Timeshare Strategy-Impairment Charges

2011 Charges

In preparing our former Timeshare segment to operate as an independent, publicly traded company following our spin-off of the stock of MVW (see Footnote No. 17, “Spin-off” for additional information), management assessed the Timeshare segment’s intended use of excess undeveloped land and built inventory and the current market conditions for those assets. On September 8, 2011, management approved a plan for the Timeshare segment to accelerate cash flow through the monetization of certain excess undeveloped land in the U.S., Mexico, and the Bahamas over the next 18 to 24 months and to accelerate sales of excess built luxury fractional and residential inventory over the next three years. As a result, in accordance with the guidance for accounting for the impairment or disposal of long-lived assets, because the nominal cash flows from the planned land sales and the estimated fair values of the land and excess built luxury inventory were less than their respective carrying values, we recorded a pre-tax non-cash impairment charge of $324 million ($234 million after-tax) in our 2011 Income Statement under the “Timeshare strategy-impairment charges” caption.

2009 Charges

In 2009 we recorded pretax charges totaling $752 million in our Income Statement ($502 million after-tax), including $614 million of pretax charges that impacted operating income under the “Timeshare strategy-impairment charges” caption, and $138 million of pretax charges that impacted non-operating income under the “Timeshare strategy-impairment charges (non-operating)” caption. The $752 million of pretax impairment charges were non-cash, other than $27 million of charges associated with ongoing mezzanine loan fundings and $21 million of charges for purchase commitments.

For additional information related to the 2009 and 2011 impairment charges, including how these impairments were determined, the impairment charges grouped by product type and/or geographic location, and a table showing the composition of the charges, see Footnote No. 18, “Timeshare Strategy - Impairment Charges.”

Restructuring Costs and Other Charges

As part of the restructuring actions we began in 2008, we initiated further cost savings measures in 2009 associated with our former Timeshare segment, hotel development, above-property level management, and corporate overhead. These further measures resulted in additional restructuring costs of $51 million in 2009. For additional information on the 2009 restructuring costs, including the types of restructuring costs incurred in total and by segment, please see Footnote No. 21, “Restructuring Costs and Other Charges,” of the Notes to the Financial Statements in our 2009 Form 10-K. For the cumulative restructuring costs incurred since inception, please see Footnote No. 19, “Restructuring Costs and Other Charges,” of the Notes to our Financial Statements in this Annual Report.

As a result of our restructuring efforts, we realized the following annual cost savings in 2010 and 2009, respectively, which were primarily reflected in our Income Statement under the expense captions noted: (i) $113 million ($73 million after-tax) and $80 million to $85 million ($48 million to $52 million after-tax) for our former Timeshare segment, under “Timeshare-direct” and “General, administrative, and other”; (ii) $12 million ($8 million after-tax) and $9 million ($5 million after-tax) for hotel development across several of our Lodging segments, primarily under “General, administrative, and other”; and (iii) $10 million ($8 million after-tax) and $8 million ($5 million after-tax) for reducing above property-level lodging management personnel under “General, administrative, and other.”

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