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<div style="margin-top: 12pt; font-size: 10pt;" align="left"><b>Note 21. Commitments and Contingencies</b> </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> <b><i>Variable Interest Entities. </i></b>The Company has evaluated hotels in which it has a variable interest, generally in the form of investments, loans, guarantees, or equity. The Company determines if it is the primary beneficiary of the hotel by primarily considering the qualitative factors. Qualitative factors include evaluating if the Company has the power to control the VIE and has the obligation to absorb the losses and rights to receive the benefits of the VIE, that could potentially be significant to the VIE. The Company has determined it is not the primary beneficiary of these VIEs and therefore these entities are not consolidated in the Company's financial statements. See Note 7 for the VIEs in which the Company is deemed the primary beneficiary and has consolidated the entities. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> The 15 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. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> At June 30, 2010, the Company has approximately $71 million of investments and a loan balance of $9 million associated with 12 VIEs. 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. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> Additionally, the Company has approximately $6 million of investments and certain performance guarantees associated with three VIEs. The performance guarantees have possible cash outlays of up to $68 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. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> At December 31, 2009, the Company had approximately $81 million of investments associated with 18 VIEs, equity investments of $11 million associated with one VIE, and a loan balance of $5 million associated with one VIE. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> <b><i>Guaranteed Loans and Commitments. </i></b>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 $38 million at June 30, 2010. The Company evaluates these loans for impairment, and at June 30, 2010, believes the net carrying value of these loans is collectible. Unfunded loan commitments aggregating $18 million were outstanding at June 30, 2010, $1 million of which is expected to be funded in the next twelve months and in total. These loans typically are secured by pledges of project ownership interests and/or mortgages on the projects. The Company also has $52 million of equity and other potential contributions associated with managed or joint venture properties, $16 million of which is expected to be funded in the next twelve months. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> Surety bonds issued on behalf of the Company as of June 30, 2010 totaled $22 million, the majority of which were required by state or local governments relating to our vacation ownership operations and by our insurers to secure large deductible insurance programs. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> 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 obligated to fund shortfalls in performance levels through the issuance of loans. 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 terrorism. In the second quarter of 2010, the Company, at its option, agreed to cure a failed performance test for one of its managed hotels. As a result, the Company recorded a reserve for this performance guarantee of approximately $3 million, which is included in selling, general, administrative and other expenses. The Company does not anticipate any significant funding under performance guarantees in 2010. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> 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 throug 2014. 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 Company has recorded a loss contingency for this guarantee of $9 million and $8 million, respectively, reflected in other liabilities in the accompanying consolidated balance sheets at June 30, 2010 and December 31, 2009, respectively. The Company does not anticipate losing a significant number of management or franchise contracts in 2010.
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<div style="margin-top: 6pt; font-size: 10pt;" align="left"> 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. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> In connection with the sale of 33 hotels to a third party in 2006, the Company agreed to indemnify the third party for certain pre-disposition liabilities, including operations and tax liabilities. At this time, the Company believes that it will not have to make any significant payments under such indemnities. </div>
<div style="margin-top: 6pt; font-size: 10pt;" align="left"> <b><i>Litigation. </i></b>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.</div></div></div></div></div> </div>Note 21. Commitments and Contingencies
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