted of the following (in millions): Senior Credit Facilities: Revolving Credit Facilities.32% at December 31. . . .. . . . . .. .. . various maturities. .. .35% at December 31... . . .. . . . . . . . . . . . . . . . . . . . . ... . Based on this review. . . .. .. . . . .. . . . . . . .. .. . . .. maturing 2011 . .. . . . . .. . The short-term borrowings at December 31. interest rates of 2.. . .... . .. . .. . . . . the Company evaluated the commitments of each of the lenders in its revolving credit facilities. . ..75%. . NOTES TO FINANCIAL STATEMENTS — (Continued) Note 15. . .. . . . 2008. . Thereafter . . . . .. . . . .. . . .. . . . 2008 and 2007 were insignificant.. . . . .. . . . . and was determined based on quoted market prices and/or discounted cash flows. . . . .. . .375%. . . . ... .. ... . .... . . . .585 billion of available borrowing capacity under its domestic and foreign lines of credit as of December 31. . . . .. .. . . . . .. . . . . . . . .. . . Long-term debt . . .. . . . . . .. .. .. .. . . . .. . 2013 . . . .. . . Term loan.. . . . . . ... . . .. ... . . .. . 2008 and 2007 was $3.... . . . .. . . For adjustable rate debt. . . . .. ... . .. .. . . . . .. .. . . . . . ... Senior Notes. . . . . . . .. . . .. . . . . . . .000 792 449 400 — 167 3.. ... . . . . . .. .590 Aggregate debt maturities for each of the years ended December 31 are as follows (in millions): 2009 . .. . .. .7 billion. . .. . Mortgages and other. ... .. interest at 7. .. . . . . . 2012 ... . . . .. . .. . . . . . . . . . . . . $ 506 505 596 847 653 901 $4. $ 213 1. .. . . . . . . . . . . ... Less current maturities .. . . . .. Senior Notes. .. . . . . . .. .. . . . . . . . . . 2008.. .. .

the Company’s $375 million Revolving Credit Facility that matured on April 27.75% Senior Notes (“6. the Company completed a public offering of $600 million of senior notes.25% Notes”) due February 15.25% Notes at the Company’s option at a price equal to the greater of (1) 100% of the aggregate principal plus accrued and unpaid interest and (2) the sum of the present values of the remaining scheduled payments of principal and interest discounted at the redemption rate on a semi-annual basis at the Treasury rate plus 35 basis points. plus accrued and unpaid interest. Upon a change in control of the Company. consisting of $200 million aggregate principal amount 6. 2010.75% Notes is payable semi-annually on May 15 and November 15. the Company entered into a credit agreement that provides for two term loans of $500 million each. On April 27. The term loans may be prepaid at any time at the Company’s option without premium or penalty. One term loan matures on June 29. the holders of the 6. consolidations and sale of assets. and the remaining $1. The covenants in this credit agreement are the same as those in the Company’s existing Revolving Credit Facility.25% Notes is payable semi-annually on February 15 and August 15. The Company may prepay the outstanding aggregate principal amount. On September 13. it can be extended until February 10. $375 million expired on April 27. mergers. plus accrued and unpaid interest. sale and leaseback transactions. Upon a change in control of the Company. 2007 the Company amended its Revolving Credit Facility to the interest rate (from the original rate of LIBOR + 0. Of this amount. 2010.250 billion.875 billion will expire in February 2011.25% Notes”) due February 13. Interest on the 6. The Company may redeem all or a portion of the Notes at any time at the Company’s option at a price equal to the greater of (1) 100% of the aggregate principal plus accrued and unpaid interest and (2) the sum of the present values of the remaining scheduled payments of principal and interest discounted at the redemption rate on a semi-annual basis at the Treasury rate plus 35 basis points for the 6. which were used to reduce the outstanding borrowings under its Revolving Credit Facilities. and the other matures on June 29.475% to LIBOR + 0.400%) and increase commitments by $450 million. The Term Loan expires on April 11. which remains in effect. Certain covenants in the 6. Proceeds from these loans were used to repay balances under the existing Revolving Credit Facility (established under the 2006 Facility referenced below).25% Senior Notes (“6. 2008. 2008. NOTES TO FINANCIAL STATEMENTS — (Continued) On May 23. the Company may redeem all or a portion of the 6. At any time. 2007. sale and leaseback transactions. the holders of the Notes will have the right to require repurchase of the respective Notes at 101% of the principal amount plus accrued and unpaid interest. mergers. The Company received net proceeds of approximately $596 million.25% Notes rank parri passu with all other unsecured and unsubordinated obligations. F-33 . 2013. Interest on the 6. 2008 was converted to a term loan (“Term Loan”). 2013 and $400 million aggregate principal amount 6. which was repaid during the fourth quarter of 2008 in conjunction with the sale of three properties by the Company (see Note 17). 2008.25% Notes will have the right to require repurchase of the respective Notes at 101% of the principal amount plus accrued and unpaid interest.75% Notes”) due May 15. the Company borrowed approximately $66 million under an international revolving credit facility. at any time.75% Notes. 2011 as long as certain extension requirements are satisfied and subject to an extension fee. the Company completed a public offering of $400 million 6. On June 29.25% Notes and 45 basis points for the 6. however. 2007.25% Notes is payable semi-annually on February 15 and August 15 and interest on the 6. INC.25% Notes include restrictions on liens. which were used to reduce the outstanding borrowings under its Revolving Credit Facility. The 6. Certain covenants on the Notes include restrictions on liens.25% Senior Notes (“6.STARWOOD HOTELS & RESORTS WORLDWIDE. On April 11. 2018 (collectively. The Company received net proceeds of approximately $396 million. 2009. consolidations and sale of assets. the “Notes”). The Notes rank parri passu with all other unsecured and unsubordinated obligations. to a total of $2. The proceeds of the Term Loan were used to repay outstanding revolving loans. in whole or in part. In the second quarter of 2008.

2006 consolidated balance sheet. . . . . . . . net of tax) and net prior service credit of $2 million ($2 million. 2008 was $2 million. . . .069 . . . . . 2006 increased net liabilities by $6 million. 2008. . . . . . . . 158 required the Company to recognize the funded status (i. . . . . . 2006. . . . 2007. . .843 $1. . . . 2008 2007 2006 Summary financial information for discontinued operations is as follows (in millions): Income Statement Data Gain (loss) on disposition. . . . . . . . . . . . . . . . . For the year ended December 31. . . 133 $1. . . . . . . 2008 are unrecognized net actuarial losses of $98 million ($93 million. . . . .. . . . . . . . . . . . .. . the loss on disposition represents a $1 million tax assessment associated with the disposition of the Company’s former gaming business in 1999. . . . . .133 354 34 62 68 150 $1. . Other Liabilities December 31. a component of accumulated other comprehensive income. . Discontinued Operations Year Ended December 31.. . the difference between the fair value of plan assets and the projected benefit obligations) of its pension plans in the December 31. . . . . . 50 . . . . . . SPG point liability . . . . ..e. . the Company adopted the recognition and disclosure provisions of SFAS No. INC. .. . . . . .. Note 18. . . . . . 106 . . . . .. .. . . . . . . and it will not effect the Company’s operating results in future periods. ... . . . . . The amortization of actuarial gain/loss. . 2008 also includes a $49 million tax charge as a result of a 2008 administrative tax ruling for an unrelated taxpayer that impacts the tax liability associated with the disposition of one of the Company’s businesses several years ago. . NOTES TO FINANCIAL STATEMENTS — (Continued) Note 16. . . . . .. . . For the year ended December 31. . . or for any prior period presented. The adoption of SFAS No. . . . . .. . the gain on dispositions includes a $124 million gain ($129 million pre tax) on sale of three hotels which were sold unencumbered by management or franchise contracts. . . .. . with a corresponding adjustment to accumulated other comprehensive income. . . . . with a corresponding decrease to accumulated other comprehensive income. . . . . . 55 . . . . . .. Employee Benefit Plans On December 31.. . . . 2008 was $60 million (net of tax). . . . . . $75 $(1) $(2) For the year ended December 31. . . . . . . . . . . . .. net of tax) that F-34 . Benefit plan liabilities . Discontinued operations for the year ended December 31. . . . . . . . 158 had no effect on the Company’s consolidated statement of income for the year ended December 31. . . . . . Other . Insurance reserves . . . 430 . . . . . 2006.. net of tax.. . . . . Included in accumulated other comprehensive income at December 31. . . . 158 on the Company’s consolidated balance sheet at December 31. . . . . the loss on disposition represents a $2 million tax assessment associated with the disposition of the Company’s former gaming business in 1999.. . . . . . . . 2008 2007 Other liabilities consisted of the following (in millions): Deferred gains on asset sales .801 Note 17. . .STARWOOD HOTELS & RESORTS WORLDWIDE. . . . . . .. . $1. . . . . . for the year ended December 31. 2006. . . . . The incremental effects of adopting the provisions of SFAS No. 158. . . . . . . . net of tax .. Deferred income including VOI and residential sales . . . . . . . . . . . . The net actuarial loss recognized in accumulated other comprehensive income for the year ended December 31. SFAS No. . .

There were no settlement gains or losses recorded during the year ended December 31.1 million during the year ended December 31.S. 2007 and a net settlement loss of approximately $0. Inc. 2006. The Company also sponsors the Starwood Hotels & Resorts Worldwide. The actuarial loss included in accumulated other comprehensive income and expected to be recognized in net periodic pension cost during the year ended December 31. employees remain active. The Company has prefunded a portion of the health care and life insurance obligations through trust funds where such prefunding can be accomplished on a tax effective basis. net of tax).S. INC. the Company recorded a net settlement gain of approximately $0. 2009 is $6 million ($6 million. NOTES TO FINANCIAL STATEMENTS — (Continued) have not yet been recognized in net periodic pension cost.STARWOOD HOTELS & RESORTS WORLDWIDE. Defined Benefit and Postretirement Benefit Plans. The Company and its subsidiaries sponsor or previously sponsored numerous funded and unfunded domestic and international pension plans. F-35 .1 million during the year ended December 31. employees are frozen. The Company also funds this program on a pay-as-you-go basis. All defined benefit plans covering U. Certain plans covering non-U. 2008. This plan provides health care and life insurance benefits for certain eligible retired employees. As a result of annuity purchases and lump sum distributions from the Company’s domestic pension plans. Retiree Welfare Program.

. . . . at December 31. . . . . . Asset transfer . . . . . . . . . . . . . . . . . . . . . . . F-36 . The impact of these reimbursements is not reflected above. . . . . . . . . . Funded status . . . Plan amendments . . . . . Therefore. . . . . . the funded status and the accumulated benefit obligation of the Company’s defined benefit pension and postretirement benefit plans at December 31. Actuarial loss (gain) . . . . . . . . . . . . . . . . . Change in Plan Assets Fair value of plan assets at beginning of year . . . . . . . . . . . . Settlements and curtailments . . Interest cost . . . and accordingly. . . . . Fair value of plan assets at end of year . Actual return on plan assets. 2008 was $100 million. . . . . . . . Effect of foreign exchange rates . . . . $ 17 — 1 — — — (1) — $ 17 $ 17 — 1 — — — (1) — $ 17 $206 4 11 20 (7) (27) (6) (2) $199 $196 5 12 (4) — 5 (8) — $206 $ 20 — 1 — — — (3) — $ 18 $ 19 — 1 2 — — (2) — $ 20 $— — 1 — — — (1) $— $(17) $ 17 $— — 1 — — — (1) $— $(17) $ 17 $185 (35) 20 (26) (6) — (6) $132 $ (67) $174 $161 12 16 4 — — (8) $185 $ (21) $186 $ 5 — 3 — — (3) (3) $ 2 $(16) n/a $ 7 — 2 — — (2) (2) $ 5 $(15) n/a $ 17 $ 17 $— $ 17 $ 17 $— $132 $108 $ 57 $ 47 $ 46 $ 41 $ 18 n/a $ 2 $ 20 n/a $ 5 The net underfunded status of the plans at December 31. . . . . . . . . . Its other foreign pension plans are not frozen. . . . . . at December 31. . . In March 2006. . . . . . . . . . . . . . . . . . . . . . fair value of plan assets. . . . . . . . . . the accumulated benefit obligation for the foreign pension plans was $174 million and $186 million. . . . . . . . . . . . . . . . . . . . . . . . . . . . . respectively. Accumulated benefit obligation . NOTES TO FINANCIAL STATEMENTS — (Continued) The following table sets forth the projected benefit obligation. . . . . . . . . . . . . . . . . Benefits paid . . . . . . where employees do not accrue additional benefits. . . . . . . . . . . . . . . . . . . . . . . Employer contribution . . . . . . . . Settlements and curtailments . . . . . . . . . . 2008 and 2007 (in millions): Pension Benefits 2008 2007 Foreign Pension Benefits 2008 2007 Postretirement Benefits 2008 2007 Change in Projected Benefit Obligation Benefit obligation at beginning of year . . Service cost . which $99 million is in other liabilities and $1 million is in accrued expenses in the accompanying balance sheet. . . . . . . . . . . . . . Benefits paid . . . Accumulated benefit obligation . . . . . . . .STARWOOD HOTELS & RESORTS WORLDWIDE. Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . All domestic pension plans are frozen plans. Fair value of plan assets . 2008 and 2007. . . . . . . . . . . . . . . . INC. . . . the projected benefit obligation is equal to the accumulated benefit obligation. . . . . . . . . for which we are reimbursed for costs related to their benefits. . . . . . . . . . . 2008 and 2007. . . . . . . . . . . . net of expenses . . Effect of foreign exchange rates . . . . . . Plans with Accumulated Benefit Obligations in Excess of Plan Assets Projected benefit obligation . . . . . . . . . . . . The majority of participants in the Foreign Pension Plans are employees of managed hotels. . . the Company elected to freeze its pension plans in the United Kingdom. . . . . . . . . .

. . . . . .09% 5. . . . . . . n/a n/a 3. . Amortization of actuarial loss . . . .50% 7. .5 million effect on the postretirement obligation and a nominal impact on the total of service and interest cost components of net periodic benefit cost. . . . . . . . 88 settlement and curtailment gain. . . .88% 5. . . .60% n/a n/a n/a n/a n/a n/a 6. . . Net periodic benefit cost . . . . an 8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2009. . . 87 cost/SFAS No. . . . . . . . 2008. . . . . . .75% 6. . . . . . . . . . .74% Rate of compensation increase . . . .50% 5. Other . . . . . . . . . . . . . . . . . . .91% 7. . .90% n/a n/a The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31 were as follows: 2008 Pension Benefits 2007 2006 Foreign Pension Benefits 2008 2007 2006 Postretirement Benefits 2008 2007 2006 Discount rate . . .STARWOOD HOTELS & RESORTS WORLDWIDE. . . . the investment strategy. . A one-percentage-point change in assumed health care cost trend rates would have approximately a $0.46% 5. . . gradually decreasing to 5% in 2013. INC. . . . . . . . Rate of compensation increase . . 5. . . . . .99% 5. $— 1 — — — 1 — $ 1 $— 1 — — — 1 — $ 1 $— 1 — — — 1 — $ 1 $ 4 11 (10) 2 1 8 1 $ 9 $ 5 12 (11) 2 — 8 — $ 8 $ 4 10 (9) 3 — 8 (3) $ 5 $— 1 — — — 1 — $ 1 $— 1 (1) — — — — $— $— 1 (1) — — — — $— For measurement purposes. .74% 5. . These factors included current and expected allocation of plan assets. . . . . . . . .50% 7. . . .90% 3. . . . . . . . . . . .75% 5. . . . . . . historical rates of return and Company and investment expert expectations for investment performance over approximately a ten year period. . . . Expected return on plan assets . . . 2007 and 2006 (in millions): Pension Benefits 2008 2007 2006 Foreign Pension Benefits 2008 2007 2006 Postretirement Benefits 2008 2007 2006 Service cost . . . . .19% 5. . . . . . . .00% 5. F-37 . . . . .88% 6. . . . . . . . . . . . . NOTES TO FINANCIAL STATEMENTS — (Continued) The following table presents the components of net periodic benefit cost for the years ended December 31. . . . .75% 5. . . SFAS No. . . . Expected return on plan assets . . .49% n/a n/a n/a 3. . . . .50% A number of factors were considered in the determination of the expected return on plan assets. . . . . . . . SFAS No. . . 5. .89% 3. . . . . . .93% 3. .74% 5. .38% 6. . . . . . . . . . . . . . The weighted average assumptions used to determine benefit obligations at December 31 were as follows: Pension Benefits 2008 2007 Foreign Pension Benefits 2008 2007 Postretirement Benefits 2008 2007 Discount rate . Interest cost . . . . . . . 106 cost .40% 6. . . . . . . . . . . . . . . . . . .

. . . . . . . . . . The Company and its subsidiaries sponsor various defined contribution plans. . . . . . . . . Savings and Retirement Plan. . . . . . approximately $18 million to its foreign pension plans. . . INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTES TO FINANCIAL STATEMENTS — (Continued) The weighted average asset allocations at December 31. . . . The following table represents the Company’s expected pension and postretirement benefit plan payments for the next five years and the five years thereafter (in millions): Pension Benefits Foreign Pension Benefits Postretirement Benefits 2009 . Included as an investment choice is the Company’s publicly traded common stock. . . . . $1 $1 $1 $1 $1 $7 $ 7 $ 7 $ 8 $ 8 $ 9 $57 $2 $2 $2 $2 $2 $8 Defined Contribution Plans. . . . . Pursuant to agreements between the Company and various unions. . . respectively. . . Cash and other . . . . . . . . . . . . . . . . . . . . 2008. . . . . . 2010 . . . . . . . . . . . . . . . . all remaining domestic pension plans are unfunded plans. contributions of $9 million in 2008. 2012 . . . . . . . Certain employees are covered by union sponsored multi-employer pension plans. . . . At December 31. . . . . . . . . . . . . The Company expects to contribute approximately $1 million to its domestic pension plans.STARWOOD HOTELS & RESORTS WORLDWIDE. . . which had a balance of $30 million and $62 million at December 31. . . . . . . . 2014 — 2018 . . . . . . . . 2008 and 2007. . $28 million in 2007 and $25 million in 2006. . . . Each participant may contribute on a pretax basis between 1% and 50% of his or her compensation to the plan subject to certain maximum limits. . Inc. . . F-38 . . . . . . . . . . . . . . . . . . . . and approximately $2 million to the postretirement benefit plan in 2009. . . including the Starwood Hotels & Resorts Worldwide. . . . Debt securities . . . . . . . . . . . . . . . . . . . . . . . . 2013 . . . . . . . . . payroll who meet certain age and service requirements. . . . . . . n/a n/a n/a n/a n/a n/a n/a n/a n/a 34% 66% — 100% 32% 65% 3% 45% 48% 7% 79% — 21% 100% 42% 37% 21% 63% 35% 2% 100% 100% 100% 100% The investment objective of the foreign pension plans and postretirement benefit plan is to seek long-term capital appreciation and current income by investing in a diversified portfolio of equity and fixed income securities with a moderate level of risk. . . . . . . . $9 million in 2007 and $8 million in 2006 were made by the Company and charged to expense. . . . . . The amount of expense for matching contributions totaled $32 million in 2008. . 2011 . . . . . . 2008 and 2007 for the Company’s defined benefit pension and postretirement benefit plans and the Company’s current target asset allocation ranges are as follows: Pension Benefits Percentage of Plan Assets Target Allocation 2008 2007 Foreign Pension Benefits Percentage of Plan Assets Target Allocation 2008 2007 Postretirement Benefits Percentage of Plan Assets Target Allocation 2008 2007 Equity securities . . . . . . which are based on a portion of a participant’s eligible compensation. The plan also contains provisions for matching contributions to be made by the Company. . . . . . . . . which is a voluntary defined contribution plan allowing participation by employees on U. . .S. . Multi-Employer Pension Plans. . . . . . . . . . . . . . . . . . . .

. Ireland (18 years remaining under the lease) with fixed annual payments of $3 million and a building lease of the W Times Square hotel in New York City which has a term of 25 years (18 years remaining under the lease) with fixed annual lease payments of $16 million. ... 2013 . . During the year ended F-39 . . After the third year the rent changes based on the United Kingdom RRI Index..5 million in year one..... .. . . . . ...... . . . The leases extend for varying periods through 2014 and generally are for a fixed amount each month... ..... ... In June 2004.... . . .. ... ..... the Board of Directors authorized an additional $1 billion in Share repurchases under the Company’s existing Corporation Share repurchase authorization (the “Share Repurchase Authorization”). . . and £5...... .. ... commencing once the hotel reopens following a major renovation. ... . ... . ... several of the Company’s hotels are subject to leases of land or building facilities from third parties. . Leases and Rentals The Company leases certain equipment for the hotels’ operations under various lease agreements. . The Company’s minimum future rents at December 31.. ..... .. INC. .. In conjunction with entering into this lease. .. .. . ..... .... In addition. which extend for varying periods through 2089 and generally contain fixed and variable components. . .......... $93 10 (6) $97 $86 10 (6) $90 $76 11 (4) $83 Note 20... ........ . ...... . ... ...... ..... . Sublease rent . . Stockholders’ Equity Share Repurchases. . .. . NOTES TO FINANCIAL STATEMENTS — (Continued) Note 19.. . Contingent rent .. .... . .STARWOOD HOTELS & RESORTS WORLDWIDE... . the Board of Directors of the Company further authorized the repurchase of up to an additional $1 billion of Corporation Shares under the Share Repurchase Authorization. . .. ... which is in the process of being constructed with an anticipated opening date of December 2009. . . ........ ... . ........ .. .. .. . . . .... . ..... ..5 million in year two.. 2010 . ... . .. the Company made a 9 million Euro guarantee to the lessor that it will not terminate the lease prior to the lease commencement date. The commencement of the lease term is contingent upon the completion of the renovation which is under way and is expected to be completed in January 2011. .... .... .. Due to the uncertain opening date.... ........ 2008 2007 2006 Minimum rent .. ... . .. .... ... 2011 .. .. . .. ......... . .. ... ... the Company entered into an agreement to lease the W Barcelona hotel in Spain. .. . . . . . .. .. . . . ... The term of this lease is 15 years with annual fixed rent payments which range from approximately 7 million Euros to 9 million Euros. ... $ 90 $100 $100 $ 85 $ 85 $698 Rent expense under non-cancelable operating leases consisted of the following (in millions): Year Ended December 31... . .......... .... .. In April 2007. . . . 2008 payable under non-cancelable operating leases with third parties are as follows (in millions): 2009 . . .. .. . .5 million in year three. . ...... . . the Company entered into an agreement to lease the W London Leicester Square Hotel for 40 years.. . .. .. .. .. ... ... . . .. ... .. .. ... .. . Thereafter... The minimum future rent payments due upon completion of the hotel is £3...... .. 2012 .... ... . In June 2008........ ... .. .. .. . .. . .. . ... .. .. . £4.. .. .. ......... . ..... ... .. This letter of credit would supersede the Company’s guarantee once the hotel opens. . the Company must provide a letter of credit to the lessor for 9 million Euros as security for the first three years of rent. ....... ........ . . ... .. the payments are not included in the table below. . .. . The variable components of leases of land or building facilities are based on the operating profit or revenues of the related hotels. . . .. . .. including a 25-year building lease of the Westin Dublin hotel in Dublin. . In November 2007. . ..... At the lease commencement date... .... . ..... . .. ... .... . . ... .. ..... .....

During 1998.000 and 179.000 of these units outstanding at December 31.000 Operating Partnership units for approximately $56 million in cash.000 shares) and Realty Partnership units (approximately 40. 2008 and December 31. 2008.000 units) for approximately $34 million in cash. The Operating Partnership units are convertible into Corporation Shares at the unit holder’s option. Also in connection with the Host Transaction. officers. $99 million and $103 million. the Company repurchased 13. For the year ended December 31. Compensation expense. consultants and advisors. As of December 31. which superseded the 2002 Long Term Incentive Compensation Plan (“2002 LTIP”) and provides for the purchase of Shares by directors.6122 shares of Host common stock. $33 million and $36 million. respectively. 2006. pursuant to equity award grants. F-40 . Although no additional awards will be granted under the 2002 LTIP. holders of Class A EPS received from Host $0. 2007 and 2006 was approximately $68 million. Stock-Based Compensation In 2004.6 million Shares and Corporation Shares at a total cost of $593 million. no repurchase capacity remained under the Share Repurchase Authorization. 5.3 million shares of Class A EPS. provided that the Company has the option to settle conversion requests in cash or Shares. 2008. respectively. the provisions under each of the previous plans will continue to govern awards that have been granted and remain outstanding under those plans. performance shares.503 in cash and 0. Exchangeable Preferred Shares. the Company completed the redemption of the remaining 25. 2006. when the Company consummated the first phase of the Host Transaction.000 limited partnership units of the SLT Realty Limited Partnership (the “Realty Partnership”) and SLC Operating Limited Partnership (the “Operating Partnership”) were issued by the Trust and Corporation in connection with the acquisition of Westin Hotels & Resorts Worldwide. On March 15. restricted stock or any combination of the foregoing which are available to be granted under the 2004 LTIP at December 31. The aggregate award pool for nonqualified or incentive stock options. Note 21. employees. 2006. the Company adopted the 2004 Long-Term Incentive Compensation Plan (“2004 LTIP”).000 outstanding shares of Class B EPS for approximately $1 million in cash. and certain of its affiliates. NOTES TO FINANCIAL STATEMENTS — (Continued) December 31. 2007. 6. On April 10. the Company redeemed approximately 926. respectively.STARWOOD HOTELS & RESORTS WORLDWIDE.5 million shares of Class B EPS and approximately 800.8 shares). the Company redeemed all of the Class A EPS (approximately 562. Inc. the Company’s 1999 Long Term Incentive Compensation Plan or the Company’s 1995 Share Option Plan. 2008 was approximately 70 million (with options counted as one share and restricted stock and performance units counted as 2. There were approximately 178. net of reimbursements during 2008. resulting in tax benefits of $26 million. INC.

.... . .. .. .7) 8. . As of December 31. .24. . related to nonvested options.... . Exercisable at December 31. . ... . . .... Long term . 2007 .55% 4.12. . . The weighted-average fair value per option for options granted during 2008. . . respectively..56% 1. . .. .... ..... .66% 4. . .66 $37. . . .17% 2. .. .. The weighted average volatility for 2008 grants was 37%. ... .... . . .. . .. . . . . .. 1 year . ... . . The estimated volatility is based on a combination of historical share price volatility as well as implied volatility based on market analysis. . the Company utilizes the Lattice model to calculate the fair value of option grants.... . The total intrinsic value of options exercised during 2008. .. . 2008 . .. . ..... .... . .... . .. .. .. . Expected life . . resulting in tax benefits of approximately $35 million. . It was determined based on an actuarial calculation which was based on historical experience. .. .. ... . . . . net of estimated forfeitures. which is expected to be recognized over a weighted-average period of 1.7 (4. .. . ..... . .... ... .. . ... NOTES TO FINANCIAL STATEMENTS — (Continued) As previously discussed. .. .. The expected life represents the period that the Company’s stock-based awards are expected to be outstanding.... .. respectively.. ..... . ... . INC.. ... . ...73% 1.. .. . . .. .. . . . . .. . . . .. .. . . . .. .. .. . .. .S. . .. ... . . .. ..68% 4.. . ... . . . . . Volatility: Near term .12% 4. . ....52% 4..... . ..54 and $16. . ..1) (0. respectively. ..90% 1. . ..... 5 year ... .. ... . .. 2008 . .. .... . as the case may be. .. . .... . . ... .5 $36.. Exercised .. . there was approximately $17 million of unrecognized compensation cost...90 $40... .... . . and the service period is typically four years. ... ....31 Outstanding at December 31.. . .. . .. .. Yield curve: 6 month .58 years on a straight-line basis for 2007 and future grants and using an accelerated recognition method for grants prior to January 1.. ..79% 3. . . 3 year . ...... 10 year .... . ... .. . . Canceled or Expired .. . . .58% 4.. $56 million and $128 million. .... . .. . . Treasury yield curve over the expected term of the option.. . .. ... 12. . ... . ... . $187 million and $370 million. .. . . . .. . . . . 2007 and 2006 was $17. 1... ... . . .8 0. . 2008 2007 2006 Dividend yield .. .. ... .58% The dividend yield is estimated based on the current annualized dividend payment and the average price of the Shares or Corporation Shares. .... ... . . The historical share price volatility was measured over an 8-year period. .... .55 47.. Granted . ..7 6.. . .52 28.. . . . . .STARWOOD HOTELS & RESORTS WORLDWIDE. The following table summarizes stock option activity for the Company: Options (In millions) Weighted Average Exercise Price Per Share Outstanding at December 31. giving consideration to the contractual terms of the stock-based awards and vesting schedules....96% 4.... . . . ...... The yield curve (risk-free interest rate) is based on the implied zero-coupon yield from the U. . .. ... . F-41 . .. ... which is equal to the contractual term of the options. .. Weighted average assumptions used to determine the fair value of option grants were as follows: Year Ended December 31. . . . . . . . .. .. .50% 38% 36% 6yrs 1... .. .. .. .60 49. ..91% 2... . ...40% 25% 37% 6yrs 5.... . . 2008.. . . . .. .. ... Forfeited. . . .. .. during the prior year. ... . ... .41% 26% 40% 6yrs 4. .. . .. 2006. .. .... . $20.. .. . . . ... . ... . . ... ..53% 4. ... .. . ... 2007 and 2006 was approximately $89 million..

. . . . The ESPP commenced in October 2002. . . . .. there was approximately $139 million (net of estimated forfeitures) in unamortized compensation cost related to restricted stock and restricted stock units. . The aggregate intrinsic value of outstanding options as of December 31. . . . . 2007 at purchase prices ranging from $51. . 5.0) (1. . . . The Company recognizes compensation expense equal to the fair market value of the stock on the date of issuance for restricted stock and restricted stock unit grants over the service period. . . . the Board of Directors adopted (and in May 2002 the shareholders approved) the Company’s 2002 Employee Stock Purchase Plan (the “ESPP”) to provide employees of the Company with an opportunity to purchase common stock through payroll deductions and reserved 10. . . . .STARWOOD HOTELS & RESORTS WORLDWIDE. . . The value of the Shares (determined as of the beginning of the offering period) that may be purchased by any participant in a calendar year is limited to $25. .000. . . Participants may withdraw their contributions at any time before Shares are purchased. as part of the Host Transaction.05 Outstanding at December 31. . . . . . . . . 2007 . .47. . . . . 2008 was $0 million. . . . . . . . . . . . . . The fair value of restricted stock distributed during 2008 was $85 million. .000 Shares were issued under the ESPP during the year ended December 31. . . . The weighted-average contractual life was 4. . Note 22.. Eligible employees may contribute up to 20% of their total cash compensation to the ESPP. . . . . . INC. . . .49 $49. . . . . 2008 was $0 million.7 (2. . .24 $52. 2008. . The purchase price to employees is equal to 95% of the fair market value of Shares on the date of purchase. The following table summarizes the Company’s restricted stock and units activity during 2008: Number of Restricted Stock and Units (In millions) Weighted Average Grant Date Value Per Share Outstanding at December 31. enters into forward contracts to manage foreign exchange risk. . Granted .58 years for exercisable option as of December 31. . . . . .95 $46. Distributed . the Company entered into forward contracts to hedge forecasted transactions based in F-42 . the number of the Company’s options and their strike prices have been adjusted as discussed in Note 3. . 2008 at purchase prices ranging from $16. . The weighted average remaining term was 1. The service period is typically four years except in the case of restricted shares or units issued in lieu of a portion of an annual cash bonus where the vesting period is typically in equal installments over a two year period. . . . . . . NOTES TO FINANCIAL STATEMENTS — (Continued) In April 2006. . .000 Shares were issued under the ESPP during the year ended December 31. . . . Derivative Financial Instruments The Company. . .. . . . . . . . based on market conditions. . .000 Shares for issuance under the ESPP. . . . the Company depaired its Corporation Shares and Class B Shares. 2008 . . As a result. . . . Approximately 119. All full-time regular employees who have completed 30 days of continuous service and who are employed by the Company on U. At December 31. .000. 2002 Employee Stock Purchase Plan In April 2002. . . . The aggregate intrinsic value of exercisable options as of December 31.02 to $45. . . . payrolls are eligible to participate in the ESPP. 2008. . .00 to $68. . . 2008. .34 $53. . . .4 $53.07 years for outstanding options and 3.88 years for restricted stock grants outstanding at December 31. . . Forfeited or Canceled .0) 5. . .. . .7 2. Approximately 200.S. . . . . . . . . . .98. . . . . . . . . . Beginning in January 2008. Amounts withheld are applied at the end of every three month accumulation period to purchase Shares. .

. 2008 is $51 million and $4 million. The Company has F-43 . . and their change in fair value is recorded as a component of other comprehensive income. . . 2008 (in millions): Total Unconditional purchase obligations(a) . guarantees. . the Company reclassified a loss of $0.2 million on the forward contracts for the years ended December 31. . . with terms of less than one year. .4 million. Of the over 800 hotels that the Company manages or franchises for third party owners. and their change in fair value is recorded in the Company’s consolidated statement of income. . . . The Company determines if it is the primary beneficiary of the hotel by considering qualitative and quantitative factors. These gains were offset by losses in the revaluation of cross-currency intercompany loans.0. . . . $ 98 Other long-term obligations . resulting in a gain of $0. Note 23. INC. respectively. . . 4 Total contractual obligations . . . . cash flows and the market value of the Company’s debt. The Company’s objective is to manage the impact of interest rates on the results of operations. 2007. . . . . . 2008. generally in the form of investments. with average exchange rates of 1. . These forward contracts have been designated as cash flow hedges under the provisions of SFAS No. . or equity. Each of these hedges was highly effective in offsetting fluctuations in foreign currencies.STARWOOD HOTELS & RESORTS WORLDWIDE. . . The fair value of these contracts has been recorded as an asset of $6 million at December 31. . The Company had the following commercial commitments outstanding as of December 31. and the capital structure. . 2008 and December 31. Quantitatively. Qualitative factors include evaluating distribution terms. .8 million from accumulated other comprehensive income to the management fees. 133. during the year ended December 31. . In connection with these settlements and the forecasted transactions occurring. respectively. . . decision making ability. . . . . $102 $35 — $35 $59 3 $62 $2 1 $3 $ 2 — $ 2 (a) Included in these balances are commitments that may be reimbursed or satisfied by the Company’s managed and franchised properties. The fair value of these contracts has been recorded as a liability of $3 million and an asset of $1 million at December 31. . respectively. . . . the Company evaluates financial forecasts to determine which would absorb over 50% of the expected losses of the hotel. loans. 2008. . .4 million and $4. the Company has evaluated approximately 21 hotels that it has a variable interest in. . . . 133. . . As of December 31. . . . . From time to time. . the fair value of the Company’s outstanding interest rate swaps was a liability of approximately $6 million and was included in other liabilities in the Company’s consolidated balance sheet. These forward contracts do not qualify as hedges under the provisions of SFAS No. Additionally. Commitments and Contingencies Due in Less than 1 Year Due in 1-3 Years Due in 3-5 Years Due After 5 Years The Company had the following contractual obligations outstanding as of December 31. NOTES TO FINANCIAL STATEMENTS — (Continued) foreign currencies. 2008 and 2007 respectively. 2007. the Company terminated its outstanding interest rate swap agreements. . . . $115 $115 $— $— $— Variable Interest Entities. The notional dollar amount of the outstanding Euro and Canadian forward contracts at December 31. . . The Company also enters into forward contracts to manage foreign exchange risk on intercompany loans that are not deemed permanently invested. . . . . . franchise fees and other income line item in the consolidated statement of income. An immaterial amount of loss due to ineffectiveness was recorded in the consolidated statement of income. . . . . proportional voting rights. . . . The Company recorded gains of $14. . During the first quarter of 2008. 22 forward contracts were settled. . . . the Company enters into interest rate swap agreements to manage interest expense. 2008 (in millions): Amount of Commitment Expiration Per Period Less Than After 1 Year 1-3 Years 3-5 Years 5 Years Total Standby letters of credit .5 and 1.

2007. At December 31. Most of these performance guarantees allow the Company to terminate the contract rather than fund shortfalls if certain performance levels are not met. believes these loans are collectible. generally in the form of working capital. the Company agreed to provide up to $28 million in mezzanine loans and other investments (all of which has been funded) as well as various guarantees. In connection with this project. 2008 totaled $91 million. the Company had approximately $52 million of investments associated with 20 VIEs. In all cases. In addition. the Company is obliged to fund shortfalls in performance levels through the issuance of loans. equity investments of $11 million associated with two VIEs and loan balances of $7 million associated with two VIEs. the $28 million in mezzanine loans and other investments. the majority of which were required by state or local governments relating to the Company’s vacation ownership operations and by its insurers to secure large deductible insurance programs. the Company may provide performance guarantees to third-party owners. which opened in June 2006. In limited cases. The Company continues to manage this hotel subject to the pre-existing management agreement. The hotels are financed by the owners. equity investments of $10 million associated with one VIE. In accordance with the management agreement. excluding the Le Méridien management agreement mentioned below. the Company entered into a long-term management contract to manage the Westin Boston. and debt. 2007. Massachusetts. Guaranteed Loans and Commitments. The Company evaluates these loans for impairment. During 2004. are tied to the results of a competitive set of hotels. Many of the performance tests are multi-year tests. These loans typically are secured by pledges of project ownership interests and/or mortgages on the projects. $53 million of which. 2008. In addition. Loans outstanding under this program totaled $28 million at December 31. equity. In limited cases. Unfunded loan commitments aggregating $64 million were outstanding at December 31. would be funded over several years and would be largely offset by management fees received under these contracts. $52 million of which is expected to be funded in 2009. At December 31. which is included in management fees. which was limited to the interest expense on the amounts drawn under such debt and principal amortization and a completion guarantee for this project. NOTES TO FINANCIAL STATEMENTS — (Continued) determined it is not the primary beneficiary of any of the variable interest entities (“VIEs”) and they should not be consolidated in the Company’s financial statements. the Company has approximately $66 million of investments associated with 19 VIEs. the VIEs associated with the Company’s variable interests are hotels for which the Company has entered into management or franchise agreements with the hotel owners. Seaport Hotel in Boston. and a loan balance of $5 million associated with one VIE. 2008. At December 31. and have exclusions for force majeure and acts of war and F-44 . including a principal repayment guarantee for the term of the senior debt which was capped at $40 million. the Company has made loans to owners of or partners in hotel or resort ventures for which the Company has a management or franchise agreement. The Company is paid a fee primarily based on financial metrics of the hotel. 2008. To secure management contracts.STARWOOD HOTELS & RESORTS WORLDWIDE. the sale of the hotel also resulted in the payment of a fee to the Company of approximately $18 million. a debt service guarantee during the term of the senior debt. was repaid in full. INC. if required. 2008. together with accrued interest. In January 2007 this hotel was sold and the senior debt was repaid in full. the Company had five management contracts with performance guarantees with possible cash outlays of up to $74 million. franchise fees and other income in the consolidated statement of income for the year ended December 31. 2008. Surety bonds issued on behalf of the Company at December 31. none of which are expected to be funded in 2009 and $46 million are expected to be funded in total. As the Company is not obligated to fund future cash contributions under these agreements. and at December 31. The Company also has $110 million of equity and other potential contributions associated with managed or joint venture properties. the maximum loss equals the carrying value. the Company has not contributed amounts to the VIEs in excess of their contractual obligations.

However. ordinances and regulations. Inc. Accruals have been recorded when the outcome is probable and can be reasonably estimated. In connection with the acquisition of the Le Méridien brand in November 2005.STARWOOD HOTELS & RESORTS WORLDWIDE. 2008 and 2007 were $83 million and $88 million. (“ITT Industries”). generally. including operations and tax liabilities. In connection with this Distribution. for basic pay rates. respectively. The Company is involved in various legal matters that have arisen in the normal course of business. the former ITT Corporation. NOTES TO FINANCIAL STATEMENTS — (Continued) terrorism. or was responsible for. the Company believes that it is unlikely that it will have to fund any of these liabilities. INC. and management believes that the Company’s employee relations are satisfactory. distributed to its stockholders all of the outstanding shares of common stock of ITT Corporation. the Company has estimated its exposure under this guarantee and does not anticipate that payments made under the guarantee will be significant in any single year.S. approximately 37% of the Company’s U. While the ultimate results of claims and litigation cannot be determined. However. The estimated fair present value of this guarantee of $7 million is reflected in other liabilities in the accompanying consolidated balance sheet at December 31. renamed ITT Industries. some of which include claims for substantial sums. ITT Industries. the Company believes that it will not have to make any material payments under such indemnities.. respectively. the Company assumed the obligation to guarantee certain performance levels at one Le Méridien managed hotel for the periods 2007 through 2013. The indemnity is limited to the financial resources of that entity. at this time. This guarantee is uncapped.-based employees were covered by various collective bargaining agreements providing. The Company is subject to certain requirements and potential liabilities under various federal. labor relations have been maintained in a normal and satisfactory manner. the Company and ITT Industries have entered into various agreements including a spin-off agreement. 2008. Collective Bargaining Agreements. state and local environmental laws. At December 31. standby letters of credit amounting to $115 million and $101 million. Estimated insurance claims payable at December 31. the presence of such hazardous or toxic substances. 2008 and 2007. ITT Corporation. For purposes of governing certain of the ongoing relationships between the Company and ITT Industries after the Distribution and spin-off of ITT Corporation and to provide for an orderly transition. In connection with the sale of 33 hotels to Host in 2006. an unfavorable resolution of some or all of these matters could materially affect the Company’s future results of operations or cash flows in a particular period. the Company changed the name of ITT Corporation to Sheraton Holding Corporation. Inc. Captive Insurance Company. management anticipates that such costs will not have a material adverse effect on the operations or financial condition of the Company. In connection with the purchase of the Le Méridien brand in November 2005. In 1995. At December 31. the Company agreed to indemnify Host for certain liabilities. Generally. financial position or cash flow. Employee Benefits Services and F-45 . Environmental Matters. At this time. Although the Company has incurred and expects to incur remediation and other environmental costs during the ordinary course of operations. other conditions of employment and orderly settlement of labor disputes. However. The Company does not anticipate any significant funding under these performance guarantees in 2009. the Company does not expect that the resolution of all legal matters will have a material adverse effect on its consolidated results of operations. which was then named ITT Destinations. 2008 and 2007. The letters of credit are guaranteed by the Company. then a wholly owned subsidiary of ITT Industries (the “Distribution”). Such laws often impose liability without regard to whether the current or previous owner or operator knew of. the Company was indemnified for certain of Le Méridien’s historical liabilities by the entity that bought Le Méridien’s owned and leased hotel portfolio. had been issued to provide collateral for the estimated claims. The Company does not anticipate losing a significant number of management or franchise contracts in 2009. Subsequent to the acquisition of ITT Corporation in 1998. Litigation. depending on the amount and the timing. changed its name to ITT Corporation. working hours.

as part of the Host Transaction. The hotel segment generally represents a worldwide network of owned. losses on asset dispositions and impairments. Four Points» by Sheraton. the Company entered into an indemnification agreement with Host for certain obligations including those associated with the Distribution. interest expense. W». NOTES TO FINANCIAL STATEMENTS — (Continued) Liability Agreement. F-46 . The performance of the hotels and vacation ownership and residential segments is evaluated primarily on operating profit before corporate selling. restructuring and other special charges and income tax benefit (expense). The vacation ownership and residential segment includes the development. net of interest income. As discussed in Note 1. Aloft» and Element» as well as hotels and resorts which are managed or franchised under these brand names in exchange for fees. Le Méridien». Regis». leased and consolidated joint venture hotels and resorts operated primarily under the Company’s proprietary brand names including St. Business Segment and Geographical Information The Company has two operating segments: hotels and vacation ownership and residential. Based on available information. The Luxury Collection». INC. financial position or cash flows. Sheraton». the Company sold the shares of Sheraton Holding to Host. marketing and selling VOIs. licensing fees from branded condominiums and residences and the sale of residential units. Note 24. general and administrative expense. management does not believe that these matters would have a material impact on the Company’s consolidated results of operations. In connection with this transaction. Westin». Tax Allocation Agreement and Intellectual Property Transfer and License Agreements. The Company does not allocate these items to its segments. providing financing to customers who purchase such interests. ownership and operation of vacation ownership resorts. The Company may be liable to or due reimbursement from ITT Industries relating to the resolution of certain pre-spinoff matters under these agreements.STARWOOD HOTELS & RESORTS WORLDWIDE.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . net . . . . . . . . . . . . . . . . . . . . . . . .124 (213) (53) 858 — 55 11 (147) (44) $ 733 $ 242 21 43 $ 306 $6. .907 Operating income: Hotel . . . . . . . . . . . . .183 Corporate . . . . . . . . . . . . . . . . . . net . . general. . . . . . . . . . . . 29 Corporate . . . . . . . $9. . . . . . . . . INC. . net . . . . . . . . . NOTES TO FINANCIAL STATEMENTS — (Continued) The following table presents revenues. . . . . . . . . . . . . . . . . 2. administrative and other . . . . . . . . . . . . . . . . . .772 1. . . . 2008 and 2007. . . . . . . . . . . . . . . . . . . Restructuring and other special charges. . 894 Total . Selling. . . . . . $5. . operating income. . . . . . . . . . . . . . . . . . . . . . . . $ 251 Vacation ownership and residential . . . . . . . . . . . . . .622 $4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .081 (222) (20) 839 — 46 15 (215) (3) $ 682 $ 251 16 39 $ 306 Income from continuing operations before taxes and minority interest . . . . . . . . respectively. . . . . . 921 (161) (141) 619 — 12 4 (207) (98) $5.153 $ 878 246 1. . . . . . . . $ 330 Depreciation and amortization: Hotel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .703 (a) Includes $315 million and $341 million of investments in unconsolidated joint ventures at December 31. . . . . . . . . . . . . . . . . . $6. . . . . . . . . . . . . . . . . . . . F-47 . . . . . . . . . . . . . . . . . . . . . .918 932 $9. . . . . . . . Vacation ownership and residential . . . . . . . .116 $5. . . . . Loss on asset dispositions and impairments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Total . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 and 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 785 Vacation ownership and residential . . . . . . . Gain on sale of VOI notes receivable . . . . . . . . . . .979 $ 828 253 1. . . . . . .013 Vacation ownership and residential . . . . . . . . .863 1. . . . . . . . . . . . 136 Total segment operating income . . . . . Equity earnings and gains and losses from unconsolidated ventures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .728 Vacation ownership and residential(b) . . . . . . . . . . . . . . . . 792 Total . . . . . . . . . . . . . . . . . $ 323 Assets: Hotel(a) . . . .STARWOOD HOTELS & RESORTS WORLDWIDE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . net: Hotel . . . . . . . . . .153 $6. . . . . . . . . . . . . . . . . . . . . . . respectively. . . . . . . . . . . . . .000 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5. . . . . assets and capital expenditures for the Company’s reportable segments (in millions): 2008 2007 2006 Revenues: Hotel . . . . . . . . . . . . . . . . (b) Includes $38 million and $42 million of investments in unconsolidated joint ventures at December 31. . . . . . . . . . . . . . . . .

. . . . . $4. . . . . . . .027 $3. . . . . . . . . . . . . . . . . .326 $5. . . . . .907 $4. . . . . . . . . . . . . . . . . . . . 2008 or 2007. . . . . . . .STARWOOD HOTELS & RESORTS WORLDWIDE. . . . . . . . . . .153 $4. . . . . . . . . . there were no individual international countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .211 370 1. . . . . . . . . . . . . . 2008. . . . . . .563 380 1. . INC. . . . .273 Other than Italy. . . . . . . . . . $282 Vacation ownership and residential . . . . . . F-48 . . . . . . . . . . . . 110 Corporate. . . . . . . . . . . . . . . . . . . .981 $2. Italy. . . or 10% of the total long-lived assets of the Company as of December 31. . . . . . . . . 2007 or 2006. . . . . . . . . . . . . . . . . . . which comprised over 10% of the total revenues of the Company for the years ended December 31. . . . . . . . . . . . . . . .552 402 1. . . . . . . .979 $2. . . . .204 $4. . Total .576 493 1. . . . . . . NOTES TO FINANCIAL STATEMENTS — (Continued) Capital expenditures: Hotel . . . . 84 Total . . . . . . . . . . . . .580 375 1. . . . . . . . . . . . . . . . . $476 $211 96 77 $384 $245 78 48 $371 The following table presents revenues and long-lived assets by geographical region (in millions): 2008 Revenues 2007 2006 Long-Lived Assets 2008 2007 United States . . . . . . . . .210 $6. . . . . . . . . . . All other international . . . . . . . . . . . . . . . . . .024 $5. . .

. .69 $ — $ 0. . . . . . . . . . .40 $ 0. except per Share data) Year 2008 Revenues . . . . .56 $1. . . Discontinued operations .431 $1. . . . . . . . . . .368 $ 146 $ — $ 146 $ 1. . . . . . . . . . . . . . . Earnings per Share: Basic — Income from continuing operations . . . . . . . .63 $ 0. . . . .268 $ (45) $ 124 $ 79 $5. . . . .57 $ — $ 2. . . . . .63 $ — $ 0. . . . . . . . . . . . .17 $ 0. . . . . .57 F-49 .153 $5. . .25) $ 0. . .573 $1. .56 $ — $ 0. .535 $1. . . . . 2007 Revenues . . . . . .383 $ 145 $ — $ 145 $ 0. . .25) $ 0.63 $ 0. . . . .288 $ 254 $ 75 $ 329 $ 0. . . . . . . . . . . . . .74 $ — $ 0. . . .58 $ — $ 0. .572 $1. Costs and expenses . .58 $ (0. . . . Earnings per Share: Basic — Income from continuing operations . . . . .40 $ 1. . . . .77 $6. . . . . . . . . . . . . . . . . . . . . . . . . . . .43 $1. . . . . . . .61 $ 0. Discontinued operations . . .56 $ 0. . . . . . . . . Discontinued operations . . Diluted — Income from continuing operations . . .250 $ 123 $ (1) $ 122 $ 0. . . . . . .17 $1. .26) $ 0. . . . . . . .374 $ 107 $ (2) $ 105 $1. . . . . . .67 $ — $ 2.67 $ — $ 0. Net income.77 $ 0. . . . . . . . . . . . .61 $ — $ 0. . . Quarterly Results (Unaudited) March 31 Three Months Ended June 30 September 30 December 31 (In millions. .44 $ (0. . Costs and expenses . . . . . . . . . . . Net income . . . . . . . . . . . .25) $ 0. Diluted — Income from continuing operations . . . . . . . .67 $ 0. . . . Net income. . . . . . .907 $5. . .74 $ 2. . . . . . . . .320 $ 79 $ (47) $ 32 $1.326 $ 113 $ — $ 113 $1. . .42 $ (0. . . . . . . .STARWOOD HOTELS & RESORTS WORLDWIDE. . Net income . . . . . . . . . . . Discontinued operations . .540 $1. .294 $ 129 $ — $ 129 $ (0. . . . $1. . . Discontinued operations . . . . . . . . . .56 $ — $ 0. . . .333 $1. . . . . . . . . . . . . .67 $ 2. . . Net income . . . . . . . . .43 $ (0.41 $ 1. . . . . . . . . . . . . .68 $ 0.63 $ — $ 0. NOTES TO FINANCIAL STATEMENTS — (Continued) Note 25. . . . . . .69 $ 0. . . . . . .77 $ — $ 0. Income from continuing operations . . . . . . . . Net income .466 $1.62 $ — $ 0. .62 $1. . . . . . . . . . . . .610 $1. .37 $ 0. .57 $ 0.01) $ 0. . . . . . . . . . . . . . . . . . . . . .58 $ 0. .81 $ 1. Income from continuing operations . . . . INC. . . . . . . . .295 $ 543 $ (1) $ 542 $ 0. . . . . . . . Discontinued operations . . . . . . .69 $ 0.

. . .. .. ... . .. ... . ...... . . .. . .. Reserves included in accrued and other liabilities: Restructuring and other special charges .. . .. . . .. . . ... 2007 Trade receivables — allowance for doubtful accounts . . . . .... . .. . . . ..... . . Plant.. . . . . .. . . . . . . ... . . . . ... . . . . Notes receivable — allowance for doubtful accounts . . .. . .. . ..... . . . .. . .. . . . . . ... . . .. . .. . .. .. . . . . . . . .. . .. .. .. . .. . .. . . Notes receivable — allowance for doubtful accounts . . . . . . . . . Total charged to/from other accounts . . . . .. . . . . ... .. Accrued expenses . . .. . . . . . . . . . . . . . . . ... .... .. ... . . . . . . ... .. .. . .. .. APIC . . . .. . .. .. . . APIC . . . . . Reserves included in accrued and other liabilities: Restructuring and other special charges ... . ... . . . .. ... . . .. .. . . .. . ... .. . . .. .. .. . .. . . . . .. . . . . . . .. .. . . . 2007 Cash .. . . .... . ... .... . . .. . .. Plant. . .. ... . .. .. .. . .. . . . . ... .. .. ... . ... .. . . . . . . ..... . .. ... .. . . . . . . ... .. . ... . 2008 Trade receivables — allowance for doubtful accounts . .. . . .. ... . . .. . .. . . . . Reserves included in accrued and other liabilities: Restructuring and other special charges .. .. . ... . .. . . . .. . . ... .. . . . . . . . .. . .. . . .. . . . .. ... . . . .. . .. . ... . . .. . . .. . INC. . . . .. . . .. . .. .. .. . .. . . . . . . ... . . . .. . .. .... . .. . . . . . . . . . .. . . . . . . . ... .. .. . . . . .. . . . . . $50 $94 $ 9 $49 $74 $11 $50 $81 $28 $ 8 $ 3 $— $(83) $ 6 $ (9) $(46) $ 3 $ 7 $ (4) $(12) $(32) $(26) $(11) $ (8) $ (9) $ (3) $(40) $(33) $ 49 $117 $ 41 $ 50 $ 94 $ 9 $ 49 $ 74 $ 11 $ 55 $141 $ 6 $ 37 $ 53 $ (1) $ 26 $ 20 (a) Charged to/from other accounts: Description of Charged to/from Other Accounts 2008 Investments. . .. . . property and equipment . . . . . . . . .. . . .. . . property and equipment . .. . . . .. . . . .. . .. .. . . . . . .. .. . . .... . .. . . . . . . ... . . . . . . . . .. . . .. 2006 Trade receivables — allowance for doubtful accounts . .. . . . . . .. ... . .. . ... Total charged to/from other accounts . ... .. . . Total charged to/from other accounts . .. . ... . . . . . . . .. $ (7) (66) 3 (14) 4 $(80) $ 2 $(48) (3) $(49) $ 9 1 (4) $ 6 2006 Other assets .. . .. . . Notes receivable — allowance for doubtful accounts . . VALUATION AND QUALIFYING ACCOUNTS (In millions) Additions (Deductions) Charged Charged to/reversed to/from Other from Payments/ Accounts(a) Expenses Other Balance January 1..SCHEDULE II STARWOOD HOTELS & RESORTS WORLDWIDE. . .. Other assets . . . .. . S-1 . . . ... . . ... . . . . .. . . . . . . . . . . . . . . . .... . .. . . . . . .. . . .. .. .. .. . .. . .. . . ... . . .. ... . .. .. . . Balance December 31.. .. .. .. . Other assets . . . Accrued expenses ... . . ..

1 to the Company’s Current Report on From 8-K filed with the SEC on November 14. 2005). 2005. the form of Rights Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Stock as Exhibit C) (incorporated by reference to Exhibit 4. 2007 (incorporated by reference to Appendix A to the Company’s 2007 Notice of Annual Meeting and Proxy Statement).1 3. among the Company. 1995. Exhibits: Exhibit Number Description of Exhibit 2.C. as Rights Agent (which includes the form of Amended and Restated Articles Supplementary of the Series A Junior Participating Preferred Stock as Exhibit A. among the Company and the Starwood Partners (incorporated by reference to Exhibit 10.PART IV Item 15. Exhibits. as trustee (incorporated by reference to Exhibit 4.3 to the April 13 Form 8-K). as of May 30.3 4. dated as of November 11. 1999). 1995 between ITT Corporation (formerly known as ITT Destinations. 2006 (the “April 13 Form 8-K”). Starwood Hotels & Resorts Worldwide. dated as of November 15. Amendment to Amended and Restated Bylaws of the Company.. 2006 (incorporated by reference to Exhibit 3. Inc. 2006). (a) The following documents are filed as a part of this Annual Report: 1-2.5 Formation Agreement. among ITT Corporation.1 2. dated as of November 14.1 4. 2006. Inc.. (The SEC file number of all filings made by the Company pursuant to the Securities Exchange Act of 1934.2 2. as amended.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 13. L.A. 1995 (Registration Nos. the Company and The Bank of New York (incorporated by reference to Exhibit 4.1 of the Joint Current Report on Form 8-K filed with the SEC on March 29. 1 to Formation Agreement.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 8. Sheraton Holding Corporation and SLT Realty Limited Partnership (the “Merger Agreement”) (incorporated by reference to Exhibit 10.3 2. 1994). Second Indenture Supplement.A. Amended and Restated Rights Agreement. dated as of April 7. among Host Marriott Corporation.23 to the Company’s Registration Statement on Form S-2 filed with the SEC on June 29. 51 . 3. The financial statements and financial statement schedule listed in the Index to Financial Statements and Schedule following the signature pages hereof. N. Amendment Agreement. Form of Amendment No.P.. Financial Statement Schedules. among the Company. Host Marriott. Amended and Restated Bylaws of the Company.4 3. L. 33-59155 and 33-59155-01)). dated as of July 1995. Starwood Capital and the Starwood Partners (incorporated by reference to Exhibit 2 to the Company’s Current Report on Form 8-K dated November 16.4 4. and referenced herein is 1-7959). Articles of Amendment and Restatement of the Company. Starwood Hotels & Resorts.P. dated as of April 9.) and the First National Bank of Chicago.. Horizon Supernova Merger Sub. Master Agreement and Plan of Merger.2 of the April 13 Form 8-K).1 to the Company’s Current Report on Form 8-k filed with the SEC on March 18. 1996). 2008). 2006 between the Company and the Trust (incorporated by reference to Exhibit 4. 2006. as trustee (incorporated by reference to Exhibit 4.2 4. Amended and Restated Indenture.IV to the First Amendment to ITT Corporation’s Registration Statement on Form S-3 filed November 13. L. as Amended and Restated as of December 15.. First Indenture Supplement. 2008 (incorporated by reference to Exhibit 3. dated as of March 13.3 4. 1994.2 3. between the Company and American Stock Transfer and Trust Company.L. dated as of December 31.1 of the April 13 Form 8-K). 1998. Horizon SLT Merger Sub. Termination Agreement dated as of April 7. dated as of March 24. as amended and restated through April 10. Sheraton Holding Corporation and Bank of New York Trust Company. to the Merger Agreement (incorporated by reference to Exhibit 2. 2006.

2006). Bank National Association. Form of Trademark License Agreement.1 10. dated as of September 13.6 4. between the Company and the U. 2007. dated as of April 11.7 10. including indentures.Exhibit Number Description of Exhibit 4. among the Company. to the Credit Agreement (incorporated by reference to Exhibit 10.8 4. 1997 (the “1997 Form 10-K”)). 2007). Inc. and Societe Generale. 2006). to the Credit Agreement (incorporated by reference to Exhibit 10.6 10. as administrative agent and various lenders party thereto (incorporated by reference to Exhibit 10. First Amendment. dated as of May 23.9 10. dated as of June 29.. as trustee (incorporated by reference to Exhibit 4.22 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 17. Second Amendment. 2007 (the “September 17 Form 8-K”)). as trustee (incorporated by reference to Exhibit 4. 2006). 2006. to the Credit Agreement (incorporated by reference to Exhibit 10. Deutsche Bank AG New York Branch. 2008). as Co-Documentation Agents. dated as of February 10.2 to the September 17 Form 8-K”).8 10. certain additional Dollar Revolving Loan Borrowers. between the Company and U.1 to the Company’s Current Report on Form 8-k filed with the SEC on May 28. Fifth Amendment. among the Company.5 10.S. N. Supplemental Indenture. Deutsche Bank Securities Inc. dated as of March 31. as Senior Managing Agents and Nizvho Corporate Bank. to the Credit Agreement. Bank National Association.11 Indenture.A.4 10. as Managing Agent (the “Credit Agreement”) (incorporated by reference to Exhibit 10. among the Company. Starwood Hotels & Resorts Worldwide. 2. dated as of December 20.2 10. various Lenders. and the Royal Bank of Scotland PLC.S. 2008. 2007. Credit Agreement. dated January 6. N. 2002 (the “2002 Forms S-4”)).1 to the Company’s and Sheraton Holding Corporation’s Joint Registration Statement on Form S-4 filed with the SEC on November 19. and Calyon New York Branch.7 4. 2007.A.9 10. Fourth Amendment. 2007. defining the rights of long-term debt holders of the Registrants and their consolidated subsidiaries upon the request of the Commission. Bank National Association. dated as of April 19. (incorporated by reference to Exhibit 10. 2007).A. Supplemental Indenture No. as trustee (incorporated by reference to Exhibit 4. Citicorp North America. JPMorgan Chase Bank.. Inc. dated as of December 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 15. dated as of February 10. 2006.S. 1995 Long-Term Incentive Plan (the “Company’s 1995 LTIP”) (Amended and Restated as of December 3.10 10. Ltd. J.01 to the Company’s Current Report on Form 8-K. Bank of America. Third Amended and Restated Limited Partnership Agreement for Operating Partnership. as Syndication Agents.P. 2008). 2006. between the Company and the U. dated as of June 29.. Credit Agreement.S.3 10. filed with the SEC on July 5. Morgan Securities Inc.1 of the Company’s Current Report on Form 8-K filed with the SEC on April 4. Third Amendment dated as of April 27. Bank of America. The Bank of Nova Scotia.2 to the 1998 Form 10-K). certain additional Alternate Currency Revolving Loan Borrowers. The Registrants hereby agree to file with the Commission a copy of any instrument. and Banc of America Securities LLC. as Administrative Agent.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 15. to the Credit Agreement (incorporated by reference to Exhibit 10. Bank National Association.1 of the Company’s Current Report on Form 8-K filed with the SEC on July 6. 2006. N. Indenture. 2007. dated as of September 13. between Starwood Capital and the Company (incorporated by reference to Exhibit 10. as Lead Arrangers and Book Running Managers. 2007). 2008.(1) Second Amendment to the Company’s 1995 LTIP (incorporated by reference to Exhibit 10.3 to the 2003 10-Q1). as trustee (incorporated by reference to Exhibit 4. 2002. 1998) (incorporated by reference to Annex E to the 1998 Proxy Statement). among the Company and the limited partners of Operating Partnership (incorporated by reference to Exhibit 10. 1997.(1) 52 . the guarantor parties named therein and U.1 to the Company’s Current Report on Form 8-K filed on April 30. 1999.

2001 (incorporated by reference to Exhibit 10.(1) Annual Incentive Plan for Certain Executives.3 to the Company’s Current Report on Form 8-K filed with the SEC on January 6.10 to the 2003 Form 10-K). dated as of November 13.30 to the 2004 Form 10-K).2 to the 2006 Form 10-Q2). amended and restated as of December 2008 (incorporated by reference to Exhibit 10. 1999 Long-Term Incentive Compensation Plan (the “1999 LTIP”) (incorporated by reference to Exhibit 10.13 10. Inc.1 to the Company’s Current Report on Form 8-K filed August 17. 2006 (the 2006 Form 10-Q2”)). 2002 Long-Term Incentive Compensation Plan (the “2002 LTIP”) (incorporated by reference to Annex B of the Company’s 2002 Proxy Statement).2 to the 2003 10-Q1).(1) Form of Amended and Restated Non-Qualified Stock Option Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10. Inc.68 to the 2003 10-K).21 10.22 10.2 to the January 2009 8-K).(1) Form of Amended and Restated Restricted Stock Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10. 2001).(1) 2004 Long-Term Incentive Compensation Plan.31 to the 2004 Form 10-K). 2003 (the “2002 10-K”)).(1) Starwood Hotels & Resorts Worldwide. Amended and Restated Deferred Compensation Plan.28 10.31 10. 2007).30 10.16 10. 2003. amended and restated as of December 31.(1) Employment Agreement. effective as of January 22.12 10.(1) Form of Restricted Stock Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.26 10. 2008 (“2004 LTIP”) (incorporated by reference to Exhibit 10.18 10.25 10.(1) Form of Restricted Stock Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.23 10. 2007 (the “August 17 Form 8-K”)). between the Company and Vasant Prabhu (incorporated by reference to Exhibit 10. Inc. 2006 (the February 2006 Form 8-K”)).Exhibit Number Description of Exhibit 10.19 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30.38 to the 2004 Form 10-K).(1) First Amendment to the 2002 LTIP (incorporated by reference to Exhibit 10.35 to the 2004 Form 10-K). 2009 (the “January 2009 8-K”)). dated August 14.33 Form of Non-Qualified Stock Option Agreement pursuant to the Company’s 1995 LTIP (incorporated by reference to Exhibit 10.14 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30.1 to the February 2006 Form 8-K).26 to the 2004 Form 10-K).1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30.35 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31.27 10.(1) Starwood Hotels & Resorts Worldwide.32 10. 2008 (incorporate by reference to Exhibit 10.(1) First Amendment to the 1999 LTIP.(1) Letter Agreement. 1999 (the “1999 Form 10-Q2”)).49 to the 2002 Form 10-K filed on February 28.29 10.(1) Form of Non-Qualified Stock Option Agreement pursuant to the 2002 LTIP (incorporated by reference to Exhibit 10.15 10.(1) Second Amendment to the 1999 LTIP (incorporated by reference to Exhibit 10.(1) Form of Restricted Stock Agreement pursuant to the 1999 LTIP (incorporated by reference to Exhibit 10.1 to the 2003 10-Q1).(1) Form of Non-Qualified Stock Option Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.(1) Form of Indemnification Agreement between the Company and each of its Directors/Trustees and executive officers (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed February 13. 2007.(1) Starwood Hotels & Resorts Worldwide.20 10. between the Company and Vasant Prabhu (incorporated by reference to Exhibit 10. dated as of August 1.(1) Form of Non-Qualified Stock Option Agreement pursuant to the 1999 LTIP (incorporated by reference to Exhibit 10.(1) Form of Non-Qualified Stock Option Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.(1) 53 .(1) Form of Restricted Stock Agreement pursuant to the 2002 LTIP (incorporated by reference to Exhibit 10.4 to the 2004 Form 10-Q2).17 10.24 10.

34 10. to Employment Agreement between the Company and Steve J. dated December 6. dated August 14.(1) Letter Agreement.(1) Amendment. 2008. 1999. dated August 14.73 to the 2004 Form 10-K). 2007).(1) Letter Agreement. between the Company and Matthew Ouimet (incorporated by reference to Exhibit 10. between the Company and Frits van Paasschen.44 10. the Company and Raymond Gellein. between the Company and Matthew A. 2006.(1) Employment Agreement.Exhibit Number Description of Exhibit 10.5 to the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30.(1) Separation Agreement and Mutual General Release of Claims. between the Company and Matthew A.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 24. 2007 (the 2007 10-Q3). dated July 18. Duncan (incorporated by reference to Exhibit 10. (incorporated by reference to Exhibit 10. dated as of December 30. 2008. dated as of August 2. between the Company and Kenneth S. 2004 between the Company and Kenneth Siegel (incorporated by reference to Exhibit 10.52 Amendment. Heyer (incorporated by reference to Exhibit 10. dated as of November 13.(1) Form of Restricted Stock Unit Agreement between the Company and Steven J.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 2.2 to the August 17 Form 8-K). 2006 (the “2006 Form 10-K”)). 2005.(1) Separation Agreement and Mutual General Release of Claims between the Company and Steven J.51 10.42 10.40 10. Jr.43 10.(1) Form of Restricted Stock Unit Agreement between the Company and Bruce W.(1) Form of cash bonus award between the Company and Raymond L.50 10.1 to the Company’s Current Report on Form 8-K filed August 17.45 10. dated as of December 30. 2007 (the “August 17 Form 8-K”)).41 10.(1) Employment Agreement. to employment agreement between the Company and Vasant Prabhu. 2008). dated as of September 20. Ouimet (incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q for the quarterly period ended September 30. Heyer (incorporated by reference to Exhibit 10.(1)(2) Employment Agreement. effective as of August 31.(1) Form of Non-Qualified Stock Option Agreement between the Company and Steven J. 2004).70 to the 2004 Form 10-K). 2007. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30. Jr.(1) Letter Agreement.2 to the 2007 Form 10-Q1). Siegel (incorporated by reference to Exhibit 10. 2004.49 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31. Duncan pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.36 10.45 to the Company’s Annual Report on Form 10-K for the period ended December 31. 2003.35 10. Jr.57 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31. between Starwood Vacation Ownership and Raymond Gellein. between the Company and Kenneth Siegel (incorporated by reference to Exhibit 10. between the Company and Steven J.(1) Amendment. 2005). Heyer pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10. 2008.(1) Amendment agreement.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 27.37 10. between the Company and Bruce W. Ouimet (incorporated by reference to Exhibit 10.49 10. (incorporated by reference to Exhibit 10. 2006).(1)(2) Employment Agreement. to employment agreement between the Company and Kenneth S.48 10. 2007. Siegel.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31. dated as of May 4.(1)(2) 54 . dated as of September 21. 2008. 2007).47 10. 2007.38 10. among Starwood Vacation Ownership. 2000 (the “2000 Form 10-K”)). dated as of December 30.(1) Amended and Restated Employment Agreement. 2007. 2007) Employment Agreement. Heyer (incorporated by reference to Exhibit 10. dated July 22.71 to the 2004 Form 10-K).39 10. Gellein. Heyer pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.46 10.

(2) Subsidiaries of the Registrants.(1) Form of Severance Agreement between the Company and each of Messrs.2 32.55 10. Ouimet.5 to the 2007 Form 10-Q3).(2) Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code — Chief Financial Officer.1 23. 55 . Siegel and Prabhu.54 10.56 10.1 21.7 to the 2007 Form 10-Q3).(1) Form of Severance Agreement between the Company and each of Messrs.(1) Form of Restricted Stock Grant between the Company and Frits van Paasschen pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10. Gellein (incorporated by reference to Exhibit 10. (2) Filed herewith.53 10.Exhibit Number Description of Exhibit 10.(2) Consent of Ernst & Young LLP.1 31.6 to the 2007 Form 10-Q3).(1) Form of Restricted Stock Unit Agreement between the Company and Frits van Paasschen pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.3 to the 2006 Form 10-Q2).1 32.1 31.2 Form of Non-Qualified Stock Option Agreement between the Company and Frits van Paasschen pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.(2) (1) Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(a)(iii) of Form 10-K.(2) Certification Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 — Chief Executive Officer.(2) Certification Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 — Chief Financial Officer.57 12.(2) Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code — Chief Executive Officer.(1)(2) Calculation of Ratio of Earnings to Total Fixed Charges.

Schnaid /s/ ADAM M. 2009 Director February 27. this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. 2009 February 27. 2009 February 27. Corporate Controller and Principal Accounting Officer Director February 27. SCHNAID Alan M.SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. Jr. Aron /s/ CHARLENE BARSHEFSKY Charlene Barshefsky /s/ THOMAS E. 2009 Director February 27. 2009 Executive Vice President and Chief Financial Officer (Principal Financial Officer) Senior Vice President. 2009 Director February 27. Daley. DALEY. Duncan /s/ VASANT M. 2009 Chairman and Director February 27. Signature Title Date /s/ FRITS VAN PAASSCHEN Frits van Paasschen /s/ BRUCE W. Clayton C. 2009 Director February 27. Prabhu /s/ ALAN M. STARWOOD HOTELS & RESORTS WORLDWIDE. INC. PRABHU Vasant M. By: /s/ FRITS VAN PAASSCHEN Frits van Paasschen Chief Executive Officer and Director Date: February 27. thereunto duly authorized. ARON Adam M. Clarke /s/ CLAYTON C. 2009 Director February 27. /s/ LIZANNE GALBREATH Lizanne Galbreath /s/ ERIC HIPPEAU Eric Hippeau Chief Executive Officer and Director February 27. DUNCAN Bruce W. 2009 Pursuant to the requirements of the Securities Exchange Act of 1934. 2009 56 . the Registrant has duly caused this Report to be signed on its behalf by the undersigned. JR. CLARKE Thomas E.

Signature Title Date /s/ STEPHEN R. QUAZZO Stephen R. 2009 Director February 27. 2009 Director February 27. Youngblood Director February 27. YOUNGBLOOD Kneeland C. 2009 57 . Ryder /s/ KNEELAND C. RYDER Thomas O. Quazzo /s/ THOMAS O.

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Haidian Four Points by Sheraton Changshu Four Points by Sheraton Colon Four Points by Sheraton Hangzhou. a Luxury Collection Hotel W W W W W Atlanta Buckhead Hong Kong Istanbul Minneapolis—The Foshay Scottsdale The Westin Huntsville The Westin Imagine Orlando The Westin Mount Laurel The Westin National Harbor The Westin Reston Heights The Westin Richmond The Westin Riverfront Resort and Spa. Regis Bali Resort St. Worth Hotel and Spa Sheraton Garden Grove—Anaheim South Hotel Sheraton Houston West Hotel Sheraton Huizhou Beach Resort Sheraton Jacksonville Hotel Sheraton JFK Airport Hotel Sheraton Louisville Riverside Hotel Sheraton Maldives Fullmoon Resort & Spa Sheraton Sheraton Sheraton Sheraton Sheraton Sheraton Mendoza Phoenix Downtown Hotel San Pablo Sopot Hotel St. Inc.New in 2008 The St. a Luxury Collection Hotel The Nines. Avon The Westin Verasa Napa Sheraton Athlone Hotel Sheraton Carlsbad Resort and Spa Sheraton Chicago Northbrook Hotel Sheraton Columbia Downtown Hotel Sheraton Dallas Hotel Sheraton Dallas North Hotel Sheraton Denver Hotel Sheraton Dreamland Hotel Sheraton Erie Bayfront Hotel Sheraton Ft. . Dubai Four Points by Sheraton Tallahassee North Four Points by Sheraton Tempe Four Points by Sheraton Victoria Gateway element Las Vegas Summerlin element Lexington Le Meridien Bangkok Le Meridien Chiang Mai Le Meridien Chiang Rai Resort Le Meridien Shimei Bay Beach Resort & Spa Le Meridien Towers Makkah The Westin Beijing Chaoyang Westin Book Cadillac The Westin Dubai Mina Seyahi Beach Resort & Marina The Westin Edina Galleria Starwood Hotels & Resorts Worldwide. Paul Woodbury Stonebriar Hotel aloft Beijing Hotel aloft Charleston Airport & Convention Center aloft Chesapeake aloft Chicago O’Hare aloft Denver International Airport aloft Dulles North aloft Frisco aloft Las Colinas aloft Lexington aloft Minneapolis aloft Montreal Airport aloft Nashville—Cool Springs aloft Ontario—Rancho Cucamonga aloft Philadelphia Airport aloft Plano aloft Portland Airport at Cascade Station aloft Rogers—Bentonville Four Points by Sheraton Asheville Downtown Four Points by Sheraton Beijing. Binjiang Four Points by Sheraton Houston Memorial City Four Points by Sheraton Jacksonville Baymeadows Four Points by Sheraton Levis Convention Centre Four Points by Sheraton Manhattan SoHo—Village Four Points by Sheraton Perinorte Four Points by Sheraton Philadelphia City Center Four Points by Sheraton Philadelphia Northeast Four Points by Sheraton Sheikh Zayed Road. Regis Punta Mita The Equinox Golf Resort & Spa. Manchester Village The Grand Mauritian Resort & Spa Hotel Ivy The Joule.

Inc. New York 10604 914 640 8100. account information. Although we believe the expectations reflected in such forwardlooking statements are based upon reasonable assumptions. operating risks associated with the sale of residential units. New York Stock Registrar & Transfer Agent Registered shareholders with questions concerning stock certificates. . Inc.com Investor Relations Starwood Hotels & Resorts Worldwide. © 2009 Starwood Hotels & Resorts Worldwide. Starwood Hotels & Resorts Worldwide. Inc. 1111 Westchester Avenue. and other circumstances and uncertainties.starwoodhotels. the impact of the internet reservation channels. (“Starwood”) on Form 10-K filed with the Securities and Exchange Commission may be obtained online at www. the impact of war and terrorist activity. travelers’ fears of exposure to contagious diseases. whether as a result of new information.com and by shareholders of record of Starwood without charge by calling 914 640 8100 or upon written request to: Independent Registered Public Accounting Firm Ernst & Young LLP.starwoodhotels. customers and property owners.Corporate Information Corporate Offices Starwood Hotels & Resorts Worldwide. cyclicality of the real estate. Further results. competition. risk associated with potential acquisitions and dispositions. www. These risks and uncertainties are presented in detail in our filings with the Securities and Exchange Commission.S. and the hotel and vacation ownership businesses. performance and achievements may be affected by general economic conditions including the timing and robustness of a recovery from the current global economic downturn. foreign exchange fluctuations. 1111 Westchester Avenue. 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. business and financing conditions. risk associated with the level of our indebtedness. we can give no assurance that our expectations will be attained or that results will not materially differ. Inc. We undertake no obligation to publicly update or revise any forward-looking statement. www. future events or otherwise. hotel and vacation ownership businesses. our reliance on technology. domestic and international political and geopolitical conditions. Inc. New York 10604 Note: This Annual Report contains forward-looking statements within the meaning of federal securities regulations. New York. White Plains. including the sale of residential units. relationships with associates.com Form 10-K and Other Investor Information A copy of the Annual Report of Starwood Hotels & Resorts Worldwide. New York. Starwood Hotels & Resorts Worldwide. governmental and regulatory actions (including the impact of changes in U.amstock. dividend payments or stock transfers should contact our transfer agent at: American Stock Transfer & Trust Company 59 Maiden Lane. White Plains. New York 10038 800 350 6202. and foreign tax laws and their interpretation). Inc.

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