2009 Proxy Statement & 2008 Annual Report

2009 PROXY STATEMENT & 2008 ANNUAL REPORT Designed by Curran & Connors, Inc. / www.curran-connors.com Dear Fellow Shareholders:

If we learned one thing in 2008, it was to expect the unex- costs and lay the foundation for future growth. Through AVA, pected, to prepare for the worst and to keep our nerve. we eliminated costs by streamlining activities and removing Business trends deteriorated throughout the year and this overlaps in our organization. negative momentum has continued into 2009. As part of our ongoing efforts to prepare for a worsening macro environ- Let me take a step back to explain why this was needed. ment, we began a rigorous cost-cutting program early in Remember that Starwood came together in the late 1990s as 2008, including a review of our spending with a focus on a patchwork of organizations—a small lodging REIT acquired reducing costs, improving productivity and reinvesting against Westin, ITT/Sheraton, Vistana and, most recently, Le Meridien. our growth priorities. I am pleased to report that we have This resulted in a large organization with multiple offices and been successful in this task. In fact, our cost discipline helped duplicate functions. While Starwood has performed well in us achieve strong results in each quarter of 2008 despite a spite of its complex structure, we saw the opportunity to save rapid deterioration in lodging demand. In 2009, we will con- even more money and become more agile. Equally important, tinue to focus on managing our costs without compromising we wanted to ensure our corporate structure was positioned our long-term growth plans for the company. to best support our properties and owners.

I would like to take this opportunity to thank Starwood’s For example, through the AVA process we eliminated almost talented team of Associates for delivering excellent results in 100 positions in our North American Division alone. In addition 2008, despite the weakening environment and the to focusing on cost cutting, as we went through the process Company’s focus on dramatically reducing overhead and we also looked at identifying areas that could be strength- property-level costs. ened to better meet the needs of our owners. This resulted in reorganizing some parts of the owner relations team to • We grew our managed and franchised revenues by improve communication and support. over 5% despite flat worldwide RevPAR. We also centralized many activities such as legal functions, • We added a record 87 hotels to Starwood’s global created a single service center for human resources, and are platform, representing 10% gross unit additions dur- consolidating certain accounts payable and payroll functions ing the year. in the United States. We also better aligned our development, architecture and design, and hotel opening teams to streamline • We increased our guest satisfaction scores across all the process from signing a contract to opening a property. of our brands, including strong debuts for aloft and Element. In total, the AVA process to date has generated a 30% reduction in personnel costs across many of our corporate • We sold six assets for cash proceeds of $320 million. and divisional functions. At Starwood’s Vacation Ownership business, we were able to reduce G&A by 45% and eliminate • We realigned our corporate and divisional struc- 35% of our sales force. In addition to the AVA process, our tures, resulting in annual run-rate savings of over overhead cost reduction efforts also focused on compensa- $100 million. tion. This included benchmarking most positions, allowing us to re-band jobs and make sweeping changes in equity compen- • We implemented top-down and bottom-up initiatives sation. Like many companies, we have also frozen salaries for to significantly reduce property-level costs. 2009. As mentioned earlier, the net result will be a run-rate savings of $100 million, and this includes only those savings Looking ahead, the good news is that we remain strongly already implemented. positioned for one of the most challenging demand environments the lodging industry—and the global economy—has The second area of our cost cutting focused on the property ever experienced. In addition to working toward the Five level. We began two major initiatives in 2008—one is bottom- Essentials that will drive our success over the long term, we up and the other is top-down. Between them, we should be are continuing to reduce our cost base. Cost control enabled able to offset inflationary pressures, significantly helping our us to weather the deteriorating fundamentals that accelerated results in 2009. To be clear, this is before the impact of any throughout 2008. To put the operating environment into variable cost savings associated with lower occupancy. perspective, worldwide owned RevPAR grew 5% in the first quarter, but declined 16% in the fourth quarter. While the Our bottom-up approach is called ‘lean operations’ and severity and breadth of the slowdown surprised us, we were involves using our talent to reduce work and waste. For well ahead of the curve from a cost reduction perspective example, we refined our staffing model to better match work which helped drive our better than expected results. demand, outsourced bakery and butcher positions, and expanded spans of control for managers and supervisors. Starwood’s efforts to reduce corporate overhead have created The lean operations team is working closely with our Six immediate savings as well as lasting changes to our way of Sigma team to implement these productivity enhancements doing business. We are using what we call Activity Value across our hotels. Analysis, or AVA, which is a rigorous process to address our

Starwood Hotels & Resorts Worldwide, Inc. Our top-down approach is known as normative modeling, 5. The fifth essential, generating ‘Market-Leading Returns,’ which employs analytics to ‘normalize’ hotel cost performance- hinges on our ability to realize global growth, unlock real based structural variables, such as room size and configura- estate value, and carefully manage costs. While we are tion, number of service elevators, and unionization. Normalizing waiting for capital markets to recover, selective sales of further assists us in identifying top performing hotels and per- real estate and prudent allocation of capital will advance formance gaps. As with lean operations, best practices are our transformation to an asset-light model. then rolled out to under-performers. Examples of this include reducing the number of housekeepers per occupied room We have often described the branded global hotel fee business and simplifying food and beverage concepts. At the same as one of the most attractive business models in the world— time, we are working with our owners to share these savings and we continue to believe this is true. The contracts are across the managed and franchised system. stable, capital-efficient and long-term. Fee growth is driven by three factors: RevPAR growth, unit additions, and incen- Procurement is the third area where we are reducing costs tive escalation. across the system. This includes introducing more categories to our buying programs, vendor consolidation, SKU rational- We have made substantial progress over the last few years in ization and improved compliance. These efforts have resulted growing our managed and franchised business and reducing in the ability to negotiate better contract terms for items such the size of our owned portfolio. Today, 53% of our EBITDA as food, flat screen TVs and laptops. Given our success from contribution is from fee income, up from 18% five years ago. recent negotiations, we anticipate additional direct savings of Our goal is to be over 80% fee-driven in the coming years. By $35 million in 2009. itself, this focus on the fee business will result in a sustainable growth engine that throws off significant free cash flow. At the While the current environment has created intense pressure same time, our balance sheet holds more opportunities to for us to manage costs, controlling our costs is just one of generate cash, in the form of real estate at our owned hotels four financial levers we have at our disposal to create share- and inventory at the vacation ownership business. holder value over the long-term. The other three levers are: Reducing the size of our owned portfolio and vacation own- • Driving RevPAR premiums ership business will take time. These initiatives—combined with the growth in our managed and franchised business— • Growing our pipeline will result in an increasingly capital-efficient business model.

• Unlocking real estate value To summarize, we are prepared for a variety of potential sce- narios in 2009. We have been aggressive in our cost contain- Our ability to pull these financial levers relies on our team’s ment efforts and dramatically scaled back our capital plans, execution against the five essentials of “The Starwood Journey.” but are prepared to do more if needed. We have been con- servative in our approach to managing our balance sheet and 1. ‘Starwood Class Brands’ is our first essential, and our will explore all options to maintain maximum balance sheet brand teams are hard at work on the innovations that will flexibility and liquidity. Our efforts thus far have resulted in an drive RevPAR outperformance and propel our pipeline. increasingly efficient cost structure that should position us to not just survive this economic downturn but allow us to cap- 2. The brand teams are also better aligned than ever with our italize on the upswing in the future. We continue to build, Operations team as we work towards ‘Brilliant Execution,’ open, renovate and innovate for recovery and beyond, and our second essential. Brilliant execution means consistently remain focused on our long-term strategy to generate mar- creating brand-relevant guest experiences while being ket-leading returns for our shareholders. vigilant on costs. Thank you for your continued support. 3. ‘Global Growth’ is our third essential, and we continue to grow our footprint around the world. We have roughly 100,000 rooms in our pipeline, and our brand and operations teams are aligned to open these hotels on-brand and ‘HOT,’ meaning on time, on budget and full.

4. ‘Great Talent’ is our fourth essential, and our Human Resources team is driving efforts to improve our ability to attract, retain, and develop talented people to operate our properties around the world. This is particularly important Frits van Paasschen as we still plan to open 425 hotels over the coming years. Chief Executive Officer

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

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 Bruce W. Duncan Chief Executive Officer Chairman of the Board

NOTICE OF 2009 ANNUAL MEETING OF STOCKHOLDERS OF STARWOOD HOTELS & RESORTS WORLDWIDE, INC. A Maryland Corporation

DATE: May 6, 2009 TIME: 10:00 a.m., local time PLACE: St. Regis Washington, D.C. 923 16th and K Streets, N.W. District of Columbia 20006 ITEMS OF BUSINESS: 1. 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. RECORD DATE: Holders of record of the Company’s stock at the close of business on March 12, 2009 are entitled to vote at the meeting. ANNUAL REPORT: 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. PROXY VOTING: 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.

Kenneth S. Siegel Corporate Secretary

March 26, 2009 White Plains, New York

TABLE OF CONTENTS

WHO CAN HELP ANSWER YOUR QUESTIONS? ...... ii THE ANNUAL MEETING AND VOTING — QUESTIONS AND ANSWERS ...... 1 CORPORATE GOVERNANCE ...... 5 ELECTION OF DIRECTORS ...... 7 RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ...... 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS...... 11 EXECUTIVE COMPENSATION ...... 15 COMPENSATION DISCUSSION & ANALYSIS ...... 15 COMPENSATION COMMITTEE REPORT...... 28 SUMMARY COMPENSATION TABLE ...... 29 GRANTS OF PLAN-BASED AWARDS ...... 31 NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE AND GRANTS OF PLAN-BASED AWARDS SECTION ...... 32 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END ...... 32 OPTION EXERCISES AND STOCK VESTED ...... 34 NONQUALIFIED DEFERRED COMPENSATION ...... 35 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL ...... 36 DIRECTOR COMPENSATION ...... 40 AUDIT COMMITTEE REPORT ...... 45 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION ...... 46 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...... 46 OTHER MATTERS ...... 47 SOLICITATION COSTS ...... 47 HOUSEHOLDING ...... 47 STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING ...... 48 WHO CAN HELP ANSWER YOUR QUESTIONS? If you have any questions about the Annual Meeting, you should contact: Starwood Hotels & Resorts Worldwide, Inc. 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, or if you have questions about the Annual Meeting or need assistance in voting your shares, you should contact: D.F. King & Co., Inc. 48 Wall Street New York, New York 10005 Phone Number: 1-800-859-8511 (toll free)

ii 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 non- vote.

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 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, the proxy card will serve as a voting instruction for the trustee of the Savings Plan. You must return your proxy card to the transfer agent on or prior to May 1, 2009. 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, 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).

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. 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), or by signing and returning a new proxy card with a later date, or by attending the meeting and voting in person. However, 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.

What does it mean if I receive more than one proxy card? If you receive more than one proxy card from the Company, 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. Please sign and return all proxy cards you receive to ensure that all Shares held by you are voted.

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.

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

5 received a salary and other benefits for his services. Prior to serving as Chief Executive Officer on an interim basis, the Board determined that Mr. Duncan was an independent director. Yahoo! Inc., Amazon.com, Inc., Gap, Inc., Nike, Inc., Intel Corp. and American Express Company, where Messrs. Hippeau, Mr. Ryder, Youngblood and Clarke and Ambassador Barshefsky are directors, respectively, 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, executive officer or is a partner, principal or greater than 10% stockholder. In the case of each of Yahoo! Inc., Amazon.com, Inc., Gap, Inc., Nike, Inc. and Intel Corp., the combined annual payments from the Company to each such entity and from each such entity to the Company has been less than .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 American Express Company, with which the Company co-brands the American Express Starwood Preferred Guest credit card, 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, less than 2% for 2007 and slightly more than 2% for 2006. Ambassador Barshefsky serves solely as a director of American Express and derives no personal benefit from these payments. These relationships are consistent with the NYSE independence standards. In addition, in the case of Mr. Quazzo, the Board considered that in January 2008 a fund managed by Transwestern Investment Company, LLC purchased the office building in Phoenix where the Company maintains an office. 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. Mr. Quazzo has informed the Company that he did not derive any direct personal benefit from the office space lease, although his compensation does depend, in part, on Transwestern Investment Company, LLC’s results of operations.

Mr. Duncan, who was an independent Director prior to his interim appointment as Chief Executive Officer, has served as non-executive Chairman of the Board from May 2005 until March 31, 2007 when he was appointed Chief Executive Officer on an interim basis, and from September 24, 2007 to the present. As a result, prior to March 31, 2007 and following September 24, 2007, the Board did not have a “lead” Director but Mr. Duncan, as Chairman, ran meetings of the Board. During Mr. Duncan’s appointment as Chief Executive Officer on an interim basis, the Chairman of the Corporate Governance and Nominating Committee served as the lead Director at the executive meetings of the Board. Mr. Quazzo, an independent Director, served as the Chairman of the Corporate Governance and Nominating Committee in 2008.

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, (ii) in its accounting or tax departments, (iii) where the hire would have direct involvement in providing information for use in its financial reporting systems, or (iv) where the hire would be in a policy setting position. When undertaking its review, the Audit Committee considers applicable laws, regulations and related commentary regarding the definition of “independence” for independent registered public accounting firms.

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. In addition, under this policy, Directors who are employees of the Company must retire from the Board upon their retirement from the Company. Pursuant to the Corporate Governance Guidelines, the Board also has a policy that Directors who change their principal occupation (including through retirement) should voluntarily tender their resignation to the Board.

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. In fact, the Company typically schedules Board of Directors’ and committee meetings to coincide with the dates of its Annual Meetings. However, from time to time, other commitments prevent all Directors from attending each meeting. All Directors who were Board members at the time attended the most recent annual meeting of stockholders, which was held on April 30, 2008.

The Company has adopted a policy which permits stockholders and other interested parties to contact the Board of Directors. If you are a stockholder or interested party and would like to contact the Board of Directors you

6 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 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. 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 Guidelines as they pertain to the nomination or qualifications of Directors or the size of the Board, if applicable. The Corporate Governance and Nominating Committee met 10 times during 2008. This year, Messrs. Clarke and Daley are standing for election by the stockholders for the first time. Mr. Clarke was elected a Director by the Board in April 2008 and Mr. Daley was elected a Director by the Board in November 2008. Mr. Clarke was recommended to the Board by the Chief Executive Officer, who believed that he would be a valuable addition to the Board based on his brand and marketing knowledge and experience. Mr. 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 conducted its own evaluation and interviewed Messrs. Clarke and Daley before making its recommendation to nominate each of them. There are no firm prerequisites to qualify as a candidate for the Board, although the Board seeks a diverse group of candidates who possess the background, skills and expertise relevant to the business of the Company or candidates that possess a particular geographical or international perspective. The Board looks for candidates with qualities that include strength of character, an inquiring and independent mind, practical wisdom and mature judgment. 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 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. Annually the Corporate Governance and Nominating Committee reviews the qualifications and backgrounds of the Directors, the overall composition of the Board, and recommends to the full Board the slate of Directors to be recommended for nomination for election at the annual meeting of stockholders. The Board does not believe that its members should be prohibited from serving on boards and/or committees of other organizations, and the Board has not adopted any guidelines limiting such activities. However, 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. Service on boards and/or committees of other organizations should be consistent with the Company’s conflict of interest policies. 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. The Corporate Governance and Nominating Committee will consider candidates nominated by stockholders. Under the Company’s current Bylaws, stockholder nominations must be made in writing, delivered or mailed by first class United States mail, postage prepaid, to the Corporate Secretary, 1111 Westchester Avenue, White Plains, New York 10604, 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. In accordance with the Company’s current Bylaws, such notice shall set forth as to each proposed nominee (i) the name, age and business address of each nominee proposed in such notice, and a statement as to the qualification of each nominee, (ii) the principal occupation or employment of each such nominee, (iii) the number of Shares which are beneficially owned by each such nominee and by the nominating stockholder, 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, including, without limitation, such person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected. Although it has no formal policy regarding stockholder nominees, the Corporate Governance and Nominating Committee believes that stockholder nominees should be reviewed in substantially the same manner as other nominees. The Company provides a comprehensive orientation for all new Directors. It includes a corporate overview, one-on-one meetings with senior management and an orientation meeting. In addition, all Directors are given written materials providing information on the Company’s business.

Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires that the Company’s Directors and executive officers, and persons who own more than ten percent of the outstanding Shares, file with the SEC (and provide a copy to the Company) certain reports relating to their ownership of Shares.

10 To the Company’s knowledge, based solely on a review of the copies of these reports furnished to the Company for the fiscal year ended December 31, 2008, and written representations that no other reports were required, all Section 16(a) filing requirements applicable to its Directors, executive officers and greater than 10 percent beneficial owners were complied with for the most recent fiscal year.

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. While not required by law, the Board is asking the stockholders to ratify the selection of Ernst & Young as a matter of good corporate practice. Representatives of Ernst & Young are expected to be present at the Annual Meeting, will have an opportunity to make a statement, if they desire to do so, and will be available to respond to appropriate questions. If the appointment of Ernst & Young is not ratified, the Board and the Audit Committee will reconsider the selection of the independent registered public accounting firm. 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.

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, 2008 and (ii) each of the Directors, nominees for Director and executive officers whose compensation is reported in this proxy statement (the “Named Executive Officers”), and (iii) Directors, nominees for Director, Named Executive Officers and executive officers (who are not Named Executive Officers) as a group, at January 31, 2009. “Beneficial ownership” includes Shares a stockholder has the power to vote or the power to transfer, and also includes stock options and other derivative securities that were exercisable at that date, or as of that date will become exercisable within 60 days thereafter. Percentages are based upon the number of Shares outstanding at January 31, 2009, plus, where applicable, the number of Shares that the indicated person had a right to acquire within 60 days of such date. The information in the tables is based upon information provided by each Director and executive officer and, in the case of the beneficial owners of more than 5% of the outstanding Shares, the information is based upon Schedules 13G and 13D filed with the SEC.

Certain Beneficial Owners Amount and Nature of Percent Name and Address of Beneficial Owner Beneficial Ownership of Class Morgan Stanley ...... 18,425,488 10.10%(1) 1585 Broadway New York, New York 10036 EGI-SSE I, L.P ...... 14,750,000 8.10%(2) Two North Riverside Plaza, Suite 600 Chicago, IL 60606 Harris Associates Inc...... 14,156,030 7.73%(3) Two North LaSalle Street, Suite 500 Chicago, IL 60602 FMRLLC...... 13,168,274 7.20%(4) 82 Devonshire St. Boston, MA 02109

(1) Based on information contained in a Schedule 13G/A, dated February 17, 2009 (the “Morgan Stanley 13G”), filed with respect to the Company. Morgan Stanley filed the Morgan Stanley 13G solely in its capacity as the parent company of, and indirect beneficial owner of securities held by, certain of its operating units. Morgan Stanley beneficially owns an aggregate amount of 18,425,488 Shares. Morgan Stanley has sole voting power

11 with respect to 11,372,688 Shares, shared voting over 909 Shares and sole dispositive power over 18,425,488 Shares. (2) Based on information contained in a Schedule 13D/A, dated December 31, 2008 (the “SSE 13D”), filed with respect to the Company. SSE has shared voting power and shared dispositive power over 14,750,000 Shares. On December 29, 2008, the Company and SSE entered into a confidentiality agreement to facilitate the sharing of information between the Company and SSE. Pursuant to the agreement, 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. (3) Based on information contained in a Schedule 13G, dated February 13, 2009 (the “Harris 13G”), filed with respect to the Company, Harris Associates L.P. (“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, by either providing information or advice to the persons having such power, or by exercising the power to vote. Harris has sole voting and sole dispositive power with respect to 14,156,030 Shares. (4) Based on information contained in a Schedule 13G/A, dated February 17, 2009 (the “FMR 13G”), filed with respect to the Company, 12,568,601 Shares are held by Fidelity Management & Research Company (“Fidelity”), a wholly-owned subsidiary of FMR LLC (“FMR”); 119,630 Shares are held by Pyramis Global Advisors, LLC, an indirect wholly-owned subsidiary of FMR; 268,515 Shares are held by Pyramis Global Advisors Trust Company, an indirect wholly-owned subsidiary of FMR; 211,270 Shares are held by Fidelity International Limited, a foreign based entity that provides investment advisory and management services to non-U.S. investment companies (“FIL”) and 258 Shares are held by Strategic Advisers, Inc., a registered investment adviser and wholly owned subsidiary of FMR. According to the FMR Schedule 13G, FMR and Edward C. Johnson 3rd, Chairman of FMR, each have sole dispositive power and sole voting power with respect to 12,568,601. FIL has sole power to vote and direct the voting of 202,170 Shares, no power to vote or direct the voting of 9,100 Shares and the sole dispositive power with respect to 211,270 Shares. Through ownership of voting common stock and the execution of a certain stockholders’ voting agreement, members of the Edward C. Johnson 3rd family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR.

12 Directors and Executive Officers of the Company Amount and Nature of Name of Beneficial Owner Beneficial Ownership Percent of Class(1) Adam M. Aron ...... 44,225(3) (4) Matthew Avril ...... 90,474(3) (4) Charlene Barshefsky ...... 46,649(2)(3) (4) Thomas E. Clarke ...... 4,239(3) (4) Clayton C. Daley, Jr...... 7,201(2)(3) (4) Bruce W. Duncan ...... 288,681(2)(3)(5) (4) Lizanne Galbreath ...... 23,092(2)(3) (4) Eric Hippeau ...... 70,247(2)(3) (4) Philip P. McAveety ...... 6,330(3) (4) Vasant Prabhu ...... 409,350(3) (4) Stephen R. Quazzo ...... 78,287(3)(6) (4) Thomas O. Ryder ...... 53,044(2)(3) (4) Kenneth S. Siegel ...... 231,168(3) (4) Simon Turner ...... 280 (4) Frits van Paasschen ...... 41,692(3) (4) Kneeland C. Youngblood ...... 46,805(3) (4) All Directors, Nominees for Directors and executive officers as a group (17 persons) ...... 1,441,764 (4)

(1) Based on the number of Shares outstanding on January 31, 2009 and Shares issuable upon exercise of options exercisable within 60 days from January 31, 2009. (2) Amount includes the following number of “phantom” stock units received as a result of the following Directors’ election to defer Directors’ Annual Fees: 17,509 for Mr. Hippeau; 12,463 for Mr. Ryder; 11,203 for Mr. Duncan; 4,507 for Ms. Galbreath; 3,822 for Ambassador Barshefsky; and 142 for Mr. Daley. (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, 2009, as follows: 326,104 for Mr. Prabhu; 143,624 for Mr. Siegel; 73,692 for Mr. Duncan; 66,512 for Mr. Avril; 6,330 for Mr. McAveety; 51,579 for Mr. Quazzo; 52,738 for Mr. Hippeau; 41,692 for Mr. van Paasschen; 40,581 for Messrs. Ryder and Youngblood; 35,082 for Ambassador Barshefsky; 18,585 for Ms. Galbreath; 10,962 for Mr. Aron; 2,852 for Mr. Clarke; and 1,544 for Mr. Daley. (4) Less than 1%. (5) Includes, 174,984 Shares held by the 2008 Locust Annuity Trust of which Mr. Duncan is a Trustee and beneficiary, and 31,374 Shares held by The Bruce W. Duncan Revocable Trust of which Mr. Duncan is a Trustee and beneficiary. (6) Includes 26,311 Shares held by a trust of which Mr. Quazzo is settlor and over which he shares investment control, and 397 Shares owned by Mr. Quazzo’s wife in a Retirement Account.

13 The following table provides information as of December 31, 2008 regarding Shares that may be issued under equity compensation plans maintained by the Company.

Equity Compensation Plan Information-December 31, 2008 Number of Securities Number of Securities Remaining Available for to be Issued Upon Weighted-Average Future Issuance Under Exercise of Exercise Price of Equity Compensation Plans Outstanding Options, Outstanding Options, (Excluding Securities Warrants and Rights Warrants and Rights Reflected in Column (a)) Plan Category (a) (b) (c) Equity compensation plans approved by security holders...... 14,176,014 $25.05 69,726,066(1) Equity compensation plans not approved by security holders ...... — — — Total ...... 14,176,014 $25.05 69,726,066

(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 Executive AIP does not limit the number of deferred share units that may be issued. This plan has been amended to provide for a termination date of May 26, 2009 to comply with new NYSE requirements. In addition, 10,540,472 Shares remain available for issuance under our Employee Stock Purchase Plan, a stock purchase plan meeting the requirements of Section 423 of the Internal Revenue Code.

14 EXECUTIVE COMPENSATION

I. COMPENSATION DISCUSSION AND ANALYSIS

Introduction

The Company’s compensation programs are designed to align compensation with its business objectives and performance, enabling the Company to attract, retain, 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. The Compensation Committee reviews and sets the Company’s overall compensation strategy for all employees on an annual basis. In the course of this review, 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.

During 2008, the Compensation Committee also reviewed some of the Company’s long-standing compensation practices and decided to make significant changes, most of which will become effective in 2009. These changes include, among other things, (i) redesigning the compensation structure to achieve cost savings and align total compensation with competitive market data, (ii) eliminating tax gross ups in new change in control agreements entered into in 2008, (iii) eliminating the payout floor under the Company’s bonus plans for the 2009 performance year, (iv) structural changes for the 2009 performance year to align the individual performance portion of annual bonuses to the Company’s financial performance, and (v) freezing salaries for all bonus eligible associates in corporate and divisional offices, including the Named Executive Officers. In addition, for 2009 equity awards the Compensation Committee lowered the exchange ratio for 2009 equity grants from 3-to-1 to 2.5-to-1 for senior executives electing to receive a larger portion of their equity awards in options instead of restricted stock, because of the lower stock price and leverage opportunity. These changes were designed to better align compensation with (i) the creation and preservation of shareholder value and (ii) the Company’s financial performance.

A. Overview of Starwood’s Executive Compensation Program

1. Program Objectives and Other Considerations

Objectives. As a consumer lifestyle company with a branded hotel portfolio at its core, the Company operates in a competitive, dynamic and challenging business environment. In step with this mission and environment, the Company’s executive compensation program for our principal executive officer, 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, brand enhancement and consumer experience. We are working to reinvent the hospitality industry, and one element of this endeavor is to bring in key talent from other industries. Therefore, overall program competitiveness must take these other markets into account.

• 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.

• 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. Moreover, we strive to keep the executive compensation program transparent, easily understood, in line with market practices and consistent with high standards of good corporate governance.

What the Program Intends to Reward. Our executive compensation program is strongly weighted toward variable compensation tied to Company results. Specifically, 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, ensuring that long term compensation is strongly tied to stockholder returns.

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

• Achievement of Strategic/Operational Objectives. 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. These objectives may be related to, among others, operational excellence, brand enhancement, innovation, growth, cost containment/efficiency, customer experience and/or teamwork.

• Overall Leadership and Stewardship of the Company: Leadership, teambuilding, 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.

2. Roles and Responsibilities

Our Compensation and Option Committee (“Compensation Committee”) is responsible for, among other things, 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. It also monitors the Company’s executive succession plan, 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.

The Compensation Committee makes all compensation decisions for our Named Executive Officers. Our Chief Executive Officer, together with the Chief Human Resources Officer, reviews the performance of each other Named Executive Officer and presents to the Compensation Committee his conclusions and recommendations, including salary adjustments and annual incentive compensation amounts (as described in more detail in subsection B under the heading Incentive Compensation below). The Compensation Committee may exercise its discretion in modifying any recommended salary adjustments or awards to these executives.

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

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. Towers Perrin provided advice concerning the total compensation, including base salary, bonus opportunity and equity awards at these levels. As a result of this review, management fundamentally redesigned the compensation structure for such associates starting in 2009 leading to significant cost savings and reduced overhead. Towers Perrin worked directly with management on this project and it was implemented by management with the approval of the Compensation Committee.

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. 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. Pearl Meyer & Partners does not provide any other services to the Company. The Compensation Committee approved Pearl Meyer & Partners’ equity program recommendations and compensation awards for the 2008 performance period.

16 B. Elements of Compensation 1. Primary Elements The primary elements of the Company’s compensation program for our Named Executive Officers are: • Base Salary • Incentive Compensation O Annual Incentive Compensation O Long-Term Incentive Compensation • Benefits and Perquisites Mr. van Paasschen’s compensation structure was established in 2007 pursuant to his employment agreement. Mr. van Paasschen and the Company agreed to a compensation structure which was heavily geared towards performance and long term incentives, 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, in the event of strong financial and individual performance, Mr. van Paasschen would benefit greatly in the form of long term incentive compensation (stock options and restricted stock), 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). For the other Named Executive Officers, 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. We describe each of the compensation elements below and explain why we pay each element and how we determine the amount of each element. Base Salary. 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. In the case of Named Executive Officers other than the Chief Executive Officer, base salary typically accounts for approximately 20% of total compensation at target, i.e., total compensation excluding benefits and perquisites, and is generally targeted at the median of the Company’s peer group. In the case of Mr. van Paasschen, 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, as amended (the “Code”), which limits the deductibility of non-performance-based compensation above that amount. As a result, base salary accounted for approximately 12.5% of total compensation at target for Mr. van Paasschen. 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. 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. 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. The Company generally seeks to position base salaries of our Named Executive Officers at or near the market median for similar positions. Incentive Compensation. 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”). Incentive compensation typically accounts for approximately 80% of total compensation at target (87.5% for Mr. van Paasschen), with annual incentive compensation and long-term incentive compensation accounting for 20% and 60%, respectively (25% and 62.5% for Mr. van Paasschen, respectively). 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, but that is highly dependent on performance. The Company believes that this structure allows it to provide

17 each Named Executive Officer with substantial incentive compensation opportunities if performance objectives are met. 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; • it aligns senior management’s interests with those of stockholders; • it promotes achievement of business and individual performance objectives; and • it provides long-term incentives for Named Executive Officers to remain in the Company’s employ. Annual Incentive Compensation. Annual incentives are a key part of the Company’s executive compensation program. The incentives directly link the achievement of Company financial and strategic/ operational performance objectives to executive pay. Annual incentives also provide a complementary balance to equity incentives (discussed below). Each Named Executive Officer has an annual opportunity to receive an award under the stockholder-approved Executive Plan. If and when earned, awards are typically paid to Named Executive Officers partly in cash and, unless the Compensation Committee otherwise elects, partly as deferred equity awards in the form of deferred stock units (under the Executive Plan). The deferred stock units vest over a three-year period. See additional detail regarding these deferred equity awards in the Long-Term Incentive Compensation section below.

Minimum Thresholds. For the Named Executive Officers, the annual incentive award for 2008 was paid under the Executive Plan. Each year, the Compensation Committee establishes in advance a threshold level of earnings before interest, taxes, 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”). The Executive Plan also specifies a maximum bonus amount, in dollars, that may be paid to any executive for any 12-month performance period. When the threshold is established at the beginning of a year, the achievement of the threshold is considered substantially uncertain for purposes of Section 162(m) of the Code, which is one of the requirements for compensation paid under the Executive Plan to be deductible as performance-based compensation under Section 162(m). For 2008, the EP Threshold was $637,500,000. Generally, 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. However, pro rata awards may be paid at the discretion of the Compensation Committee in the event of death, disability, retirement or other termination of employment. To determine the actual bonus to be paid for a year, if the threshold is met and subject to the maximum described above, the Compensation Committee also establishes specific annual Company financial and strategic/operational performance targets and a related target bonus amount for each executive. These financial and strategic/operational targets are described below.

Additional Criteria. If the EP Threshold under the Executive Plan is met for a year, the Company financial and strategic/ operational goals referenced above are then used to determine a Named Executive Officer’s actual bonus, as follows:

Financial Goals. The Company financial goals for Named Executive Officers under the Executive Plan consist of operating income and earnings per share targets, with each criteria accounting for half of the financial goal portion of the annual bonus. As the Company generally sets target incentive award opportunities above market median, the Company financial and strategic/operational goals to achieve such award levels are considered stretch but achievable, representing above-market performance. Consistent with maintaining these high standards and

18 subject to achieving the EP Threshold, the Compensation Committee retains the ability to consider whether an adjustment of the financial goals for any year is necessitated by exceptional circumstances, e.g., an unanticipated and material downturn in the business cycle that triggers, in response, an increased focus by the Compensation Committee on the Company’s performance relative to the industry. This ability is intended to be narrowly and infrequently used and would, if applicable, be detailed in the proxy.

Performance against the financial targets determined 60% of Mr. van Paasschen’s total target opportunity and 50% of the total target opportunities for the other Named Executive Officers. Subject to achieving the EP Threshold, 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. For Named Executive Officers, the Company performance portion is based 50% on earnings per share and 50% on operating income of the Company, provided that Mr. Avril’s Company financial portion was pro-rated based on his services for SVO, the Company’s vacation ownership subsidiary, prior to his promotion in September 2008. From January through September, the Company financial performance portion is based on 50% on earnings per share and 50% on the net income for SVO.

Once the EP Threshold is achieved, 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. Further, once a certain level of performance is achieved, the bonus payout for the applicable metric is limited to 200% (i.e., the “performance maximum”). The table below sets forth for each metric the performance levels for 2008 which would have resulted in 100% payout (i.e. “target”), 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. In addition, the table sets forth the mid-points of performance and payout between the performance minimum to target and from target to performance maximum: Minimum Mid-point Target Mid-point Maximum (50%) (75%) (100%) (150%) (200%) Earnings per Share ...... $ 1.98 $ 2.23 $ 2.48 $ 2.79 $ 3.10 Company Operating Income ...... $720,200,000 $810,300,000 $900,300,000 $1,012,800,000 $1,125,400,000 SVO Net Income ...... $ 92,000,000 $103,500,000 $115,000,000 $ 138,000,000 $ 161,000,000

For the 2008 performance period, EBITDA (which exceeded the EP Threshold) for purposes of determining bonuses was $1,157,000,000. Actual results for earnings per share, Company operating income and SVO net income were $2.36, $819,300,000 and $85,000,000, respectively. 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. Avril. For Mr. Avril, 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).

Strategic/Operational Goals.

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. “Big 5” refers to each executive’s specific deliverables within the Company’s critical performance categories — operational excellence, brand enhancement, innovation, growth, and customer experience. As part of a structured process that cascades down throughout the Company, these objectives are developed at the beginning of the year, and they integrate and align an executive with the Company’s strategic and operational plan. Achievement of “Big 5” objectives typically accounts for 80% of the strategic/operational performance evaluation, and achievement of leadership competency objectives typically accounts for 20% of such evaluation. The portion of annual incentive awards attributable to strategic/operational/talent management performance represents 40% of Mr. van Paasschen’s total target opportunity and 50% of the total target opportunities for the other Named Executive Officers. 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 evaluation process for Mr.

19 van Paasschen and the other Named Executive Officers with respect to each executive’s strategic/operational goals is described below.

Mr. 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, 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, 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.S. 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. van Paasschen’s accomplishments and impact on the Company, the Compensation Committee awarded him a bonus of $1,820,000 for 2008, representing 91% of target.

Mr. Prabhu’s accomplishments for the 2008 performance year included the following:

• Managed through a difficult and fast changing environment, 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, including the migration to a new reservation system

In light of Mr. Prabhu’s accomplishments, he received a “meets expectations” performance rating and was awarded 100% of his individual bonus target. Combined with the 82% financial performance component, Mr. Prabhu’s 2008 bonus was 91% of target.

Mr. 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, 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 In light of Mr. Siegel’s accomplishments, he received a “meets expectations” performance rating and was awarded 100% of his individual bonus target. Combined with the 82% financial performance component, Mr. Siegel’s 2008 bonus was 91% of target. 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, 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, 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. Avril’s accomplishments in 2008, he received a “meets expectations” performance rating and was awarded 80% of his individual bonus target. Combined with the 68% financial performance component (pro-rated for service as President of SVO from January through September), Mr. Avril’s 2008 bonus was 74% of 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. McAveety’s accomplishments in 2008, he received a “meets expectations” performance rating and was awarded 100% of his individual bonus target. Combined with the 82% financial performance component, Mr. McAveety’s 2008 bonus was 91% of target (pro-rated for his March 2008 start date). Mr. Turner joined the Company in May 2008. Pursuant to his employment agreement, Mr. Turner was entitled to at least a pro-rated target bonus for 2008. The Compensation Committee awarded Mr. Turner the minimum amount permitted under his employment agreement and did not exercise its discretion to award amounts in excess of the minimum. Overall, the Compensation Committee paid the majority of the Named Executive Officers individual bonuses that were at target for their individual performance, 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.

Conclusion. Viewed on a combined basis once minimum performance is attained, the annual incentive payments attributable to both Company financial and strategic/operational performance range from 0% — 187.5% of target for the Named Executive Officers, other than the Chief Executive Officer. Equity awards are generally granted in February of each year following the announcement of the Company’s earnings for the previous year. Performance reviews and bonus awards for the prior operating year are made at that time. In determining the equity awards granted in 2008, the Compensation Committee considered and took into account the Company’s performance and the individual performance of each Named

21 Executive Officer in 2007 as well as the expected performance of the Company for 2008 at the time of grant. In addition, 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. Messrs. McAveety and Turner received sign on grants in 2008 following the commencement of their employment. In addition, in connection with his promotion to President, Hotel Group, Mr. Avril received an additional promotion grant in 2008 reflecting his increased role and responsibilities. Based on the factors set forth above, including the Company’s performance and individual performance of each Named Executive Officer in 2007, the Compensation Committee believes that equity award grants in 2008 were appropriate. Total compensation for this group is evaluated against the peer group identified in this proxy statement. Evaluated on this basis, 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. In its review of the overall compensation strategy and program in 2008, the Compensation Committee made several key changes, most of which will be effective for the 2009 performance year. 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. For the 2009 performance year, the Compen- sation 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, 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. In addition, the Company froze salaries for all bonus eligible associates in corporate and divisional offices, including the Named Executive Officers. These changes were designed to better align compensation with (i) the creation and preservation of shareholder value and (ii) the Company’s financial performance.

Evaluation Process for Strategic/Operational and Other Goals. Other Named Executive Officers. With oversight and input from the Compensation Committee, the Chief Executive Officer, together with the Chief Human Resources Officer, 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 Chief Executive Officer conducts this evaluation through the Performance Management Process (“PMP”), which results in a PMP rating for each executive. This PMP rating corresponds to a payout range under the Executive Plan determined annually by the Compensation Committee for that rating. As noted, for 2008 the portion of the Executive Plan payouts based on PMP ratings could range from 0% to 175% of target. Where necessary to preserve the competitive position of the Company’s compensation scale, the Chief Executive Officer may recommend a market adjustment to the base amount that is subjected to this percentage. At the conclusion of his review, the Chief Executive Officer submits his recommendations to the Compensation Committee for final review and approval. In determining the actual award payable to a Named Executive Officer under the Executive Plan, 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 Compensation Committee also determines, based on management’s report, 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. 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. 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. Long-Term Incentive Compensation. Like the annual incentives described above, long-term incentives are a key part of the Company’s executive compensation program. Long-term incentives are strongly tied to

22 returns achieved by stockholders, providing a direct link between the interests of stockholders and the Named Executive Officers. 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, respectively. Taken together, approximately 60-65% of total compensation at target is equity- based long term incentive compensation.

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. In 2008 we used a grant approach in which the award is articulated as a dollar value. Under this approach, an overall award value, in dollars, was determined for each executive based upon our compensation strategy and competitive market positioning. We generally targeted the value of these awards so that total compensation at target is set at the 65th percentile of our peer group, though individual awards may have been higher or lower based on individual performance (determined as described in the Executive AIP assessment above). 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. 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. In light of the stock price and leverage opportunity, the Compensation Committee reduced this ratio to 2.5 for equity awards made in 2009. The Named Executive Officers are able to elect a greater portion of options (up to 100% options).

The exercise price for each stock option is equal to fair market value of the Company’s common stock on the option grant date. 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. Currently, most stock options vest in 25% increments annually starting with the first anniversary from the date of grant. For stock options granted in 2008, awards granted to associates who are retirement eligible, as defined in the LTIP, vest in 16 equal quarterly periods. Unexercised, stock options expire 8 years from the date of grant, or earlier in the event of termination of employment. Stock options provide compensation only when vested and only if the Company’s stock price appreciates and exceeds the exercise price of the option. Therefore, during business downturns, option awards may not represent any economic value to an executive.

Restricted stock units and restricted stock provide some measure of mitigation of business cyclicality while maintaining a direct tie to share price. The Company seeks to enhance the link to stockholder performance by building a strong retention incentive into the equity program. Consequently, for 2008 grants, 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. For restricted stock granted in 2008, awards granted to associates who are retirement eligible, as defined in the LTIP, vest in sixteen equal quarterly periods. This delayed vesting places an executive’s long-term compensation at risk to share price performance for a significant portion of the business cycle, while encouraging long-term retention of executives.

As mentioned above, Named Executive Officers have a mandatory deferral of 25% of their awards under the Executive Plan in the form of deferred stock units, unless reduced in the discretion of the Compensation Committee. As such, the awards combine performance-based compensation with a further link to stockholder interests. First, amounts must be earned based on annual Company financial and strategic/operational performance under the Executive Plan. Second, these already earned amounts are put at risk through a vesting schedule. Vesting occurs in installments for employment over a three-year period. Third, these earned amounts become subject to share price performance. 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), the deferred amount is increased by 33% of value. 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.g., involuntary terminations or retirements).

Mr. 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.

23 Benefits and Perquisites. Base salary and incentive compensation are supplemented by benefits and perquisites. Current Benefits. The Company provides employee benefits that are consistent with local practices and competitive markets, including group health benefits, life and disability insurance, medical and dependent care flexible spending accounts and a pre-tax premium payment arrangement. 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. Perquisites. As reflected in the Summary Compensation Table below, the Company provides certain limited perquisites to select Named Executive Officers when necessary to provide an appropriate compensation package to those Named Executive Officers, particularly in connection with enabling the executives and their families to smoothly transition from previous positions which may require relocation. For example, Mr. van Paasschen’s employment agreement provides that the Company will provide Mr. van Paasschen with up to a $500,000 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, $495,086 of which was used. Mr. van Paasschen and his immediate family had access to a Company owned or leased airplane on an “as available” basis for personal travel, i.e., assuming such plane was not needed for business purposes, with an obligation to reimburse for personal use based upon the Company’s operating cost, subject to the credit described above. The Company also reimburses Named Executive Officers generally for travel expenses and other out-of- pocket costs incurred with respect to attendance by their spouses at one meeting of the Board each year. Retirement Benefits. The Company maintains a tax-qualified retirement savings plan pursuant to Code section 401(k) for a broadly-defined group of eligible employees that includes the Company’s Named Executive Officers. Eligible employees may contribute a portion of their eligible compensation to the plan on a before-tax basis, subject to certain limitations prescribed by the Code. Prior to 2008, 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. Beginning in 2008, 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. These matching contributions, as adjusted for related investment returns, become fully vested upon the eligible employee’s completion of three years of service with the Company. Our Named Executive Officers, in addition to certain other eligible employees, were permitted to make additional deferrals of base pay and regular annual incentive awards under our nonqualified deferred compensation plan. This plan is discussed in further detail under the heading Nonqualified Deferred Compensation on page 35.

2. 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, 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, which included Messrs. Prabhu and Siegel. On March 25, 2005, the Company adopted a policy proscribing certain terms of severance agreements triggered upon a change in control of the Company. Pursuant to the policy, 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 2.99 times base salary plus such officer’s most recent bonus. In connection with the hiring of Messrs. McAveety and Turner and the promotion of Mr. Avril, 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). The arrangements with Messrs. McAveety, Turner and Avril, however, do not provide for a tax gross up if the benefits payable thereunder are subject to the 280G excise tax. Instead, the benefits provided are reduced until the point that the executive would be better off paying the excise tax rather than reducing benefits. The Company also included change of control arrangements in Mr. van Paasschen’s employment agreement. These change of control arrangements are described in more detail beginning on page 36 under the heading entitled

24 Potential Payments Upon Termination or Change of Control. The Change of Control Severance Agreements are intended to promote stability and continuity of senior management. 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. In addition, for executive officers hired in 2008, the Company changed its policy on providing tax gross-ups in change in control agreements. As a result, the change in control arrangements with Messrs. Avril, 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. By making severance pay available, the Company is able to mitigate executive concern over employment termination in the event of a change of control that benefits stockholders. In addition, 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, including facilitating a sale of the Company at the highest possible price per share, which would benefit both stockholders and executives. In addition, the Company acknowledges that seeking a new senior position is a long and time consuming process. Lastly, each severance agreement permits the executive to maintain certain benefits for a period of two years following termination and to receive outplacement services. The aggregate effect of our change of control provisions is intended to focus executives on maximizing value to stockholders. In addition, should a change of control occur, benefits will be paid after a “double trigger” event as described in Potential Payments Upon Termination or Change in Control. Benefit levels have been set to be competitive with peer group practices. In connection with Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A), the Company amended the employment arrangements with each of the Named Executive Officers (including the CEO). 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, and generally affect the timing, but not the amount of compensation of such officers under specified circumstances.

3. Additional Severance Arrangements On August 14, 2007, the Company entered into a letter agreement with Mr. Siegel. The letter agreement provided for the acceleration of 50% of Mr. 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 purpose of the letter agreement was to support retention, 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 special severance will expire on August 14, 2009. In addition, the Company entered into a letter agreement with Mr. 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. The clarification formally documented Mr. Prabhu’s existing severance arrangements as part of his employment by the Company.

C. Background Information on the Executive Compensation Program 1. Use of Peer Data In determining competitive compensation levels, 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. The executive team and Compensation Committee review the peer group bi-annually to ensure it represents a relevant market perspective. The Compensation Committee utilizes the peer group for a broad set of comparative purposes, including levels of total compensation, pay mix, incentive plan and equity usage and other terms of employment. The Compensation Committee also reviews Company performance against the performance of companies in this peer group. The Company believes that by conducting the competitive analysis using a broad peer group, which includes companies outside the hospitality industry, it is able to attract and retain talented executives from outside the hospitality industry. The Company’s experience has proven that key executives with diversified experience prove to be major contributors to its continued growth and success.

25 Accordingly, the Company was able to attract and retain:

• Frits van Paasschen, the Company’s Chief Executive Officer, who has over 20 years of experience with consumer-focused, global lifestyle brands, most recently serving with Coors Brewing Company, as Pres- ident and Chief Executive Officer, and prior to that, Nike, Inc.

• Vasant M. Prabhu, the Company’s Executive Vice President and Chief Financial Officer, who prior to joining the Company served as Executive Vice President and Chief Financial Officer of Safeway Inc., a food and drug retailer; President of Information and Media Group for The McGraw Hill Companies, and Senior Vice President of Finance and Chief Financial Officer for Pepsi Cola International.

• Kenneth S. Siegel, the Company’s Chief Administrative Officer, General Counsel and Secretary, who prior to joining the Company served as Senior Vice President and General Counsel of Gartner, 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.

• Philip P. McAveety, the Company’s Chief Brand Officer, who prior to joining the Company served as Global Brand Director of Camper, a fashion company and Vice President, Brand Marketing, Europe, Middle East and Africa at Nike, Inc.

• Simon Turner, the Company’s President, Global Development Group, who prior to joining the Company spent over ten years as a principal of Hotel Capital Advisers, Inc., a hotel investment advisory firm and served on the Board of Directors of Four Season Hotels, Inc.

The peer group approved by the Compensation Committee for 2008 is set out below. We expect that it will be necessary to update the list periodically. Avon Products MGM Mirage Carnival Corp. Nike Inc. Colgate Palmolive Corporation Simon Property Group Inc. Estee Lauder Cos. Inc. Staples Inc. Federal Express Corp. Starbucks Corp. Host Hotels & Resorts Williams Sonoma Inc. Kellogg Corporation Walt Disney Co. Limited Brands Inc. Wyndham Worldwide Corporation Marriott International, Inc. Yum Brands Inc. McDonald’s Corp.

In performing its competitive analysis, the Compensation Committee typically reviews:

• base pay;

• target and actual total cash compensation, consisting of salary and target and actual bonus awards in prior years; and

• direct total compensation consisting of salary, target and actual bonus awards, and the value of option and restricted stock/restricted stock unit awards.

During 2008, compensation paid to the Company’s Named Executive Officers was compared to peer group data reported in 2008 proxy statements, as provided by compensation consulting firms and reflecting 2007 compensation. The Company’s Named Executive Officer compensation data taken into account for this comparison included 2008 salary, Executive AIP bonuses paid in 2009 for 2008 performance and equity grants awarded in 2008.

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, which includes the equity grants, ranged from the median to the upper quartile.

26 2. Tax and Accounting Considerations Tax. Section 162(m) of the Code generally disallows a federal income tax deduction to public companies for compensation in excess of $1,000,000 paid to the chief executive officer and the four other most highly compensated executive officers. Qualified performance-based compensation is not subject to the deduction limit if certain requirements are met. The Company believes that compensation paid under the Executive Plan meets these requirements and is generally fully deductible for federal income tax purposes. In designing the Company’s compensation programs, the Compensation Committee carefully considers the effect of this provision together with other factors relevant to its business needs. Therefore, 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. At the same time, the Company has historically taken, and intends to continue taking, reasonably practicable steps to minimize the impact of Section 162(m). Accordingly, the Compensation Committee has determined that each of the Named Executive Officers will participate under the Executive Plan for 2008. On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law, adding Section 409A to the Code and thereby changing the tax rules applicable to nonqualified deferred compensation arrangements effective January 1, 2005. While final Section 409A regulations were not effective until January 1, 2009, the Company believes it was operating in good faith compliance with Section 409A and the interpretive guidance thereunder. The company entered into amendments to the employments arrangements with its senior officers, including the CEO and Named Executive Officers, and amended its bonus and compensation plans in December 2008 to meet the requirements of these regulations. A more detailed discussion of the Company’s nonqualified deferred compensation plan is provided on page 35 under the heading Nonqualified Deferred Compensation. Accounting. Beginning on January 1, 2006, the Company began accounting for awards under its LTIP in accordance with the requirements of FASB Statement 123(R) (“SFAS 123(R)”).

3. Share Ownership Guidelines In 2007, the Company adopted share ownership guidelines for our executive officers, including the Named Executive Officers. Pursuant to the guidelines, the Named Executive Officers, including the Chief Executive Officer, 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. For the Chief Executive Officer, the multiple is five (5) times base salary and for the other Named Executive Officers, the multiple is four (4) times base salary. 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, or if an executive falls out of compliance. Shares owned, stock equivalents (vested/ unvested units), and unvested restricted stock (pre-tax) count towards meeting ownership targets. However, stock options do not count towards meeting the target. Officers have five years from the date of hire or the date they first become subject to the policy to meet the ownership requirements.

4. Equity Grant Practices Determination of Option Exercise Prices. 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. Under the LTIP, 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 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). The timing of this meeting is determined based on factors unrelated to the pricing of equity grants. 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. Generally, the date on which the Board approves the employment package becomes the grant date of the newly-hired Executive Officer’s equity compensation awards. However, if the Company and the new Executive Officer will enter into an employment agreement regarding the employment relationship, the Company requires the Executive Officer to sign his

27 employment agreement shortly following the date of Board approval of the employment package; 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. 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. Although, as discussed above, annual grants are generally made in February, under unusual circumstances grants may be made at other times during the year. For example, 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. This severely weakened the retention aspect of the Company’s equity awards outstanding at the time, particularly in the case of outstanding option awards, virtually all of which had exercise prices above the then-current trading price of the Company’s common stock. To respond to this concern, 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), restoring financial motivation to succeed and retaining the Company’s top performers.

II. COMPENSATION COMMITTEE REPORT The Compensation and Option Committee of the Board of Directors (the “Board”) of Starwood Hotels & Resorts Worldwide, Inc. (the “Company”) has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Proxy Statement for the 2009 Annual Meeting of Stockholders. COMPENSATION AND OPTION COMMITTEE Adam M. Aron, Chairman Clayton C. Daley, Jr. Bruce W. Duncan Lizanne Galbreath Kneeland C. Youngblood

28 III. SUMMARY COMPENSATION TABLE Non-equity Stock Option incentive plan All other Salary Bonus awards awards compensation compensation Total Name and principal Position Year ($) ($) ($)(1) ($)(2) ($)(3) ($)(4) ($) Frits van Paasschen,...... 2008 1,000,000 — 2,135,643 699,695 1,365,000 522,538 5,722,876 Chief Executive Officer 2007 270,833 1,500,000 568,350 89,315 403,800 347,402 3,179,700 since September 24, 2007 Vasant Prabhu, ...... 2008 638,054 — 1,435,616 887,864 437,249 93,380 3,492,163 Executive Vice 2007 617,927 — 1,497,164 890,260 550,809 85,896 3,642,056 President and Chief 2006 578,667 — 1,216,698 1,136,806 567,840 29,674 3,529,685 Financial Officer Kenneth S. Siegel,...... 2008 612,539 — 1,590,852 763,025 419,764 102,515 3,488,695 Chief Administrative 2007 583,232 — 1,618,424 829,762 585,037 51,908 3,668,363 Officer, General Counsel and 2006 496,000 — 1,117,399 992,287 505,440 23,586 3,134,712 Secretary Matthew Avril ...... 2008 601,896 — 1,394,115 480,665 402,375 188,103 3,067,154 President, Hotel Group since September 2008 Philip McAveety ...... 2008 376,894 494,000 337,810 91,427 255,937 134,530 1,690,598 Chief Brand Officer since March 2008 Simon Turner ...... 2008 407,197 500,000 — 406,913 312,500 30,013 1,656,623 President, Global Development Group since May 2008

(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, in accordance with SFAS 123(R). Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information, 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, 2008. 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. See the Grants of Plan-Based Awards Table on page 31 for information on awards granted in 2008. (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, in accordance with SFAS 123(R). Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information, 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, 2008. 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. See the Grants of Plan-Based Awards Table on page 31 for information on awards granted in 2008. (3) Represents cash awards paid in March 2009, 2008 and 2007 with respect to 2008, 2007 and 2006, respectively, performance under the Executive Plan (for each of the Named Executive Officers for 2008 and 2007 performance) and the Annual Incentive Plan (for Messrs. Prabhu and Siegel for 2006 performance), as discussed under the Annual Incentive Compensation section beginning on page 18. 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 Name 2008 Amount Deferred 2007 Amount Deferred 2006 Amount Deferred van Paasschen ...... 455,000 134,600 — Prabhu ...... 145,750 183,603 189,280 Siegel...... 139,922 195,013 168,480 Avril ...... 134,125 — — McAveety ...... 85,313 — — Turner ...... 104,167 — — (4) Pursuant to SEC rules, perquisites and personal benefits are not reported for any Named Executive Officer for whom such amounts were less than $10,000 in the aggregate for 2008, 2007 and 2006 but must be identified by type for each Named Executive Officer for whom such amounts were equal to or greater than $10,000 in the aggregate. In that regard, the All Other Compensation column of the Summary Compensation Table includes perquisites and other personal benefits consisting of the following: annual physical examinations, COBRA premiums paid by the Company, Company contributions to the Company’s tax-qualified 401(k) plan, dividends on restricted stock, life insurance premiums, legal fees paid by the Company, spousal accompaniment while on business travel, and tax and financial planning services. SEC rules require specification of the cost of any perquisite or personal benefit when this cost exceeds $25,000. This applies to Mr. van Paasschen’s personal travel (discussed below). These amounts are included in the All Other Compensation column. The net aggregate incremental cost to the Company of Mr. van Paasschen’s personal use of the Company- owned plane and chartered aircraft was $329,480 in 2008 and $165,606 in 2007, which amounts were covered by his credit. For 2007, also includes relocation benefits which had an aggregate cost of $132,275 and the reimbursement of $44,556 for legal fees incurred in connection with the negotiation of his employment agreement. These amounts are included in the All Other Compensation column. The cost of the Company-owned plane includes the cost of fuel, ground services and landing fees, navigation and telecommunications, catering and aircraft supplies, crew expenses, aircraft cleaning and an allocable share of maintenance. Pursuant to SEC rules, 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 $10,000. Dividend Dividend Equivalents on Equivalents on Restricted Stock Relocation Restricted Stock Name ($) (2008) ($) (2008) ($) (2007) van Paasschen...... — 165,328 — Prabhu ...... 69,917 — 63,530 Siegel ...... 76,538 — 24,199 Avril ...... 150,728 — — McAveety ...... — 111,861 — (5) Mr. Avril became an executive officer in September 2008 upon his promotion to President, Hotel Group.

30 IV. GRANTS OF PLAN-BASED AWARDS

All Other All Other Grant Stock Option Date (or Awards: Awards: Exercise Grant Date year with Compensation Number of Number of or Base Fair Value respect to Committee Estimated Future Payouts Under Shares of Securities Price of of Stock non-equity Approval Non-Equity Incentive Plan Awards(1) Stock or Underlying Option and Option Name incentive plan date Threshold Target Maximum Units Options Awards Awards (a) award) (b) (c) ($) (d) ($) (e) ($) (f) (#) (g) (#) (2) (h) ($/Sh) (i) ($) (3) (j) van Paasschen . . 2/28/2008 2/14/2008 102,870 48.61 1,742,402 3/03/2008 (4) 3,778(4) 179,021 2008 0 2,000,000 9,000,000(8) Prabhu ...... 2/28/2008 2/14/2008 78,696 48.61 1,332,945 2/28/2008 2/14/2008 26,232(6) 1,275,006 3/03/2008 (4) 5,153(4) 244,175 2008 160,165 640,658 1,201,234 Siegel...... 2/28/2008 2/14/2008 30,861 48.61 522,721 2/28/2008 2/14/2008 30,861(6) 1,499,999 3/03/2008 (4) 5,474(4) 259,385 2008 153,757 615,029 1,153,198 Avril ...... 2/28/2008 2/14/2008 22,220 48.61 376,360 2/28/2008 2/14/2008 22,220(6) 1,080,003 3/03/2008 (5) 3,551(5) 168,264 9/02/2008 8/27/2008 40,344(6) 1,499,990 2008 181,250 725,000 1,359,375 McAveety . . . . . 4/01/2008 2/01/2008 25,319 53.32 487,501 4/01/2008 2/01/2008 25,319(7) 1,350,009 2008 93,750 375,000 703,125 Turner ...... 5/07/2008 4/29/2008 135,224(7) 53.25 2,497,898 2008 104,167 416,667 781,251(9)

(1) Represents the potential values of the awards granted to the Named Executive Officers under the Executive Plan if the threshold, target and maximum goals are satisfied for all applicable performance measures. See detailed discussion of these awards in section V. below. (2) The options generally vest in equal installments on the first, second, third and fourth anniversary of their grant. (3) Represents the fair value of the awards disclosed in columns (g) and (h) on their respective grant dates. For restricted stock and restricted stock units, 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. For stock options, fair value is calculated in accordance with SFAS 123(R) using a lattice valuation model. For additional information, 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, 2008. There can be no assurance that these amounts will correspond to the actual value that will be recognized by the Named Executive Officers. (4) On March 3, 2008, in accordance with the Executive Plan, 25% of Messrs. van Paasschen, Siegel, and Prabhu’s annual bonus with respect to 2007 performance was credited to a deferred stock unit account on the Company’s balance sheet, which number of shares was increased by 33%. These deferred stock units vest in equal installments on the first, second and third fiscal year-ends following the date of grant, and vested units are distributed on the earlier of (i) the third fiscal year-end or (ii) a termination of employment. Dividends are paid to the Named Executive Officers in amounts equal to those paid to holders of shares of Company stock. No separate Compensation Committee approval was required for these shares, which are provided by plan terms. (5) On March 3, 2008, in accordance with the Annual Incentive Plan, 25% of Mr. Avril’s annual bonus with respect to 2007 performance was deferred into restricted stock, which number of shares was increased by 33%. These restricted shares vest in equal installments on the first and second anniversary of the date of grant. Dividends are paid to the Named Executive Officers in amounts equal to those paid to holders of shares of Company stock. No separate Compensation Committee approval was required for these shares, which are provided by plan terms. (6) These awards generally vest 75% on the third anniversary and 25% on the fourth anniversary of their grant date. Mr. Avril’s September 2, 2008 award vests 100% on the third anniversary of the grant date.

31 (7) Upon the commencement of Messrs. McAveety and Turner’s employment with the Company, each one received equity awards in accordance with his employment agreement. The options vest in equal installments on the first, second, third and fourth anniversaries of their grant. The restricted stock granted to Mr. McAveety generally vests on the third anniversary of the grant date. (8) Represents the maximum amount payable to any participant under the terms of the Executive Plan. (9) Mr. Turner’s bonus opportunity is pro-rated based on his May 2008 start date.

V. NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE AND GRANTS OF PLAN- BASED AWARDS SECTION

We describe below the Executive Plan awards granted to our Named Executive Officers for 2008. These awards are reflected in both the Summary Compensation Table on page 29 and the Grants of Plan-Based Awards section on page 31.

Mr. Turner received an incentive award in March 2009 relating to his 2008 performance. Under the terms of his employment agreement, Mr. Turner was entitled to receive at least a pro-rata target bonus. The Committee awarded the minimum amount pursuant to the employment agreement and did not exercise any discretion with respect thereto.

Each of the other Named Executive Officers received an award in March 2009 relating to his 2008 performance. The table below presents for each such Named Executive Officer his salary, target as both a percentage of salary and a dollar amount, actual award, the portion of the award that is deferred into restricted stock units and the 33% increase in his restricted stock units.

Increased Award Award Award Deferred Deferred into Target into Restricted Restricted Relative Award Actual Stock/Restricted Stock/Restricted Salary to Salary Target Award Stock Units Stock Units Name ($) (%) ($) ($) ($) ($) van Paasschen ...... 1,000,000 200% 2,000,000 1,820,000 455,000 605,150 Prabhu ...... 640,658 100% 640,658 582,999 145,750 193,848 Siegel ...... 615,039 100% 615,039 559,686 139,922 186,096 Avril ...... 725,000 100% 725,000 536,500 134,125 178,386 McAveety...... 500,000 75% 281,250 341,250 85,313 113,466 Turner ...... 625,000 100% 416,667(1) 416,667 104,167 138,542

(1) Amount reflected has been adjusted to reflect pro-rata portion of bonus given Mr. Turner’s start date with the Company.

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;

• the 2008 PMP ratings assigned to such executives; and

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

VI. 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. This table includes unexercised and unvested stock options, unvested restricted stock and unvested restricted stock units. Each equity grant is shown separately for each Named Executive Officer. The

32 market value of the stock awards is based on the closing price of Company stock on December 31, 2008, which was $17.90. Option awards Stock awards Number of Number of Market value Securities Securities Number of of shares Underlying Underlying Shares or or Units of Unexercised Unexercised Option Units of Stock Stock That Options- Options Exercise Option That Have Have Not Grant Exercisable Unexercisable Price Expiration Not Vested (#) Vested Name Date (#)(1)(2) (#)(1)(2) ($)(1) Date (1) ($) van Paasschen ...... 9/24/2007 15,974 47,921 58.69 9/24/2015 2/28/2008 0 102,870 48.61 2/28/2016 9/24/2007 63,895(3) 1,143,721 3/03/2008 2,518(4) 45,072 Prabhu...... 2/02/2004 122,300 0 29.02 2/02/2012 2/18/2004 24,440 0 31.71 2/18/2012 2/10/2005 61,864 20,621 48.39 2/10/2013 2/07/2006 39,957 39,956 48.80 2/07/2014 2/28/2007 8,635 25,903 65.15 2/28/2015 2/28/2008 0 78,696 48.61 2/28/2016 2/07/2006 30,736(3) 550,174 2/28/2007 34,538(3) 618,230 3/01/2007 1,945(5) 34,816 2/28/2008 26,232(3) 469,553 3/03/2008 3,435(4) 61,487 Siegel ...... 2/18/2004 30,550 0 31.71 2/18/2012 2/10/2005 22,912 22,912 48.39 2/10/2013 2/07/2006 21,132 42,264 48.80 2/07/2014 2/28/2007 8,635 25,903 65.15 2/28/2015 2/28/2008 0 30,861 48.61 2/28/2016 2/07/2006 32,274(3) 577,705 2/28/2007 34,538(3) 618,230 3/01/2007 1,731(5) 30,985 2/28/2008 30,861(3) 552,412 3/03/2008 3,649(4) 65,317 Avril ...... 2/10/2005 9,929 9,928 48.39 2/10/2013 2/07/2006 15,369 30,738 48.80 2/07/2014 2/28/2007 5,181 15,542 65.15 2/28/2015 2/28/2008 0 22,220 48.61 2/28/2016 2/07/2006 20,491(3) 366,789 2/28/2007 20,723(3) 370,942 3/01/2007 1,695(5) 30,341 2/28/2008 22,220(3) 397,738 3/03/2008 3,551(5) 63,563 9/02/2008 40,344(3) 722,158 McAveety ...... 4/01/2008 0 25,319 53.32 4/01/2016 4/01/2008 25,319(3) 453,210 Turner ...... 5/07/2008 0 135,224 53.25 5/07/2016

(1) In connection with the Host Transaction, Starwood’s stockholders received 0.6122 Host shares and $0.503 in cash for each of their Class B Shares. 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 the payment of this consideration directly to the holders of the Class B Shares. In order to preserve the value of the Company’s restricted stock and options immediately before and after the Host Transaction, 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 stock and option information above reflects the number of shares and options granted and the option exercise prices after these adjustments were made. (2) These options generally vest in equal installments on the first, second, third and fourth anniversary of their grant. (3) These shares of restricted stock or restricted stock units granted prior to 2007 generally vest upon the third anniversary of their grant date. For awards granted in 2007, the restricted stock or restricted stock units generally vest 50% on each of the third and fourth anniversaries of their grant date. For awards granted in 2008, 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, provided that Mr. Avril’s September 2, 2008 award and Mr. McAveety’s April 1, 2008 award will vest on the third anniversary of the grant date. (4) These deferred restricted stock units vest in equal installments on the first, second and third fiscal year-ends following the date of grant, subject to acceleration in the event certain performance criteria are met. (5) These shares of restricted stock generally vest in equal installments on the first and second anniversary of their grant.

VII. OPTION EXERCISES AND STOCK VESTED The following table discloses, for each Named Executive Officer, (i) shares of Company stock acquired pursuant to exercise of stock options during 2008, (ii) shares of restricted Company stock that vested in 2008, and (iii) shares of Company stock acquired in 2008 on account of vesting of restricted stock units. The table also discloses the value realized by the Named Executive Officer for each such event, calculated prior to the deduction of any applicable withholding taxes and brokerage commissions. Option Awards Number of Stock Awards Shares Number of Shares Acquired Upon Value Realized Acquired Upon Value Realized Exercise on Exercise Vesting on Vesting Name (#) ($) (#) ($)

van Paasschen ...... — — — — Prabhu ...... — — 31,409 1,436,540 Siegel ...... — — 34,055 1,555,801 Avril ...... 13,686 254,356 65,626 3,291,009 McAveety ...... — — — — Turner ...... — — — —

34 VIII. NONQUALIFIED DEFERRED COMPENSATION The Company’s Deferred Compensation Plan (the “Plan”) permits eligible executives, including our Named Executive Officers, to defer up to 100% of their Executive Plan or Executive AIP bonus, as applicable, and up to 75% of their base salary for a calendar year. The Company does not contribute to the Plan. Mr. van Paasschen made deferrals under the Plan in 2008 but no other Named Executive Officer did. Executive Registrant Aggregate Aggregate Aggregate Contributions in Contributions Earnings Withdrawals/ Balance at Last FY in Last FY in Last FY Distributions Last FYE Name ($) ($) ($) ($) ($)

van Paasschen ...... 500,000 — (128,686) — 371,314 Prabhu ...... — — — — — Siegel ...... — — — — — Avril ...... — — — — — McAveety ...... — — — — — Turner ...... — — — — — Deferral elections are made in December for base salary paid in pay periods beginning in the following calendar year. 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. Deferral elections are irrevocable. Elections as to the time and form of payment are made at the same time as the corresponding deferral election. 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. Payment will be made immediately in the event a participant terminates employment on account of death, disability or on account of certain changes in control. A participant may elect to receive payment of his account balance in either a lump sum or in annual installments, so long as the account balance exceeds $50,000; otherwise payment will be made in a lump sum. If a participant elects an in-service distribution, the participant may change the scheduled distribution date or form of payment so long as the change is made at least 12 months in advance of the scheduled distribution date. Any such change must provide that distribution will commence at least five years later than the scheduled distribution date. If a participant elects to receive distribution upon employment termination, that election and the corresponding form of payment election are irrevocable. Withdrawals for hardship that results from an unforeseeable emergency are available, but no other unscheduled withdrawals are permitted.

35 The Plan uses the investment funds listed below as potential indices for calculating investment returns on a participant’s Plan account balance. The deferrals the participant directs for investment into these funds are adjusted based on a deemed investment in the applicable funds. The participant does not actually own the investments that he selects. The Company may, but is not required to, make identical investments pursuant to a variable universal life insurance product. When it does, participants have no direct interest in this life insurance. 1-Year Annualized Rate of Return Name of Investment Fund (as of 2/28/09) Nationwide NVIT Money Market — Class V...... 1.19% PIMCO VIT Total Return — Admin Shares ...... 0.94% Fidelity VIP High Income — Service Class ...... Ϫ19.01% Nationwide NVIT Inv Dest Moderate — Class 2 ...... Ϫ28.74% T. Rowe Price Equity Income — Class II...... Ϫ46.97% Dreyfus Stock Index — Initial Shares ...... Ϫ43.63% Dreyfus VIF Appreciation — Initial Shares ...... Ϫ36.42% Fidelity VIP II Contrafund — Service Class ...... Ϫ46.44% Fidelity VIP Growth — Service Class ...... Ϫ48.97% Nationwide NVIT Mid Cap Index — Class I ...... Ϫ42.48% Oppenheimer Mid Cap VA — Non-Service Shares ...... Ϫ49.50% Dreyfus IP Small Cap Stock Index — Service Shares...... Ϫ42.57% Fidelity VIP Overseas — Service Class ...... Ϫ50.85% AIM V.I. International Growth — Series I Shares...... Ϫ42.54%

IX. POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL The Company provides certain benefits to our Named Executive Officers in the event of employment termination, both in connection with a change in control and otherwise. These benefits are in addition to benefits available generally to salaried employees, such as distributions under the Company’s tax-qualified retirement savings plan, disability insurance benefits and life insurance benefits. These benefits are described below.

A. Termination Before Change in Control: Involuntary Other than for Cause, Voluntary for Good Reason, Death or Disability Pursuant to Mr. van Paaschen’s employment agreement, if Mr. van Paasschen’s employment is terminated by the Company other than for cause or by Mr. van Paasschen for good reason, the Company will pay Mr. van Paasschen as a severance benefit (i) two times the sum of his base salary and target annual bonus, (ii) a pro rated target bonus for the year of termination and (iii) Mr. van Paasschen’s sign on restricted stock unit award (25,558 units) would be payable. None of the other equity awards granted to Mr. van Paasschen would be accelerated. If Mr. van Paasschen’s employment were terminated because of his death or permanent disability, Mr. 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. Pursuant to Mr. Avril’s employment agreement, if Mr. Avril’s employment is terminated by the Company without cause, 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. In addition, Mr. Avril will also be entitled to acceleration of all of his restricted stock and options that were granted prior to August 19, 2008, but no acceleration for equity awards granted on or after August 19, 2008. Pursuant to his employment agreement, if Mr. Prabhu’s employment is terminated by the Company without cause or by Mr. Prabhu voluntarily with good reason, 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, the Company will accelerate the vesting of 50% of Mr. Prabhu’s unvested

36 restricted stock and options. The Company entered into a letter agreement on August 14, 2007 confirming the terms of the agreement as it relates to the acceleration of 50% of Mr. Prabhu’s unvested restricted stock and options. Pursuant to Mr. Siegel’s employment agreement, in the event Mr. Siegel’s employment is terminated by the Company without cause, 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. Pursuant to a letter agreement entered into on August 14, 2007, Mr. 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, 2009. Pursuant to Mr. McAveety’s employment agreement, if Mr. McAveety’s employment is terminated by the Company other than for cause, 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 addition, the Company will pay the reasonable costs of relocation costs should Mr. McAveety relocate to Europe within one year of the termination of his employment Pursuant to Mr. Turner’s employment agreement, if Mr. Turner’s employment is terminated by the Company other than for cause or by Mr. Turner for good reason, 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.

B. Termination in the Event of Change in Control On August 2, 2006, the Company and each of Messrs. Prabhu and Siegel entered into severance agreements. Each severance agreement provides for a term of three years, 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. If a Change in Control (as described below) occurs, the agreement will continue for at least 24 months following the date of such Change in Control. Each agreement provides that if, following a Change in Control, the executive’s employment is terminated without Cause (as defined in the agreement) or with Good Reason (as defined in the agreement), the executive would receive the following in addition to the items described in A. 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; • continued medical benefits for two years, reduced to the extent benefits of the same type are received by or made available to the executive from another employer; • a lump sum amount, in cash, equal to the sum of (A) any unpaid incentive compensation which had been allocated or awarded to the executive for any measuring period preceding termination under any annual or long-term incentive plan and which, as of the date of termination, is contingent only upon the continued employment of the executive until a subsequent date, 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, assuming the achievement, at the target level, of the individual and corporate performance goals established with respect to such award; • immediate vesting of stock options and restricted stock held by the executive under any stock option or incentive plan maintained by the Company; • outplacement services suitable to the executive’s position for a period of two years or, if earlier, until the first acceptance by the executive of an offer of employment, the cost of which will not exceed 20% of the executive’s base salary; • a lump sum payment of the executive’s deferred compensation paid in accordance with Section 409A distribution rules; and

37 • 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.

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

Under the severance agreements, 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 majority of the Directors cease to serve on the Company’s Board in connection with a successful hostile proxy contest;

• a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, 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; 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; 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, 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. However, 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.

Each of Messrs. Avril, McAveety and Turner entered into similar change in control agreements in connection with their employment with the Company, 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, 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.

Mr. 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;

• a lump sum amount, in cash, 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, as of the date of termination, is contingent only upon his continued employment until a subsequent date, 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, assuming the achievement, at the target level, of the individual and corporate performance goals established with respect to such award;

• immediate vesting of stock options and restricted stock held under any stock option or incentive plan maintained by the Company;

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

38 • 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. In addition, to the extent that Mr. van Paasschen becomes subject to the “golden parachute” excise tax imposed under Section 4999 of the Code, he would receive a gross-up payment in an amount sufficient to offset the effects of such excise tax. In December 2008, the Company amended the employment arrangements and change in control agreements with each of the Named Executive Officers. The amendments were technical in nature and were designed to meet the guidelines of 409A of the Code. The amendments did not change any of the amounts payable to the Named Executive Officers.

C. 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, 2008 under various circumstances, and includes amounts earned through that date. 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.

1. Involuntary Termination without Cause or Voluntary Termination for Good Reason The following table discloses the amounts that would have become payable on account of an involuntary termination without cause or a voluntary termination for good reason outside of the change in control context. Severance Medical Vesting of Vesting of Pay Benefits Restricted Stock Stock Options Total Name ($) ($) ($) ($) ($) van Paasschen ...... 8,000,000 0 457,4880 0 8,457,488 Prabhu ...... 640,658 23,952 867,130 0 1,531,740 Siegel(1) ...... 1,230,078 19,699 922,324 0 2,172,101 Avril(1) ...... 725,000 18,288 1,229,372 0 1,972,660 McAveety(1) ...... 500,000 18,912 0 0 518,912(2) Turner...... 625,000 24,888 0 0 649,888

(1) Messrs. Siegel, 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. (2) In addition, the Company would pay the reasonable costs of relocating Mr. McAveety to Europe if he decides to return to Europe within one year of his termination of employment.

2. 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. Severance Medical Vesting of Vesting of Pay Benefits Restricted Stock Stock Options Total Name ($) ($) ($) ($) ($) van Paasschen ...... 2,000,000 0 1,668,835 0 3,668,835 Prabhu ...... 640,658 23,952 1,734,259 0 2,398,869 Siegel...... 1,230,078 19,699 1,844,649 0 3,094,426 Avril ...... 725,000 18,288 1,951,530 0 2,694,818 McAveety ...... 500,000 18,912 453,210 0 972,122 Turner...... 625,000 24,888 0 0 649,888

39 3. 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. Vesting of Severance Medical Vesting of Stock Outplace- 401(k) Tax Pay Benefits Restricted Stock Options ment Payment Gross Up Total Name ($) ($) ($) ($) ($) ($) ($) ($) van Paasschen(1) ...... 8,000,000 0 1,668,835 0 0 0 3,724,544 13,393,379 Prabhu ...... 3,390,798 47,904 1,734,259 0 128,132 0 0 5,301,093 Siegel ...... 3,405,217 39,398 1,844,649 0 123,006 0 0 5,412,270 Avril ...... 3,332,730 36,576 1,951,530 0 145,000 0 n/a 5,465,836 McAveety ...... 2,250,000 37,824 453,210 0 100,000 0 n/a 2,741,034 Turner ...... 3,125,000 49,776 0 0 125,000 0 n/a 3,299,776

(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. van Paasschen, a 20% excise tax is imposed on the excess amount of such severance pay and other benefits. Because of Mr. van Paasschen’s recent hire, his base period taxable compensation does not reflect the total compensation paid to him, artificially increasing the excise tax that would apply on a change in control and, correspondingly, the tax gross-up payment due under the estimate.

X. DIRECTOR COMPENSATION The Company uses a combination of cash and stock-based awards to attract and retain qualified candidates to serve on the Board. In setting Director compensation, 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. The current compensation structure is described below. Under the Company’s Director share ownership guidelines, 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. Company employees who serve as members of the Board receive no fees for their services in this capacity. Non-employee members of the Board (“Non-Employee Directors”) receive compensation for their services as described below.

A. Annual Fees Each Non-Employee Director receives an annual fee in the amount of $80,000, payable in four 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. A Non-Employee Director may elect to receive up to one-half of the annual fee in cash and to defer (at an 1 annual interest rate of LIBOR plus 1 ⁄2% for deferred cash amounts) any or all of the annual fee payable in cash. Deferred cash amounts are payable in accordance with the Director’s advance election. 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. Deferred stock amounts are payable in accordance with the Non-Employee Director’s advance election. Non-Employee Directors serving as members of the Audit Committee received an additional annual fee in cash of $10,000 ($25,000 for the chairman of the Audit Committee). The chairperson of each other committee of the Board received an additional annual fee in cash of $10,000. For 2008, the Chairman of the Board received an additional retainer of $150,000, payable quarterly in Shares. In addition, the Board established the following special committees in 2007-2008: (1) Search Committee, (2) Special Committee, and (3) Transition Committee. In 2008, each member of the Search Committee and Special Committee received an additional fee of $20,000 ($25,000 for each Chairperson), and each member of the

40 Transition Committee received an additional fee of $10,000. The members of these special committees were able to elect to receive such fees in cash or stock. For Directors electing stock, 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. 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.

B. Attendance Fees Non-Employee Directors do not receive fees for attendance at meetings. However, the Company reimburses Non-Employee Directors for expenses they incurred related to 2008 meeting attendance, including attendance by spouses at one meeting each year.

C. Equity grant In 2008, 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. The equity grant was delivered 50% in stock units and 50% in stock options. The number of stock units is determined by dividing the value ($50,000) by the average of the high and low price on the date of grant. The number of options is determined by dividing the value ($50,000) by the average of the high and low price on the date of grant (also the exercise price) and multiplying by three. For the 2009 grant, the ratio was lowered to 2.5-to-1. The options are fully vested and exercisable upon grant and are scheduled to expire eight years after the grant date. 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.

D. Starwood Preferred Guest Program Points and Rooms In 2008, each Non-Employee Director other than Mr. Daley received an annual grant of 750,000 Starwood Preferred Guest (“SPG”) Points to encourage them to visit and personally evaluate our properties. Mr. Daley received a grant of 375,000 SPG Points in light of his November 2008 election to the Board.

E. Other Compensation In 2008, 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). The Company also reimburses Non-Employee Directors for travel expenses, other out-of-pocket costs they incur when attending meetings and, for one meeting per year, expenses related to attendance by spouses. We have summarized the compensation paid by the Company to our Non-Employee Directors in 2008 in the table below. Fees earned Stock Option All Other or Paid in Cash Awards (2)(3) Awards (4) compensation (5) Total Name of Director ($) (1) ($) ($) ($) ($)

Adam M. Aron ...... 20,000 94,077 48,939 11,250 174,266 Charlene Barshefsky ...... 20,000 94,077 48,939 15,431 178,447 Jean-Marc Chapus ...... 25,000 40,713 48,939 11,250 125,902 Thomas E. Clarke ...... 37,500 41,218 48,753 11,250 138,721 Clayton C. Daley, Jr...... 6,196 6,762 14,756 N/A 27,714 Bruce W. Duncan ...... 35,000 222,499 48,939 102,246 408,684 Lizanne Galbreath...... 15,000 94,077 48,939 15,595 173,611 Eric Hippeau ...... 40,000 94,077 48,939 30,986 214,002 Stephen R. Quazzo ...... 55,000 94,077 48,939 11,250 209,266 Thomas O. Ryder ...... 55,000 94,077 48,939 24,699 222,715 Kneeland C. Youngblood . . . . . 50,000 54,043 48,939 18,750 171,732

41 (1) The following Directors elected to receive stock awards in lieu of cash fees for service on special committees of the Board: Ms. Barshefsky and Mr. Chapus, $20,000; Mr. Duncan, $35,000; Mr. Hippeau, $40,000; Mr. Quazzo, $45,000; and Mr. Ryder, $30,000. The grant date fair value of these stock awards is set forth below: Number of Shares of Director Grant Date Stock/Units Grant Date Fair Value ($) Ms. Barshefsky and Mr. Chapus ...... 2/28/2008 411 19,977 Mr. Duncan...... 2/28/2008 720 34,996 Mr. Hippeau ...... 2/28/2008 822 39,953 Mr. Quazzo...... 2/28/2008 925 44,960 Mr. Ryder ...... 2/28/2008 617 29,989 (2) As of December 31, 2008, each Director has the following aggregate number of Shares (deferred or otherwise) outstanding: Mr. Aron, 34,292; Ambassador Barshefsky, 13,007; Mr. Chapus, 0; Mr. Clarke, 2,338; Mr. Daley, 5,657; Mr. Duncan, 238,838; Ms. Galbreath, 5,536; Mr. Hippeau, 19,360; Mr. Quazzo, 28,265; Mr. Ryder, 14,109; Mr. Youngblood, 7,253. (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, in accordance with SFAS 123(R). Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information, 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, 2008. 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. The grant date fair value of each stock award is set forth below: Number of Shares of Director Grant Date Stock/Units Grant Date Fair Value ($) Adam M. Aron ...... 2/28/2008 1,029 50,015 3/31/2008 458 20,017 6/30/2008 458 20,017 9/30/2008 458 20,017 12/31/2008 458 20,017 Charlene Barshefsky ...... 2/28/2008 1,029 50,015 3/31/2008 458 20,017 6/30/2008 458 20,017 9/30/2008 458 20,017 12/31/2008 458 20,017 Jean-Marc Chapus ...... 2/28/2008 1,029 50,015 3/31/2008 458 20,017 6/30/2008 153 6,687 Thomas E. Clarke ...... 4/30/2008 951 50,023 6/30/2008 229 10,008 9/30/2008 229 10,008 12/31/2008 229 10,008 Clayton C. Daley, Jr...... 11/5/2008 515 10,872 12/31/2008 142 6,206

42 Number of Shares of Director Grant Date Stock/Units Grant Date Fair Value ($) Bruce W. Duncan ...... 2/28/2008 1,029 50,015 3/31/2008 458 20,017 3/31/2008 858 37,499 6/30/2008 458 20,017 6/30/2008 858 37,499 9/30/2008 458 20,017 9/30/2008 858 37,499 12/31/2008 458 20,017 12/31/2008 858 37,499 Lizanne Galbreath ...... 2/28/2008 1,029 50,015 3/31/2008 458 20,017 6/30/2008 458 20,017 9/30/2008 458 20,017 12/31/2008 458 20,017 Eric Hippeau...... 2/28/2008 1,029 50,015 3/31/2008 458 20,017 6/30/2008 458 20,017 9/30/2008 458 20,017 12/31/2008 458 20,017 Stephen R. Quazzo ...... 2/28/2008 1,029 50,015 3/31/2008 458 20,017 6/30/2008 458 20,017 9/30/2008 458 20,017 12/31/2008 458 20,017 Thomas O. Ryder ...... 2/28/2008 1,029 50,015 3/31/2008 458 20,017 6/30/2008 458 20,017 9/30/2008 458 20,017 12/31/2008 458 20,017 Kneeland C. Youngblood ...... 2/28/2008 1,029 50,015 3/31/2008 229 10,008 6/30/2008 229 10,008 9/30/2008 229 10,008 12/31/2008 229 10,008

(4) Represents the expense recognized for financial statement reporting purposes with respect to 2008 for the fair value of stock options granted in 2008, in accordance with SFAS 123(R). Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information, 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, 2008. 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. As of December 31, 2008, each Director has the following aggregate number of stock options outstanding: Mr. Aron, 10,962; Ambassador Barshefsky, 35,082; Mr. Chapus, 35,082; Mr. Clarke, 2,852; Mr. Daley, 1,544; Mr. Duncan, 95,804; Ms. Galbreath, 18,585; Mr. Hippeau, 52,738; Mr. Quazzo, 51,579; Mr. Ryder, 40,581; Mr. Youngblood, 40,581. All Directors other than Messrs. Clarke and Daley (who were not Directors at the time) received a grant of 3,087 options on February 28, 2008 with a grant date fair value of $48,939. Mr. Clarke received a grant of 2,852 options on April 30, 2008 with a grant date fair value of $48,753 and Mr. Daley received a grant of 1,544 options on November 5, 2008 with a grant date fair value of $14,756.

43 (5) We reimburse Non-Employee Directors for travel expenses, other out-of-pocket costs they incur when attending meetings and, for one meeting per year, attendance by spouses. In addition, in 2008 Non-Employee Directors received 750,000 SPG Points valued at $11,250 (Mr. Youngblood’s account was credited with a larger amount to correct a mistake with the number of points granted in 2007 and Mr. Daley’s account was credited with 375,000 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. Non-Employee Directors also receive interest on deferred dividends. Pursuant to SEC rules, perquisites and personal benefits are not reported for any Director for whom such amounts were less than $10,000 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 in the aggregate. SEC rules do not require specification of the value of any type of perquisite or personal benefit provided to the Non- Employee Directors because no such value exceeded $25,000. Pursuant to SEC rules, the following table specifies the value for each other element of All Other Compen- sation that is valued in excess of $10,000 and not disclosed above. Deferred Dividends on Administrative Restricted Stock Units Assistant Name ($) 2008 ($) 2008 Duncan ...... 18,620 67,689 Hippeau ...... 15,758 — Ryder...... 11,217 —

44 AUDIT COMMITTEE REPORT The information contained in this Audit Committee Report shall not be deemed to be “soliciting material” or “filed” or “incorporated by reference” in future filings with the SEC, or subject to the liabilities of Section 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, or the Exchange Act. The Audit Committee (the “Audit Committee”) of the Board of Directors (the “Board”) of Starwood Hotels & Resorts Worldwide, Inc. (the “Company”), which is comprised entirely of “independent” Directors, as determined by the Board in accordance with the New York Stock Exchange (“NYSE”) listing requirements and applicable federal securities laws, serves as an independent and objective party to assist the Board in fulfilling its oversight responsibilities including, but not limited to, (i) monitoring the quality and integrity of the Company’s financial statements, (ii) monitoring compliance with legal and regulatory requirements, (iii) assessing the qualifications and independence of the independent registered public accounting firm and (iv) establishing and monitoring the Company’s systems of internal controls regarding finance, accounting and legal compliance. The Audit Committee operates under a written charter which meets the requirements of applicable federal securities laws and the NYSE requirements. In the first quarter of 2009, the Audit Committee reviewed and discussed the audited financial statements for the year ended December 31, 2008 with management, the Company’s internal auditors and the independent registered public accounting firm, Ernst & Young LLP. The Audit Committee also discussed with the independent registered public accounting firm matters relating to its independence, 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. 61 Communications with Audit Committees, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T regarding the independent accountants’ communications with the Audit Committee concerning independence. Based on the reviews and discussions referred to above, 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, 2008.

Audit Committee of the Board of Directors

Thomas O. Ryder (chairman) Adam M. Aron Thomas E. Clarke Clayton C. Daley, Jr. Kneeland C. Youngblood

Audit Fees The aggregate amounts paid by the Company for the fiscal years ended December 31, 2008 and 2007 to the Company’s principal accounting firm, Ernst & Young, are as follows (in millions): 2008 2007 Audit Fees(1) ...... $4.9 $5.0 Audit-Related Fees(2) ...... $0.9 $0.9 Tax Fees(3) ...... $0.4 $0.3 Total ...... $6.2 $6.2

(1) Audit fees include the fees paid for the annual audit, the review of quarterly financial statements and assistance with regulatory and statutory filings, 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.

45 (2) Audit-related fees include fees for audits of employee benefit plans, statutory audits required by local laws, audit and accounting consultation and other attest services. (3) Tax fees include fees for the preparation and review of certain foreign tax returns.

Pre-Approval of Services The Audit Committee pre-approves all services, including both audit and non-audit services, provided by the Company’s independent registered public accounting firm. For audit services (including statutory audit engage- ments as required under local country laws), 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. The engagement letter must be formally accepted by the Audit Committee before any audit commences. The independent registered public accounting firm also submits an audit services fee proposal, which also must be approved by the Audit Committee before the audit commences. The Audit Committee may delegate authority to one of its members to pre-approve all audit/non-audit services by the independent registered public accounting firm, as long as these approvals are presented to the full Audit Committee at its next regularly scheduled meeting. 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 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. The Audit Committee must approve both the list of non-audit services and the budget for each such service before commencement of the work. 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. All audit and permissible non-audit services provided by Ernst & Young to the Company for the fiscal years ended December 31, 2008 and 2007 were pre-approved by the Audit Committee or the Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION All members of the Compensation Committee during fiscal year 2008 were independent Directors, and no member was an employee or former employee. No Compensation Committee member had any relationship requiring disclosure under “Certain Relationships and Related Transactions,” below. During fiscal year 2008, 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.

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 (3) the Company is reasonably capable of pursuing. 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; (ii) conclude that the proposed transaction is appropriate and suggest that the Company pursue it on the terms presented or on different terms, and in the case of a Corporate Opportunity suggest that the Company pursue the Corporate Opportunity on its own, with the party who brought the proposed transaction to the Company’s attention or with another third party; 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, at the Committee’s option, in connection with (iii), make recommendations to the Board. Any person bringing a proposed transaction to the Committee is obligated to

46 provide any and all information available to the Committee and to recuse himself from any vote or other deliberation.

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. If any other matters properly come before the Annual Meeting, it is the intention of the persons named in the enclosed proxy to vote the Shares represented thereby in accordance with their discretion.

SOLICITATION COSTS The Company will pay the cost of soliciting proxies for the Annual Meeting, including the cost of mailing. The solicitation is being made by mail and may also be made by telephone or in person using the services of a number of regular employees of the Company at nominal cost. The Company will reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for expenses incurred in sending proxy materials to beneficial owners of Shares. The Company has engaged D.F. King & Co., Inc. to solicit proxies and to assist with the distribution of proxy materials for a fee of $17,000 plus reasonable out-of-pocket expenses.

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. This delivery method, referred to as “householding,” can result in significant cost savings for us. In order to take advantage of this opportunity, 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. The Company will deliver promptly, upon written or oral request, 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. A stockholder who wishes to receive a separate copy of the proxy statement and annual report, now or in the future, may obtain one, without charge, by addressing a request to Investor Relations, Starwood Hotels & Resorts Worldwide, Inc., 1111 Westchester Avenue, White Plains, NY 10604 or by calling (914) 640-8100. 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.starwoodhotels.com/corporate/investor — relations.html). 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. If you are the beneficial owner, but not the record holder, of the Company’s shares and wish to receive only one copy of the proxy statement and annual report in the future, 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.

47 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, the Company must receive your proposal by November 26, 2009, and the proposal must comply with the rules of the SEC. If you want to make a proposal or nominate a Director for consideration at next year’s Annual Meeting without having the proposal included in the Company’s proxy materials, you must comply with the current advance notice provisions and other requirements set forth in the Company’s Bylaws, including that the Company must receive your proposal on or after January 26, 2010 and on or prior to February 20, 2010, 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. If the Company does not receive your proposal or nomination by the appropriate deadline, then it may not be brought before the 2010 Annual Meeting. 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, Starwood Hotels & Resorts Worldwide, Inc., 1111 Westchester Avenue, White Plains, New York 10604.

By Order of the Board of Directors STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

Kenneth S. Siegel Corporate Secretary

March 26, 2009

48 General Directions To The St. Regis Washington, D.C.

From 95 South (Richmond)

• Follow I 395 N, cross bridge into District of Columbia and stay in left lane.

• Follow route US-1 N toward downtown.

• Stay straight to go onto 14th Street.

• Turn left on I Street.

• Turn right on 16th Street — the hotel is located on the right.

From Dulles International Airport (IAD)

• Take Dulles Access Road to Route 66 East (14 miles).

• Take the Roosevelt Bridge and stay in right lane which will become Constitution Avenue.

• Turn left on 17th Street.

• Turn right on H Street.

• Turn left on 16th Street — the hotel is located on the right.

From Union Station

• Take Mass Avenue NW to 16th Street.

• Go around circle to take 16th Street.

• Stay on 16th Street for two blocks — the hotel is located on the left.

From National Reagan Airport (DCA)

• Take George Washington Parkway North to 395 N.

• Cross bridge and stay in left lane which will become 14th Street.

• Continue to I Street NW and turn left.

• Follow to 16th Street.

• Turn right on 16th Street — the hotel is located on the right.

From 95 North (Baltimore-New York)

• Take route 50 West (New York Avenue) to 9th Street NW and turn left.

• Go down two blocks and turn right on New York Avenue again.

• Go two blocks (past 10th Street), stay in right lane, which will become I Street.

• Follow to 16th Street and turn right — the hotel is located on the right.

49 (This page intentionally left blank) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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, 2008 OR n TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File Number: 1-7959 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. (Exact name of Registrant as specified in its charter) Maryland (State or other jurisdiction of incorporation or organization) 52-1193298 (I.R.S. employer identification no.) 1111 Westchester Avenue White Plains, NY 10604 (Address of principal executive offices, including zip code) (914) 640-8100 (Registrant’s telephone number, including area code) Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, par value $0.01 per share New York Stock 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, as defined in Rule 405 of the Securities Act. 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. 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. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¥ No n Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, 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. ¥ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (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 n No ¥ As of June 30, 2008, the aggregate market value of the Registrant’s voting and non-voting common equity (for purposes of this Annual Report only, includes all Shares other than those held by the Registrant’s Directors and executive officers) was $7,447,019,328. As of February 20, 2009, the Corporation had outstanding 182,443,016 shares of common stock. For information concerning ownership of Shares, see the Proxy Statement for the Company’s Annual Meeting of Stockholders that is currently scheduled for May 6, 2009 (the “Proxy Statement”), which is incorporated by reference under various Items of this Annual Report. Document Incorporated by Reference: Document Where Incorporated Proxy Statement Part III (Items 11, 12, 13 and 14)

TABLE OF CONTENTS

Page PART I Forward-Looking Statements ...... 1 Item 1. Business ...... 1 Item 1A. Risk Factors ...... 10 Item 2. Properties ...... 18 Item 3. Legal Proceedings ...... 24 Item 4. Submission of Matters to a Vote of Security Holders ...... 24 PART II Item 5. Market for Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...... 25 Item 6. Selected Financial Data ...... 28 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . 28 Item 7A. Quantitative and Qualitative Disclosures about Market Risk ...... 42 Item 8. Financial Statements and Supplementary Data ...... 44 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . . 44 Item 9A. Controls and Procedures ...... 44 PART III Item 10. Directors, Executive Officers and Corporate Governance ...... 46 Item 11. Executive Compensation ...... 49 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...... 50 Item 13. Certain Relationships and Related Transactions and Director Independence ...... 50 Item 14. Principal Accountant Fees and Services ...... 50 PART IV Item 15. Exhibits, Financial Statement Schedules ...... 51 (This page intentionally left blank) This Annual Report is filed by Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the “Corporation”). Unless the context otherwise requires, all references to the Corporation include those entities owned or controlled by the Corporation, including SLC Operating Limited Partnership, a Delaware limited partnership (the “Operating Partnership”), which prior to April 10, 2006 included Starwood Hotels & Resorts, a Maryland real estate investment trust (the “Trust”), which was sold in the Host Transaction (defined below); all references to the Trust include the Trust and those entities owned or controlled by the Trust, including SLT Realty Limited Partnership, a Delaware limited partnership (the “Realty Partnership”); and all references to “we”, “us”, “our”, “Starwood”, or the “Company” refer to the Corporation, the Trust and its respective subsidiaries, collectively through April 7, 2006. Until April 7, 2006, the shares of common stock, par value $0.01 per share, of the Corporation (“Corporation Shares”) and the Class B shares of beneficial interest, par value $0.01 per share, 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”). On April 7, 2006, in connection with a transaction (the “Host Transaction”) with Host Hotels & Resorts, Inc., its subsidiary Host Marriot L.P. and certain other subsidiaries of Host Hotels & Resorts, Inc. (collectively, “Host”), the Shares were depaired and the Corporation Shares became transferable separately from the Class B Shares. As a result of the depairing, the Corporation Shares trade alone under the symbol “HOT” on the New York Stock Exchange (“NYSE”). As of April 10, 2006, neither Shares nor Class B Shares are listed or traded on the NYSE.

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. Such statements appear in several places in this Annual Report, including, without limitation, the section of Item 1. Business, captioned “Business Strategy” and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Such forward-looking statements may include statements regarding the intent, belief or current expectations of Starwood, its Directors or its officers with respect to the matters discussed in this Annual Report. 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, without limitation, the risks and uncertainties set forth below. Starwood undertakes no obligation to publicly update or revise any forward-looking statements to reflect current or future events or circumstances.

Item 1. Business. General We are one of the world’s largest hotel and leisure companies. We conduct our hotel and leisure business both directly and through our subsidiaries. Our brand names include the following: St. Regis» (luxury full-service hotels, resorts and residences) are for connoisseurs who desire the finest expressions of luxury. They provide flawless and bespoke service to high-end leisure and business travelers. St. Regis hotels are located in the ultimate locations within the world’s most desired destinations, important emerging markets and yet to be discovered paradises, and they typically have individual design characteristics to capture the distinctive personality of each location. The Luxury Collection» (luxury full-service hotels and resorts) is a group of unique hotels and resorts offering exceptional service to an elite clientele. From legendary palaces and remote retreats to timeless modern classics, these remarkable hotels and resorts enable the most discerning traveler to collect a world of unique, authentic and enriching experiences indigenous to each destination that capture the sense of both luxury and place. They are distinguished by magnificent decor, spectacular settings and impeccable service. W» (luxury and upscale full service hotels, retreats and residences) feature world class design, world class restaurants and “on trend” bars and lounges and its signature Whatever\Whenever» service standard. It’s a sensory multiplex that not only indulges the senses, it delivers an emotional experience. Whether it’s “behind the scenes”

1 access at Whappenings, or our cutting edge music, lighting and scent programs, W hotels delivers an experience unmatched in the hotel segment.

Westin» (luxury and upscale full-service hotels, resorts and residences) is a lifestyle brand competing in the upper upscale sector in nearly 30 countries around the globe. Each hotel offers renewing experiences that inspire guests to be at their best. First impressions at any Westin hotel are fueled by signature sensory experiences of light, music, white tea scent and botanicals. Westin revolutionized the industry with its famous Heavenly Bed» and Heavenly Bath» and launched a multi-million dollar retail program featuring these products. 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. The new Westin Superfoods» menu is the latest way we bring renewal to guests, with foods considered best for providing disease-fighting and health-enhancing benefits due to their high nutrient and antioxidant content.

Le Méridien» (luxury and upscale full-service hotels, resorts and residences) is a European-inspired brand with a French accent. Each of its hotels, whether city, airport or resort has a distinctive character driven by its individuality and the Le Méridien brand values. With its underlying passion for food, art and style and its classic yet stylish design, Le Méridien offers a unique experience at some of the world’s top travel destinations.

Sheraton» (luxury and upscale full-service hotels, resorts and residences) is our largest brand serving the needs of luxury and upscale business and leisure travelers worldwide. We offer the entire spectrum of comfort. From full-service hotels in major cities to luxurious resorts by the water, Sheraton can be found in the most sought-after cities and resort destinations around the world. Every guest at Sheraton hotels and resorts feels a warm and welcoming connection, the feeling you have when you walk into a place and your favorite song is playing — a sense of comfort and belonging. Our most recent innovation, the Link@SheratonSM with Microsoft, encourages hotel guests to come out of their rooms to enjoy the energy and social opportunities of traveling. At Sheraton, we help our guests connect to what matters most to them, the office, home and the best spots in town.

Four Points» (select-service hotels) delights the self-sufficient traveler with a new kind of comfort, approachable style and spirited, can-do service — all at the honest value our guests deserve. 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.

Aloft(SM) (select-service hotels), a brand introduced in 2005 with the first hotel opened in 2008, provides new heights, an oasis where you least expect it, a spirited neighborhood outpost, a haven at the side of the road. Bringing a cozy harmony of modern elements to the classic American on-the-road tradition, Aloft offers a sassy, refreshing, ultra effortless alternative for both the business and leisure traveler. Fresh, fun, and fulfilling, Aloft is an experience to be discovered and rediscovered, destination after destination, as you ease on down the road.

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

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

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

Our hotel business emphasizes the global operation of hotels and resorts primarily in the luxury and upscale segment of the lodging industry. We seek to acquire interests in, or management or franchise rights with respect to properties in this segment. At December 31, 2008, our hotel portfolio included owned, leased, managed and franchised hotels totaling 942 hotels with approximately 285,000 rooms in approximately 100 countries, and is comprised of 69 hotels that we own or lease or in which we have a majority equity interest, 436 hotels managed by

2 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. Our revenues and earnings are also derived from the development, ownership and operation of vacation ownership resorts, marketing and selling vacation ownership interests (“VOIs”) in the resorts and providing financing to customers who purchase such interests. Generally these resorts are marketed under the brand names described above. Additionally, our revenues and earnings are derived from the development, 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. At December 31, 2008, we had 26 owned vacation ownership resorts and residential properties, including sites held for development, in the United States, Mexico, and the Bahamas. Due to the global economic crisis and its impact on the long-term growth outlook for the timeshare industry, during the fourth quarter of 2008 we evaluated all of our existing vacation ownership projects, as well as land held for future vacation ownership projects. We have thereby decided not to pursue or continue development of several projects, the most significant of which are two projects in Mexico and the Caribbean. The Corporation was incorporated in 1980 under the laws of Maryland. Sheraton Hotels & Resorts and Westin Hotels & Resorts, Starwood’s largest brands, have been serving guests for more than 60 years. Starwood Vacation Ownership (and its predecessor, Vistana, Inc.) has been selling VOIs for more than 20 years. Our principal executive offices are located at 1111 Westchester Avenue, White Plains, New York 10604, and our telephone number is (914) 640-8100. For a discussion of our revenues, profits, assets and geographical segments, see the notes to financial statements of this Annual Report. For additional information concerning our business, see Item 2 Properties, of this Annual Report.

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. We have assumed a leadership position in markets worldwide based on our superior global distribution, 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. The strength of our brands is evidenced, in part, by the superior ratings received from our hotel guests and from industry publications. Frequent Guest Program. Our loyalty program, Starwood Preferred Guest» (“SPG”), made headlines when it launched in 1999 with a breakthrough policy of no blackout dates and no capacity controls, allowing members to redeem free nights anytime, anywhere. Since then, the program has grown to include more than 47 million members and continues to be cited for its hassle-free award redemption, outstanding customer service, dedicated member website and innovative promotions and benefits for elite members. 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, indulgent experiences and airline miles with 33 participating airlines. Significant Presence in Top Markets. Our luxury and upscale hotel and resort assets are well positioned throughout the world. These assets are primarily located in major cities and resort areas that management believes have historically demonstrated a strong breadth, depth and growing demand for luxury and upscale hotels and resorts, in which the supply of sites suitable for hotel development has been limited and in which development of such sites is relatively expensive. Premier and Distinctive Properties. We operate a distinguished and diversified group of hotel properties throughout the world, including the St. Regis in New York, New York; The Phoenician in Scottsdale, Arizona; the Hotel Gritti Palace in Venice, Italy; and the St. Regis in Beijing, China. These are among the leading hotels in the industry and are at the forefront of providing the highest quality and service. Our properties are consistently

3 recognized as the best of the best by readers of Condé Nast Traveler, who are among the world’s most sophisticated and discerning group of travelers.

Scale. As one of the largest hotel and leisure companies focusing on the luxury and upscale full-service lodging market, we have the scale to support our core marketing and reservation functions. We also believe that our scale will contribute to lower our cost of operations through purchasing economies in areas such as insurance, energy, telecommunications, technology, employee benefits, food and beverage, furniture, fixtures and equipment and operating supplies. We feel we are well-positioned for further significant growth based on the number of hotels and rooms in our system. We currently have approximately half of the base of rooms compared to our major competitors, and as a result, as we increase our room count, our economies of scale should provide a favorable impact to our operations given our existing cost structure.

Diversification of Cash Flow and Assets. Management believes that the diversity of our brands, market segments served, revenue sources and geographic locations provide a broad base from which to enhance revenue and profits and to strengthen our global brands. This diversity limits our exposure to any particular lodging or vacation ownership asset, brand or geographic region.

While we focus on the luxury and upscale portion of the full-service lodging, vacation ownership and residential markets, our brands cater to a diverse group of sub-markets within this market. For example, the St. 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. The Aloft brand will provide a youthful alternative to the “commodity lodging” of currently existing brands in the select-service market segment, and the Element brand will provide modern, upscale hotels for extended stay travel.

We derive our cash flow from multiple sources within our hotel and vacation ownership and residential segments, including owned hotels’ operations, management and franchise fees and the sale of VOIs, residential units and residential branding fees. These operations are in geographically diverse locations around the world. 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, 2008:

Number of Properties Rooms Managed and unconsolidated joint venture hotels ...... 436 149,900 Franchised hotels ...... 437 111,300 Owned hotels(a) ...... 69 23,600 Vacation ownership resorts and residential properties ...... 26 7,200 Total properties ...... 968 292,000

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

Number of Properties Rooms North America (and Caribbean) ...... 512 169,600 Europe, Africa and the Middle East ...... 254 62,000 Asia Pacific ...... 143 47,700 Latin America...... 59 12,700 Total...... 968 292,000

Business Segment and Geographical Information

Incorporated by reference in Note 24. Business Segment and Geographical Information, in the consolidated financial statements set forth in Part II, Item 8. Financial Statements and Supplementary Data.

4 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. In furtherance of this strategy, since 2006, we have sold 56 hotels for approximately $5 billion, including 33 properties to Host in 2006, for approximately $4.1 billion in stock, cash and debt assumption. As a result, our primary business objective is to maximize earnings and cash flow by increasing the number of our hotel management contracts and franchise agreements; developing vacation ownership resorts and selling VOIs; and investing in real estate assets where there is a strategic rationale for doing so, 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. We plan to meet these objectives by leveraging our global assets, broad customer base and other resources and by taking advantage of our scale to reduce costs. 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. Growth Opportunities. Management has identified several growth opportunities with a goal of enhancing our operating performance and profitability, including: • Continuing to build our brands to appeal to upscale business travelers and other customers seeking full- service hotels in major markets by establishing emotional connections to our brands by offering signature experiences at our properties. We plan to accomplish this in the following ways: (i) by continuing our tradition of innovation started with the Heavenly Bed» and Heavenly Bath», the Westin Heavenly Spa, the Superfoods» menu, the Sheraton Sweet SleeperSM Bed, the Sheraton Service Promise SM and the Four Points by Sheraton Four Comfort Bed (SM), (ii) with such ideas as Westin being the first major brand to go “smoke- free” in North America, Aloft’s “see green” program created to introduce and promote ecologically friendly programs and services; our newest innovation, the Link@Sheraton(SM); and (iii) by placing Bliss» Spas, RemèdeSM Spas and their branded amenities, including the Sheraton Shine» by Bliss bath product line, and upscale restaurants in certain of our branded hotels; • Expanding our branded hotels to further our strategy of strengthening brand identity; • Continuing to expand our role as a third-party manager of hotels and resorts. This allows us to expand the presence of our lodging brands and gain additional cash flow generally with modest capital commitment; • Franchising certain of our brands to third-party operators, including the roll out of our new brands, Aloft and Element, and licensing certain of our brands to third parties in connection with luxury residential condominiums, thereby expanding our market presence, enhancing the exposure of our hotel brands and providing additional income through franchise and license fees; • Expanding our internet presence and sales capabilities to increase revenue and improve customer service; • Continuing to grow our frequent guest program, thereby increasing occupancy rates while providing our customers with benefits based upon loyalty to our hotels, vacation ownership resorts and branded residential projects; • Enhancing our marketing efforts by integrating our proprietary customer databases, so as to sell additional products and services to existing customers, improve occupancy rates and create additional marketing opportunities; • Increasing operating efficiencies through increased use of technology; • Optimizing use of our real estate assets to improve ancillary revenue, such as restaurant, beverage and parking revenue from our hotels and resorts; • Establishing relationships with third parties to enable us to provide attractive restaurants, programs and other amenities at our branded properties such as our partnering with Jean Georges Vongerichten and his world- class restaurant concepts, the opening of Adour with Alaine Ducasse at the St. Regis New York and establishing the LM 100, a group of cultural innovators and artists who will offer their creativity and develop original and interactive programs for Le Méridien hotels; and

5 • Leveraging the Bliss and Remède product lines and distribution channels, most recently unveiling our Sheraton Shine» by Bliss bath product line. We intend to explore opportunities to expand and diversify our hotel portfolio through internal development, 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; • Hotels or brands which would enable us to provide a wider range of amenities and services to customers or provide attractive geographic distribution; • Major tourist hotels, 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, airports, tourist attractions or universities; • Undervalued hotels whose performance can be increased by re-branding to one of our hotel brands, the introduction of better and more efficient management techniques and practices and/or the injection of capital for renovating, expanding or repositioning the property; and • Portfolios of hotels or hotel companies that exhibit some or all of the criteria listed above, 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. 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, Massachusetts featuring both an Aloft hotel and an Element hotel.

Competition The hotel industry is highly competitive. Competition is generally based on quality and consistency of room, restaurant and meeting facilities and services, attractiveness of locations, availability of a global distribution system, price, the ability to earn and redeem loyalty program points and other factors. Management believes that we compete favorably in these areas. Our properties compete with other hotels and resorts in their geographic markets, including facilities owned by local interests and facilities owned by national and international chains. Our principal competitors include other hotel operating companies, national and international hotel brands, and ownership companies (including hotel REITs). We encounter strong competition as a hotel, residential, resort and vacation ownership operator and developer. While some of our competitors are private management firms, several are large national and international chains that own and operate their own hotels, as well as manage hotels for third-party owners and develop and sell VOIs, under a variety of brands that compete directly with our brands. 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. 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.

Environmental Matters We are subject to certain requirements and potential liabilities under various federal, state and local environmental laws, ordinances and regulations (“Environmental Laws”). For example, 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, under or in such property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. 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. 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, storage or disposal facility,

6 regardless of whether such facility is owned or operated by such person. We use certain substances and generate certain wastes that may be deemed hazardous or toxic under applicable Environmental Laws, and we from time to time have incurred, and in the future may incur, costs related to cleaning up contamination resulting from historic uses of certain of our current or former properties or our treatment, storage or disposal of wastes at facilities owned by others. 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, floor coverings, ceiling coverings, tiles, decorative treatments and piping located at certain of our hotels) in the event of damage or demolition, or certain renovations or remodeling. These laws also govern emissions of and exposure to asbestos fibers in the air. Environmental Laws also regulate polychlorinated biphenyls (“PCBs”), which may be present in electrical equipment. A number of our hotels have underground storage tanks (“USTs”) and equipment containing chlorofluorocarbons (“CFCs”); the operation and subsequent removal or upgrading of certain USTs and the use of equipment containing CFCs also are regulated by Environmental Laws. In connection with our ownership, operation and management of our properties, we could be held liable for costs of remedial or other action with respect to PCBs, USTs or CFCs. Environmental Laws are not the only source of environmental liability. Under the common law, 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, but not limited to, ACMs, PCBs and CFCs), poor indoor air quality, radon or poor drinking water quality. Although we have incurred and expect to incur remediation and various environmental-related costs during the ordinary course of operations, management anticipates that such costs will not have a material adverse effect on our operations or financial condition.

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

Comparability of Owned Hotel Results We continually update and renovate our owned, leased and consolidated joint venture hotels. While undergoing renovation, these hotels are generally not operating at full capacity and, as such, these renovations can negatively impact our owned hotel revenues and operating income. Other events, such as the occurrence of natural disasters may cause a full or partial closure or sale of a hotel, and such events can negatively impact our revenues and operating income. Finally as we pursue our strategy of reducing our investment in owned real estate assets, the sale of such assets can significantly reduce our revenues and operating income.

Regulation and Licensing of Gaming Facilities We have a minority interest in the gaming operations of the Planet Hollywood Hotel & Casino, a Sheraton Resort in Las Vegas, Nevada and we and certain of our affiliates and officers have obtained from the Nevada Gaming Authorities (herein defined) the various registrations, approvals, permits and licenses required to engage in these gaming activities in Nevada. 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. In addition, the gaming authorities may require us to terminate the employment of any person who refuses to file the appropriate applications or disclosures. The ownership and/or operation of casino gaming facilities in the United States where permitted are subject to federal, state and local regulations which under federal law, govern, among other things, the ownership, possession, manufacture, distribution and transportation in interstate commerce of gaming devices, and the recording and reporting of currency transactions, respectively. Our Nevada casino gaming operations are subject to the Nevada Gaming Control Act and the regulations promulgated thereunder (the “Nevada Act”), and the licensing and

7 regulatory control of the Nevada Gaming Commission (the “Nevada Commission”) and the Nevada State Gaming Control Board (the “Nevada Board”), as well as certain county government agencies (collectively referred to as the “Nevada Gaming Authorities”). If it were determined that applicable laws or regulations were violated, the gaming licenses, registrations and approvals held by us and our affiliates and officers could be limited, conditioned, suspended or revoked and we and the persons involved could be subject to substantial fines for each separate violation. Furthermore, a supervisor could be appointed by the Nevada Commission to operate the gaming property and, under certain circumstances, 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. Any suspension or revocation of the licenses, registrations or approvals, or the appointment of a supervisor, would not have a material adverse effect on us given the limited nature and extent of the investment by us in casino gaming. We are also required to submit certain financial and operating reports to the Nevada Commission. Further, certain loans, leases, sales of securities and similar financing transactions by us must be reported to or approved by the Nevada Commission. We have a Nevada “shelf” approval for certain public offerings that expires in November 2010. 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. 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. 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. The applicant must pay the costs and fees incurred by the Nevada Board in connection with the investigation. Under certain circumstances, an “institutional investor,” as defined by the Nevada Act, 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. 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, directly or indirectly, the election of a majority of the members of either our Board of Directors, any change in our corporate charter, bylaws, management, policies or operations or any of our casino gaming operations, or any other action which the Nevada Commission finds to be inconsistent with holding our voting securities for investment purposes only. The Nevada Commission also may in its discretion require the holder of any debt security of a registered company to file an application, be investigated and be found suitable to own such debt security. 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. Any person found unsuitable who holds, directly or indirectly, 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. We could be subject to disciplinary action if, without prior approval of the Nevada Commission, 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, we either (i) pay to the unsuitable person any dividend, interest or any distribution whatsoever; (ii) recognize any voting right by such unsuitable person in connection with such securities; (iii) pay the unsuitable person remuneration in any form; (iv) make any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction; or, (v) fail to pursue all lawful efforts to require such unsuitable person to relinquish his securities including, if necessary, the immediate purchase of such securities for cash at fair market value. Regulations of the Nevada Commission provide that control of a registered publicly traded corporation cannot be changed through merger, consolidation, acquisition or assets, management or consulting agreements, or any form of takeover without the prior approval of the Nevada Commission. 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. The failure of a person to obtain such approval prior to assuming

8 control over the registered publicly traded corporation may constitute grounds for finding such person unsuitable. Such regulations may impact the timing of consummating any such transaction. 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. The regulations of the Nevada Commission also require approval for a “plan of recapitalization.” 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. Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively “Licensees”), and who proposes to become involved in a gaming operation outside the State of Nevada is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation by the Nevada Board of the Licensees’ participation in such foreign gaming. The revolving fund is subject to an increase or decrease in the discretion of the Nevada Commission. Once such revolving fund is established, 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; and (ii) the Licensees comply with certain reporting requirements imposed by the Nevada Act. 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; (ii) fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations; (iii) engage in activities that are harmful to the State of Nevada or its ability to collect gaming taxes and fees; or, (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. We also manage gaming operations at the Sheraton Cairo Hotel, Towers & Casino in Gaza, Egypt.

Employees At December 31, 2008, approximately 145,000 people were employed at our corporate offices, owned and managed hotels and vacation ownership resorts, of whom approximately 36% were employed in the United States. At December 31, 2008, approximately 37% of the U.S.-based employees were covered by various collective bargaining agreements providing, generally, for basic pay rates, working hours, other conditions of employment and orderly settlement of labor disputes. Generally, labor relations have been maintained in a normal and satisfactory manner, and management believes that our employee relations are satisfactory.

Where You Can Find More Information We file annual, quarterly and special reports, proxy statements and other information with the Securities & Exchange Commission (“SEC”). Our SEC filings are available to the public over the Internet at the SEC’s web site at http://www.sec.gov. Our SEC filings are also available on our website at http://www.starwoodhotels.com/ corporate/investor relations.html as soon as reasonably practicable after they are filed with or furnished to the SEC. You may also read and copy any document we file with the SEC at its public reference rooms in Washington, D.C. Please call the SEC at (800) SEC-0330 for further information on the public reference rooms. Our filings with the SEC are also available at the New York Stock Exchange. For more information on obtaining copies of our public filings at the New York Stock Exchange, you should call (212) 656-5060. You may also obtain a copy of our filings free of charge by calling Investor Relations at (914) 640-8165.

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

10 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. Residential properties using our brands could become less attractive due to changes in mortgage rates and the availability of mortgage financing generally, market absorption or oversupply in a particular market. As a result, 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. The Current Slowdown in the Lodging Industry and the Global Economy Generally Will Continue to Impact Our Financial Results and Growth. The present economic slowdown and the uncertainty over its breadth, depth and duration has had a negative impact on the hotel and vacation ownership and residential industries. Many economists have reported that the U.S. and many European countries are in a recession. 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. Accordingly, 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. In addition, as a result of the impact on the lodging industry, we may be required to pay out on certain performance and other guarantees that are contained in our third party contracts. Moreover, 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. The negative publicity associated with such companies holding large events has also resulted in cancelations and reduced bookings. 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. We Must Compete for Customers. The hotel, vacation ownership and residential industries are highly competitive. Our properties compete for customers with other hotel and resort properties, and, with respect to our vacation ownership resorts and residential projects, with owners reselling their VOIs, including fractional ownership, or apartments. Some of our competitors may have substantially greater marketing and financial resources than we do, and they may improve their facilities, reduce their prices or expand or improve their marketing programs in ways that adversely affect our operating results. We Must Compete for Management and Franchise Agreements. Our present growth strategy for development of additional lodging facilities entails entering into and maintaining various arrangements with property owners. We compete with other hotel companies for management and franchise agreements. The terms of our management agreements, franchise agreements, and leases for each of our lodging facilities are influenced by contract terms offered by our competitors, among other things. We cannot assure you that any of our current arrangements will continue or that we will be able to enter into future collaborations, renew agreements, or enter into new agreements in the future on terms that are as favorable to us as those that exist today. In connection with entering into management or franchise agreements, we may be required to make investments in or guarantee the obligations of third parties or guarantee minimum income to third parties. Any Failure to Protect Our Trademarks Could Have a Negative Impact on the Value of Our Brand Names and Adversely Affect Our Business. We believe our trademarks are an important component of our business. We rely on trademark laws to protect our proprietary rights. 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. Monitoring the unauthorized use of our intellectual property is difficult. 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. Litigation of this type could result in substantial costs and diversion of resources, may result in counterclaims or other claims against us and could significantly harm our results of operations. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States. From time to time, we apply to have certain trademarks registered. There is no guarantee that such trademark registrations will be granted. 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. The unauthorized reproduction of our trademarks could diminish the value of our brand and its market acceptance, competitive advantages or goodwill, which could adversely affect our business. Significant Owners of Our Properties May Concentrate Risks. Generally there has not been a concentration of ownership of hotels operated under our brands by any single owner. Following the acquisition of the Le Méridien

11 brand business and the Host Transaction, single ownership groups own significant numbers of hotels operated by us. While the risks associated with such ownership are no different than exist generally (i.e., the financial position of the owner, 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), they are more concentrated.

The Hotel Industry Is Seasonal in Nature. The hotel industry is seasonal in nature; however, the periods during which we experience higher revenue vary from property to property and depend principally upon location. Our revenue historically has been lower in the first quarter than in the second, third or fourth quarters.

Third Party Internet Reservation Channels May Negatively Impact Our Bookings. Some of our hotel rooms are booked through third party internet travel intermediaries such as Travelocity.com», Expedia.com» and Priceline.com». As the percentage of internet bookings increases, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from us. Moreover, some of these internet travel intermediaries are attempting to commoditize hotel rooms by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”) at the expense of brand identification. These agencies hope that consumers will eventually develop brand loyalties to their reservations system rather than to our lodging brands. Although we expect to derive most of our business from traditional channels and our websites, if the amount of sales made through internet intermediaries increases significantly, our business and profitability may be significantly harmed.

We Place Significant Reliance on Technology. The hospitality industry continues to demand the use of sophisticated technology and systems including technology utilized for property management, brand assurance and compliance, procurement, reservation systems, operation of our customer loyalty program, distribution and guest amenities. These technologies can be expected to require refinements, including to comply with legal requirements such as privacy regulations and requirements established by third parties such as the payment card industry, and there is the risk that advanced new technologies will be introduced. Further, the development and maintenance of these technologies may require significant capital. 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. Further, there can be no assurance that we will achieve the benefits that may have been anticipated from any new technology or system.

Our Businesses Are Capital Intensive. For our owned, managed and franchised properties to remain attractive and competitive, the property owners and we have to spend money periodically to keep the properties well maintained, modernized and refurbished. This creates an ongoing need for cash and, to the extent the property owners and we cannot fund expenditures from cash generated by operations, funds must be borrowed or otherwise obtained. In addition, to maintain our vacation ownership business and residential projects, we need to spend money to develop new units. Events over the past few months, 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. Accordingly, our financial results have been impacted by the cost and availability of funds and the carrying cost of VOI and residential inventory.

Real Estate Investments Are Subject to Numerous Risks. We are subject to the risks that generally relate to investments in real property because we own and lease hotels and resorts. 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, and the expenses incurred. In addition, a variety of other factors affect income from properties and real estate values, including governmental regulations, insurance, zoning, tax and eminent domain laws, interest rate levels and the availability of financing. For example, new or existing real estate zoning or tax laws can make it more expensive and/or time-consuming to develop real property or expand, modify or renovate hotels. When interest rates increase, the cost of acquiring, developing, expanding or renovating real property increases and real property values may decrease as the number of potential buyers decreases. Similarly, as financing becomes less available, it becomes more difficult both to acquire and to sell real property. Finally, under eminent domain laws, governments can take real property. Sometimes this taking is for less compensation than the owner believes the property is worth. Any of these factors could have a material adverse impact on our results of operations or financial condition. In addition, 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. If our properties do

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

13 International operations generally are subject to various political, geopolitical, and other risks that are not present in U.S. operations. These risks include the risk of war, terrorism, civil unrest, expropriation and nationalization as well as the impact in cases in which there are inconsistencies between U.S. law and the laws of an international jurisdiction. In addition, some international jurisdictions restrict the repatriation of non-U.S. earnings. Various other international jurisdictions have laws limiting the ability of non-U.S. entities to pay dividends and remit earnings to affiliated companies unless specified conditions have been met. In addition, sales in international jurisdictions typically are made in local currencies, which subject us to risks associated with currency fluctuations. Currency devaluations and unfavorable changes in international monetary and tax policies could have a material adverse effect on our profitability and financing plans, as could other changes in the international regulatory climate and international economic conditions. Other than Italy, where our risks are heightened due to the 6 properties we owned as of December 31, 2008, our international properties are geographically diversified and are not concentrated in any particular region.

Risks Relating to Operations in Syria During fiscal 2008, Starwood subsidiaries generated approximately $4 million of revenue from management and other fees from hotels located in Syria, a country that the United States has identified as a state sponsor of terrorism. This amount constitutes significantly less than 1% of our worldwide annual revenues. The United States does not prohibit U.S. investments in, or the exportation of services to, Syria, and our activities in that country are in full compliance with U.S. and local law. However, the United States has imposed limited sanctions as a result of Syria’s support for terrorist groups and its interference with Lebanon’s sovereignty, including a prohibition on the exportation of U.S.-origin goods to Syria and the operation of government-owned Syrian air carriers in the United States except in limited circumstances. The United States may impose further sanctions against Syria at any time for foreign policy reasons. If so, our activities in Syria may be adversely affected, depending on the nature of any further sanctions that might be imposed. In addition, our activities in Syria may reduce demand for our stock among certain investors.

Debt Financing As a result of our debt obligations, we are subject to: (i) the risk that cash flow from operations will be insufficient to meet required payments of principal and interest, (ii) restrictive covenants, including covenants relating to certain financial ratios and (iii) interest rate risk. Although we anticipate that we will be able to repay or refinance our existing indebtedness and any other indebtedness when it matures, there can be no assurance that we will be able to do so or that the terms of such refinancings will be favorable. Our leverage may have important consequences including the following: (i) our ability to obtain additional financing for acquisitions, working capital, capital expenditures or other purposes, if necessary, may be impaired or such financing may not be available on terms favorable to us and (ii) a substantial decrease in operating cash flow, 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. In order to fund new hotel investments, as well as refurbish and improve existing hotels, both we and current and potential hotel owners must have access to capital. 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. Recent events have made the capital markets increasingly volatile. As a result, many current and prospective hotel owners are finding hotel financing to be increasingly expensive and difficult to obtain. Delays, increased costs and other impediments to restructuring such projects may affect our ability to realize fees, recover loans and guarantee advances, or realize equity investments from such projects. Our ability to recover loans and guarantee advances from hotel operations or from owners through the proceeds of hotel sales, refinancing of debt or otherwise may also affect our ability to raise new capital. In addition, downgrades of our public debt ratings by rating agencies could increase our cost of capital. A breach of a covenant could result in an event of default, that, if not cured or waived, could result in an acceleration of all or a substantial portion of our debt. For a more detailed description of the covenants imposed by our credit agreements, see Item 7, 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.

14 Volatility in the Credit Markets Will Continue to Adversely Impact Our Ability to Sell the Loans That Our Vacation Ownership Business Generates. Our vacation ownership business provides financing to purchasers of our vacation ownership and fractional units, and we attempt to sell interests in those loans in the securities markets. 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. 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, or prevent us from selling our vacation ownership notes entirely. Although we expect to realize the economic value of our vacation ownership note portfolio even if future note sales are temporarily or indefinitely delayed, 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.

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

Our financial and operating performance may be adversely affected by so-called acts of God, such as natural disasters, in locations where we own and/or operate significant properties and areas of the world from which we draw a large number of customers. Similarly, wars (including the potential for war), terrorist activity (including threats of terrorist activity), political unrest and other forms of civil strife and geopolitical uncertainty have caused in the past, and may cause in the future, our results to differ materially from anticipated results.

Some Potential Losses are Not Covered by Insurance

We carry insurance coverage for general liability, property, 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. These policies offer coverage terms and conditions that we believe are usual and customary for our industry. Generally, our “all-risk” property policies provide that coverage is available on a per occurrence basis and that, for each occurrence, there is a limit as well as various sub-limits on the amount of insurance proceeds we will receive in excess of applicable deductibles. In addition, there may be overall limits under the policies. Sub-limits exist for certain types of claims such as service interruption, debris removal, expediting costs or landscaping replacement, and the dollar amounts of these sub-limits are significantly lower than the dollar amounts of the overall coverage limit. Our property policies also provide that for the coverage of critical earthquake (California and Mexico), hurricane and flood, 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. Therefore, 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, the claims from each affected hotel will be added together to determine whether the per occurrence limit, annual aggregate limit or sub-limits, depending on the type of claim, 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, under those circumstances, claims by third party owners will reduce the coverage available for our owned and leased properties.

In addition, there are also other risks including but not limited to war, certain forms of terrorism such as nuclear, biological or chemical terrorism, political risks, 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.

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. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a hotel or resort, as well as the anticipated future revenue from the hotel or resort. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property.

15 Acquisitions/Dispositions and New Brands We will consider corporate as well as property acquisitions and investments that complement our business. In many cases, 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. 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. If transactions are consummated, there can be no assurance that any anticipated benefits will actually be realized. Similarly, there can be no assurance that we will be able to obtain additional financing for acquisitions or investments, or that the ability to obtain such financing will not be restricted by the terms of our debt agreements. We periodically review our business to identify properties or other assets that we believe either are non-core, no longer complement our business, are in markets which may not benefit us as much as other markets during an economic recovery or could be sold at significant premiums. We are focused on restructuring and enhancing real estate returns and monetizing investments and from time to time, may attempt to sell these identified properties and assets. There can be no assurance, however, that we will be able to complete dispositions on commercially reasonable terms or at all or that any anticipated benefits will actually be received. We have developed and launched two new hotel brands, Aloft and Element, and may develop and launch additional brands in the future. There can be no assurance regarding the level of acceptance of these brands in the development and consumer marketplaces, that the cost incurred in developing the brands will be recovered or that the anticipated benefits from these new brands will be realized.

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, we have from time to time invested, and expect to continue to invest, as a co-venturer. Joint venturers often have shared control over the operation of the joint venture assets. Therefore, 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, or have economic or business interests or goals that are inconsistent with our business interests or goals, or be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives. Consequently, actions by a co-venturer might subject hotels and resorts owned by the joint venture to additional risk. Further, we may be unable to take action without the approval of our joint venture partners. Alternatively, our joint venture partners could take actions binding on the joint venture without our consent. Additionally, should a joint venture partner become bankrupt, we could become liable for our partner’s share of joint venture liabilities.

Our Vacation Ownership Business is Subject to Extensive Regulation and Risk of Default We market and sell VOIs, which typically entitle the buyer to ownership of a fully-furnished resort unit for a one-week period (or in the case of fractional ownership interests, generally for three or more weeks) on either an annual or an alternate-year basis. We also acquire, develop and operate vacation ownership resorts, and provide financing to purchasers of VOIs. 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. In addition, 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. Although we believe that we are in material compliance with all applicable federal, state, local and foreign laws and regulations to which vacation ownership marketing, sales and operations are currently subject, changes in these requirements or a determination by a regulatory authority that we were not in compliance, could adversely affect us. In particular, increased regulations of telemarketing activities could adversely impact the marketing of our VOIs. We bear the risk of defaults under purchaser mortgages on VOIs. If a VOI purchaser defaults on the mortgage during the early part of the loan amortization period, we will not have recovered the marketing, selling (other than commissions in certain events), and general and administrative costs associated with such VOI, and such costs will be incurred again in connection with the resale of the repossessed VOI. Accordingly, there is no assurance that the

16 sales price will be fully or partially recovered from a defaulting purchaser or, in the event of such defaults, that our allowance for losses will be adequate.

Privacy Initiatives We collect information relating to our guests for various business purposes, including marketing and promotional purposes. 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. Privacy regulations continue to evolve and on occasion may be inconsistent from one jurisdiction to another. Compliance with applicable privacy regulations may increase our operating costs and/or adversely impact our ability to market our products, properties and services to our guests. In addition, non-compliance with applicable privacy regulations by us (or in some circumstances non- compliance by third parties engaged by us) or a breach of security on systems storing our data may result in fines, payment of damages or restrictions on our use or transfer of data.

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. Competition for such personnel is intense. Since January 2004, we have experienced significant changes in our senior management, including executive officers (See Item 10. “Directors, Executive Officers and Corporate Governance” of this Annual Report). There can be no assurance that we will continue to be successful in attracting and retaining qualified personnel. Accordingly, there can be no assurance that our senior management will be able to successfully execute and implement our growth and operating strategies. Over the last few years we have been pursuing a strategy of reducing our investment in owned real estate and increasing our focus on the management and franchise business. As a result, we are planning on substantially increasing the number of hotels we open every year and increasing the overall number of hotels in our system. This increase will require us to recruit and train a substantial number of new associates to work at these hotels as well as increasing our capabilities to enable hotels to open on time and successfully. There can be no assurance that our strategy will be successful.

Tax Risks Failure of the Trust to Qualify as a REIT Would Increase Our Tax Liability. 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. Due to the complexities of our ownership, structure and operations, the Trust is more likely than are other REITs to face interpretative issues for which there are no clear answers. We believe that for the taxable years ended December 31, 1995 through April 10, 2006, the date which Host acquired the Trust, the Trust qualified as a REIT under the Internal Revenue Code of 1986, as amended. If the Trust failed to qualify as a REIT for any prior tax year, we would be liable to pay a significant amount of taxes for those years. Subsequent to the Host Transaction, the Trust is no longer owned by us and we are not subject to this risk for actions following the transaction. Evolving Government Regulation Could Impose Taxes or Other Burdens on Our Business. 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. We cannot be sure that these interpretations are accurate or that the responsible taxing or other governmental authority is in agreement with our views. 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. 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. We then remit these taxes to the various tax authorities. 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. If jurisdictions take this position, they should seek the additional tax payments from the intermediary; however, 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. To the

17 extent that any tax authority succeeds in asserting that the hotel occupancy tax applies to the gross profit on these transactions, we believe that any additional tax would be the responsibility of the intermediary. However, it is possible that we might have additional tax exposure. In such event, such actions could have a material adverse effect on our business, results of operations and financial condition.

Risks Relating to Ownership of Our Shares Our Board of Directors May Issue Preferred Stock and Establish the Preferences and Rights of Such Preferred Stock. Our charter provides that the total number of shares of stock of all classes which the Corporation has authority to issue is 1,200,000,000, consisting of one billion shares of common stock and 200 million shares of preferred stock. Our Board of Directors has the authority, without a vote of shareholders, to establish the preferences and rights of any preferred or other class or series of shares to be issued and to issue such shares. 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. 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, our Board of Directors may give the holders of any class or series preferences, powers and rights, including voting rights, senior to the rights of holders of our shares. Our Board of Directors May Implement Anti-Takeover Devices and our Charter and Bylaws Contain Provisions which May Prevent Takeovers. Certain provisions of Maryland law permit our Board of Directors, without stockholder approval, to implement possible takeover defenses that are not currently in place, such as a classified board. In addition, our charter contains provisions relating to restrictions on transferability of the Corporation Shares, 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. As permitted under the Maryland General Corporation Law, our Bylaws provide that directors have the exclusive right to amend our Bylaws. 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, among other things, that when specified events occur, our shareholders will be entitled to purchase from us a newly created series of junior preferred stock. 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, or obtained the right to acquire, 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, the consummation of which would result in the acquiring person becoming the beneficial owner of 15% or more of our outstanding Corporation 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.

Item 2. Properties. We are one of the largest hotel and leisure companies in the world, with operations in approximately 100 countries. We consider our hotels and resorts, including vacation ownership resorts (together “Resorts”), generally to be premier establishments with respect to desirability of location, size, facilities, physical condition, quality and variety of services offered in the markets in which they are located. Although obsolescence arising from age, condition of facilities, and style can adversely affect our Resorts, Starwood and third-party owners of managed and franchised Resorts expend substantial funds to renovate and maintain their facilities in order to remain competitive. For further information see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources in this Annual Report. Our hotel business included 942 owned, managed or franchised hotels with approximately 285,000 rooms and our owned vacation ownership and residential business included 26 vacation ownership resorts and residential properties at December 31, 2008, predominantly under seven brands. 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. We also lease three stand-alone Bliss Spas, two in New York, New York and one in London, England and have leased Bliss Spas in nine of the W Hotels. In addition, we own, lease or manage Remède Spas in four of the St. Regis hotels.

18 The following table reflects our hotel and vacation ownership properties, by brand as of December 31, 2008: VOI and Hotels Residential(a) Properties Rooms Properties Rooms St. Regis and Luxury Collection ...... 76 13,200 4 100 W...... 26 7,800 — — Westin ...... 162 64,400 10 2,300 Le Méridien ...... 107 27,700 — — Sheraton ...... 409 143,300 8 4,500 Four Points ...... 134 23,500 — — Aloft...... 17 2,500 — — Independent / Other...... 11 2,400 4 300 Total ...... 942 284,800 26 7,200

(a) Includes sites held for development.

Hotel Business Managed and Franchised Hotels. Hotel and resort properties in the United States are often owned by entities that do not manage hotels or own a brand name. Hotel owners typically enter into management contracts with hotel management companies to operate their hotels. When a management company does not offer a brand affiliation, the hotel owner often chooses to pay separate franchise fees to secure the benefits of brand marketing, centralized reservations and other centralized administrative functions, particularly in the sales and marketing area. Management believes that companies, such as Starwood, that offer both hotel management services and well- established worldwide brand names appeal to hotel owners by providing the full range of management, marketing and reservation services. In 2008, we opened 84 managed and franchised hotels with approximately 20,000 rooms and 36 managed and franchised hotels with approximately 11,000 rooms left the system. Managed Hotels. We manage hotels worldwide, usually under a long-term agreement with the hotel owner (including entities in which we have a minority equity interest). Our responsibilities under hotel management contracts typically include hiring, training and supervising the managers and employees that operate these facilities. For additional fees, we provide centralized reservation services and coordinate national advertising and certain marketing and promotional services. 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. In addition to our owned and leased hotels, at December 31, 2008, we managed 436 hotels with approximately 150,000 rooms worldwide. During the year ended December 31, 2008, we generated management fees by geographic area as follows: United States ...... 36.1% Asia Pacific ...... 19.9% Middle East and Africa ...... 19.2% Europe ...... 17.5% Americas (Latin America, Caribbean & Canada)...... 7.3% Total ...... 100.0%

Management contracts typically provide for base fees tied to gross revenue and incentive fees tied to profits as well as fees for other services, including centralized reservations, sales and marketing, public relations and national and international media advertising. In our experience, owners seek hotel managers that can provide attractively priced base, incentive and marketing fees combined with demonstrated sales and marketing expertise and operations-focused management designed to enhance profitability. 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, as well as

19 if we fail to meet established performance criteria. In addition, many hotel owners seek equity, 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. Our ability or willingness to make such investments may determine, in part, whether we will be offered, will accept, or will retain a particular management contract. During the year ended December 31, 2008, we opened 33 managed hotels with approximately 11,000 rooms, and 10 managed hotels with approximately 3,000 rooms left our system. In addition, during 2008, we signed management agreements for 71 hotels with approximately 23,000 rooms, a small portion of which opened in 2008 and the majority of which will open in the future.

Brand Franchising and Licensing. We franchise our Sheraton, Westin, Four Points by Sheraton, Luxury Collection, Le Méridien, 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, as well as fees for other services, including centralized reservations, sales and marketing, public relations and national and international media advertising. In addition, a franchisee may also purchase hotel supplies, including brand-specific products, from certain Starwood-approved vendors. We approve certain plans for, and the location of, franchised hotels and review their design. At December 31, 2008, there were 437 franchised properties with approximately 111,000 rooms operating under the Sheraton, Westin, Four Points by Sheraton, Aloft, Element, Luxury Collection and Le Méridien brands. During the year ended December 31, 2008, we generated franchise fees by geographic area as follows:

United States ...... 60.8% Europe ...... 15.1% Americas (Latin America, Caribbean & Canada)...... 13.7% Asia Pacific ...... 9.6% Middle East and Africa ...... 0.8% Total ...... 100.0%

In addition to the franchise contracts we retained in connection with the sale of hotels discussed earlier, during the year ended December 31, 2008, we opened 51 franchised hotels with approximately 9,000 rooms, and 26 franchised hotels with approximately 8,000 rooms left our system. In addition, during 2008, we signed franchise agreements for 76 hotels with approximately 13,000 rooms, a portion of which opened in 2008 and a portion of which will open in the future.

Owned, Leased and Consolidated Joint Venture Hotels. Historically, we have derived the majority of our revenues and operating income from our owned, leased and consolidated joint venture hotels and a significant portion of these results are driven by these hotels in North America. However, beginning in 2006, we embarked upon a strategy of selling a significant number of hotels. Since the beginning of 2006, we have sold 56 wholly owned hotels which has substantially reduced our revenues and operating income from owned, leased and consolidated joint venture hotels. The majority of these hotels were sold subject to long-term management or franchise contracts. Total revenues generated from our owned, leased and consolidated joint venture hotels worldwide for the years ending December 31, 2008, 2007 and 2006 were $2.259 billion, $2.429 billion and $2.692 billion, respectively (total revenues from our owned, leased and consolidated joint venture hotels in North America were $1.427 billion, $1.587 billion and $1.881 billion for 2008, 2007 and 2006, respectively). The following represents our top five markets in the United States by metropolitan area as a percentage of our total owned, leased and consolidated joint venture revenues for the year ended December 31, 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, 2008 with Comparable Data for 2007(1)

2008 2007 Metropolitan Area Revenues Revenues New York, NY ...... 13.5% 13.1% Hawaii ...... 6.1% 6.3% San Francisco, CA ...... 5.7% 5.2% Phoenix, AZ ...... 5.6% 5.6% Chicago, IL ...... 3.9% 3.8%

20 The following represents our top five international markets by country as a percentage of our total owned, leased and consolidated joint venture revenues for the year ended December 31, 2008 (with comparable data for 2007):

Top Five International Markets as a % of Total Owned Revenues for the Year Ended December 31, 2008 with Comparable Data for 2007(1) 2008 2007 Country Revenues Revenues Canada ...... 9.0% 8.0% Italy ...... 8.5% 8.6% Mexico ...... 5.4% 5.1% Australia...... 4.8% 4.3% United Kingdom ...... 3.2% 3.3%

(1) Includes the revenues of hotels sold for the period prior to their sale. Following the sale of a significant number of our hotels in the past three years, we currently own or lease 69 hotels as follows:

Hotel Location Rooms U.S. Hotels: The St. Regis Hotel, New York New York, NY 229 St. Regis Resort, Aspen Aspen, CO 179 St. Regis Hotel, San Francisco San Francisco, CA 260 The Phoenician Scottsdale, AZ 647 W New York — Times Square New York, NY 507 W Chicago Lakeshore Chicago, IL 520 W San Francisco San Francisco, CA 410 W Los Angeles Westwood Los Angeles, CA 258 W Chicago City Center Chicago, IL 369 W New York — The Court and Tuscany New York, NY 318 W New Orleans New Orleans, LA 423 W New Orleans, French Quarter New Orleans, LA 98 W Atlanta Atlanta, GA 275 The Westin Maui Resort & Spa Maui, HI 759 The Westin Peachtree Plaza, Atlanta Atlanta, GA 1068 The Westin Horton Plaza San Diego San Diego, CA 450 The Westin San Francisco Airport San Francisco, CA 397 The Westin St. John Resort & Villas St. John, Virgin Islands 175 Sheraton Manhattan Hotel New York, NY 665 Sheraton Kauai Resort Kauai, HI 394 Sheraton Steamboat Springs Resort Steamboat Springs, CO 312 Sheraton Newton Hotel Boston, MA 270 Sheraton Suites Philadelphia Airport Philadelphia, PA 251 Aloft Lexington Lexington, MA 136 Aloft Philadelphia Airport Philadelphia, PA 136 Element Lexington Lexington, MA 123 Four Points by Sheraton Philadelphia Airport Philadelphia, PA 177

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

22 An indicator of the performance of our owned, leased and consolidated joint venture hotels is revenue per available room (“REVPAR”)(1), as it measures the period-over-period growth in rooms revenue for comparable properties. This is particularly the case in the United States where there is no impact on this measure from foreign exchange rates. The following table summarizes REVPAR, average daily rates (“ADR”) and average occupancy rates on a year-to-year basis for our 59 owned, 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, 2008 and 2007: Year Ended December 31, 2008 2007 Variance Worldwide (59 hotels with approximately 21,000 rooms) REVPAR ...... $168.93 $171.01 Ϫ1.2% ADR...... $237.45 $235.18 1.0% Occupancy ...... 71.1% 72.7% Ϫ1.6 North America (31 hotels with approximately 13,000 rooms) REVPAR ...... $178.14 $181.68 Ϫ1.9% ADR...... $241.26 $242.07 Ϫ0.3% Occupancy ...... 73.8% 75.1% Ϫ1.3 International (28 hotels with approximately 8,000 rooms) REVPAR ...... $154.62 $154.40 0.1% ADR...... $230.91 $223.54 3.3% Occupancy ...... 67.0% 69.1% Ϫ2.1

(1) REVPAR is calculated by dividing room revenue, which is derived from rooms and suites rented or leased, by total room nights available for a given period. REVPAR may not be comparable to similarly titled measures such as revenues. During the years ended December 31, 2008 and 2007, we invested approximately $282 million and $211 million, respectively, for capital improvements at owned hotels. These capital expenditures include construction costs at the Sheraton Suites in Philadelphia, PA, Sheraton Steamboat Resort in Colorado, Sheraton in Fiji, The Phoenician in Scottsdale, AZ, W Times Square in New York, NY, Aloft Philadelphia, in Philadelphia, PA, and the Aloft and Element hotels in Lexington, MA.

Vacation Ownership and Residential Business We develop, own and operate vacation ownership resorts, market and sell the VOIs in the resorts and, in many cases, provide financing to customers who purchase such ownership interests. Owners of VOIs can trade their interval for intervals at other Starwood vacation ownership resorts, for intervals at certain vacation ownership resorts not otherwise sponsored by Starwood through an exchange company, or for hotel stays at Starwood properties. From time to time, we securitize or sell the receivables generated from our sale of VOIs. We have also entered into arrangements with several owners for mixed use hotel projects that will include a residential component. 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. In consideration, we typically receive a licensing fee equal to a percentage of the gross sales revenue of the units sold. The licensing arrangement generally terminates upon the earlier of sell-out of the units or a specified length of time. At December 31, 2008, we had 26 residential and vacation ownership resorts and sites in our portfolio with 21 actively selling VOIs and residences, 3 sites being held for possible future development and 2 that have sold all existing inventory. During 2008 and 2007, we invested approximately $363 million and $448 million, respectively, for vacation ownership capital expenditures, including VOI construction at the Sheraton Vistana Villages in Orlando, FL, the Westin St. John Resort and Villas in the Virgin Islands, the Westin Riverfront Resort in Avon, CO,

23 the Westin Nanea Ocean Resort Villas in Maui, HI, the Westin Desert Willow Villas in Palm Desert, CA, and the Westin Lagunamar Ocean Resort in Cancun, as well as construction costs at the St. Regis Bal Harbour Resort in Miami Beach, FL. As a result of the current economic crisis and its impact on the timeshare industry, we evaluated all of our existing vacation ownership projects as well as our plans for projects not yet under development. As a result of that comprehensive review, we decided to abandon several projects where we had not yet begun full scale development. We recorded an impairment charge of $72 million in 2008, primarily related to the impairment of two vacation ownership projects, one in Mexico and the other in the Caribbean.

Item 3. Legal Proceedings. Incorporated by reference to the description of legal proceedings in Note 23. Commitments and Contingencies, in the consolidated financial statements set forth in Part II, Item 8. Financial Statements and Supplementary Data.

Item 4. Submission of Matters to a Vote of Security Holders. Not applicable.

Executive Officers of the Registrants See Part III, Item 10. of this Annual Report for information regarding the executive officers of the Registrants, which information is incorporated herein by reference.

24 PART II

Item 5. Market for Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information The Corporation Shares are traded on the New York Stock Exchange (the “NYSE”) under the symbol “HOT.” The following table sets forth, for the fiscal periods indicated, the high and low sale prices per Corporation Share on the NYSE Composite Tape. High Low 2008 Fourth quarter ...... $28.55 $10.97 Third quarter ...... $43.29 $25.95 Second quarter ...... $55.06 $38.89 First quarter ...... $56.00 $37.07 2007 Fourth quarter ...... $62.83 $42.78 Third quarter ...... $75.45 $52.63 Second quarter ...... $74.35 $65.35 First quarter ...... $69.65 $59.63

Holders As of February 20, 2009, there were approximately 17,000 holders of record of Corporation Shares.

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, 2008 and 2007: Dividends Declared 2008 Annual dividend ...... $0.90(a) 2007 Annual dividend ...... $0.90(b)

(a) The Corporation declared a dividend in the fourth quarter of 2008 to shareholders of record on December 31, 2008, which was paid in January 2009. (b) The Corporation declared a dividend in the fourth quarter of 2007 to shareholders of record on December 31, 2007, which was paid in January 2008.

Conversion of Securities; Sale of Unregistered Securities In 2006, we completed the redemption of the remaining 25,000 outstanding shares of Class B Exchangeable Preferred Shares of the Trust (“Class B EPS”) for approximately $1 million in cash. Also in 2006, in connection with the Host Transaction, we redeemed all of the Class A Exchangeable Preferred Shares of the Trust (“Class A EPS”) (approximately 562,000 shares) and Realty Partnership units (approximately 40,000 units) for approximately $34 million in cash. SLC Operating Limited Partnership units are convertible into Corporation Shares at the unit holder’s option, provided that we have the option to settle conversion requests in cash or Corporation Shares. In 2006, we redeemed approximately 926,000 SLC Operating Limited Partnership units for approximately $56 million

25 in cash, and there were approximately 178,000 and 179,000 of these units outstanding at December 31, 2008 and 2007, respectively.

Issuer Purchases of Equity Securities Pursuant to the Share Repurchase Program, Starwood repurchased 13.6 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, 2008. As of December 31, 2008, no repurchase capacity remained available under our Share Repurchase Authorization. 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.

26 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, 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, 2003 and ending December 31, 2008. The graph assumes that the value of the investments was 100 on December 31, 2003 and that all dividends and other distributions were reinvested. In addition, the Share prices for the periods prior to the Host Transaction on April 10, 2006 have been adjusted based on the value shareholders received for their Class B shares. The comparisons are provided in response to SEC disclosure requirements and are not intended to forecast or be indicative of future performance.

300 Starwood 250 S&P 500 S&P 500 Hotel 200

150

DOLLARS 100

0 2003 2004 2005 2006 2007 2008

2003 2004 2005 2006 2007 2008 Starwood 100.00 164.69 182.46 223.92 160.97 68.73 S&P 500 100.00 110.87 116.31 134.66 142.05 89.51 S&P 500 Hotel 100.00 145.60 147.82 169.41 148.33 76.70

27 Item 6. Selected Financial Data.

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.

Year Ended December 31, 2008 2007 2006 2005 2004 (In millions, except per Share data) Income Statement Data Revenues...... $5,907 $6,153 $ 5,979 $5,977 $5,368 Operating income ...... $ 619 $ 858 $ 839 $ 822 $ 653 Income from continuing operations ...... $ 254 $ 543 $1,115 $ 423 $ 369 Diluted earnings per Share from continuing operations ...... $ 1.37 $ 2.57 $ 5.01 $ 1.88 $ 1.72 Operating Data Cash from operating activities ...... $ 646 $ 884 $ 500 $ 764 $ 578 Cash from (used for) investing activities ...... $(172) $ (215) $ 1,402 $ 85 $ (415) Cash used for financing activities ...... $(243) $ (712) $(2,635) $ (253) $ (273) Aggregate cash distributions paid ...... $ 172 $ 90 $ 276 $ 176 $ 172 Cash distributions and dividends declared per Share ...... $ 0.90 $ 0.90 $ 0.84(a) $ 0.84 $ 0.84

(a) In connection with the Host Transaction, in February and March 2006, the Trust declared distributions totaling $0.42 per Share. In December 2006, the Corporation declared a dividend of $0.42 per Corporation Share.

At December 31, 2008 2007 2006 2005 2004 (In millions) Balance Sheet Data Total assets ...... $9,703 $9,622 $9,280 $12,494 $12,298 Long-term debt, net of current maturities and including exchangeable units and Class B preferred shares ...... $3,502 $3,590 $1,827 $ 2,926 $ 3,823

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

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

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

28 CRITICAL ACCOUNTING POLICIES

We believe the following to be our critical accounting policies:

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

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

• 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. Such revenues are impacted by the state of the global economies and, in particular, the U.S. economy, as well as interest rate and other economic conditions affecting the lending market. Revenue is generally recognized upon the buyer demonstrating a sufficient level of initial and continuing investment, the period of cancellation with refund has expired and receivables are deemed collectible. We determine the portion of revenues to recognize for sales accounted for under the percentage of completion method based on judgments and estimates including total project costs to complete. Additionally, we record reserves against these revenues based on expected default levels. Changes in costs could lead to adjustments to the percentage of completion status of a project, which may result in differences in the timing and amount of revenues recognized from the projects. We have also entered into licensing agreements with third-party developers to offer consumers branded condominiums or residences. Our fees from these agreements are generally based on the gross sales revenue of units sold. Residential fee revenue is recorded in the period that a purchase and sales agreement exists, delivery of services and obligations has occurred, the fee to the owner is deemed fixed and determinable and collectibility of the fees is reasonably assured.

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

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

29 Frequent Guest Program. SPG is our frequent guest incentive marketing program. SPG members earn points based on spending at our properties, as incentives to first time buyers of VOIs and residences and through participation in affiliated programs. Points can be redeemed at substantially all of our owned, leased, managed and franchised properties as well as through other redemption opportunities with third parties, such as conversion to airline miles. Properties are charged based on hotel guests’ qualifying expenditures. Revenue is recognized by participating hotels and resorts when points are redeemed for hotel stays.

We, through the services of third-party actuarial analysts, 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, including an estimate of the “breakage” for points that will never be redeemed, and an estimate of the points that will eventually be redeemed as well as the cost of reimbursing hotels and other third parties in respect of other redemption opportunities for point redemptions. Actual expenditures for SPG may differ from the actuarially determined liability. The total actuarially determined liability as of December 31, 2008 and 2007 is $662 million and $536 million, respectively. A 10% reduction in the “breakage” of points would result in an estimated increase of $85 million to the liability at December 31, 2008.

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

Loan Loss Reserves. For the vacation ownership and residential segment, we record an estimate of expected uncollectibility on our VOI notes receivable as a reduction of revenue at the time we recognize profit on a sale of a vacation ownership interest. We hold large amounts of homogeneous VOI notes receivable and therefore assess uncollectibility based on pools of receivables. In estimating our loss reserves, we use a technique referred to as static pool analysis, which tracks uncollectible notes for each year’s sales over the life of the respective notes and projects an estimated default rate that is used in the determination of our loan loss reserve requirements. As of December 31, 2008, the average estimated default rate for our pools of receivables was 7.9%. Given the significance of our respective pools of VOI notes receivable, a change in the projected default rate can have a significant impact to our loan loss reserve requirements, with a 0.1% change estimated to have an impact of approximately $3 million.

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

Assets Held for Sale. We consider properties to be assets held for sale when management approves and commits to a formal plan to actively market a property or group of properties for sale and a signed sales contract and significant non-refundable deposit or contract break-up fee exist. Upon designation as an asset held for sale, we record the carrying value of each property or group of properties at the lower of its carrying value which includes allocable segment goodwill or its estimated fair value, less estimated costs to sell, and we stop recording depreciation expense. Any gain realized in connection with the sale of 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. 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.

30 Legal Contingencies. We are subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies,” 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. We evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial position or our results of operations. Income Taxes. We provide for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” and Financial Accounting Standards Board Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). 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. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns.

31 RESULTS OF OPERATIONS The following discussion presents an analysis of results of our operations for the years ended December 31, 2008, 2007 and 2006.

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007 Continuing Operations Increase/ Percentage Year Ended Year Ended (Decrease) Change December 31, December 31, from Prior from Prior 2008 2007 Year Year Owned, Leased and Consolidated Joint Venture Hotels...... $2,259 $2,429 $(170) (7.0)% Management Fees, Franchise Fees and Other Income ...... 857 834 23 2.8% Vacation Ownership and Residential ...... 749 1,025 (276) (26.9)% Other Revenues from Managed and Franchise Properties ...... 2,042 1,865 177 9.5% Total Revenues ...... $5,907 $6,153 $(246) (4.0)%

The decrease in revenues from owned, leased and consolidated joint venture hotels was partially due to lost revenues from 19 wholly owned hotels sold or closed in 2008 and 2007. These sold or closed hotels had revenues of $77 million in the year ended December 31, 2008 compared to $121 million in the corresponding period of 2007. Revenues at our Same-Store Owned Hotels (59 hotels for the year ended December 31, 2008 and 2007, excluding the 19 hotels sold or closed and 10 additional hotels undergoing significant repositionings or without comparable results in 2008 and 2007) decreased 1.5%, or $31 million, to $2.015 billion for the year ended December 31, 2008 when compared to $2.046 billion in the same period of 2007 due primarily to a decrease in REVPAR. REVPAR at our Same-Store Owned Hotels decreased 1.2% to $168.93 for the year ended December 31, 2008 when compared to the corresponding 2007 period. The decrease in REVPAR at these Same-Store Owned Hotels resulted from a 1.0% increase in ADR to $237.45 for the year ended December 31, 2008 compared to $235.18 for the corresponding 2007 period and a decrease in occupancy rates to 71.1% in the year ended December 31, 2008 when compared to 72.7% in the same period in 2007. REVPAR at Same-Store Owned Hotels in North America decreased 1.9% for the year ended December 31, 2008 when compared to the same period of 2007. REVPAR declined in most of our major domestic markets, including Atlanta, Georgia, Kauai, Hawaii and New York, New York, due to the severe economic crisis in the United States, and globally. REVPAR at our international Same- Store Owned Hotels increased by 0.1% for the year ended December 31, 2008 when compared to the same period of 2007. Once again, due to the global economic crisis, REVPAR declined in most of our major international markets, including the United Kingdom and Italy. REVPAR for Same-Store Owned Hotels internationally increased 0.6% excluding the unfavorable effects of foreign currency translation. The increase in management fees, 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, 2008. The increase was due to the net addition of 48 managed and franchised hotels to our system. 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. 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, and the timing of revenue recognition from ongoing projects under construction which are being accounted for under percentage of completion accounting. Originated contract sales of VOI inventory, which represents vacation ownership revenues before adjustments for percentage of completion accounting and rescission, decreased 26% in the year ended December 31, 2008 when compared to the same period in 2007. Additionally, sales in Hawaii were negatively impacted by the sell out of our largest project on Maui in early 2008. The decline in the vacation ownership business was partially offset by strong results in the residential

32 branding business. The increase in residential fees for the year ended December 31, 2008 to $49 million when compared to $18 million in 2007 was primarily related to fees earned from the St. Regis Singapore Residences, which opened during the year and a nonrefundable license fee received in connection with another residential project. Other revenues and expenses from managed and franchised properties increased primarily due to an increase in the number of our managed and franchised hotels. These revenues represent reimbursements of costs incurred on behalf of managed hotel and vacation ownership properties and franchisees and relate primarily to payroll costs at managed properties where we are the employer. Since the reimbursements are made based upon the costs incurred with no added margin, these revenues and corresponding expenses have no effect on our operating income and our net income. Increase/ Percentage Year Ended Year Ended (Decrease) Change December 31, December 31, from Prior from Prior 2008 2007 Year Year Selling, General, Administrative and Other . . $477 $508 $(31) (6.1)% The decrease in selling, general, 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. Beginning in the middle of 2008, we began an activity value analysis project to review our cost structure across a majority of our corporate departments and divisional headquarters. 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. Increase/ Percentage Year Ended Year Ended (Decrease) Change December 31, December 31, from Prior from Prior 2008 2007 Year Year Restructuring and Other Special Charges, Net . . $141 $53 $88 n/a During the year ended December 31, 2008, we recorded restructuring and other special charges of $141 million, 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. 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). During the year ended December 31, 2007, we recorded $53 million in net restructuring and other special charges primarily related to accelerated depreciation of property, plant and equipment at the Sheraton Bal Harbour in Florida (“Bal Harbour”) and demolition costs associated with our redevelopment of that hotel. Bal Harbour was closed for business on July 1, 2007, and the majority of its employees were terminated. The hotel was demolished and we are in the process of building a St. Regis hotel along with branded residences and fractional units. Increase/ Percentage Year Ended Year Ended (Decrease) Change December 31, December 31, from Prior from Prior 2008 2007 Year Year Depreciation and Amortization ...... $323 $306 $17 5.6% 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. The increase in amortization expense was primarily due to the write-off, through amortization expense, of an investment in a management contract during 2008. Increase/ Percentage Year Ended Year Ended (Decrease) Change December 31, December 31, from Prior from Prior 2008 2007 Year Year Operating Income ...... $619 $858 $(239) (27.9)% 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, leased and consolidated joint venture hotels discussed above.

33 Increase/ Percentage Year Ended Year Ended (Decrease) Change December 31, December 31, from Prior from Prior 2008 2007 Year Year Equity Earnings and Gains and Losses from Unconsolidated Ventures, Net ...... $16 $66 $(50) (75.8)% The decrease in equity earnings and gains and losses from unconsolidated joint ventures was primarily due to our share of non-recurring gains, in 2007, on the sale of several hotels in an unconsolidated joint venture as well as decreased operating results, in 2008, at several properties owned by joint ventures in which we hold minority interests. Increase/ Percentage Year Ended Year Ended (Decrease) Change December 31, December 31, from Prior from Prior 2008 2007 Year Year Net Interest Expense ...... $207 $147 $60 40.8% The increase in net interest expense was primarily due to increased borrowings to fund our share repurchase program. Our weighted average interest rate was 5.24% at December 31, 2008 versus 6.52% at December 31, 2007. The average debt balance during 2008 and 2007 was $3.802 billion and $3.114 billion respectively. Increase/ Percentage Year Ended Year Ended (Decrease) Change December 31, December 31, from Prior from Prior 2008 2007 Year Year Loss on Asset Dispositions and Impairments, Net . . $(98) $(44) $(54) n/a During 2008, we recorded a net loss of $98 million primarily related to $64 million of impairment charges on five hotels, a $22 million impairment of our investment in vacation ownership notes receivable that we have previously securitized, 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). During 2007, 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. 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. Increase/ Percentage Year Ended Year Ended (Decrease) Change December 31, December 31, from Prior from Prior 2008 2007 Year Year Income Tax Expense ...... $76 $189 $(113) (59.8)% The decrease in income tax expense is primarily related to a decrease in pretax income and certain other one time tax benefits. The effective tax rate decreased to 23.0% in the year ended December 31, 2008 as compared to 25.8% in 2007. The 2008 tax rate was favorably impacted by a $31 million benefit related to the reversal of capital and net operating loss valuation allowances, a $20 million benefit related to lower foreign taxes, and a $14 million benefit associated with tax on the repatriation of foreign earnings. 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. 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. 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.

Discontinued Operations, Net of Tax For the year ended December 31, 2008, 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 contracts. Discontinued operations for the year ended December 31, 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 our businesses several years ago. For the year ended December 31, 2007, the loss on disposition represented a $1 million tax assessment associated with the disposition of our gaming business in 1999.

Cumulative Effect of Accounting Change, Net of Tax On January 1, 2007, we adopted FIN 48 and recorded a benefit of $35 million to the beginning balance of retained earnings.

Year Ended December 31, 2007 Compared with Year Ended December 31, 2006 Continuing Operations Revenues. Total revenues, including other revenues from managed and franchised properties, were $6.153 billion, an increase of $174 million when compared to 2006 levels. Revenues reflected a 9.8% decrease in revenues from our owned, leased and consolidated joint venture hotels to $2.429 billion for the year ended December 31, 2007 when compared to $2.692 billion in the corresponding period of 2006, a 20.4% increase in management fees, franchise fees and other income to $834 million for the year ended December 31, 2007 when compared to $693 million in the corresponding period of 2006, a 2.0% increase in vacation ownership and residential revenues to $1.025 billion for the year ended December 31, 2007 when compared to $1.005 billion in the corresponding period of 2006, and an increase of $276 million in other revenues from managed and franchised properties to $1.865 billion for the year ended December 31, 2007 when compared to $1.589 billion in the corresponding period of 2006. The $263 million decrease in revenues from owned, leased and consolidated joint venture hotels was primarily due to lost revenues from 56 wholly owned hotels sold or closed in 2007 and 2006. These sold or closed hotels had revenues of $121 million in the year ended December 31, 2007, compared to $570 million in the corresponding period of 2006. The decrease in revenues from sold or closed hotels was partially offset by improved results at our remaining owned, leased and consolidated joint venture hotels. Revenues at our Same-Store Owned Hotels (66 hotels for the year ended December 31, 2007 and 2006, excluding 56 hotels sold or closed and 8 hotels undergoing significant repositionings or without comparable results in 2007 and 2006) increased 9.1%, or $173 million, to $2.068 billion for the year ended December 31, 2007 when compared to $1.895 billion in the same period of 2006 due primarily to an increase in REVPAR. REVPAR at our Same-Store Owned Hotels increased 10.2% to $160.38 for the year ended December 31, 2007 when compared to the corresponding 2006 period. The increase in REVPAR at these Same-Store Owned Hotels was attributed to a 9.2% increase in ADR to $222.03 for the year ended December 31, 2007 compared to $203.31 for the corresponding 2006 period and due to a slight increase in occupancy rates to 72.2% in the year ended December 31, 2007 when compared to 71.6% in the same period in 2006. REVPAR at Same-Store Owned Hotels in North America increased 7.3% for the year ended December 31, 2007 when compared to the same period of 2006. REVPAR growth was particularly strong at our owned hotels in Kauai, Hawaii, New York, New York, San Francisco, California and New Orleans, Louisiana. REVPAR at our international Same-Store Owned Hotels increased by 15.6% for the year ended December 31, 2007 when compared to the same period of 2006. REVPAR growth was particularly strong at our owned hotels in Australia, Austria and Italy. REVPAR for Same-Store Owned Hotels internationally increased 7.8% excluding the favorable effects of foreign currency translation. The increase in management fees, 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, 2007. 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. 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. Management fees from these hotels in the year ended December 31, 2007 totaled $63 million, as compared to $44 million in the same period of 2006. Revenues from the amortization of the deferred gain associated with the Host Transaction were $49 million in the year ended December 31, 2007, as compared to $34 million in the corresponding period of 2006.

35 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. These increases were partially offset by lost fees from contracts that were terminated in the last 12 months.

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. This net increase was offset, in part, by a decrease in residential sales as the year ended December 31, 2007 included $3 million of revenues from the sale of residential units at the St. Regis in New York compared to 2006 which included $94 million in revenues from the sale of residential units at the St. Regis Museum Tower in San Francisco, which sold out in 2006, and at the St. Regis in New York, where only a few residential units remained available for sale in 2007. Additionally, during the year ended December 31, 2006, we recorded a gain of $17 million on the sale of $133 million of vacation ownership receivables. We did not sell any such receivables in 2007 and therefore no gain was recognized.

Originated contract sales of VOI inventory, which represents vacation ownership revenues before adjustments for percentage of completion accounting and rescission, decreased 3.8% in the year ended December 31, 2007 when compared to the same period in 2006 as the mix of products sold during 2007 differed from that sold in 2006. Additionally, 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, partially offset by higher sales and profits at other timeshare projects.

Other revenues and expenses from managed and franchised properties increased to $1.865 billion from $1.589 billion for the year ended December 31, 2007 and 2006, respectively, primarily due to an increase in the number of our managed and franchised hotels. These revenues represent reimbursements of costs incurred on behalf of managed hotel and vacation ownership properties and franchisees and relate primarily to payroll costs at managed properties where we are the employer. Since the reimbursements are made based upon the costs incurred with no added margin, these revenues and corresponding expenses have no effect on our operating income and our net income.

Selling, General, Administrative and Other. Selling, general, administrative and other expenses, which includes costs and expenses from our Bliss spas and from the sale of Bliss products, was $508 million in the year ended December 31, 2007 when compared to $466 million in the same period in 2006. The increase was primarily due to investments in our global development capability and costs associated with the launch of our new brands, Aloft and Element, and other brand initiatives.

Restructuring and Other Special Charges, Net. During the year ended December 31, 2007, we recorded $53 million in net restructuring and other special charges primarily related to accelerated depreciation of property, plant and equipment at the Sheraton Bal Harbour in Florida (“Bal Harbour”) and demolition costs associated with our redevelopment of that hotel. Bal Harbour was closed for business on July 1, 2007, and the majority of its employees were terminated. The hotel was demolished and we are in the process of building a St. Regis hotel along with branded residences and fractional units.

During the year ended December 31, 2006, 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. These charges were offset, in part, 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.

Depreciation and Amortization. Depreciation expense was $280 million during the year ended Decem- ber 31, 2007, consistent with the corresponding period of 2006. We sold or closed 45 wholly owned hotels during 2006. However, the majority of these hotels were classified as held for sale as of December 31, 2005 and consequently, no depreciation was recognized for either the year ended December 31, 2007 or 2006 for those hotels.

36 Amortization expense was $26 million in the year ended December 31, 2007, consistent with the corresponding period of 2006. Operating Income. Operating income increased 2.3% or $19 million to $858 million for the year ended December 31, 2007 when compared to $839 million in the same period in 2006, primarily due to the increase in management fees, franchise fees and other income, partially offset by the restructuring and other special charges and the decline in revenues from owned, leased and consolidated joint venture hotels discussed above. Equity Earnings and Gains and Losses from Unconsolidated Ventures, Net. Equity earnings and gains and losses from unconsolidated joint ventures increased to $66 million for the year ended December 31, 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. Net Interest Expense. Net interest expense decreased to $147 million for the year ended December 31, 2007 as compared to $215 million in the same period of 2006, 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. 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. Our weighted average interest rate was 6.52% at December 31, 2007 versus 6.97% at December 31, 2006. Loss on Asset Dispositions and Impairments, Net. During 2007, 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. 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. During 2006, we recorded a net loss of $3 million primarily related to several offsetting gains and losses, including the sale of ten wholly-owned hotels, which were sold unencumbered by management agreements, impairment charges related to various properties, including the Sheraton Cancun which was damaged by Hurricane Wilma in 2005, 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. 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. Income Tax Expense. We recorded income tax expense from continuing operations of $189 million for the year ended December 31, 2007 compared to a benefit of $434 million in the corresponding period of 2006. The 2007 expense was favorably impacted by a $114 million benefit related to the reversal of capital loss valuation allowance, 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. 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. The 2006 tax benefit includes a one-time benefit of approximately $524 million realized in connection with the Host Transaction, a $59 million benefit due primarily to the completion of various state and federal income tax audits of prior years, 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.

Discontinued Operations For the year ended December 31, 2007, the loss on disposition represented a $1 million tax assessment associated with the disposition of our gaming business in 1999. For the year ended December 31, 2006, 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, Net of Tax On January 1, 2007, we adopted FIN 48 and recorded a benefit of $35 million to the beginning balance of retained earnings.

37 On January 1, 2006, we adopted SFAS No. 152 and recorded a charge of $70 million, net of a $46 million tax benefit, in cumulative effect of accounting change.

LIQUIDITY AND CAPITAL RESOURCES

Cash From Operating Activities Cash flow from operating activities is generated primarily from management and franchise revenues, operating income from our owned hotels and sales of VOIs and residential units. Other sources of cash are distributions from joint-ventures, servicing financial assets and interest income. These are the principal sources of cash used to fund our operating expenses, interest payments on debt, capital expenditures, dividend payments, property and income taxes and share repurchases. We believe that our existing borrowing availability together with capacity for additional borrowings and cash from operations will be adequate to meet all funding requirements for our operating expenses, principal and interest payments on debt, capital expenditures, dividend payments and share repurchases in the foreseeable future. The majority of our cash flow is derived from corporate and leisure travelers and is dependent on the supply and demand in the lodging industry. In a recessionary economy, we experience significant declines in business and leisure travel. The impact of declining demand in the industry and higher hotel supply in key markets could have a material impact on our sources of cash. Our day-to-day operations are financed through a net working capital deficit, a practice that is common in our industry. The ratio of our current assets to current liabilities was 0.81 and 0.87 as of December 31, 2008 and 2007, respectively. Consistent with industry practice, we sweep the majority of the cash at our owned hotels on a daily basis and fund payables as needed by drawing down on our existing revolving credit facility. State and local regulations governing sales of VOIs and residential properties allow the purchaser of such a VOI or property to rescind the sale subsequent to its completion for a pre-specified number of days. In addition, cash payments received from buyers of units under construction are held in escrow during the period prior to obtaining a certificate of occupancy. These payments and the deposits collected from sales during the rescission period are the primary components of our restricted cash balances in our consolidated balance sheets. At December 31, 2008 and 2007, we had short-term restricted cash balances of $96 million and $196 million, respectively.

Cash From Investing Activities Gross capital spending during the full year ended December 31, 2008 was as follows (in millions): Capital Expenditures: Owned, Leased and Consolidated Joint Venture Hotels ...... $279 Corporate and information technology ...... 84 Subtotal ...... 363 Vacation Ownership and Residential Capital Expenditures: Capital expenditures (includes land acquisitions) ...... 110 Net capital expenditures for inventory (excluding St. Regis Bal Harbour)(1) ...... 131 Capital expenditures for inventory — St. Regis Bal Harbour ...... 148 Subtotal ...... 389 Development Capital(2) ...... 65 Total Capital Expenditures ...... $817

(1) Represents gross inventory capital expenditures of $254 less cost of sales of $123. (2) Includes $3 million of expenditures that are classified as Plant, property and equipment, net on the consolidated balance sheet.

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

39 Cash Used for Financing Activities

The following is a summary of our debt portfolio (including capital leases) as of December 31, 2008:

Amount Outstanding at Interest Rate at December 31, December 31, Average 2008(a) 2008 Maturity (Dollars in millions) (In years) Floating Rate Debt Senior Credit Facilities: Revolving Credit Facilities ...... $ 213 2.32% 2.1 Term Loans ...... 1,375 2.35% 1.3 Mortgages and Other ...... 43 5.80% 4.0 Total/Average ...... $1,631 2.43% 1.5 Fixed Rate Debt Senior Notes ...... $2,249 7.14% 5.3 Mortgages and Other ...... 128 7.48% 9.2 Total/Average ...... $2,377 7.16% 5.5 Total Debt Total Debt and Average Terms ...... $4,008 5.24% 3.9

(a) Excludes approximately $642 million of our share of unconsolidated joint venture debt, all of which is non- recourse.

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

See Note 15 of the consolidated financial statements for specifics related to our financing transactions, issuances, and terms entered into for the years ended December 31, 2008 and 2007.

Our Facilities are used to fund general corporate cash needs. As of December 31, 2008, we have availability of over $1.5 billion under the Facilities. The term loan maturity of $500 million on June 29, 2009 is expected to be repaid using cash balances generated from operations and proceeds from our Facilities. We have reviewed the financial covenants associated with our Facilities, the most restrictive being the leverage ratio. As of December 31, 2008, we were in compliance with this covenant and expect to remain in compliance through the end of 2009. We have the ability to manage the business in order to reduce our leverage ratio by reducing operating costs, selling, general and administrative costs and postponing discretionary capital expenditures. However, there can be no assurance that we will stay below the required leverage ratio if the current economic climate continues to worsen.

Our current credit ratings and outlook are as follows: S&P BB+ (negative outlook); Moody’s Baa3 (under review for possible downgrade); and; Fitch BB+ (negative outlook). Our debt was downgraded by S&P in the fourth quarter of 2008 and by Fitch in 2009, 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. The impact of the ratings could impact our current and future borrowing costs, which cannot be currently estimated.

We have historically securitized our VOI notes receivable as a financing mechanism. However, due to the liquidity crisis and unfavorable markets we have not securitized any notes receivable since 2006. Although conditions remain uncertain in the asset backed securities market, we are exploring a variety of avenues to sell vacation ownership receivables. However, given unpredictable market conditions, we do not currently expect to receive proceeds from securitizations in 2009.

40 Based upon the current level of operations, management believes that our cash flow from operations and asset sales, together with our significant cash balances (approximately $491 million at December 31, 2008, including $102 million of short-term and long-term restricted cash), available borrowings under the Facilities and other bank credit facilities (approximately $1.585 billion at December 31, 2008 which includes $35 million from international revolving lines of credit), our expected income tax refund of over $200 million in 2009 (see Note 14 of the consolidated financial statements), and capacity for additional borrowings will be adequate to meet anticipated requirements for scheduled maturities, dividends, working capital, capital expenditures, marketing and advertising program expenditures, other discretionary investments, interest and scheduled principal payments and share repurchases for the foreseeable future. However, there can be no assurance that we will be able to refinance our indebtedness as it becomes due and, if refinanced, on favorable terms. In addition, there can be no assurance that in our continuing business we will generate cash flow at or above historical levels, that currently anticipated results will be achieved or that we will be able to complete dispositions on commercially reasonable terms or at all. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to sell additional assets at lower than preferred amounts, reduce capital expenditures, refinance all or a portion of our existing debt or obtain additional financing at unfavorable rates. Our ability to make scheduled principal payments, to pay interest on or to refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the hotel and vacation ownership industries and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control. We had the following contractual obligations(1) outstanding as of December 31, 2008 (in millions): Due in Less Due in Due in Due After Total Than 1 Year 1-3 Years 3-5 Years 5 Years Debt ...... $4,006 $506 $1,101 $1,500 $ 899 Capital lease obligations(2) ...... 2 — — — 2 Operating lease obligations ...... 1,158 90 200 170 698 Unconditional purchase obligations(3) .... 98 35 59 2 2 Other long-term obligations ...... 4 — 3 1 — Total contractual obligations ...... $5,268 $631 $1,363 $1,673 $1,601

(1) The table below excludes unrecognized tax benefits that would require cash outlays for $503 million, the timing of which is uncertain. Refer to Note 14 of the consolidated financial statements for additional discussion on this matter. In addition, the table excludes amounts related to the construction of our St. Regis Bal Harbour project that has a total project cost of $780 million, of which $226 million has been paid through December 31, 2008. (2) Excludes sublease income of $2 million. (3) Included in these balances are commitments that may be reimbursed or satisfied by our managed and franchised properties. We had the following commercial commitments outstanding as of December 31, 2008 (in millions): Amount of Commitment Expiration Per Period Less Than After Total 1 Year 1-3 Years 3-5 Years 5 Years Standby letters of credit ...... $115 $115 $— $— $— A dividend of $0.90 per share was paid in January 2009 to shareholders of record as of December 31, 2008. A dividend of $0.90 per share was paid in January 2008 to shareholders of record as of December 31, 2007.

Stock Sales and Repurchases Share Repurchases. In April of 2007, the Board of Directors authorized an additional $1 billion in Share repurchases under our existing Corporate Share Repurchase Authorization (the “Share Repurchase Authoriza- tion”). In November 2007, the Board of Directors of Starwood further authorized the repurchase of up to an

41 additional $1 billion of Corporation Shares under the Share Repurchase Authorization. During the year ended December 31, 2008, we repurchased approximately 13.6 million shares at a total cost of approximately $593 million. As of December 31, 2008, there was no availability remaining under the Share Repurchase Authorization. At December 31, 2008, we had outstanding approximately 183 million Corporation Shares and 178,000 SLC Operating Limited Partnership units.

Off-Balance Sheet Arrangements Our off-balance sheet arrangements include retained interests in securitizations of $19 million, letters of credit of $115 million, unconditional purchase obligations of $98 million and surety bonds of $91 million. 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.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk. In limited instances, we seek to reduce earnings and cash flow volatility associated with changes in 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. We continue to have exposure to such risks to the extent they are not hedged. We enter into a derivative financial arrangement to the extent it meets the objectives described above, and we do not engage in such transactions for trading or speculative purposes. At year-end 2008, we were party to the following derivative instruments: • Forward contracts to hedge forecasted transactions for management and franchise fee revenues earned in foreign currencies. The aggregate dollar equivalent of the notional amounts was approximately $55 million, and they expire in 2009. • Forward foreign exchange contracts to manage the foreign currency exposure related to certain intercompany loans not deemed to be permanently invested. The aggregate dollar equivalent of the notional amounts of the forward contracts was approximately $376 million and they expire in 2009.

42 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, excluding interest rates): Total Fair Expected Maturity or Transaction Date Total at Value at At December 31, December 31, December 31, 2009 2010 2011 2012 2013 Thereafter 2008 2008 Liabilities Fixed rate ...... $ 6 $ 5 $ 8 $804 $653 $901 $2,377 $1,599 Average interest rate ...... 7.16% Floating rate ...... $500 $500 $588 $ 43 $ — $ — $1,631 $1,631 Average interest rate ...... 2.43% Forward Foreign Exchange Hedge Contracts: Fixed (EUR) to Fixed (USD) ...... $ 51 $ — $ — $ — $ — $ — $ 5 $ 5 Average Exchange rate ...... 1.39 Fixed (CAD) to Fixed (USD) ...... $ 4 $ — $ — $ — $ — $ — $ 1 $ 1 Average Exchange rate ...... 81 Forward Foreign Exchange Contracts: Fixed (EUR) to Fixed (USD) ...... $198 $ — $ — $ — $ — $ — $ (1) $ (1) Average Exchange rate ...... 1.41 Fixed (ARS) to Fixed (USD) ...... $ 15 $ — $ — $ — $ — $ — $ — $ — Average Exchange rate ...... 28 Fixed (CLP) to Fixed (USD). . $ 15 $ — $ — $ — $ — $ — $ — $ — Average Exchange rate ...... 00 Fixed (MYR) to Fixed (USD) ...... $ 18 $ — $ — $ — $ — $ — $ — $ — Average Exchange rate ...... 29 Fixed (JPY) to Fixed (USD) . . $ 12 $ — $ — $ — $ — $ — $ — $ — Average Exchange rate ...... 01 Fixed (CAD) to Fixed (USD) ...... $ 8 $ — $ — $ — $ — $ — $ — $ — Average Exchange rate ...... 84 Fixed (AUD) to Fixed (USD) ...... $ 22 $ — $ — $ — $ — $ — $ (1) $ (1) Average Exchange rate ...... 70 Fixed (JPY) to Fixed (SGD) . . $ 6 $ — $ — $ — $ — $ — $ — $ — Fixed (SGD) to Fixed (THB) ...... $ 5 $ — $ — $ — $ — $ — $ — $ — Fixed (AUD) to Fixed (EUR) ...... $ 43 $ — $ — $ — $ — $ — $ (1) $ (1) Fixed (GBP) to Fixed (EUR) ...... $ 27 $ — $ — $ — $ — $ — $ — $ — Fixed (JPY) to Fixed (THB) . . $ 6 $ — $ — $ — $ — $ — $ — $ —

43 Item 8. Financial Statements and Supplementary Data.

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.

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

Not applicable.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company’s management conducted an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2008. Based on this evaluation, 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.

Management’s Report on Internal Control over Financial Reporting

Management of Starwood Hotels & Resorts Worldwide, Inc. and its subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) or 15(d)-15(f). 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;

• Provide reasonable assurance that the transactions are recorded as necessary to permit the preparation of financial statements in accordance with GAAP, and the receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2008. In making this assessment, 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). Based on our assessment and those criteria, management believes that, as of December 31, 2008, the Company’s internal control over financial reporting is effective.

Management has engaged Ernst & Young LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K, to attest to the Company’s internal control over financial reporting. Its report is included herein.

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

/s/ Ernst & Young LLP New York, New York February 26, 2009

45 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) Chief Executive Officer of the Company since CEO and Director since September 2007. Prior to joining Starwood, Mr. van September 2007 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. Adam M. Aron (54) Chairman and Chief Executive Officer of World Director since August Leisure Partners, Inc., a leisure-related consultancy, 2006 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. Charlene Barshefsky (58) Senior International Partner at the law firm of Director and Trustee(1) WilmerHale, LLP, Washington, D.C. since since October 2001 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.

46 Name (Age) Principal Occupation and Business Experience Service Period Thomas E. Clarke (57) President of New Business Ventures of Nike, Inc., a Director since April 2008 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. Clayton C. Daley, Jr. (57) Spent his entire professional career with Procter & Director since November Gamble, joining the company in 1974, and has held 2008 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. Bruce W. Duncan (57) President, CEO and Director of First Industrial Chairman of the Boards Realty Trust, Inc. since January 2009 prior to which since May 2005; time he was a private investor since January 2006. Director since April 1999; From April to September 2007, Mr. Duncan served Trustee(1) since August as Chief Executive Officer of the Company on an 1995 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. Lizanne Galbreath (51) Managing Partner of Galbreath & Company, a real Director and Trustee(1) estate investment firm, since 1999. From April 1997 since May 2005 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. Eric Hippeau (57) Managing Partner of Softbank Capital Partners, a Director and Trustee(1) technology venture capital firm, since March 2000. since April 1999 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.

47 Name (Age) Principal Occupation and Business Experience Service Period Stephen R. Quazzo (49) Managing Director, Chief Executive Officer and co- Director since April 1999; founder of Transwestern Investment Company, Trustee(1) since August L.L.C., a real estate principal investment firm, since 1995 March 1996. From April 1991 to March 1996, Mr. Quazzo was President of Equity Institutional Investors, Inc., a subsidiary of Equity Group Investments, Inc. Thomas O. Ryder (64) Retired as Chairman of the Board of The Reader’s Director and Trustee(1) Digest Association, Inc. on January 1, 2007. Prior since April 2001 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. Kneeland C. A founding partner of Pharos Capital Group, Director and Trustee(1) Youngblood (53) L.L.C., a private equity fund focused on technology since April 2001 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.).

(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 ...... 47 Chief Executive Officer and a Director Matthew E. Avril ...... 49 President, Hotel Group Vasant M. Prabhu ...... 49 Executive Vice President and Chief Financial Officer Kenneth S. Siegel ...... 53 Chief Administrative Officer, General Counsel and Secretary Simon M. Turner ...... 47 President, Global Development Philip P. McAveety ...... 42 Executive Vice President and Chief Brand Officer JeffreyM.Cava...... 57 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 company, from January 2007 until March 2008. From July 1997 until December 2006, he served as Vice President, Brand Marketing, Europe, Middle East and Africa at Nike, Inc.

Vasant M. Prabhu. Mr. Prabhu has been the Executive Vice President and Chief Financial Officer since January 2004. Prior to joining the Company, Mr. Prabhu served as Executive Vice President and Chief Financial Officer for Safeway Inc., from September 2000 through December 2003. Mr. Prabhu was previously the President of the Information and Media Group at the McGraw-Hill Companies, Inc., from June 1998 to August 2000, and held several senior positions at divisions of PepsiCo, Inc. from June 1992 to May 1998. From August 1983 to May 1992 he was a partner at Booz Allen Hamilton, an international management consulting firm. Mr. Prabhu is a director of Mattel, Inc.

Kenneth S. Siegel. Mr. Siegel has been Chief Administrative Officer and General Counsel since May 2006. From November 2000 to May 2006, Mr. Siegel held the position of Executive Vice President and General Counsel. In February 2001, he was also appointed as the Secretary of the Company. Mr. Siegel was formerly the Senior Vice President and General Counsel of Gartner, Inc., a provider of research and analysis on information technology industries, from January 2000 to November 2000. Prior to that time, he served as Senior Vice President, General Counsel and Corporate Secretary of IMS Health Incorporated, an information services company, and its prede- cessors from February 1997 to December 1999. Prior to that time, Mr. Siegel was a Partner in the law firm of Baker & Botts, LLP. Mr. Siegel is also a Trustee and Chairman of Cancer Hope Network, a non-profit entity, a Trustee of Minority Corporate Counsel Association, and a Trustee of the American Hotel & Lodging Educational Foundation.

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

Jeffrey M. Cava. Mr. Cava has been Executive Vice President and Chief Human Resources Officer, since May 2008. Mr. Cava served as Executive Vice President and Chief Human Resources Officer for Wendy’s International, Inc. from June 2003 to May 2008. Prior to joining Wendy’s, Mr. Cava was Vice President & Chief Human Resources Officer for Nike Inc.; Vice President Human Resources for The Walt Disney Company, Consumer Products Group; and Vice President of Global Staffing, Training and Development for ITT Sheraton Corporation.

Corporate Governance

We have submitted the CEO certification to the NYSE pursuant to NYSE Rule 303A.12(a) following the 2008 Annual Meeting of Shareholders.

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”; “Election of Directors”; “Board Meetings and Committees”; and; “Section 16(a) Beneficial Ownership Reporting Compliance.”

Item 11. Executive Compensation.

The information called for by Item 11 is incorporated by reference to the information under the following captions in the Proxy Statement: “Executive Compensation,” “Compensation Discussion and Analysis,” “Com- pensation Committee Report,” “Summary Compensation Table,” “Grants of Plan-Based Awards,” “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards,” “Outstanding Equity Awards at Fiscal Year-End,” “Option Exercises and Stock Vested,” “Nonqualified Deferred Compensation,” “Potential Payments upon Termination or Change-in-Control,” and “Director Compensation.”

49 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 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 Informa- tion-December 31, 2008” in the Proxy Statement.

Item 13. Certain Relationships and Related Transactions and Director Independence. 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 14. Principal Accountant Fees and Services. The information called for by Item 14 is incorporated by reference to the information under the captions, “Audit Fees” and “Pre-Approval of Services in the Proxy Statement.”

50 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

Page Report of Independent Registered Public Accounting Firm...... F-2 Consolidated Balance Sheets as of December 31, 2008 and 2007 ...... F-3 Consolidated Statements of Income for the Years Ended December 31, 2008, 2007 and 2006 ...... F-4 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2008, 2007 and 2006...... F-5 Consolidated Statements of Equity for the Years Ended December 31, 2008, 2007 and 2006...... F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006 ...... F-7 Notes to Financial Statements ...... F-8 Schedule: Schedule II — Valuation and Qualifying Accounts ...... S-1

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

/s/ Ernst & Young LLP

New York, New York February 26, 2009

F-2 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED BALANCE SHEETS

December 31, 2008 2007 (In millions, except share data) ASSETS Current assets: Cash and cash equivalents ...... $ 389 $ 151 Restricted cash ...... 96 196 Accounts receivable, net of allowance for doubtful accounts of $49 and $50 ...... 552 627 Inventories ...... 986 714 Prepaid expenses and other ...... 143 136 Total current assets ...... 2,166 1,824 Investments...... 372 423 Plant, property and equipment, net...... 3,599 3,850 Assets held for sale ...... 10 — Goodwill and intangible assets, net ...... 2,235 2,302 Deferred tax assets ...... 639 729 Other assets ...... 682 494 $9,703 $9,622

LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Short-term borrowings and current maturities of long-term debt ...... $ 506 $ 5 Accounts payable ...... 171 201 Accrued expenses ...... 1,274 1,175 Accrued salaries, wages and benefits ...... 346 405 Accrued taxes and other ...... 391 315 Total current liabilities ...... 2,688 2,101 Long-term debt ...... 3,502 3,590 Deferred income taxes...... 26 28 Other liabilities ...... 1,843 1,801 8,059 7,520 Minority interest ...... 23 26 Commitments and contingencies Stockholders’ equity: Corporation common stock; $0.01 par value; authorized 1,000,000,000 shares outstanding 182,827,483 and 190,998,585 shares at December 31, 2008 and 2007 respectively ...... 2 2 Additional paid-in capital ...... 493 868 Accumulated other comprehensive loss ...... (391) (147) Retained earnings ...... 1,517 1,353 Total stockholders’ equity ...... 1,621 2,076 $9,703 $9,622

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

F-3 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31, 2008 2007 2006 (In millions, except per share data) Revenues Owned, leased and consolidated joint venture hotels ...... $2,259 $2,429 $2,692 Vacation ownership and residential sales and services ...... 749 1,025 1,005 Management fees, franchise fees and other income ...... 857 834 693 Other revenues from managed and franchised properties ...... 2,042 1,865 1,589 5,907 6,153 5,979 Cost and Expenses Owned, leased and consolidated joint venture hotels ...... 1,722 1,805 2,023 Vacation ownership and residential ...... 583 758 736 Selling, general, administrative and other ...... 477 508 466 Restructuring and other special charges, net ...... 141 53 20 Depreciation ...... 291 280 280 Amortization ...... 32 26 26 Other expenses from managed and franchised properties ...... 2,042 1,865 1,589 5,288 5,295 5,140 Operating income ...... 619 858 839 Equity earnings and gains and losses from unconsolidated ventures, net ...... 16 66 61 Interest expense, net of interest income of $3, $21 and $29...... (207) (147) (215) Loss on asset dispositions and impairments, net ...... (98) (44) (3) Income from continuing operations before taxes and minority equity ...... 330 733 682 Income tax (expense) benefit ...... (76) (189) 434 Minority equity in net income ...... — (1) (1) Income from continuing operations ...... 254 543 1,115 Discontinued operations: Gain (loss) on dispositions, net of tax expense of $54, $1 and $2 ...... 75 (1) (2) Cumulative effect of accounting change, net of tax ...... — — (70) Net income ...... $ 329 $ 542 $1,043 Earnings (Losses) Per Share — Basic Continuing operations ...... $ 1.40 $ 2.67 $ 5.25 Discontinued operations ...... 0.41 — (0.01) Cumulative effect of accounting change ...... — — (0.33) Net income ...... $ 1.81 $ 2.67 $ 4.91 Earnings (Losses) Per Share — Diluted Continuing operations ...... $ 1.37 $ 2.57 $ 5.01 Discontinued operations ...... 0.40 — (0.01) Cumulative effect of accounting change ...... — — (0.31) Net income ...... $ 1.77 $ 2.57 $ 4.69 Weighted average number of Shares ...... 181 203 213 Weighted average number of Shares assuming dilution ...... 185 211 223 Distribution and dividends declared per Share...... $ 0.90 $ 0.90 $ 0.84

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

F-4 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 31, 2008 2007 2006 (In millions) Net income ...... $329 $542 $1,043 Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments...... (190) 84 72 Recognition of accumulated foreign currency translation adjustments on sold hotels...... — — 29 Pension liability adjustments ...... (58) 3 2 Change in fair value of derivatives ...... 6 — — Unrealized losses on investments ...... (2) (6) (1) (244) 81 102 Comprehensive income ...... $ 85 $623 $1,145

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

F-5 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF EQUITY

Exchangeable Accumulated Units and Additional Other Class B EPS Class A EPS Shares Paid-in Deferred Comprehensive Retained Shares Amount Shares Amount Shares Amount Capital(b) Compensation Loss(a) Earnings (In millions) Balance at December 31, 2005 . . . — $— 1 $— 217 $ 4 $ 5,412 $(53) $(322) $ 170 Net income ...... — — — — — — — — — 1,043 Implementation of SFAS No. 123(R) ...... — — — — — — (53) 53 — — Disposition of the Trust(c) ...... — — — — — — (2,368) — — (83) Stock option and restricted stock award transactions, net ...... — — — — 15 — 588 — — — ESPP stock issuances ...... — — — — — — 7 — — — Share repurchases ...... — — — — (22) — (1,263) — — — Redemption of convertible debt . . . — — — — 3 — — — — — Conversion or redemption and cancellation of Class A EPS, Class B EPS and Partnership Units ...... — — (1) — — (2) (37) — — — Foreign currency translation ..... — — — — — — — — 72 — Recognition of accumulated foreign currency translation adjustments on sold hotels ...... — — — — — — — — 29 — Minimum pension liability adjustment ...... — — — — — — — — 2 — Implementation of SFAS No. 158, net...... — — — — — — — — (8) — Unrealized loss on securities, net . . — — — — — — — — (1) — Distributions declared ...... — — — — — — — — — (182) Balance at December 31, 2006 . . . — — — — 213 2 2,286 — (228) 948 Net income ...... — — — — — — — — — 542 Stock option and restricted stock award transactions, net ...... — — — — 7 — 358 — — — ESPP stock issuances ...... — — — — — — 7 — — — Share repurchases ...... — — — — (29) — (1,787) — — — Tax adjustments related to the disposition of the Trust ...... — — — — — — 4 — — — FIN No. 48 implementation ..... — — — — — — — — — 35 Foreign currency translation ..... — — — — — — — — 84 — Unrealized loss on securities, net . . — — — — — — — — (6) — Pension adjustments ...... — — — — — — — — 3 — Dividends declared ...... — — — — — — — — — (172) Balance at December 31, 2007 . . . — — — — 191 2 868 — (147) 1,353 Net income ...... — — — — — — — — — 329 Stock option and restricted stock award transactions, net ...... — — — — 6 — 212 — — — ESPP stock issuances ...... — — — — — — 6 — — — Share repurchases ...... — — — — (14) — (593) — — — Foreign currency translation ..... — — — — — — — — (190) — Unrealized loss on investments . . . — — — — — — — — (2) — Change in fair value of derivatives ...... — — — — — — — — 6 — Pension adjustments, net ...... — — — — — — — — (58) — Dividends declared ...... — — — — — — — — — (165) Balance at December 31, 2008 . . . — $— — $— 183 $ 2 $ 493 $ — $(391) $1,517

(a) As of December 31, 2008, this balance is comprised of $304 million of cumulative translation adjustments, $4 unrealized net gain on securities and $91 million of cumulative pension adjustments. (b) Stock option and restricted stock award transactions are net of a tax benefit of $33 million, $65 million and $143 million in 2008, 2007, and 2006, respectively. (c) As part of the Host Transaction, the Company sold the Class A Shares of the Trust and shareholders sold the Class B Shares of the Trust. 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. See Note 1 for additional information on the Host Transaction.

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

F-6 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2008 2007 2006 (In millions) Operating Activities Net income ...... $329 $ 542 $1,043 Adjustments to net income: Discontinued operations: (Gain) loss on dispositions, net ...... (75) — 2 Other adjustments relating to discontinued operations...... — 1 — Cumulative effect of accounting change ...... — — 70 Stock-based compensation expense ...... 68 99 103 Excess stock-based compensation tax benefit ...... (16) (46) (87) Depreciation and amortization ...... 323 306 306 Amortization of deferred loan costs ...... 5 4 5 Non-cash portion of restructuring and other special charges (credits), net ...... 74 48 (7) Non-cash foreign currency (gains) losses, net ...... (5) 11 (8) Amortization of deferred gains ...... (83) (81) (62) Provision for doubtful accounts ...... 64 43 25 Minority equity in net income ...... — 1 — Distributions in excess (deficit) of equity earnings ...... 21 10 (30) Gain on sale of VOI notes receivable ...... (4) (2) (18) Loss on asset dispositions and impairments, net ...... 98 44 3 Non-cash portion of income tax expense (benefit) ...... 24 (142) (620) Changes in working capital: Restricted cash ...... 102 134 (35) Accounts receivable ...... 34 (34) 49 Inventories ...... (280) (143) (82) Prepaid expenses and other ...... 2 (2) (11) Accounts payable and accrued expenses ...... 85 177 12 Accrued income taxes ...... (22) 210 (64) VOI notes receivable activity, net...... (150) (209) (109) Other, net ...... 52 (87) 15 Cash from operating activities ...... 646 884 500 Investing Activities Purchases of plant, property and equipment ...... (476) (384) (371) Proceeds from asset sales, net ...... 320 133 1,515 Issuance of notes receivable ...... (2) (10) (19) Collection of notes receivable ...... 5 55 114 Acquisitions, net of acquired cash ...... — (74) (25) Purchases of investments ...... (37) (49) (61) Proceeds from investments...... 39 112 252 Other ...... (21) 2 (3) Cash (used for) from investing activities ...... (172) (215) 1,402 Financing Activities Revolving credit facility and short-term borrowings (repayments), net ...... (570) 341 73 Long-term debt issued ...... 986 1,400 2 Long-term debt repaid ...... (4) (799) (1,534) Dividends/distributions paid ...... (172) (90) (276) Proceeds from stock option exercises ...... 120 190 380 Excess stock based compensation tax benefit ...... 16 46 87 Share repurchases ...... (593) (1,787) (1,287) Other, net ...... (26) (13) (80) Cash used for financing activities ...... (243) (712) (2,635) Exchange rate effect on cash and cash equivalents ...... 7 11 19 Increase (Decrease) in cash and cash equivalents ...... 238 (32) (714) Cash and cash equivalents — beginning of period ...... 151 183 897 Cash and cash equivalents — end of period...... $389 $ 151 $ 183 Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest ...... $186 $ 164 $ 247 Income taxes, net of refunds ...... $ 58 $ 128 $ 249 The accompanying notes to financial statements are an integral part of the above statements.

F-7 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying consolidated financial statements represent the consolidated financial position and consolidated results of operations of Starwood Hotels & Resorts Worldwide, Inc. and its subsidiaries (the “Corporation”). Unless the context otherwise requires, all references to the Corporation include those entities owned or controlled by the Corporation, which prior to April 10, 2006 included Starwood Hotels & Resorts (the “Trust”). All references to “Starwood” or the “Company” refer to the Corporation, the Trust and its respective subsidiaries, collectively through April 7, 2006. As a result of the Host Transaction (as defined below) in April 2006, the financial statements for the Trust are no longer required to be consolidated or presented separately, nor is the Company required to include a guarantor footnote containing certain financial information for Sheraton Holding Corporation (“Sheraton Holding”), a former subsidiary of the Corporation. Starwood is one of the world’s largest hotel and leisure companies. The Company’s principal business is hotels and leisure, which is comprised of a worldwide hospitality network of almost 970 full-service hotels, vacation ownership resorts and residential developments primarily serving two markets: luxury and upscale. The principal operations of Starwood Vacation Ownership, Inc. (“SVO”) include the acquisition, development and operation of vacation ownership resorts; marketing and selling vacation ownership interests (“VOIs”) in the resorts; and providing financing to customers who purchase such interests. The Trust was formed in 1969 and elected to be taxed as a real estate investment trust under the Internal Revenue Code. In 1980, the Trust formed the Corporation and made a distribution to the Trust’s shareholders of one share of common stock, par value $0.01 per share, of the Corporation (a “Corporation Share”) for each common share of beneficial interest, par value $0.01 per share, of the Trust (a “Trust Share”). Pursuant to a reorganization in 1999, the Trust became a subsidiary of the Corporation, which indirectly held all outstanding shares of the new Class A shares of beneficial interest of the Trust (“Class A Shares”). In the 1999 reorganization, 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”). Prior to the Host Transaction discussed below and in detail in Note 5, the Corporation Shares and the Class B Shares traded together on a one-for-one basis, consisting of one Corporation Share and one Class B Share (the “Shares”). On April 7, 2006, in connection with the transaction (the “Host Transaction”) with Host Hotels & Resorts, Inc., its subsidiary Host Marriot, L.P. and certain other subsidiaries of Host Hotels & Resorts, Inc. (collectively, “Host”) described below, the Shares were depaired and the Corporation Shares became transferable separately from the Class B Shares. As a result of the depairing, the Corporation Shares trade alone under the symbol “HOT” on the New York Stock Exchange (“NYSE”). As of April 10, 2006, neither Shares nor Class B Shares are listed or traded on the NYSE. On April 10, 2006, in connection with the Host Transaction, certain subsidiaries of Host acquired the Trust and Sheraton Holding from the Corporation. As part of the Host Transaction, among other things, (i) a subsidiary of Host was merged with and into the Trust, with the Trust surviving as a subsidiary of Host, (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.

Note 2. Significant Accounting Policies

Principles of Consolidation. The accompanying consolidated financial statements of the Company and its subsidiaries include the assets, liabilities, revenues and expenses of majority-owned subsidiaries over which the Company exercises control. Intercompany transactions and balances have been eliminated in consolidation. Cash and Cash Equivalents. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

F-8 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

Restricted Cash. 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, the legal rescission period has expired and the deed of trust has been recorded in governmental property ownership records. At December 31, 2008 and 2007, the Company had short-term restricted cash balances of $96 million and $196 million, respectively.

Inventories. Inventories are comprised principally of VOIs of $729 million and $620 million as of December 31, 2008 and 2007, respectively, residential inventory of $203 million and $33 million at December 31, 2008 and 2007, respectively, hotel inventory and Bliss inventory. VOI and residential inventory is carried at the lower of cost or net realizable value and includes $25 million, $37 million and $22 million of capitalized interest incurred in 2008, 2007 and 2006, respectively. Hotel inventory includes operating supplies and food and beverage inventory items which are generally valued at the lower of FIFO cost (first-in, first-out) or market. Hotel inventory also includes linens, china, glass, silver, uniforms, utensils and guest room items. 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. Normal replacement purchases are expensed as incurred. Bliss inventory is valued at lower of cost or market.

Loan Loss Reserves. For the vacation ownership and residential segment, 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. The Company holds large amounts of homogeneous VOI notes receivable and therefore assesses uncollectibility based on pools of receivables. In estimating loss reserves, the Company uses a technique referred to as static pool analysis, which tracks uncollectible notes for each year’s sales over the life of the respective notes and projects an estimated default rate that is used in the determination of its loan loss reserve requirements. As of December 31, 2008, the average estimated default rate for the Company’s pools of receivables was 7.9%. Given the significance of the Company’s respective pools of VOI notes receivable, a change in the projected default rate can have a significant impact to its loan loss reserve requirements, with a 0.1% change estimated to have an impact of approximately $3 million.

For the hotel segment, 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. For impaired loans, 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. 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. For loans that the Company has determined to be impaired, the Company recognizes interest income on a cash basis.

Assets Held for Sale. The Company considers properties to be assets held for sale when management approves and commits to a formal plan to actively market a property or group of properties for sale and a signed sales contract and significant non-refundable deposit or contract break-up fee exist. Upon designation as an asset held for sale, 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, less estimated costs to sell, and the Company stops recording depreciation expense. 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 operations of the properties held for sale prior to the sale date, if material, are recorded in discontinued operations unless the Company will have continuing involvement (such as through a management or franchise agreement) after the sale.

Investments. Investments in joint ventures are accounted for using the guidance of the revised Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,” for all ventures deemed to be variable interest entities (“VIEs”). See additional information regarding the Company’s VIEs in Note 23. 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. If the Company’s interest exceeds 50% or in certain cases, if the Company exercises

F-9 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued) control over the venture, the results of the joint venture are consolidated herein. All other investments are generally accounted for under the cost method. The fair market value of investments is based on the market prices for the last day of the period if the investment trades on quoted exchanges. For non-traded investments, fair value is estimated based on the underlying value of the investment, which is dependent on the performance of the investment as well as the volatility inherent in external markets for these types of investments. In assessing potential impairment for these investments, the Company will consider these factors as well as forecasted financial performance of its investment. If these forecasts are not met, the Company may have to record impairment charges. Plant, Property and Equipment. Plant, property and equipment, including capitalized interest of $10 million, $10 million and $5 million incurred in 2008, 2007 and 2006, respectively, applicable to major project expenditures are recorded at cost. The cost of improvements that extend the life of plant, property and equipment are capitalized. These capitalized costs may include structural improvements, equipment and fixtures. Costs for normal repairs and maintenance are expensed as incurred. Depreciation is recorded on a straight-line basis over the estimated useful economic lives of 15 to 40 years for buildings and improvements; 3 to 10 years for furniture, fixtures and equipment; 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. 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. The Company evaluates the carrying value of its assets for impairment. For assets in use when the trigger events specified in Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impair- ment or Disposal of Long-Lived Assets,” occur, the expected undiscounted future cash flows of the assets are compared to the net book value of the assets. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value is charged to current earnings. Fair value is based upon discounted cash flows of the assets at rates deemed reasonable for the type of asset and prevailing market conditions, appraisals and, if appropriate, current estimated net sales proceeds from pending offers. Goodwill and Intangible Assets. Goodwill and intangible assets arise in connection with acquisitions, including the acquisition of management contracts. In accordance with the guidance in SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company does not amortize goodwill and intangible assets with indefinite lives. Intangible assets with finite lives are amortized on a straight- line basis over their respective useful lives. The Company reviews all goodwill and intangible assets for impairment by comparisons of fair value to book value annually, or upon the occurrence of a trigger event. Impairment charges, if any, are recognized in operating results. Frequent Guest Program. Starwood Preferred Guest» (“SPG”) is the Company’s frequent guest incentive marketing program. SPG members earn points based on spending at the Company’s properties, as incentives to first- time buyers of VOIs and residences, and through participation in affiliated partners’ programs such as co-branded credit cards. Points can be redeemed at substantially all of the Company’s owned, leased, managed and franchised properties as well as through other redemption opportunities with third parties, such as conversion to airline miles. Properties are charged based on hotel guests’ expenditures. Revenue is recognized by participating hotels and resorts when points are redeemed for hotel stays. The Company, through the services of third-party actuarial analysts, 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, including an estimate of the “breakage” for points that will never be redeemed, and an estimate of the points that will eventually be redeemed as well as the cost of reimbursing hotels and other third parties in respect of other redemption opportunities for point redemptions. The Company’s management and franchise agreements require that the Company be reimbursed currently for the costs of operating the program,

F-10 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued) including marketing, promotion, communications with, and performing member services for the SPG members. Actual expenditures for SPG may differ from the actuarially determined liability.

The liability for the SPG program is included in other long-term liabilities and accrued expenses in the accompanying consolidated balance sheets. The total actuarially determined liability as of December 31, 2008 and 2007 is $662 million and $536 million, respectively, of which $232 million and $182 million, respectively, is included in accrued expenses.

Legal Contingencies. The Company is subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. SFAS No. 5, “Accounting for Contingencies,” 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. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. The Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact the Company’s financial position or its results of operations.

Derivative Financial Instruments. The Company periodically enters into interest rate swap agreements, based on market conditions, to manage interest rate exposure. The net settlements paid or received under 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 enters into foreign currency hedging contracts to manage exposure to foreign currency fluctuations. All foreign currency hedging instruments have an inverse correlation to the hedged assets or liabilities. 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. These forward contracts do not qualify as hedges under the provisions of SFAS No. 133.

The Company periodically enters into forward contracts to manage foreign exchange risk based on market conditions. Beginning in January 2008, the Company entered into forward contracts to hedge fluctuations in forecasted transactions based on foreign currencies that are billed in United States dollars. These forward contracts have been designated as cash flow hedges under the provisions of SFAS No. 133, and their change in fair value is recorded as a component of other comprehensive income. As a forecasted transaction occurs, the gain or loss is reclassified from other comprehensive income to management fees, franchise fees and other income.

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.

Foreign Currency Translation. 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. The national currencies of foreign operations are generally the functional currencies. 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. 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, net loss of $11 million in 2007 and a net gain of $8 million in 2006.

Income Taxes. The Company provides for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” 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.

F-11 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. 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. 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.

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

F-12 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

• Management and Franchise Revenues — Represents fees earned on hotels managed worldwide, usually under long-term contracts, franchise fees received in connection with the franchise of the Company’s Sheraton, Westin, Four Points by Sheraton, Le Méridien, St. Regis, W, Luxury Collection, Aloft and Element brand names, termination fees and the amortization of deferred gains related to sold properties for which the Company has significant continuing involvement, offset by payments by the Company under performance and other guarantees. Management fees are comprised of a base fee, which is generally based on a percentage of gross revenues, and an incentive fee, which is generally based on the property’s profitability. Base fee revenues are recognized when earned in accordance with the terms of the contract. For any time during the year, when the provisions of the management contracts allow receipt of incentive fees upon termination, incentive fees are recognized for the fees due and earned as if the contract was terminated at that date, exclusive of any termination fees due or payable. Franchise fees are generally based on a percentage of hotel room revenues and are recognized in accordance with SFAS No. 45, “Accounting for Franchise Fee Revenue,” as the fees are earned and become due from the franchisee.

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

Insurance Retention. Through its captive insurance company, the Company provides insurance coverage for workers’ compensation, property and general liability claims arising at hotel properties owned or managed by the Company through policies written directly and through reinsurance arrangements. Estimated insurance claims payable represent expected settlement of outstanding claims and a provision for claims that have been incurred but not reported. These estimates are based on the Company’s assessment of potential liability using an analysis of available information including pending claims, historical experience and current cost trends. The amount of the ultimate liability may vary from these estimates. Estimated costs of these self-insurance programs are accrued, based on the analysis of third-party actuaries.

Costs Incurred to Sell VOIs. The Company capitalizes direct costs attributable to the sale of VOIs until the sales are recognized. Selling and marketing costs capitalized under this methodology were approximately $7 million and $6 million as of December 31, 2008 and 2007, respectively, and all such capitalized costs are included in prepaid expenses and other assets in the accompanying consolidated balance sheets. Costs eligible for capitalization follow the guidelines of SFAS No. 152. If a contract is cancelled, the Company charges the unrecoverable direct selling and marketing costs to expense and records forfeited deposits as income.

VOI and Residential Inventory Costs. Real estate and development costs are valued at the lower of cost or net realizable value. 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. Interest, property taxes and certain other carrying costs incurred during the construction process are capitalized as incurred. Such costs associated with completed VOI and residential units are expensed as incurred.

Advertising Costs. The Company enters into multi-media ad campaigns, including television, radio, internet and print advertisements. Costs associated with these campaigns, including communication and production costs, 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. 93-7, “Reporting on Advertising Costs.” If it becomes apparent that the media campaign will not take place, all costs are expensed at that time. During the years ended December 31, 2008, 2007 and 2006, the Company incurred approximately $146 million, $116 million and $135 million of advertising expense, respectively, a significant portion of which was reimbursed by managed and franchised hotels.

F-13 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

Retained Interests. The Company periodically sells notes receivable originated by its vacation ownership business in connection with the sale of VOIs. 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. These retained interests are treated as “available-for-sale” transactions under the provisions of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The Company reports changes in the fair values of these Retained Interests considered temporary through the accompanying consolidated statement of comprehensive income. A change in fair value determined to be other-than-temporary is recorded as a loss in the Company’s consolidated statement of income. The Company had Retained Interests of $19 million and $40 million at December 31, 2008 and 2007, respectively. 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. Actual results could differ from those estimates. Reclassifications. Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation.

Impact of Recently Issued Accounting Standards. Adopted Accounting Standards In January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue No. EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF No. 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “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. The Company adopted FSP EITF No. 99-20-1 in December 2008 and it did not have a material impact on the consolidated financial statements. In December 2008, the FASB issued FSP No. 140-4 and FIN No. 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” (“FSP No. 140-4”) which amends FASB No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, a replacement of SFAS No. 125” and FIN No. 46 (R) “Consolidation of Variable Interest Entities” to require public enterprises, including sponsors that have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with variable interest entities. This FSP No. 140-4 is effective in reporting periods ending after December 15, 2008. The Company adopted FSP No. 140-4 in December 2008 and it did not have a material impact on its consolidated financial statements. In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS No. 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. Effective November 15, 2008, the Company adopted SFAS No. 162, which did not have any impact on the Company’s financial statements. Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”). In February 2008, the Financial Accounting Standards Board (“FASB”) issued FSP No. SFAS 157-2, “Effective Date of FASB Statement No. 157,” which provides a one year deferral of the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of SFAS No. 157 with respect to its financial assets and liabilities only. SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles

F-14 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued) and enhances disclosures about fair value measurements. Fair value is defined under SFAS No. 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. Valuation techniques used to measure fair value under SFAS No. 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows: • Level 1 — Quoted prices in active markets for identical assets or liabilities. • Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • 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. The adoption of this statement did not have a material impact on the Company’s consolidated financial statements. See Note 11 for additional information. In December 2007, the Emerging Issues Task Force of the FASB (“EITF”) reached a consensus on EITF issue No. 07-6 “Accounting for the Sale of Real Estate Subject to the Requirements of FASB Statement No. 66 When the Agreement Includes a Buy-Sell Clause” (“EITF 07-6”). EITF 07-6 establishes that a buy-sell clause, in and of itself does not constitute a prohibited form of continuing involvement that would preclude partial sales treatment under FASB Statement No. 66. EITF 07-6 will be effective for new arrangements entered into in fiscal years beginning after December 15, 2007 and interim periods within those fiscal years. The Company adopted EITF 07-6 on January 1, 2008 and it did not have a material impact on the consolidated financial statements. In June 2007, the FASB ratified the consensus reached by the EITF on Issue No. 06-11 “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (“EITF 06-11”). Under this consensus, 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 consensus is effective in fiscal years beginning after December 15, 2007 and should be applied prospectively for income tax benefits derived from dividends declared after adoption. The Company adopted EITF 06-11 on January 1, 2008 and it did not have an impact on the Company’s consolidated financial statements. In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115” (“SFAS No. 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, 2007. SFAS No. 159 must be applied prospectively, and the effect of the first re- measurement to fair value, if any, should be reported as a cumulative — effect adjustment to the opening balance of retained earnings. The adoption of SFAS No. 159 is not expected to have a material impact on the Company’s consolidated financial statements. The Company adopted SFAS No. 159 on January 1, 2008, and did not elect the fair value option for any of its assets or liabilities. In November 2006, the FASB ratified the consensus reached by the EITF on Issue No. 06-8, “Applicability of the Assessment of a Buyer’s Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums” (“EITF 06-8”). EITF 06-8 will require condominium sales to meet the continuing involvement criterion of SFAS No. 66 in order for profit to be recognized under the percentage of completion method. EITF 06-8 will be effective for annual reporting periods beginning after March 15, 2007. The cumulative effect of applying EITF 06-8, if any, is to be reported as an adjustment to the opening balance of retained earnings in the year of adoption. The adoption of EITF 06-8 did not have a significant impact on the Company’s financial statements or require a cumulative effect adjustment.

F-15 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). This interpretation, among other things, creates a two step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. 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. FIN 48 specifically prohibits the use of a valuation allowance as a substitute for derecognition of tax positions, and it has expanded disclosure requirements. The Company adopted FIN 48 on January 1, 2007, and recorded an increase of approximately $35 million as a cumulative-effect adjustment to the beginning balance of retained earnings. See Note 14 for additional information.

In December 2004, the FASB issued SFAS No. 152, which amends SFAS No. 66, and SFAS No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects,” in association with the issuance of AICPA SOP 04-2, “Accounting for Real Estate Time-Sharing Transactions.” These statements were issued to address the diversity in practice caused by a lack of guidance specific to real estate time-sharing transactions. Among other things, the standard addresses the treatment of sales incentives provided by a seller to a buyer to consummate a transaction, the calculation of accounting for uncollectible notes receivable, the recognition of changes in inventory cost estimates, recovery or repossession of VOIs, selling and marketing costs, associations and upgrade and reload transactions. 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.

In accordance with SFAS No. 66, as amended by SFAS No. 152, the Company recognizes sales when the period of cancellation with refund has expired, receivables are deemed collectible and the buyer has demonstrated a sufficient level of initial and continuing involvement. 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, all revenue and associated direct expenses are initially deferred and recognized in earnings through the percentage-of-completion method.

The Company adopted SFAS No. 152 on January 1, 2006 and recorded a charge of $70 million, net of a $46 million tax benefit, as a cumulative effect of accounting change in its 2006 consolidated statement of income.

Future Adoption of Accounting Standards

In April 2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of Intangible Assets (“FSP No. 142-3”). FSP No. 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. 142, “Goodwill and Other Intangible Assets.” FSP No. 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. The Company is currently evaluating the impact that FSP No. 142-3 will have on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosure related to derivatives and hedging activities. Under SFAS No. 161, entities are required to provide enhanced disclosures relating to: (i) how and why an entity uses derivative instruments; (ii) how derivative instruments and related hedge items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”); and; (iii) how derivative instruments and related hedged items affect an entity’s financial statements. SFAS No. 161 must be applied prospectively to all derivative instruments and non- derivative instruments that are designated and qualify as hedging instruments and related hedged items accounted for under SFAS No. 133 for all financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact that SFAS No. 161 will have on its consolidated financial statements.

F-16 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS 141(R)), “Business Combinations,” which is a revision of SFAS 141, “Business Combinations.” The primary requirements of SFAS 141(R) are as follows: (i.) Upon initially obtaining control, the acquiring entity in a business combination must recognize 100% of the fair values of the acquired assets, including goodwill, and assumed liabilities, with only limited exceptions even if the acquirer has not acquired 100% of its target. As a consequence, the current step acquisition model will be eliminated. (ii.) Contingent consideration arrangements will be fair valued at the acquisition date and included on that basis in the purchase price consideration. The concept of recognizing contingent consideration at a later date when the amount of that consideration is determinable beyond a reasonable doubt, will no longer be applicable. (iii.) All transaction costs will be expensed as incurred. SFAS 141 (R) is effective as of the beginning of an entity’s first fiscal year beginning after December 15, 2008. Adoption is prospective and early adoption is not permitted.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51, or SFAS No. 160.” SFAS No. 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The Company does not believe that SFAS 160 will have a material impact on the consolidated financial statements.

Note 3. Earnings per Share

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

Year Ended December 31, 2008 2007 2006 Per Per Per Earnings Shares Share Earnings Shares Share Earnings Shares Share Basic earnings from continuing operations ...... $254 181 $1.40 $543 203 $2.67 $1,115 213 $5.25 Effect of dilutive securities: Employee options and restricted stock awards ...... — 4 — 8 — 9 Convertible debt ...... — — — — — 1 Diluted earnings from continuing operations ...... $254 185 $1.37 $543 211 $2.57 $1,115 223 $5.01

Approximately 7 million Shares, 1 million Shares and 2 million Shares were excluded from the computation of diluted Shares in 2008, 2007 and 2006, respectively, as their impact would have been anti-dilutive.

On March 15, 2006, the Company completed the redemption of the remaining 25,000 shares of Class B Exchangeable Preferred Shares of the Trust (“Class B EPS”) for approximately $1 million. In April 2006, the Company completed the redemption of the remaining 562,000 shares of Class A Exchangeable Preferred Shares of the Trust (“Class A EPS”) for approximately $33 million. For the period prior to the redemption dates, 157,000 shares of Class A and Class B EPS are included in the computation of basic Shares for the year ended December 31, 2006.

Prior to June 5, 2006, the Company had contingently convertible debt, the terms of which allowed for the Company to redeem such instruments in cash or Shares. The Company, in accordance with SFAS No. 128, “Earnings per Share,” utilized the if-converted method to calculate dilution once certain trigger events were met. 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. On May 5, 2006, the Company gave notice of its intention to redeem the convertible debt on June 5, 2006. Under the terms of the convertible indenture, prior to this redemption date, the note holders had the right to convert their notes into Shares at the stated conversion rate. Under the terms of the indenture, 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. For the period prior to the

F-17 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued) conversion dates, approximately 1 million Shares were included in the computation of diluted Shares for the year ended December 31, 2006. In connection with the Host Transaction, Starwood’s shareholders received 0.6122 Host shares and $0.503 in cash for each of their Class B Shares. 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. In order to preserve the value of the Company’s options immediately before and after the Host Transaction, in accordance with the stock option agreements, 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. As a result of this adjustment, the diluted stock options increased by approximately 1 million Corporation Shares effective as of the closing of the Host Transaction. In accordance with SFAS No. 123(R), this adjustment did not result in any incremental fair value, and as such, no additional compensation cost was recognized. Furthermore, in order to preserve the value of the contingently convertible debt discussed above, the Company modified the conversion rate of the contingently convertible debt in accordance with the indenture.

Note 4. Significant Acquisitions Acquisition of the Sheraton Full Moon Maldives Resort and Spa During the fourth quarter of 2008, 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.

Acquisition of the Sheraton Steamboat Resort and Conference Center During the second quarter of 2007, 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. The sale resulted in the recognition of a gain by the joint venture, and the Company’s portion of the gain was approximately $7 million, which was recorded as a reduction in the basis of the assets purchased by the Company.

Acquisition of an interest in a Joint Venture that Purchased the Sheraton Grande Tokyo Bay Hotel During the first quarter of 2007, 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. The Company invested approximately $19 million in this venture in exchange for a 25.1% ownership interest.

Acquisition of Certain Assets from Club Regina Resorts In December 2006, the Company completed a transaction to, among other things, purchase certain assets from Club Regina Resorts (“CRR”) in Mexico. These assets included land and fixed assets adjacent to The Westin Resort & Spa in Los Cabos, Mexico, and terminated CRR’s rights to solicit guests at three Westin properties in Mexico. In addition to the purchase of these assets, 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. Total consideration of approximately $41 million was paid by Starwood for these items. The portion related to the legal settlement was expensed.

Development of Restaurant Concepts with Chef Jean-Georges Vongerichten In May 2006, the Company partnered with Chef Jean-Georges Vongerichten and a private equity firm to create a joint venture that will develop, own, operate, manage and license world-class restaurant concepts created by Jean- Georges Vongerichten, including operating the existing Spice Market restaurant located in New York City. The

F-18 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued) concepts owned by the venture will be available for Starwood’s upper-upscale and luxury hotel brands including W, Westin, Le Meridien and St. Regis. Additionally, the venture may own and operate freestanding restaurants outside of Starwood’s hotels. Starwood invested approximately $22 million in this venture for a 32.7% equity interest.

Note 5. Asset Dispositions and Impairments During 2008, as a result of the current economic climate, the Company reviewed the recoverability of its carrying values of its owned hotels and concluded that five hotels were impaired. These hotels are non-Starwood branded hotels, in which the Company has no intention to invest significant capital and operating income has deteriorated significantly. The fair values of the hotels were estimated by using comparative sales for similar assets and recent letters of intent to sell certain assets. An impairment charge of $64 million was recorded in the year ended December 31, 2008 associated with these hotels. These assets are reported in the Hotels operating segment. It is reasonably possible that there will be additional impairments on owned hotels in 2009 if economic conditions worsen. During 2008, as a result of current market conditions and its impact on the timeshare industry, the Company reviewed the fair value of its economic interests in securitized VOI notes receivable and concluded these interests were impaired. 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.) The Company recorded an impairment charge of $22 million in the year ended December 31, 2008 related to these retained interests. These assets are reported in the Vacation Ownership and Residential operating segment. During the fourth quarter of 2008, the Company sold The Westin Turnberry for net cash proceeds of $99 million. 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. During the third quarter of 2008, the Company recorded a loss of $11 million primarily related to an investment in which the Company holds a minority interest. This investment was fully written off as the joint venture’s lenders began foreclosure proceedings on the underlying assets of the venture. During 2007, the Company 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. 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. During the second quarter of 2006, the Company consummated the Host Transaction whereby subsidiaries of Host acquired 33 properties and the stock of certain controlled subsidiaries, including Sheraton Holding and the Trust. The stock and cash transaction was valued at approximately $4.1 billion, including debt assumption (based on Host’s closing stock price on April 7, 2006 of $20.53). In the first phase of the transaction, 28 hotels and the stock of certain controlled subsidiaries, including Sheraton Holding and the Trust, were acquired by Host for consideration valued at $3.54 billion. On May 3, 2006, four additional hotels located in Europe were sold to Host for net proceeds of approximately $481 million in cash. On June 13, 2006, the final hotel in Venice, Italy was sold to Host for net proceeds of approximately $74 million in cash. In connection with the first phase of the transaction, Starwood shareholders received approximately $2.8 billion in the form of Host common stock valued at $2.68 billion and $119 million in cash for their Class B shares. Based on Host’s closing price on April 7, 2006, this consideration had a per — Class B share value of $13.07. Starwood directly received approximately $738 million of consideration in the first phase, including $600 million in cash, $77 million in debt assumption and $61 million in Host common stock. In addition, the Corporation assumed from its subsidiary, Sheraton Holding, debentures with a principal balance of $600 million. As the sale of the Class B shares involved a transaction with Starwood’s shareholders, 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 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued) remaining balance reducing additional paid in capital. This portion of the transaction was treated as a non-cash exchange by Starwood and, consequently, was excluded from the consolidated statement of cash flows. The portion of the transaction between the Company and Host was recorded as a disposition under the provisions of SFAS No. 144. As Starwood sold these hotels subject to long-term management contracts, 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. This transaction also generated a capital loss, net of carry back and 2006 utilization, of $2.4 billion for federal tax purposes. 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. See Note 14. The Company sold all of the Host common stock in the second quarter of 2006 and recorded a net gain of approximately $1 million. During 2006, the Company sold ten additional hotels in multiple transactions for approximately $437 million in cash. The Company recorded a net loss of approximately $7 million associated with these sales. In addition, 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. Also in 2006, the Company recorded a loss of approximately $23 million primarily in connection with the impairment of two properties, 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. This loss was offset by a gain of approximately $29 million on the sale of the Company’s interests in two joint ventures. Also during 2006, the Company recorded an impairment charge of $11 million related to the Sheraton Cancun in Cancun, Mexico that was damaged by Hurricane Wilma in 2005 and was completely demolished in order to build additional vacation ownership units. 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, the Westin Cancun, as reimbursement for property damage caused by the same storm. In September 2006, a joint venture, in which the Company has a minority interest, completed the sale of the Westin Kierland hotel in Scottsdale, Arizona and the Company realized net proceeds of approximately $45 million. The Company continues to manage the hotel subject to a newly amended, long-term management contract. Accordingly, 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.

Note 6. Assets Held for Sale During the first quarter of 2008, the Company entered into a purchase and sale agreement for the sale of a hotel for total consideration of $10 million. The Company received a non-refundable deposit from the prospective buyer during the first quarter of 2008. The Company recorded an impairment charge of approximately $1 million in the first quarter of 2008 related to this hotel. The sale of this hotel is expected to be completed in 2009.

F-20 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

Note 7. Plant, Property and Equipment

Plant, property and equipment, excluding assets held for sale, consisted of the following (in millions):

December 31, 2008 2007 Land and improvements ...... $ 635 $ 714 Buildings and improvements...... 3,444 3,589 Furniture, fixtures and equipment ...... 1,792 1,690 Construction work in process ...... 199 221 6,070 6,214 Less accumulated depreciation and amortization ...... (2,471) (2,364) $ 3,599 $ 3,850

Unamortized capitalized computer software costs were $129 million and $104 million at December 31, 2008 and 2007 respectively. Amortization of capitalized computer software costs was $24 million, $23 million and $22 million for the years ended December 31, 2008, 2007 and 2006 respectively

Note 8. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the year ended December 31, 2008 are as follows (in millions):

Vacation Hotel Ownership Segment Segment Total Balance at January 1, 2008 ...... $1,465 $241 $1,706 Cumulative translation adjustment ...... (18) — (18) Asset dispositions ...... (51) — (51) Other ...... 2 — 2 Balance at December 31, 2008 ...... $1,398 $241 $1,639

Intangible assets consisted of the following (in millions):

December 31, 2008 2007 Trademarks and trade names ...... $315 $320 Management and franchise agreements ...... 354 310 Other ...... 90 90 759 720 Accumulated amortization ...... (163) (124) $ 596 $ 596

The intangible assets related to management and franchise agreements have finite lives, and accordingly, the Company recorded amortization expense of $32 million, $26 million and $25 million, respectively, during the years ended December 31, 2008, 2007 and 2006. The other intangible assets noted above have indefinite lives.

F-21 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. 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 ...... $28 2010 ...... $28 2011 ...... $27 2012 ...... $27 2013 ...... $27

In accordance with SFAS No. 142, “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, based on the economic climate and the deterioration of results in the hotel and timeshare industry, 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.

Note 9. Other Assets

Other assets include the following (in millions):

December 31, 2008 2007 VOI notes receivable, net ...... $444 $373 Other notes receivable, net ...... 32 41 Prepaid taxes ...... 130 — Deposits and other ...... 76 80 Total ...... $682 $494

Included in these balances at December 31, 2008 and 2007 are the following fixed rate notes receivable related to the financing of VOIs (in millions):

December 31, 2008 2007 Gross VOI notes receivable ...... $581 $484 Allowance for uncollectible VOI notes receivable ...... (91) (68) Net VOI notes receivable ...... 490 416 Less current maturities of gross VOI notes receivable ...... (54) (50) Current portion of the allowance for uncollectible VOI notes receivable...... 8 7 Long-term portion of net VOI notes receivable ...... $444 $373

The current maturities of net VOI notes receivable are included in accounts receivable in the Company’s balance sheets.

As discussed in Note 2, as the Company holds large amounts of similar VOI notes receivable, the Company assesses its loan loss reserves based on pools of receivables. As of December 31, 2008, the average estimated default rate for the Company’s pool of receivables was 7.9%. Given the significance of the Company’s respective pools of VOI notes receivable, a change in the projected default rate can have a significant impact to its loan loss reserve requirements, with a 0.1% change estimated to have an impact of approximately $3 million. It is reasonably

F-22 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. 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. The interest rates of the owned VOI notes receivable are as follows: December 31, 2008 2007 Range of stated interest rates ...... 0%-18% 0%-18% Weighted average interest rate...... 11.9% 11.8% The maturities of the gross VOI notes receivable are as follows (in millions): December 31, 2008 2007 Due in 1 year...... $ 54 $ 50 Due in 2 years ...... 47 35 Due in 3 years ...... 52 38 Due in 4 years ...... 64 50 Due in 5 years ...... 66 56 Due beyond 5 years ...... 298 255 Total gross VOI notes receivable ...... $581 $484

The activity in the allowance for VOI loan losses was as follows (in millions): Balance at January 1, 2008 ...... $68 Provision for loan losses ...... 73 Write-offs of uncollectible receivables ...... (50) Balance at December 31, 2008 ...... $91

Note 10. Notes Receivable Securitizations From time to time, the Company securitizes, without recourse, its fixed rate VOI notes receivable. To accomplish these securitizations, the Company transfers a pool of VOI notes receivable to special purpose entities (together with the special purpose entities in the next sentence, the “SPEs”) and the SPEs transfer the VOI notes receivable to qualifying special purpose entities (“QSPEs”), as defined in SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a Replacement of FASB Statement No. 125” (“SFAS No. 140”). To accomplish these securitizations, the Company transfers a pool of VOI notes receivable to SPEs and the SPEs transfer the VOI notes receivable to a third party purchaser. The Company continues to service the securitized VOI notes receivable pursuant to servicing agreements negotiated at arms- length based on market conditions; accordingly, the Company has not recognized any servicing assets or liabilities. All of the Company’s VOI notes receivable securitizations to date have qualified to be, and have been, accounted for as sales in accordance with SFAS No. 140. With respect to those transactions still outstanding at December 31, 2008, the Company retains economic interests (the “Retained Interests”) in securitized VOI notes receivables through SPE ownership of QSPE beneficial interests. The Retained Interests, which are comprised of subordinated interests and interest only strips in the related VOI notes receivable, provides credit enhancement to the third-party purchasers of the related QSPE beneficial interests. Retained Interests cash flows are limited to the cash available from the related VOI notes receivable, after servicing and other related fees, absorbing 100% of any credit losses on the related VOI notes receivable and QSPE fixed rate interest expense. With respect to those transactions still outstanding at December 31, 2008, the Retained

F-23 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

Interests are classified and accounted for as “available-for-sale” securities in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and SFAS No. 140. The Company’s securitization agreements provide the Company with the option, subject to certain limitations, to repurchase or replace defaulted VOI notes receivable at their outstanding principal amounts. Such activity totaled $23 million, $21 million and $15 million during 2008, 2007 and 2006, respectively. 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’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, $2 million and $1 million during 2008, 2007 and 2006, respectively, which are included in vacation ownership and residential sales and services in the Company’s consolidated statements of income. In September 2006, the Company repurchased all of the VOI notes receivables still outstanding ($20 million) that had been securitized in 2001 for $18 million. In addition, 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. In accordance with SFAS No. 152, the related gain of $17 million is included in vacation ownership and residential sales and services in the Company’s consolidated statements of income. Key assumptions used in measuring the fair value of the Retained Interests at the time of the 2006 Securitization and at December 31, 2006, relating to the 2006 Securitization, were as follows: discount rate of 10%; annual prepayments, which yields an average expected life of the prepayable VOI notes receivable of 94 months; and expected gross VOI notes receivable balance defaulting as a percentage of the total initial pool of 14.2%. These key assumptions are based on the Company’s prior experience. At December 31, 2008, the aggregate outstanding principal balance of VOI notes receivable that have been securitized was $228 million. The principal amounts of those VOI notes receivables that were more than 90 days delinquent at December 31, 2008 was approximately $5 million. Gross credit losses for all VOI notes receivable that have been securitized totaled $31 million, $23 million and $17 million during 2008, 2007 and 2006, respectively. The Company received aggregate cash proceeds of $26 million, $33 million and $36 million from the Retained Interests during 2008, 2007 and 2006, respectively. The Company received aggregate servicing fees of $3 million, $4 million and $4 million related to these VOI notes receivable during 2008, 2007 and 2006, respectively. At the time of each VOI notes receivable securitization and at the end of each financial reporting period, the Company estimates the fair value of its Retained Interests using a discounted cash flow model. All assumptions used in the models are reviewed and updated, if necessary, based on current trends and historical experience. As of December 31, 2008, the aggregate net present value and carrying value of Retained Interests for the Company’s three outstanding note securitizations was approximately $19 million, with the following key assumptions used in measuring the fair value: an average discount rate of 17.8%, an average expected annual prepayment rate including defaults of 20.4%, and an expected weighted average remaining life of prepayable notes receivable of 73 months. 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).

F-24 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. 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. The methodology applied unfavorable changes for the key variables of expected prepayment rates, discount rates and expected gross credit losses as of December 31, 2008. 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). The factors may not move independently of each other. Annual prepayment rate: 100 basis points-dollars ...... $ 0.4 100 basis points-percentage ...... 2.4% 200 basis points-dollars ...... $ 0.8 200 basis points-percentage ...... 4.6% Discount rate: 100 basis points-dollars ...... $ 0.3 100 basis points-percentage ...... 1.9% 200 basis points-dollars ...... $ 0.7 200 basis points-percentage ...... 3.7% Gross annual rate of credit losses: 100 basis points-dollars ...... $ 4.9 100 basis points-percentage ...... 27.4% 200 basis points-dollars ...... $ 8.8 200 basis points-percentage ...... 49.0%

Note 11. Fair Value In accordance with SFAS No. 157, 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, 2008 (in millions): Level 1 Level 2 Level 3 Total Assets: Forward contracts...... $— $ 6 $— $ 6 Retained Interests...... — — 19 19 $— $ 6 $19 $25 Liabilities: Forward contracts...... $— $ 3 $— $ 3 The forward contracts are over the counter contracts that do not trade on a public exchange. The fair values of the contracts are based on inputs such as foreign currency spot rates and forward points that are readily available on public markets, and as such, are classified as Level 2. The Company considered both its credit risk, as well as its counterparties’ credit risk in determining fair value and no adjustment was made as it was deemed insignificant based on the short duration of the contracts and the Company’s rate of short-term debt.

F-25 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

The Company estimates the fair value of its Retained Interests using a discounted cash flow model with unobservable inputs, which is considered Level 3. The following key assumptions are used in measuring the fair value: an average discount rate of 17.8%, an average expected annual prepayment rate, including defaults, of 20.4%, and an expected weighted-average remaining life of prepayable notes receivable of 73 months. See Note 10 for the impact on the fair value based on changes to the assumptions. 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, 2008 (in millions): Balance at January 1, 2008 ...... $40 Total losses (realized/unrealized) Included in earnings ...... (17) Included in other comprehensive income...... (4) Purchases, issuances, and settlements ...... — Transfers in and/or out of Level 3 ...... — Balance at December 31, 2008 ...... $19

Note 12. 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. As of December 31, 2008 and 2007, the Company had total deferred gains of $1.151 billion and $1.216 billion, respectively, included in accrued expenses and other liabilities in the Company’s consolidated balance sheets. Amortization of deferred gains is included in management fees, franchise fees and other income in the Company’s consolidated statements of income and totaled approximately $83 million, $81 million and $62 million in 2008, 2007 and 2006, respectively. The increase in deferred gain amortization in 2008 and 2007 is primarily due to the Host Transaction discussed in Note 5.

Note 13. Restructuring and Other Special Charges, Net During the year ended December 31, 2008, 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. 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. In addition, the Company recorded a $2 million restructuring charge related to further demolition costs at the Sheraton Bal Harbour Beach Resort (“Bal Harbour”), which is being redeveloped as a St. Regis hotel along with branded residences and fractional units. In 2008, due to the global economic climate and its impact on the timeshare industry, the Company evaluated all of its existing vacation ownership projects to determine if such projects were still economically viable, and if so, whether their fair values exceeded their carrying values. As a result of this analysis, the Company decided not to pursue or continue development at primarily two main projects, resulting in an impairment charge of approximately $72 million. This charge relates to the impairment of land, fixed assets, and non recoverable intangible assets. The fair value was determined using a discounted cash flow method based on the alternative and best use for the respective project sites. Also in 2008, as a result of the global economic climate, 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. For each hotel, the construction of the property has not been completed and the lenders have begun the foreclosure process. The controlling partners will not make additional capital contributions or pay the debt service.

F-26 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

During the year ended December 31, 2007, 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 Company demolished the hotel in late 2007 and plans to rebuild a St. Regis hotel along with branded residences and fractional units. Bal Harbour was closed for business on July 1, 2007, and the majority of employees were terminated. The charge primarily related to accelerated depreciation, demolition, and severance costs. This charge was partially offset by a $2 million refund related to a terminated life insurance policy. During the year ended December 31, 2006, the Company incurred and paid approximately $21 million of transition costs associated with the Le Méridien Acquisition. Also during 2006, 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, of which approximately $4 million related to compensation expense due to the accelerated vesting of previously granted stock-based awards. 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. Restructuring and Other Special Charges by operating segment are as follows: Year Ended December 31, 2008 2007 2006 Segment Hotel ...... $ 41 $53 $20 Vacation Ownership & Residential ...... 100 — — Total ...... $141 $53 $20

The Company had remaining accruals of $41 million as of December 31, 2008, which are primarily recorded in accrued expenses and other liabilities. The following table summarizes activity in the restructuring and other special charges related accounts during the year ended December 31, 2008 (in millions): December 31, Non-Cash Reversal of December 31, 2007 Expenses Payments Other Accruals 2008 Retained reserves established by Sheraton Holding prior to its merger with the Company in 1998 ...... $ 8 — — — — $ 8 Bal Harbour demolition costs . . . 1 $ 2 $ (3) — — — Consulting fees associated with cost reduction initiatives ..... — 5 (2) — — 3 Severance ...... — 39 (20) $ 4 23 Closure of vacation ownership facilities...... — 16 (1) (8) — 7 Impairments ...... — 79 — (79) — — Total ...... $ 9 $141 $(26) $(83) — $41

F-27 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

Note 14. Income Taxes Income tax data from continuing operations of the Company is as follows (in millions): Year Ended December 31, 2008 2007 2006 Pretax income U.S...... $195 $ 517 $ 556 Foreign...... 135 216 126 $330 $ 733 $ 682 Provision (benefit) for income tax Current: U.S. federal ...... $(12) $ 166 $ 104 State and local ...... 33 8 31 Foreign ...... 48 157 51 69 331 186 Deferred: U.S. federal ...... 28 (105) (517) State and local ...... (23) — (84) Foreign ...... 2 (37) (19) 7 (142) (620) $ 76 $ 189 $(434)

No provision has been made for U.S. taxes payable on undistributed foreign earnings amounting to approximately $807 million as of December 31, 2008 since these amounts are permanently reinvested. Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. Deferred tax assets (liabilities) include the following (in millions): December 31, 2008 2007 Plant, property and equipment...... $ 389 $ 312 Intangibles ...... 10 15 Allowances for doubtful accounts and other reserves ...... 132 160 Employee benefits ...... 105 100 Net operating loss, capital loss and tax credit carryforwards...... 605 723 Deferred income...... (238) (102) Other ...... 98 108 1,101 1,316 Less valuation allowance ...... (488) (615) Deferred income taxes ...... $ 613 $ 701

At December 31, 2008, the Company had federal and state net operating losses of approximately $29 million and $2.4 billion, respectively, and federal tax credit carryforwards of $79 million. The Company also had foreign net operating loss and tax credit carryforwards of approximately $32 million and $19 million, respectively. The

F-28 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

Company expects to realize future tax benefits from substantially all its federal and state net operating losses tax, which expire by 2027. 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 is currently considering certain tax-planning strategies that may allow it to utilize these tax attributes within the statutory carryforward period. The Company generated a federal capital loss in connection with the Host Transaction which was originally estimated at approximately $2.6 billion at December 31, 2006. During 2007, the Company completed its 2006 tax return which included the Host Transaction and adopted FIN 48. As a result, the Company reduced its original estimate of this capital loss and corresponding valuation allowance by approximately $1.2 billion, resulting in a revised amount of $1.4 billion at December 31, 2006. Through December 31, 2008, approximately $558 million of this loss has been utilized to offset 2008 and prior years’ capital gains. The remaining $818 million of capital loss is available to offset federal capital gains through 2011. The Company also had state capital losses related to the Host Transaction of approximately $981 million, substantially all of which expire in 2011. Due to the uncertainty of realizing the tax benefit of the federal and state capital loss carryforwards, the entire tax benefit of the losses has been offset by a valuation allowance. In February 1998, the Company disposed of ITT World Directories. The Company recorded $551 million of income taxes relating to this transaction. While the Company strongly believes this transaction was completed on a tax-deferred basis, in 2002 the IRS proposed an adjustment to fully tax the gain in 1998, which would increase Starwood’s taxable income by approximately $1.4 billion in that year. During 2004, the Company filed a petition in United States Tax Court to contest the IRS’s proposed adjustment. As a result of an August 2005 United States Tax Court decision against another taxpayer, the Company decided to treat this transaction as if it were taxable in 1998 for accounting purposes. As such, the Company applied substantially all of its federal net operating loss carryforwards against the gain and accrued interest, resulting in a $360 million net current liability. 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. In January 2009, the Company and the IRS reached an agreement in principle to settle the litigation pertaining to the tax treatment of this transaction. 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.S. statutory rate to the provision for income tax as reported is as follows (in millions): Year Ended December 31, 2008 2007 2006 Tax provision at U.S. statutory rate ...... $115 $ 257 $ 239 U.S. state and local income taxes ...... 9 13 (10) Exempt Trust income ...... — — (32) Tax on repatriation of foreign earnings ...... (14) (29) (16) Foreign tax rate differential ...... (20) 12 (15) Change in uncertain tax positions ...... — 13 — Tax settlements ...... — 2 (59) Tax benefit on the deferred gain from asset sales...... (10) (3) (356) Tax benefits recognized on Host Transaction ...... — 97 (1,017) Basis difference on asset sales ...... 16 (2) (41) Change in of valuation allowance ...... (31) (158) 884 Tax expense amortization from intercompany transactions ...... 7 — — Other ...... 4 (13) (11) Provision for income tax (benefit)...... $ 76 $189 $ (434)

F-29 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

During 2007, the Company completed an evaluation of its ability to claim U.S. foreign tax credits generated in prior years on its federal tax return. As a result of this analysis, the Company determined that it can realize the credits for the 1999 and 2000 tax years. The Company had not previously accrued this benefit since the realization of the benefit was determined to be unlikely. Therefore, during 2007, a $28 million tax benefit, net of incremental taxes and interest, was recorded for these foreign tax credits. In addition, during 2006, the Company determined that it could claim the credits for the 2005 and 2006 tax years. The Company had not previously accrued this benefit since the realization of the benefit was determined to be unlikely. Therefore, during 2006, a $15 million and $19 million tax benefit was recorded for 2006 and 2005, respectively for these foreign tax credits. Pursuant to FIN 48, the Company is required to accrue tax and associated interest and penalty on uncertain tax positions. During 2007, the Company recorded a $13 million charge, primarily associated with interest due on existing uncertain tax positions. During 2006, the IRS completed its audits of the Company’s 2001, 2002 and 2003 tax returns and issued its final audit adjustments to the Company. In addition, state income tax audits for various jurisdictions and tax years were completed during 2006. As a result of the completion of these audits, the Company recorded a $50 million tax benefit. 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. As discussed in Note 5, the Company completed the Host Transaction during the second quarter of 2006 which included the sale of 33 hotel properties. As the Company sold these hotels subject to long-term management contracts, the gain of approximately $962 million has been deferred and is being recognized over the life of those contracts. Accordingly, 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. Additional tax benefits of $1.017 billion resulted from the Host Transaction, consisting primarily of the tax benefit of $832 million on the $2.4 billion federal capital loss, net of carrybacks and 2006 utilization. The remaining benefit consisted of an adjustment to deferred income taxes for the increased tax basis of certain retained assets, partially offset by current tax liabilities generated as a result of the transaction. During 2007, the Company completed its 2006 tax return which included the Host Transaction. As a result, the Company recognized a net $97 million tax charge during 2007 as an adjustment to the original tax benefit accrued in 2006. 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. As a valuation allowance fully offsets the capital loss carryforward, the Company also recorded a $114 million tax benefit for the reversal of the capital loss valuation allowance. During 2008, the Company sold the Westin Turnberry subject to a long-term management contract. As a result, the pretax gain has been deferred and is being recognized over the life of the contract. Accordingly, 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. During 2008 and 2007, the Company completed certain transactions that generated capital gains for U.S. tax purposes. These gains were completely offset by the capital loss generated in the Host Transaction. As discussed above, the Company had not previously accrued a benefit for the capital loss since the realization was determined to be unlikely. Therefore, during 2008 and 2007, the Company recorded tax benefits of $31 million and $35 million, respectively, to reverse the capital loss valuation allowance. As a result of the implementation of FIN 48 in 2007, the Company recognized a $35 million cumulative effect adjustment to the beginning balance of retained earnings in the period. As of December 31, 2008, the Company had approximately $1.0 billion of total unrecognized tax benefits, of which $150 million would affect its effective tax rate if recognized. As discussed above, 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. The Company does not expect other significant increases or decreases to the amount of

F-30 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued) unrecognized tax benefits within 12 months of December 31, 2008. A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in millions): Balance at January 1, 2007...... $ 964 Additions based on tax positions related to the current year ...... 6 Additions for tax positions of prior years ...... 1 Settlements with tax authorities ...... (2) Reductions for tax positions of prior years ...... — Reductions due to the lapse of applicable statutes of limitation ...... (1) Balance at December 31, 2007 ...... $ 968 Balance at January 1, 2008...... $ 968 Additions based on tax positions related to the current year ...... 41 Additions for tax positions of prior years ...... 2 Settlements with tax authorities ...... (3) Reductions for tax positions of prior years ...... (4) Reductions due to the lapse of applicable statutes of limitation ...... (1) Balance at December 31, 2008 ...... $1,003

The Company recognizes interest and penalties related to unrecognized tax benefits through income tax expense. The Company had $76 million and $29 million accrued for the payment of interest and no accrued penalties as of December 31, 2008 and December 31, 2007, respectively. The Company is subject to taxation in the U.S. federal jurisdiction, as well as various state and foreign jurisdictions. As of December 31, 2008, the Company is no longer subject to examination by U.S. federal taxing authorities for years prior to 2004 and to examination by any U.S. state taxing authority prior to 1998. All subsequent periods remain eligible for examination. In the significant foreign jurisdictions in which the Company operates, the Company is no longer subject to examination by the relevant taxing authorities for any years prior to 2001.

F-31 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

Note 15. Debt Long-term debt and short-term borrowings consisted of the following (in millions): December 31, 2008 2007 Senior Credit Facilities: Revolving Credit Facilities, interest rates of 2.32% at December 31, 2008, maturing 2011 ...... $ 213 $ 787 Term loan, interest rates ranging from 1.88% to 2.69% at December 31,2008, maturing 2009 and 2010 (2.35% at December 31, 2008) ...... 1,375 1,000 Senior Notes, interest at 7.875%, maturing 2012 ...... 799 792 Senior Notes (former Sheraton Holding notes), interest at 7.375%, maturing 2015...... 449 449 Senior Notes, interest at 6.25%, maturing 2013 ...... 601 400 Senior Notes, interest at 6.75%, maturing 2018 ...... 400 — Mortgages and other, interest rates ranging from 5.80% to 8.56%, various maturities...... 171 167 4,008 3,595 Less current maturities ...... (506) (5) Long-term debt ...... $3,502 $3,590

Aggregate debt maturities for each of the years ended December 31 are as follows (in millions): 2009 ...... $ 506 2010 ...... 505 2011 ...... 596 2012 ...... 847 2013 ...... 653 Thereafter ...... 901 $4,008

Due to the current credit liquidity crisis, the Company evaluated the commitments of each of the lenders in its revolving credit facilities. Based on this review, the Company does not anticipate any issues regarding the availability of funds under the revolving credit facilities. The Company maintains lines of credit under which bank loans and other short-term debt are drawn. In addition, smaller credit lines are maintained by the Company’s foreign subsidiaries. The Company had approximately $1.585 billion of available borrowing capacity under its domestic and foreign lines of credit as of December 31, 2008. The short-term borrowings at December 31, 2008 and 2007 were insignificant. The Company is subject to certain restrictive debt covenants under its short-term borrowing and long-term debt obligations including defined financial covenants, limitations on incurring additional debt, escrow account funding requirements for debt service, capital expenditures, tax payments and insurance premiums, among other restrictions. The Company was in compliance with all of the short-term and long-term debt covenants at December 31, 2008. For adjustable rate debt, fair value approximates carrying value due to the variable nature of the interest rates. For non-public fixed rate debt, 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. The estimated fair value of debt at December 31, 2008 and 2007 was $3.2 billion and $3.7 billion, respectively, and was determined based on quoted market prices and/or discounted cash flows.

F-32 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

On May 23, 2008, the Company completed a public offering of $600 million of senior notes, consisting of $200 million aggregate principal amount 6.25% Senior Notes (“6.25% Notes”) due February 15, 2013 and $400 million aggregate principal amount 6.75% Senior Notes (“6.75% Notes”) due May 15, 2018 (collectively, the “Notes”). The Company received net proceeds of approximately $596 million, which were used to reduce the outstanding borrowings under its Revolving Credit Facilities. Interest on the 6.25% Notes is payable semi-annually on February 15 and August 15 and interest on the 6.75% Notes is payable semi-annually on May 15 and November 15. 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 6.25% Notes and 45 basis points for the 6.75% Notes, plus accrued and unpaid interest. The Notes rank parri passu with all other unsecured and unsubordinated obligations. Upon a change in control of the Company, 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. Certain covenants on the Notes include restrictions on liens, sale and leaseback transactions, mergers, consolidations and sale of assets.

On April 11, 2008, the Company’s $375 million Revolving Credit Facility that matured on April 27, 2008 was converted to a term loan (“Term Loan”). The proceeds of the Term Loan were used to repay outstanding revolving loans. The Term Loan expires on April 11, 2010, however, it can be extended until February 10, 2011 as long as certain extension requirements are satisfied and subject to an extension fee. The term loans may be prepaid at any time at the Company’s option without premium or penalty.

In the second quarter of 2008, the Company borrowed approximately $66 million under an international revolving credit facility, which was repaid during the fourth quarter of 2008 in conjunction with the sale of three properties by the Company (see Note 17).

On September 13, 2007, the Company completed a public offering of $400 million 6.25% Senior Notes (“6.25% Notes”) due February 13, 2013. The Company received net proceeds of approximately $396 million, which were used to reduce the outstanding borrowings under its Revolving Credit Facility. Interest on the 6.25% Notes is payable semi-annually on February 15 and August 15. At any time, the Company may redeem all or a portion of the 6.25% 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. The 6.25% Notes rank parri passu with all other unsecured and unsubordinated obligations. Upon a change in control of the Company, the holders of the 6.25% Notes will have the right to require repurchase of the respective Notes at 101% of the principal amount plus accrued and unpaid interest. Certain covenants in the 6.25% Notes include restrictions on liens, sale and leaseback transactions, mergers, consolidations and sale of assets.

On June 29, 2007, the Company entered into a credit agreement that provides for two term loans of $500 million each. One term loan matures on June 29, 2009, and the other matures on June 29, 2010. Proceeds from these loans were used to repay balances under the existing Revolving Credit Facility (established under the 2006 Facility referenced below), which remains in effect. The Company may prepay the outstanding aggregate principal amount, in whole or in part, at any time. The covenants in this credit agreement are the same as those in the Company’s existing Revolving Credit Facility.

On April 27, 2007 the Company amended its Revolving Credit Facility to the interest rate (from the original rate of LIBOR + 0.475% to LIBOR + 0.400%) and increase commitments by $450 million, to a total of $2.250 billion. Of this amount, $375 million expired on April 27, 2008, and the remaining $1.875 billion will expire in February 2011.

F-33 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

Note 16. Other Liabilities Other liabilities consisted of the following (in millions): December 31, 2008 2007 Deferred gains on asset sales ...... $1,069 $1,133 SPG point liability ...... 430 354 Deferred income including VOI and residential sales ...... 55 34 Benefit plan liabilities...... 106 62 Insurance reserves ...... 50 68 Other ...... 133 150 $1,843 $1,801

Note 17. Discontinued Operations Summary financial information for discontinued operations is as follows (in millions): Year Ended December 31, 2008 2007 2006 Income Statement Data Gain (loss) on disposition, net of tax ...... $75 $(1) $(2) For the year ended December 31, 2008, 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. Discontinued operations for the year ended December 31, 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. For the year ended December 31, 2007, the loss on disposition represents a $1 million tax assessment associated with the disposition of the Company’s former gaming business in 1999. For the year ended December 31, 2006, the loss on disposition represents a $2 million tax assessment associated with the disposition of the Company’s former gaming business in 1999.

Note 18. Employee Benefit Plans On December 31, 2006, the Company adopted the recognition and disclosure provisions of SFAS No. 158. SFAS No. 158 required the Company to recognize the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of its pension plans in the December 31, 2006 consolidated balance sheet, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The incremental effects of adopting the provisions of SFAS No. 158 on the Company’s consolidated balance sheet at December 31, 2006 increased net liabilities by $6 million, with a corresponding decrease to accumulated other comprehensive income. The adoption of SFAS No. 158 had no effect on the Company’s consolidated statement of income for the year ended December 31, 2006, or for any prior period presented, and it will not effect the Company’s operating results in future periods. The net actuarial loss recognized in accumulated other comprehensive income for the year ended December 31, 2008 was $60 million (net of tax). The amortization of actuarial gain/loss, a component of accumulated other comprehensive income, for the year ended December 31, 2008 was $2 million. Included in accumulated other comprehensive income at December 31, 2008 are unrecognized net actuarial losses of $98 million ($93 million, net of tax) and net prior service credit of $2 million ($2 million, net of tax) that

F-34 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued) have not yet been recognized in net periodic pension cost. 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, 2009 is $6 million ($6 million, net of tax). Defined Benefit and Postretirement Benefit Plans. The Company and its subsidiaries sponsor or previously sponsored numerous funded and unfunded domestic and international pension plans. All defined benefit plans covering U.S. employees are frozen. Certain plans covering non-U.S. employees remain active. As a result of annuity purchases and lump sum distributions from the Company’s domestic pension plans, the Company recorded a net settlement gain of approximately $0.1 million during the year ended December 31, 2007 and a net settlement loss of approximately $0.1 million during the year ended December 31, 2006. There were no settlement gains or losses recorded during the year ended December 31, 2008. The Company also sponsors the Starwood Hotels & Resorts Worldwide, Inc. Retiree Welfare Program. This plan provides health care and life insurance benefits for certain eligible retired employees. 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. The Company also funds this program on a pay-as-you-go basis.

F-35 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

The following table sets forth the projected benefit obligation, fair value of plan assets, the funded status and the accumulated benefit obligation of the Company’s defined benefit pension and postretirement benefit plans at December 31, 2008 and 2007 (in millions):

Postretirement Pension Benefits Foreign Pension Benefits Benefits 2008 2007 2008 2007 2008 2007 Change in Projected Benefit Obligation Benefit obligation at beginning of year ...... $17 $17 $206 $196 $ 20 $ 19 Service cost ...... — — 4 5 — — Interest cost ...... 1 1 11 12 1 1 Actuarial loss (gain) ...... — — 20 (4) — 2 Settlements and curtailments ...... — — (7) — — — Effect of foreign exchange rates ...... — — (27) 5 — — Benefits paid ...... (1) (1) (6) (8) (3) (2) Plan amendments ...... — — (2) — — — Benefit obligation at end of year ...... $17 $17 $199 $206 $ 18 $ 20 Change in Plan Assets Fair value of plan assets at beginning of year ...... $— $— $185 $161 $ 5 $ 7 Actual return on plan assets, net of expenses ...... — — (35) 12 — — Employer contribution ...... 1 1 20 16 3 2 Effect of foreign exchange rates ...... — — (26) 4 — — Settlements and curtailments ...... — — (6) — — — Asset transfer ...... — — — — (3) (2) Benefits paid ...... (1) (1) (6) (8) (3) (2) Fair value of plan assets at end of year ...... $— $— $132 $185 $ 2 $ 5 Funded status ...... $(17) $(17) $ (67) $ (21) $(16) $(15) Accumulated benefit obligation ...... $17 $17 $174 $186 n/a n/a Plans with Accumulated Benefit Obligations in Excess of Plan Assets Projected benefit obligation ...... $17 $17 $132 $ 47 $18 $20 Accumulated benefit obligation ...... $17 $17 $108 $ 46 n/a n/a Fair value of plan assets ...... $— $— $ 57 $ 41 $ 2 $ 5

The net underfunded status of the plans at December 31, 2008 was $100 million, which $99 million is in other liabilities and $1 million is in accrued expenses in the accompanying balance sheet. The majority of participants in the Foreign Pension Plans are employees of managed hotels, for which we are reimbursed for costs related to their benefits. The impact of these reimbursements is not reflected above.

All domestic pension plans are frozen plans, where employees do not accrue additional benefits. Therefore, at December 31, 2008 and 2007, the projected benefit obligation is equal to the accumulated benefit obligation. In March 2006, the Company elected to freeze its pension plans in the United Kingdom. Its other foreign pension plans are not frozen, and accordingly, at December 31, 2008 and 2007, the accumulated benefit obligation for the foreign pension plans was $174 million and $186 million, respectively.

F-36 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

The following table presents the components of net periodic benefit cost for the years ended December 31, 2008, 2007 and 2006 (in millions): Pension Benefits Foreign Pension Benefits Postretirement Benefits 2008 2007 2006 2008 2007 2006 2008 2007 2006 Service cost ...... $— $— $— $ 4 $ 5 $ 4 $— $— $— Interest cost ...... 1 1 1 11 12 10 1 1 1 Expected return on plan assets ...... — — — (10) (11) (9) — (1) (1) Amortization of actuarial loss ...... — — — 2 2 3 — — — Other ...... — — — 1 — ———— SFAS No. 87 cost/SFAS No. 106 cost ..... 1 1 1 8 8 8 1 — — SFAS No. 88 settlement and curtailment gain...... — — — 1 — (3) — — — Net periodic benefit cost ...... $ 1 $ 1 $ 1 $ 9 $ 8 $ 5 $ 1 $— $—

For measurement purposes, an 8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2009, gradually decreasing to 5% in 2013. A one-percentage-point change in assumed health care cost trend rates would have approximately a $0.5 million effect on the postretirement obligation and a nominal impact on the total of service and interest cost components of net periodic benefit cost. The weighted average assumptions used to determine benefit obligations at December 31 were as follows: Foreign Pension Postretirement Pension Benefits Benefits Benefits 2008 2007 2008 2007 2008 2007 Discount rate ...... 5.99% 5.75% 6.19% 5.88% 6.00% 5.74% Rate of compensation increase...... n/a n/a 3.93% 3.90% n/a n/a The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31 were as follows: Pension Benefits Foreign Pension Benefits Postretirement Benefits 2008 2007 2006 2008 2007 2006 2008 2007 2006 Discount rate ...... 5.75% 5.75% 5.50% 5.88% 5.46% 5.09% 5.74% 5.74% 5.49% Rate of compensation increase ...... n/a n/a n/a 3.89% 3.90% 3.60% n/a n/a n/a Expected return on plan assets ...... n/a n/a n/a 6.38% 6.40% 6.91% 7.50% 7.50% 7.50% A number of factors were considered in the determination of the expected return on plan assets. These factors included current and expected allocation of plan assets, the investment strategy, historical rates of return and Company and investment expert expectations for investment performance over approximately a ten year period.

F-37 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

The weighted average asset allocations at December 31, 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 Foreign Pension Benefits Postretirement Benefits Percentage of Percentage of Percentage of Target Plan Assets Target Plan Assets Target Plan Assets Allocation 2008 2007 Allocation 2008 2007 Allocation 2008 2007 Equity securities ...... n/a n/a n/a 34% 32% 45% 79% 42% 63% Debt securities ...... n/a n/a n/a 66% 65% 48% — 37% 35% Cash and other ...... n/a n/a n/a — 3% 7% 21% 21% 2% 100% 100% 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. At December 31, 2008, all remaining domestic pension plans are unfunded plans. The Company expects to contribute approximately $1 million to its domestic pension plans, approximately $18 million to its foreign pension plans, and approximately $2 million to the postretirement benefit plan in 2009. 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 Foreign Pension Postretirement Benefits Benefits Benefits 2009 ...... $1 $ 7 $2 2010 ...... $1 $ 7 $2 2011 ...... $1 $ 8 $2 2012 ...... $1 $ 8 $2 2013 ...... $1 $ 9 $2 2014 — 2018 ...... $7 $57 $8 Defined Contribution Plans. The Company and its subsidiaries sponsor various defined contribution plans, including the Starwood Hotels & Resorts Worldwide, Inc. Savings and Retirement Plan, which is a voluntary defined contribution plan allowing participation by employees on U.S. payroll who meet certain age and service requirements. 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. The plan also contains provisions for matching contributions to be made by the Company, which are based on a portion of a participant’s eligible compensation. The amount of expense for matching contributions totaled $32 million in 2008, $28 million in 2007 and $25 million in 2006. Included as an investment choice is the Company’s publicly traded common stock, which had a balance of $30 million and $62 million at December 31, 2008 and 2007, respectively. Multi-Employer Pension Plans. Certain employees are covered by union sponsored multi-employer pension plans. Pursuant to agreements between the Company and various unions, contributions of $9 million in 2008, $9 million in 2007 and $8 million in 2006 were made by the Company and charged to expense.

F-38 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

Note 19. Leases and Rentals The Company leases certain equipment for the hotels’ operations under various lease agreements. The leases extend for varying periods through 2014 and generally are for a fixed amount each month. In addition, several of the Company’s hotels are subject to leases of land or building facilities from third parties, which extend for varying periods through 2089 and generally contain fixed and variable components, including a 25-year building lease of the Westin Dublin hotel in Dublin, 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. The variable components of leases of land or building facilities are based on the operating profit or revenues of the related hotels. In June 2004, the Company entered into an agreement to lease the W Barcelona hotel in Spain, which is in the process of being constructed with an anticipated opening date of December 2009. The term of this lease is 15 years with annual fixed rent payments which range from approximately 7 million Euros to 9 million Euros. In conjunction with entering into this lease, the Company made a 9 million Euro guarantee to the lessor that it will not terminate the lease prior to the lease commencement date. At the lease commencement date, the Company must provide a letter of credit to the lessor for 9 million Euros as security for the first three years of rent. This letter of credit would supersede the Company’s guarantee once the hotel opens. In June 2008, the Company entered into an agreement to lease the W London Leicester Square Hotel for 40 years, commencing once the hotel reopens following a major renovation. 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. The minimum future rent payments due upon completion of the hotel is £3.5 million in year one, £4.5 million in year two, and £5.5 million in year three. After the third year the rent changes based on the United Kingdom RRI Index. Due to the uncertain opening date, the payments are not included in the table below. The Company’s minimum future rents at December 31, 2008 payable under non-cancelable operating leases with third parties are as follows (in millions): 2009 ...... $ 90 2010 ...... $100 2011 ...... $100 2012 ...... $ 85 2013 ...... $ 85 Thereafter...... $698 Rent expense under non-cancelable operating leases consisted of the following (in millions): Year Ended December 31, 2008 2007 2006 Minimum rent ...... $93 $86 $76 Contingent rent ...... 10 10 11 Sublease rent ...... (6) (6) (4) $97 $90 $83

Note 20. Stockholders’ Equity Share Repurchases. In April 2007, 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”). In November 2007, 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. During the year ended

F-39 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

December 31, 2008, the Company repurchased 13.6 million Shares and Corporation Shares at a total cost of $593 million. As of December 31, 2008, no repurchase capacity remained under the Share Repurchase Authorization. Exchangeable Preferred Shares. During 1998, 6.3 million shares of Class A EPS, 5.5 million shares of Class B EPS and approximately 800,000 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, Inc. and certain of its affiliates. On March 15, 2006, the Company completed the redemption of the remaining 25,000 outstanding shares of Class B EPS for approximately $1 million in cash. On April 10, 2006, when the Company consummated the first phase of the Host Transaction, holders of Class A EPS received from Host $0.503 in cash and 0.6122 shares of Host common stock. Also in connection with the Host Transaction, the Company redeemed all of the Class A EPS (approximately 562,000 shares) and Realty Partnership units (approximately 40,000 units) for approximately $34 million in cash. The Operating Partnership units are convertible into Corporation Shares at the unit holder’s option, provided that the Company has the option to settle conversion requests in cash or Shares. For the year ended December 31, 2006, the Company redeemed approximately 926,000 Operating Partnership units for approximately $56 million in cash. There were approximately 178,000 and 179,000 of these units outstanding at December 31, 2008 and December 31, 2007, respectively.

Note 21. Stock-Based Compensation In 2004, the Company adopted the 2004 Long-Term Incentive Compensation Plan (“2004 LTIP”), which superseded the 2002 Long Term Incentive Compensation Plan (“2002 LTIP”) and provides for the purchase of Shares by directors, officers, employees, consultants and advisors, pursuant to equity award grants. Although no additional awards will be granted under the 2002 LTIP, the Company’s 1999 Long Term Incentive Compensation Plan or the Company’s 1995 Share Option Plan, the provisions under each of the previous plans will continue to govern awards that have been granted and remain outstanding under those plans. The aggregate award pool for nonqualified or incentive stock options, performance shares, restricted stock or any combination of the foregoing which are available to be granted under the 2004 LTIP at December 31, 2008 was approximately 70 million (with options counted as one share and restricted stock and performance units counted as 2.8 shares). Compensation expense, net of reimbursements during 2008, 2007 and 2006 was approximately $68 million, $99 million and $103 million, respectively, resulting in tax benefits of $26 million, $33 million and $36 million, respectively.

F-40 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

As previously discussed, the Company utilizes the Lattice model to calculate the fair value of option grants. Weighted average assumptions used to determine the fair value of option grants were as follows: Year Ended December 31, 2008 2007 2006 Dividend yield ...... 1.50% 1.40% 1.41% Volatility: Near term ...... 38% 25% 26% Long term ...... 36% 37% 40% Expected life ...... 6yrs 6yrs 6yrs Yield curve: 6 month ...... 1.90% 5.12% 4.68% 1 year ...... 1.91% 4.96% 4.66% 3 year ...... 2.17% 4.55% 4.58% 5 year ...... 2.79% 4.52% 4.53% 10 year ...... 3.73% 4.56% 4.58% The dividend yield is estimated based on the current annualized dividend payment and the average price of the Shares or Corporation Shares, as the case may be, during the prior year. The estimated volatility is based on a combination of historical share price volatility as well as implied volatility based on market analysis. The historical share price volatility was measured over an 8-year period, which is equal to the contractual term of the options. The weighted average volatility for 2008 grants was 37%. The expected life represents the period that the Company’s stock-based awards are expected to be outstanding. It was determined based on an actuarial calculation which was based on historical experience, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The yield curve (risk-free interest rate) is based on the implied zero-coupon yield from the U.S. Treasury yield curve over the expected term of the option. The following table summarizes stock option activity for the Company: Weighted Average Options Exercise (In millions) Price Per Share Outstanding at December 31, 2007 ...... 12.8 $36.60 Granted ...... 0.7 49.52 Exercised ...... (4.1) 28.55 Forfeited, Canceled or Expired ...... (0.7) 47.90 Outstanding at December 31, 2008 ...... 8.7 $40.66 Exercisable at December 31, 2008 ...... 6.5 $37.31

The weighted-average fair value per option for options granted during 2008, 2007 and 2006 was $17.24, $20.54 and $16.12, respectively, and the service period is typically four years. The total intrinsic value of options exercised during 2008, 2007 and 2006 was approximately $89 million, $187 million and $370 million, respectively, resulting in tax benefits of approximately $35 million, $56 million and $128 million, respectively. As of December 31, 2008, there was approximately $17 million of unrecognized compensation cost, net of estimated forfeitures, related to nonvested options, which is expected to be recognized over a weighted-average period of 1.58 years on a straight-line basis for 2007 and future grants and using an accelerated recognition method for grants prior to January 1, 2006.

F-41 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

In April 2006, as part of the Host Transaction, the Company depaired its Corporation Shares and Class B Shares. As a result, the number of the Company’s options and their strike prices have been adjusted as discussed in Note 3. The aggregate intrinsic value of outstanding options as of December 31, 2008 was $0 million. The aggregate intrinsic value of exercisable options as of December 31, 2008 was $0 million. The weighted-average contractual life was 4.07 years for outstanding options and 3.58 years for exercisable option as of December 31, 2008. 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 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. At December 31, 2008, there was approximately $139 million (net of estimated forfeitures) in unamortized compensation cost related to restricted stock and restricted stock units. The weighted average remaining term was 1.88 years for restricted stock grants outstanding at December 31, 2008. The fair value of restricted stock distributed during 2008 was $85 million. The following table summarizes the Company’s restricted stock and units activity during 2008: Number of Weighted Average Restricted Grant Date Value Stock and Units Per Share (In millions) Outstanding at December 31, 2007...... 5.7 $53.95 Granted ...... 2.7 $46.49 Distributed...... (2.0) $49.34 Forfeited or Canceled ...... (1.0) $53.24 Outstanding at December 31, 2008...... 5.4 $52.05

2002 Employee Stock Purchase Plan In April 2002, 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 10,000,000 Shares for issuance under the ESPP. The ESPP commenced in October 2002. All full-time regular employees who have completed 30 days of continuous service and who are employed by the Company on U.S. payrolls are eligible to participate in the ESPP. Eligible employees may contribute up to 20% of their total cash compensation to the ESPP. Amounts withheld are applied at the end of every three month accumulation period to purchase Shares. 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. The purchase price to employees is equal to 95% of the fair market value of Shares on the date of purchase. Participants may withdraw their contributions at any time before Shares are purchased. Approximately 200,000 Shares were issued under the ESPP during the year ended December 31, 2008 at purchase prices ranging from $16.02 to $45.98. Approximately 119,000 Shares were issued under the ESPP during the year ended December 31, 2007 at purchase prices ranging from $51.00 to $68.47.

Note 22. Derivative Financial Instruments The Company, based on market conditions, enters into forward contracts to manage foreign exchange risk. Beginning in January 2008, the Company entered into forward contracts to hedge forecasted transactions based in

F-42 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued) foreign currencies. These forward contracts have been designated as cash flow hedges under the provisions of SFAS No. 133, and their change in fair value is recorded as a component of other comprehensive income. The fair value of these contracts has been recorded as an asset of $6 million at December 31, 2008. The notional dollar amount of the outstanding Euro and Canadian forward contracts at December 31, 2008 is $51 million and $4 million, respectively, with average exchange rates of 1.5 and 1.0, respectively, with terms of less than one year. Each of these hedges was highly effective in offsetting fluctuations in foreign currencies. An immaterial amount of loss due to ineffectiveness was recorded in the consolidated statement of income. Additionally, during the year ended December 31, 2008, 22 forward contracts were settled. In connection with these settlements and the forecasted transactions occurring, the Company reclassified a loss of $0.8 million from accumulated other comprehensive income to the management fees, franchise fees and other income line item in the consolidated statement of income. The Company also enters into forward contracts to manage foreign exchange risk on intercompany loans that are not deemed permanently invested. These forward contracts do not qualify as hedges under the provisions of SFAS No. 133, and their change in fair value is recorded in the Company’s consolidated statement of income. The fair value of these contracts has been recorded as a liability of $3 million and an asset of $1 million at December 31, 2008 and December 31, 2007, respectively. The Company recorded gains of $14.4 million and $4.2 million on the forward contracts for the years ended December 31, 2008 and 2007 respectively. These gains were offset by losses in the revaluation of cross-currency intercompany loans. From time to time, the Company enters into interest rate swap agreements to manage interest expense. The Company’s objective is to manage the impact of interest rates on the results of operations, cash flows and the market value of the Company’s debt. As of December 31, 2007, 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. During the first quarter of 2008, the Company terminated its outstanding interest rate swap agreements, resulting in a gain of $0.4 million.

Note 23. Commitments and Contingencies The Company had the following contractual obligations outstanding as of December 31, 2008 (in millions): Due in Less Due in Due in Due After Total than 1 Year 1-3 Years 3-5 Years 5 Years Unconditional purchase obligations(a) ...... $ 98 $35 $59 $2 $ 2 Other long-term obligations ...... 4 — 3 1 — Total contractual obligations ...... $102 $35 $62 $3 $ 2

(a) Included in these balances are commitments that may be reimbursed or satisfied by the Company’s managed and franchised properties. The Company had the following commercial commitments outstanding as of December 31, 2008 (in millions): Amount of Commitment Expiration Per Period Less Than After Total 1 Year 1-3 Years 3-5 Years 5 Years Standby letters of credit ...... $115 $115 $— $— $— Variable Interest Entities. Of the over 800 hotels that the Company manages or franchises for third party owners, the Company has evaluated approximately 21 hotels that it has a variable interest in, generally in the form of investments, loans, guarantees, or equity. The Company determines if it is the primary beneficiary of the hotel by considering qualitative and quantitative factors. Qualitative factors include evaluating distribution terms, proportional voting rights, decision making ability, and the capital structure. Quantitatively, the Company evaluates financial forecasts to determine which would absorb over 50% of the expected losses of the hotel. The Company has

F-43 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. 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. In all cases, 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. The Company is paid a fee primarily based on financial metrics of the hotel. The hotels are financed by the owners, generally in the form of working capital, equity, and debt. At December 31, 2008, the Company has approximately $66 million of investments associated with 19 VIEs, equity investments of $10 million associated with one VIE, and a loan balance of $5 million associated with one VIE. As the Company is not obligated to fund future cash contributions under these agreements, the maximum loss equals the carrying value. In addition, the Company has not contributed amounts to the VIEs in excess of their contractual obligations. At December 31, 2007, the Company had approximately $52 million of investments associated with 20 VIEs, equity investments of $11 million associated with two VIEs and loan balances of $7 million associated with two VIEs. Guaranteed Loans and Commitments. In limited cases, the Company has made loans to owners of or partners in hotel or resort ventures for which the Company has a management or franchise agreement. Loans outstanding under this program totaled $28 million at December 31, 2008. The Company evaluates these loans for impairment, and at December 31, 2008, believes these loans are collectible. Unfunded loan commitments aggregating $64 million were outstanding at December 31, 2008, none of which are expected to be funded in 2009 and $46 million are expected to be funded in total. These loans typically are secured by pledges of project ownership interests and/or mortgages on the projects. The Company also has $110 million of equity and other potential contributions associated with managed or joint venture properties, $52 million of which is expected to be funded in 2009. During 2004, the Company entered into a long-term management contract to manage the Westin Boston, Seaport Hotel in Boston, Massachusetts, which opened in June 2006. In connection with this project, 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, including a principal repayment guarantee for the term of the senior debt which was capped at $40 million, a debt service guarantee during the term of the senior debt, which was limited to the interest expense on the amounts drawn under such debt and principal amortization and a completion guarantee for this project. In January 2007 this hotel was sold and the senior debt was repaid in full. In addition, the $28 million in mezzanine loans and other investments, together with accrued interest, was repaid in full. In accordance with the management agreement, the sale of the hotel also resulted in the payment of a fee to the Company of approximately $18 million, which is included in management fees, franchise fees and other income in the consolidated statement of income for the year ended December 31, 2007. The Company continues to manage this hotel subject to the pre-existing management agreement. Surety bonds issued on behalf of the Company at December 31, 2008 totaled $91 million, 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. To secure management contracts, the Company may provide performance guarantees to third-party owners. Most of these performance guarantees allow the Company to terminate the contract rather than fund shortfalls if certain performance levels are not met. In limited cases, the Company is obliged to fund shortfalls in performance levels through the issuance of loans. At December 31, 2008, excluding the Le Méridien management agreement mentioned below, the Company had five management contracts with performance guarantees with possible cash outlays of up to $74 million, $53 million of which, if required, would be funded over several years and would be largely offset by management fees received under these contracts. Many of the performance tests are multi-year tests, are tied to the results of a competitive set of hotels, and have exclusions for force majeure and acts of war and

F-44 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued) terrorism. The Company does not anticipate any significant funding under these performance guarantees in 2009. In connection with the acquisition of the Le Méridien brand in November 2005, the Company assumed the obligation to guarantee certain performance levels at one Le Méridien managed hotel for the periods 2007 through 2013. This guarantee is uncapped. However, the Company has estimated its exposure under this guarantee and does not anticipate that payments made under the guarantee will be significant in any single year. The estimated fair present value of this guarantee of $7 million is reflected in other liabilities in the accompanying consolidated balance sheet at December 31, 2008 and 2007. The Company does not anticipate losing a significant number of management or franchise contracts in 2009. In connection with the purchase of the Le Méridien brand in November 2005, the Company was indemnified for certain of Le Méridien’s historical liabilities by the entity that bought Le Méridien’s owned and leased hotel portfolio. The indemnity is limited to the financial resources of that entity. However, at this time, the Company believes that it is unlikely that it will have to fund any of these liabilities. In connection with the sale of 33 hotels to Host in 2006, the Company agreed to indemnify Host for certain liabilities, including operations and tax liabilities. At this time, the Company believes that it will not have to make any material payments under such indemnities. Litigation. The Company is involved in various legal matters that have arisen in the normal course of business, some of which include claims for substantial sums. Accruals have been recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be determined, the Company does not expect that the resolution of all legal matters will have a material adverse effect on its consolidated results of operations, financial position or cash flow. However, depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect the Company’s future results of operations or cash flows in a particular period. Collective Bargaining Agreements. At December 31, 2008, approximately 37% of the Company’s U.S.-based employees were covered by various collective bargaining agreements providing, generally, for basic pay rates, working hours, other conditions of employment and orderly settlement of labor disputes. Generally, labor relations have been maintained in a normal and satisfactory manner, and management believes that the Company’s employee relations are satisfactory. Environmental Matters. The Company is subject to certain requirements and potential liabilities under various federal, state and local environmental laws, ordinances and regulations. Such laws often impose liability without regard to whether the current or previous owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Although the Company has incurred and expects to incur remediation and other environmental costs during the ordinary course of operations, management anticipates that such costs will not have a material adverse effect on the operations or financial condition of the Company. Captive Insurance Company. Estimated insurance claims payable at December 31, 2008 and 2007 were $83 million and $88 million, respectively. At December 31, 2008 and 2007, standby letters of credit amounting to $115 million and $101 million, respectively, had been issued to provide collateral for the estimated claims. The letters of credit are guaranteed by the Company. ITT Industries. In 1995, the former ITT Corporation, renamed ITT Industries, Inc. (“ITT Industries”), distributed to its stockholders all of the outstanding shares of common stock of ITT Corporation, then a wholly owned subsidiary of ITT Industries (the “Distribution”). In connection with this Distribution, ITT Corporation, which was then named ITT Destinations, Inc., changed its name to ITT Corporation. Subsequent to the acquisition of ITT Corporation in 1998, the Company changed the name of ITT Corporation to Sheraton Holding 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, the Company and ITT Industries have entered into various agreements including a spin-off agreement, Employee Benefits Services and

F-45 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

Liability Agreement, Tax Allocation Agreement and Intellectual Property Transfer and License Agreements. The Company may be liable to or due reimbursement from ITT Industries relating to the resolution of certain pre-spin- off matters under these agreements. As discussed in Note 1, as part of the Host Transaction, the Company sold the shares of Sheraton Holding to Host. In connection with this transaction, the Company entered into an indemnification agreement with Host for certain obligations including those associated with the Distribution. Based on available information, management does not believe that these matters would have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

Note 24. Business Segment and Geographical Information The Company has two operating segments: hotels and vacation ownership and residential. The hotel segment generally represents a worldwide network of owned, leased and consolidated joint venture hotels and resorts operated primarily under the Company’s proprietary brand names including St. Regis», The Luxury Collection», Sheraton», Westin»,W», Le Méridien», Four Points» by Sheraton, Aloft» and Element» as well as hotels and resorts which are managed or franchised under these brand names in exchange for fees. The vacation ownership and residential segment includes the development, ownership and operation of vacation ownership resorts, marketing and selling VOIs, providing financing to customers who purchase such interests, licensing fees from branded condominiums and residences and the sale of residential units. The performance of the hotels and vacation ownership and residential segments is evaluated primarily on operating profit before corporate selling, general and administrative expense, interest expense, net of interest income, losses on asset dispositions and impairments, restructuring and other special charges and income tax benefit (expense). The Company does not allocate these items to its segments.

F-46 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

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

(a) Includes $315 million and $341 million of investments in unconsolidated joint ventures at December 31, 2008 and 2007, respectively. (b) Includes $38 million and $42 million of investments in unconsolidated joint ventures at December 31, 2008 and 2007, respectively.

F-47 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

Capital expenditures: Hotel ...... $282 $211 $245 Vacation ownership and residential ...... 110 96 78 Corporate...... 84 77 48 Total ...... $476 $384 $371

The following table presents revenues and long-lived assets by geographical region (in millions): Revenues Long-Lived Assets 2008 2007 2006 2008 2007 United States ...... $4,211 $4,563 $4,580 $2,552 $2,576 Italy...... 370 380 375 402 493 All other international ...... 1,326 1,210 1,024 1,027 1,204 Total ...... $5,907 $6,153 $5,979 $3,981 $4,273

Other than Italy, there were no individual international countries, which comprised over 10% of the total revenues of the Company for the years ended December 31, 2008, 2007 or 2006, or 10% of the total long-lived assets of the Company as of December 31, 2008 or 2007.

F-48 STARWOOD HOTELS & RESORTS WORLDWIDE, INC. NOTES TO FINANCIAL STATEMENTS — (Continued)

Note 25. Quarterly Results (Unaudited) Three Months Ended March 31 June 30 September 30 December 31 Year (In millions, except per Share data) 2008 Revenues ...... $1,466 $1,573 $1,535 $1,333 $5,907 Costs and expenses ...... $1,320 $1,374 $1,326 $1,268 $5,288 Income from continuing operations ...... $ 79 $ 107 $ 113 $ (45) $ 254 Discontinued operations ...... $ (47) $ (2) $ — $ 124 $ 75 Net income...... $ 32 $ 105 $ 113 $ 79 $ 329 Earnings per Share: Basic — Income from continuing operations ...... $ 0.43 $ 0.58 $ 0.63 $ (0.25) $ 1.40 Discontinued operations ...... $(0.26) $ (0.01) $ — $ 0.69 $ 0.41 Net income ...... $ 0.17 $ 0.57 $ 0.63 $ 0.44 $ 1.81 Diluted — Income from continuing operations ...... $ 0.42 $ 0.56 $ 0.62 $ (0.25) $ 1.37 Discontinued operations ...... $(0.25) $ — $ — $ 0.68 $ 0.40 Net income ...... $ 0.17 $ 0.56 $ 0.62 $ 0.43 $ 1.77 2007 Revenues ...... $1,431 $1,572 $1,540 $1,610 $6,153 Costs and expenses ...... $1,250 $1,383 $1,294 $1,368 $5,295 Income from continuing operations ...... $ 123 $ 145 $ 129 $ 146 $ 543 Discontinued operations ...... $ (1) $ — $ — $ — $ (1) Net income...... $ 122 $ 145 $ 129 $ 146 $ 542 Earnings per Share: Basic — Income from continuing operations ...... $ 0.58 $ 0.69 $ 0.63 $ 0.77 $ 2.67 Discontinued operations ...... $ — $ — $ — $ — $ — Net income ...... $ 0.58 $ 0.69 $ 0.63 $ 0.77 $ 2.67 Diluted — Income from continuing operations ...... $ 0.56 $ 0.67 $ 0.61 $ 0.74 $ 2.57 Discontinued operations ...... $ — $ — $ — $ — $ — Net income ...... $ 0.56 $ 0.67 $ 0.61 $ 0.74 $ 2.57

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

(a) Charged to/from other accounts: Description of Charged to/from Other Accounts 2008 Investments...... $ (7) Plant, property and equipment ...... (66) Other assets ...... 3 Accrued expenses ...... (14) APIC ...... 4 Total charged to/from other accounts ...... $(80) 2007 Cash ...... $ 2 Plant, property and equipment ...... $(48) Other assets ...... (3) Total charged to/from other accounts ...... $(49) 2006 Other assets ...... $ 9 Accrued expenses ...... 1 APIC ...... (4) Total charged to/from other accounts ...... $ 6

S-1 PART IV

Item 15. Exhibits, Financial Statement Schedules. (a) The following documents are filed as a part of this Annual Report: 1-2. The financial statements and financial statement schedule listed in the Index to Financial Statements and Schedule following the signature pages hereof. 3. Exhibits: Exhibit Number Description of Exhibit 2.1 Formation Agreement, dated as of November 11, 1994, among the Company, 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, 1994). (The SEC file number of all filings made by the Company pursuant to the Securities Exchange Act of 1934, as amended, and referenced herein is 1-7959). 2.2 Form of Amendment No. 1 to Formation Agreement, dated as of July 1995, among the Company and the Starwood Partners (incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form S-2 filed with the SEC on June 29, 1995 (Registration Nos. 33-59155 and 33-59155-01)). 2.3 Master Agreement and Plan of Merger, dated as of November 14, 2005, among Host Marriott Corporation, Host Marriott, L.P., Horizon Supernova Merger Sub, L.L.C., Horizon SLT Merger Sub, L.P., Starwood Hotels & Resorts Worldwide, Inc., Starwood Hotels & Resorts, Sheraton Holding Corporation and SLT Realty Limited Partnership (the “Merger Agreement”) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on From 8-K filed with the SEC on November 14, 2005). 2.4 Amendment Agreement, dated as of March 24, 2006, to the Merger Agreement (incorporated by reference to Exhibit 2.1 of the Joint Current Report on Form 8-K filed with the SEC on March 29, 2006). 3.1 Articles of Amendment and Restatement of the Company, as of May 30, 2007 (incorporated by reference to Appendix A to the Company’s 2007 Notice of Annual Meeting and Proxy Statement). 3.2 Amended and Restated Bylaws of the Company, as amended and restated through April 10, 2006 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 13, 2006 (the “April 13 Form 8-K”). 3.3 Amendment to Amended and Restated Bylaws of the Company, dated as of March 13, 2008 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-k filed with the SEC on March 18, 2008). 4.1 Termination Agreement dated as of April 7, 2006 between the Company and the Trust (incorporated by reference to Exhibit 4.1 of the April 13 Form 8-K). 4.2 Amended and Restated Rights Agreement, dated as of April 7, 2006, between the Company and American Stock Transfer and Trust Company, as Rights Agent (which includes the form of Amended and Restated Articles Supplementary of the Series A Junior Participating Preferred Stock as Exhibit A, 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 4.2 of the April 13 Form 8-K). 4.3 Amended and Restated Indenture, dated as of November 15, 1995, as Amended and Restated as of December 15, 1995 between ITT Corporation (formerly known as ITT Destinations, Inc.) and the First National Bank of Chicago, as trustee (incorporated by reference to Exhibit 4.A.IV to the First Amendment to ITT Corporation’s Registration Statement on Form S-3 filed November 13, 1996). 4.4 First Indenture Supplement, dated as of December 31, 1998, among ITT Corporation, the Company and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 8, 1999). 4.5 Second Indenture Supplement, dated as of April 9, 2006, among the Company, Sheraton Holding Corporation and Bank of New York Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.3 to the April 13 Form 8-K).

51 Exhibit Number Description of Exhibit 4.6 Indenture, dated as of April 19, 2002, among the Company, the guarantor parties named therein and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 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, 2002 (the “2002 Forms S-4”)). 4.7 Indenture, dated as of September 13, 2007, between the Company and the U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 17, 2007 (the “September 17 Form 8-K”)). 4.8 Supplemental Indenture, dated as of September 13, 2007, between the Company and the U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the September 17 Form 8-K”). 4.9 Supplemental Indenture No. 2, dated as of May 23, 2008, between the Company and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-k filed with the SEC on May 28, 2008). The Registrants hereby agree to file with the Commission a copy of any instrument, including indentures, defining the rights of long-term debt holders of the Registrants and their consolidated subsidiaries upon the request of the Commission. 10.1 Third Amended and Restated Limited Partnership Agreement for Operating Partnership, dated January 6, 1999, among the Company and the limited partners of Operating Partnership (incorporated by reference to Exhibit 10.2 to the 1998 Form 10-K). 10.2 Form of Trademark License Agreement, dated as of December 10, 1997, between Starwood Capital and the Company (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the “1997 Form 10-K”)). 10.3 Credit Agreement, dated as of February 10, 2006, among the Company, certain additional Dollar Revolving Loan Borrowers, certain additional Alternate Currency Revolving Loan Borrowers, various Lenders, Deutsche Bank AG New York Branch, as Administrative Agent, JPMorgan Chase Bank, N.A. and Societe Generale, as Syndication Agents, Bank of America, N.A. and Calyon New York Branch, as Co-Documentation Agents, Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Banc of America Securities LLC, as Lead Arrangers and Book Running Managers, The Bank of Nova Scotia, Citicorp North America, Inc., and the Royal Bank of Scotland PLC, as Senior Managing Agents and Nizvho Corporate Bank, Ltd. as Managing Agent (the “Credit Agreement”) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 15, 2006). 10.4 First Amendment, dated as of March 31, 2006, to the Credit Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on April 4, 2006). 10.5 Second Amendment, dated as of June 29, 2006, to the Credit Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on July 6, 2006). 10.6 Third Amendment dated as of April 27, 2007, to the Credit Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 30, 2007). 10.7 Fourth Amendment, dated as of December 20, 2007, to the Credit Agreement (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007). 10.8 Fifth Amendment, dated as of April 11, 2008, to the Credit Agreement, dated as of February 10, 2006, (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 15, 2008). 10.9 Credit Agreement, dated as of June 29, 2007, among the Company, Bank of America, N.A., as administrative agent and various lenders party thereto (incorporated by reference to Exhibit 10.01 to the Company’s Current Report on Form 8-K, filed with the SEC on July 5, 2007). 10.10 Starwood Hotels & Resorts Worldwide, Inc. 1995 Long-Term Incentive Plan (the “Company’s 1995 LTIP”) (Amended and Restated as of December 3, 1998) (incorporated by reference to Annex E to the 1998 Proxy Statement).(1) 10.11 Second Amendment to the Company’s 1995 LTIP (incorporated by reference to Exhibit 10.3 to the 2003 10-Q1).(1)

52 Exhibit Number Description of Exhibit 10.12 Form of Non-Qualified Stock Option Agreement pursuant to the Company’s 1995 LTIP (incorporated by reference to Exhibit 10.26 to the 2004 Form 10-K).(1) 10.13 Starwood Hotels & Resorts Worldwide, Inc. 1999 Long-Term Incentive Compensation Plan (the “1999 LTIP”) (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999 (the “1999 Form 10-Q2”)).(1) 10.14 First Amendment to the 1999 LTIP, dated as of August 1, 2001 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2001).(1) 10.15 Second Amendment to the 1999 LTIP (incorporated by reference to Exhibit 10.2 to the 2003 10-Q1).(1) 10.16 Form of Non-Qualified Stock Option Agreement pursuant to the 1999 LTIP (incorporated by reference to Exhibit 10.30 to the 2004 Form 10-K).(1) 10.17 Form of Restricted Stock Agreement pursuant to the 1999 LTIP (incorporated by reference to Exhibit 10.31 to the 2004 Form 10-K).(1) 10.18 Starwood Hotels & Resorts Worldwide, Inc. 2002 Long-Term Incentive Compensation Plan (the “2002 LTIP”) (incorporated by reference to Annex B of the Company’s 2002 Proxy Statement).(1) 10.19 First Amendment to the 2002 LTIP (incorporated by reference to Exhibit 10.1 to the 2003 10-Q1).(1) 10.20 Form of Non-Qualified Stock Option Agreement pursuant to the 2002 LTIP (incorporated by reference to Exhibit 10.49 to the 2002 Form 10-K filed on February 28, 2003 (the “2002 10-K”)).(1) 10.21 Form of Restricted Stock Agreement pursuant to the 2002 LTIP (incorporated by reference to Exhibit 10.35 to the 2004 Form 10-K).(1) 10.22 2004 Long-Term Incentive Compensation Plan, amended and restated as of December 31, 2008 (“2004 LTIP”) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on January 6, 2009 (the “January 2009 8-K”)).(1) 10.23 Form of Non-Qualified Stock Option Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.4 to the 2004 Form 10-Q2).(1) 10.24 Form of Restricted Stock Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.38 to the 2004 Form 10-K).(1) 10.25 Form of Non-Qualified Stock Option Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed February 13, 2006 (the February 2006 Form 8-K”)).(1) 10.26 Form of Restricted Stock Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.1 to the February 2006 Form 8-K).(1) 10.27 Form of Amended and Restated Non-Qualified Stock Option Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2006 (the 2006 Form 10-Q2”)).(1) 10.28 Form of Amended and Restated Restricted Stock Agreement pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.2 to the 2006 Form 10-Q2).(1) 10.29 Annual Incentive Plan for Certain Executives, amended and restated as of December 2008 (incorporated by reference to Exhibit 10.2 to the January 2009 8-K).(1) 10.30 Starwood Hotels & Resorts Worldwide, Inc. Amended and Restated Deferred Compensation Plan, effective as of January 22, 2008 (incorporate by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007).(1) 10.31 Form of Indemnification Agreement between the Company and each of its Directors/Trustees and executive officers (incorporated by reference to Exhibit 10.10 to the 2003 Form 10-K).(1) 10.32 Employment Agreement, dated as of November 13, 2003, between the Company and Vasant Prabhu (incorporated by reference to Exhibit 10.68 to the 2003 10-K).(1) 10.33 Letter Agreement, dated August 14, 2007, between the Company and Vasant Prabhu (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 17, 2007 (the “August 17 Form 8-K”)).(1)

53 Exhibit Number Description of Exhibit 10.34 Amendment, dated as of December 30, 2008, to employment agreement between the Company and Vasant Prabhu.(1)(2) 10.35 Employment Agreement, dated as of September 20, 2004, between the Company and Steven J. Heyer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 24, 2004).(1) 10.36 Amendment, dated as of May 4, 2005, to Employment Agreement between the Company and Steve J. Heyer (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005).(1) 10.37 Separation Agreement and Mutual General Release of Claims between the Company and Steven J. Heyer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 2, 2007).(1) 10.38 Form of Non-Qualified Stock Option Agreement between the Company and Steven J. Heyer pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.70 to the 2004 Form 10-K).(1) 10.39 Form of Restricted Stock Unit Agreement between the Company and Steven J. Heyer pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.71 to the 2004 Form 10-K).(1) 10.40 Employment Agreement, dated as of November 13, 2003, between the Company and Kenneth Siegel (incorporated by reference to Exhibit 10.57 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (the “2000 Form 10-K”)).(1) 10.41 Letter Agreement, dated July 22, 2004 between the Company and Kenneth Siegel (incorporated by reference to Exhibit 10.73 to the 2004 Form 10-K).(1) 10.42 Letter Agreement, dated August 14, 2007, between the Company and Kenneth S. Siegel (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 17, 2007 (the “August 17 Form 8-K”)).(1) 10.43 Amendment, dated as of December 30, 2008, to employment agreement between the Company and Kenneth S. Siegel.(1)(2) 10.44 Employment Agreement, dated July 18, 1999, between Starwood Vacation Ownership and Raymond Gellein, Jr. (incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2006 (the “2006 Form 10-K”)).(1) 10.45 Form of cash bonus award between the Company and Raymond L. Gellein, Jr. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2007 (the 2007 10-Q3).(1) 10.46 Amendment agreement, dated December 6, 2007, among Starwood Vacation Ownership, the Company and Raymond Gellein, Jr. (incorporated by reference to Exhibit 10.49 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007) 10.47 Employment Agreement, dated as of September 21, 2006, between the Company and Matthew A. Ouimet (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 27, 2006).(1) 10.48 Letter Agreement, dated August 14, 2007, between the Company and Matthew A. Ouimet (incorporated by reference to Exhibit 10.2 to the August 17 Form 8-K).(1) 10.49 Separation Agreement and Mutual General Release of Claims, effective as of August 31, 2008, between the Company and Matthew 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, 2008).(1) 10.50 Employment Agreement, dated as of August 2, 2007, between the Company and Bruce W. Duncan (incorporated by reference to Exhibit 10.5 to the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2007).(1) 10.51 Form of Restricted Stock Unit Agreement between the Company and Bruce W. Duncan pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.2 to the 2007 Form 10-Q1).(1) 10.52 Amended and Restated Employment Agreement, dated as of December 30, 2008, between the Company and Frits van Paasschen.(1)(2)

54 Exhibit Number Description of Exhibit 10.53 Form of Non-Qualified Stock Option Agreement between the Company and Frits van Paasschen pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.5 to the 2007 Form 10-Q3).(1) 10.54 Form of Restricted Stock Unit Agreement between the Company and Frits van Paasschen pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.6 to the 2007 Form 10-Q3).(1) 10.55 Form of Restricted Stock Grant between the Company and Frits van Paasschen pursuant to the 2004 LTIP (incorporated by reference to Exhibit 10.7 to the 2007 Form 10-Q3).(1) 10.56 Form of Severance Agreement between the Company and each of Messrs. Ouimet, Gellein (incorporated by reference to Exhibit 10.3 to the 2006 Form 10-Q2).(1) 10.57 Form of Severance Agreement between the Company and each of Messrs. Siegel and Prabhu.(1)(2) 12.1 Calculation of Ratio of Earnings to Total Fixed Charges.(2) 21.1 Subsidiaries of the Registrants.(2) 23.1 Consent of Ernst & Young LLP.(2) 31.1 Certification Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 — Chief Executive Officer.(2) 31.2 Certification Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 — Chief Financial Officer.(2) 32.1 Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code — Chief Executive Officer.(2) 32.2 Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code — Chief Financial Officer.(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) Filed herewith.

55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

STARWOOD HOTELS & RESORTS WORLD- WIDE, INC.

By: /s/ FRITS VAN PAASSCHEN Frits van Paasschen Chief Executive Officer and Director

Date: February 27, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Signature Title Date

/s/ FRITS VAN PAASSCHEN Chief Executive Officer and Director February 27, 2009 Frits van Paasschen

/s/ BRUCE W. DUNCAN Chairman and Director February 27, 2009 Bruce W. Duncan

/s/ VASANT M. PRABHU Executive Vice President and Chief February 27, 2009 Vasant M. Prabhu Financial Officer (Principal Financial Officer)

/s/ ALAN M. SCHNAID Senior Vice President, Corporate February 27, 2009 Alan M. Schnaid Controller and Principal Accounting Officer

/s/ ADAM M. ARON Director February 27, 2009 Adam M. Aron

/s/ CHARLENE BARSHEFSKY Director February 27, 2009 Charlene Barshefsky

/s/ THOMAS E. CLARKE Director February 27, 2009 Thomas E. Clarke

/s/ CLAYTON C. DALEY,JR. Director February 27, 2009 Clayton C. Daley, Jr.

/s/ LIZANNE GALBREATH Director February 27, 2009 Lizanne Galbreath

/s/ ERIC HIPPEAU Director February 27, 2009 Eric Hippeau

56 Signature Title Date

/s/ STEPHEN R. QUAZZO Director February 27, 2009 Stephen R. Quazzo

/s/ THOMAS O. RYDER Director February 27, 2009 Thomas O. Ryder

/s/ KNEELAND C. YOUNGBLOOD Director February 27, 2009 Kneeland C. Youngblood

57 (This page intentionally left blank) New in 2008

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Starwood Hotels & Resorts Worldwide, Inc. Corporate Information

Corporate Offices Form 10-K and Other Investor Information Starwood Hotels & Resorts Worldwide, Inc. A copy of the Annual Report of Starwood Hotels & 1111 Westchester Avenue, White Plains, New York 10604 Resorts Worldwide, Inc. (“Starwood”) on Form 10-K filed 914 640 8100, www.starwoodhotels.com with the Securities and Exchange Commission may be obtained online at www.starwoodhotels.com and by Independent Registered Public Accounting Firm shareholders of record of Starwood without charge by calling 914 640 8100 or upon written request to: Ernst & Young LLP, New York, New York Investor Relations Stock Registrar & Transfer Agent Starwood Hotels & Resorts Worldwide, Inc. Registered shareholders with questions concerning 1111 Westchester Avenue, White Plains, New York 10604 stock certificates, account information, dividend payments or stock transfers should contact our transfer agent at: American Stock Transfer & Trust Company 59 Maiden Lane, New York, New York 10038 800 350 6202, www.amstock.com

Note: This Annual Report contains forward-looking statements within the meaning of federal securities regulations. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties and other factors that may cause actual results to differ materially from those anticipated at the time the forward-looking statements are made. Further results, performance and achievements may be affected by general economic conditions including the timing and robustness of a recovery from the current global economic downturn, the impact of war and terrorist activity, business and financing conditions, foreign exchange fluctuations, cyclicality of the real estate, including the sale of residential units, and the hotel and vacation ownership businesses, operating risks associated with the sale of residential units, hotel and vacation ownership businesses, relationships with associates, customers and property owners, the impact of the internet reservation channels, our reliance on technology, domestic and international political and geopolitical conditions, competition, governmental and regulatory actions (including the impact of changes in U.S. and foreign tax laws and their interpretation), travelers’ fears of exposure to contagious diseases, risk associated with the level of our indebtedness, risk associated with potential acquisitions and dispositions, and other circumstances and uncertainties. These risks and uncertainties are presented in detail in our filings with the Securities and Exchange Commission. Although we believe the expectations reflected in such forward- looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that results will not materially differ. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Starwood Hotels & Resorts Worldwide, Inc.

Starwood Hotels & Resorts Worldwide, Inc. Designed by Curran & Connors, Inc. / www.curran-connors.com 2009 PROXY STATEMENT & 2008 ANNUAL REPORT