FORWARD-LOOKING STATEMENTS

This report includes "forward-looking" statements, as that term is defined by the Securities and Exchange Commission in its rules, regulations and releases. Forward-looking statements are any statements other than statements of historical fact, including statements regarding our expectations, beliefs, hopes, intentions or strategies regarding the future. In some cases, forward-looking statements can be identified by the use of words such as "may," "expects," "should," "believes," "plans," "anticipates," "estimates," "predicts," "potential," "continue," or other words of similar meaning. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements. Factors that might cause such a difference include, but are not limited to, general economic conditions, our financial and business prospects, our capital requirements, our financing prospects, our relationships with associates and those disclosed as risks under "Risk Factors" in Part II, Item 1A of this Report. We caution readers that any such statements are based on currently available operational, financial and competitive information, and they should not place undue reliance on these forward-looking statements, which reflect management's opinion only as of the date on which they were made. Except as required by law, we disclaim any obligation to review or update these forward-looking statements to reflect events or circumstances as they occur.

BUSINESS AND OVERVIEW

We are a global provider of hospitality products and services and operate our business in the following three segments:

† Lodging-franchises hotels in the upscale, midscale, economy and extended stay segments of the lodging industry and provides property management services to owners of our luxury, upscale and midscale hotels.

† Vacation Exchange and Rentals-provides vacation exchange products and services to owners of intervals of vacation ownership interests ("VOIs") and markets vacation rental properties primarily on behalf of independent owners.

† Vacation Ownership-develops, markets and sells VOIs to individual consumers, provides consumer financing in connection with the sale of VOIs and provides property management services at resorts.

Discussed below are our key operating statistics, consolidated results of operations and the results of operations for each of our reportable segments. The reportable segments presented below represent our operating segments for which separate financial information is available and which is utilized on a regular basis by our chief operating decision maker to assess performance and to allocate resources. In identifying our reportable segments, we also consider the nature of services provided by our operating segments. Management evaluates the operating results of each of our reportable segments based upon net revenues and EBITDA. Our presentation of EBITDA may not be comparable to similarly-titled measures used by other companies.

                              OPERATING STATISTICS

The following table presents our operating statistics for the three months ended
June 30, 2009 and 2008. See Results of Operations section for a discussion as to
how these operating statistics affected our business for the periods presented.


                                                                  Three Months Ended June 30,
                                                               2009            2008        % Change

Lodging (a)
Number of rooms (b)                                             590,200        551,500             7
RevPAR (c)                                                  $     32.38      $   38.87           (17 )
Royalty, marketing and reservation revenues (in 000s) (d)   $   111,030      $ 127,238           (13 )
Vacation Exchange and Rentals
Average number of members (000s) (e)                              3,795          3,682             3
Annual dues and exchange revenues per member (f)            $    117.59      $  128.91            (9 )
Vacation rental transactions (in 000s) (g)                          324            319             2
Average net price per vacation rental (h)                   $    422.00      $  477.63           (12 )
Vacation Ownership
Gross VOI sales (in 000s) (i)                               $   327,000      $ 532,000           (39 )
Tours (j)                                                       164,000        314,000           (48 )
Volume Per Guest ("VPG") (k)                                $     1,854      $   1,583            17

(a) Includes Microtel Inns & Suites and Hawthorn Suites hotel brands, which were acquired on July 18, 2008. Therefore, the operating statistics for 2009 are not presented on a comparable basis to the 2008 operating statistics. On a comparable basis (excluding the Microtel Inns & Suites and Hawthorn Suites hotel brands from the 2009 amounts), the number of rooms would have increased 1% and RevPAR and royalty, marketing and reservation revenues would have both declined 17%.

(b) Represents the number of rooms at lodging properties at the end of the period which are either (i) under franchise and/or management agreements,
(ii) properties affiliated with the Wyndham Hotels and Resorts brand for which we receive a fee for reservation and/or other services provided and
(iii) properties managed under the CHI Limited joint venture. The amounts in 2009 and 2008 include 3,549 and 4,367 affiliated rooms, respectively.

(c) Represents revenue per available room and is calculated by multiplying the percentage of available rooms occupied during the period by the average rate charged for renting a lodging room for one day.

(d) Royalty, marketing and reservation revenues are typically based on a percentage of the gross room revenues of each hotel. Royalty revenue is generally a fee charged to each franchised or managed hotel for the use of one of our trade names, while marketing and reservation revenues are fees that we collect and are contractually obligated to spend to support marketing and reservation activities.

(e) Represents members in our vacation exchange programs who pay annual membership dues. For additional fees, such participants are entitled to exchange intervals for intervals at other properties affiliated with our vacation exchange business. In addition, certain participants may exchange intervals for other leisure-related products and services.

(f) Represents total revenues from annual membership dues and exchange fees generated for the period divided by the average number of vacation exchange members during the period. Excluding the impact of foreign exchange movements, such decrease was 4%.

(g) Represents the number of transactions that are generated in connection with customers booking their vacation rental stays through us. In our European vacation rentals businesses, one rental transaction is recorded each time a standard one-week rental is booked; however, in the United States, one rental transaction is recorded each time a vacation rental stay is booked, regardless of whether it is less than or more than one week.

(h) Represents the net revenue generated from renting vacation properties to customers divided by the number of rental transactions. Excluding the impact of foreign exchange movements, the average net price per vacation rental would have increased 3%.

(i) Represents gross sales of VOIs (including tele-sales upgrades, which are a component of upgrade sales) before deferred sales and loan loss provisions.

(j) Represents the number of tours taken by guests in our efforts to sell VOIs.

(k) Represents gross VOI sales (excluding tele-sales upgrades, which are a component of upgrade sales) divided by the number of tours.

     THREE MONTHS ENDED JUNE 30, 2009 VS. THREE MONTHS ENDED JUNE 30, 2008

Our consolidated results are as follows:


                                             Three Months Ended June 30,
                                          2009            2008         Change

           Net revenues                 $    920       $     1,132     $  (212 )
           Expenses                          769               961        (192 )

           Operating income                  151               171         (20 )
           Other income, net                   -                (4 )         4
           Interest expense                   26                18           8
           Interest income                    (2 )              (3 )         1

           Income before income taxes        127               160         (33 )
           Provision for income taxes         56                62          (6 )

           Net income                   $     71       $        98     $   (27 )

During the second quarter of 2009, our net revenues decreased $212 million (19%) principally due to (i) a $205 million decrease in gross sales of VOIs at our vacation ownership business reflecting the planned reduction in tour flow, partially offset by an increase in VPG; (ii) a $26 million decrease in net revenues in our lodging business primarily due to global RevPAR weakness;
(iii) a $16 million decrease in net revenues from rental transactions at our vacation exchange and rentals business due to a decrease in the average net price per rental, including the unfavorable impact of foreign exchange movements; (iv) an $11 million decrease in ancillary revenues at our vacation exchange and rentals business primarily from various sources, which includes the impact from our termination of a low margin travel service contract; (v) a $9 million increase in our provision for loan losses primarily due to a higher estimate of uncollectible receivables as a percentage of VOI sales financed; and
(vi) a $7 million decrease in annual dues and exchange revenues due to a decline in exchange revenue per member, including the unfavorable impact of foreign exchange movements, partially offset by growth in the average number of members. Such decreases were partially offset by (i) a net increase of $42 million in the recognition of revenue previously deferred under the percentage-of-completion method of accounting at our vacation ownership business; (ii) $11 million of incremental property management fees within our vacation ownership business primarily as a result of growth in the number of units under management; (iii) a $5 million increase in consumer financing revenues earned on vacation ownership contract receivables due primarily to growth in the portfolio; and (iv) a $5 million increase in ancillary revenues at our vacation ownership business associated with the usage of bonus points/credits, which are provided as purchase incentives on VOI sales. The net revenue decrease at our vacation exchange and rentals business includes the unfavorable impact of foreign currency translation of $31 million.

Total expenses decreased $192 million (20%) principally reflecting (i) a $79 million decrease in marketing and reservation expenses primarily resulting from the reduced sales pace at our vacation ownership business and lower marketing and related spend at our lodging business; (ii) $75 million of lower employee related expenses at our vacation ownership business primarily due to lower sales commission and administration costs as well as cost savings related to organizational realignment initiatives; (iii) $56 million of decreased cost of VOI sales due to the expected decline in VOI sales; (iv) the favorable impact of foreign currency translation on expenses at our vacation exchange and rentals business of $26 million; and (v) $16 million in cost savings primarily from overhead reductions and benefits related to organizational realignment initiatives at our vacation exchange and rentals business. These decreases were partially offset by (i) $20 million of increased costs at our vacation ownership business associated with maintenance fees on unsold inventory, our trial membership marketing program and sales incentives awarded to owners; (ii) a net increase of $17 million of expenses related to the recognition of revenue previously deferred at our vacation ownership business, as discussed above;
(iii) an $8 million increase in consumer financing interest expenses primarily related to a significant increase in interest rates; (iv) the absence of a $7 million net benefit related to the resolution of and adjustment to certain contingent liabilities and assets recorded during the second quarter of 2008;
(v) $7 million of losses from foreign exchange transactions and the unfavorable impact from foreign exchange hedging contracts; (vi) $4 million of increased corporate expenses primarily related to hedging activity and severance related expenses, partially offset by cost savings initiatives; and (vii) the recognition of $3 million of costs at our vacation exchange and rentals and vacation ownership businesses due to organizational realignment initiatives (see Restructuring Plan for more details).

Other income, net decreased $4 million as a result of the absence of the following items that were recorded during the second quarter of 2008: (i) income associated with the assumption of a lodging-related credit card marketing program obligation by a third party, (ii) net earnings primarily from equity investments and (iii) a gain on the sale of assets. Such amounts are included within our segment EBITDA results. Interest expense increased $8 million quarter over quarter due to

an increase in interest incurred on our long-term debt facilities resulting from our May 2009 debt issuances (see "Financial Obligations") and a decrease in capitalized interest at our vacation ownership business due to lower development of vacation ownership inventory. Interest income decreased $1 million quarter over quarter due to decreased interest earned on invested cash balances as a result of lower rates earned on investments. Our effective tax rate increased from 39% during the second quarter of 2008 to 44% during the second quarter of 2009 primarily due to a $4 million write-off of deferred tax assets that were associated with stock-based compensation, which were in excess of our pool of excess tax benefits available to absorb tax deficiencies. Excluding the tax impact on legacy related matters, we expect our effective tax rate will approximate 39%.

As a result of these items, our net income decreased $27 million (28%) as compared to the second quarter of 2008.

Following is a discussion of the results of each of our reportable segments during the second quarter:

                                               Net Revenues                       EBITDA
                                      2009       2008       % Change   2009      2008      % Change

Lodging                               $ 174     $   200       (13)     $  50     $  62       (19)
Vacation Exchange and Rentals           280         314       (11)        56        54        4
Vacation Ownership                      467         621       (25)       107       112       (4)

Total Reportable Segments               921       1,135       (19)       213       228       (7)
Corporate and Other (a)                  (1 )        (3 )      *         (17 )      (7 )      *

Total Company                         $ 920     $ 1,132       (19)       196       221       (11)

Less: Depreciation and amortization                                       45        46
 Interest expense                                                         26        18
 Interest income                                                          (2 )      (3 )

Income before income taxes                                             $ 127     $ 160

(*) Not meaningful.

(a) Includes the elimination of transactions between segments.

Lodging

Net revenues and EBITDA decreased $26 million (13%) and $12 million (19%), respectively, during the second quarter of 2009 compared to the second quarter of 2008 primarily reflecting lower royalty, marketing and reservation revenues and a decline in property management reimbursable revenues, partially offset by incremental net revenues generated from the July 2008 acquisition of USFS. In addition, EBITDA reflects lower marketing expenses and decreased expenses primarily related to a decline in property management reimbursable revenues, partially offset by increased expenses resulting from the USFS acquisition and the absence of income associated with the assumption of a credit card marketing program obligation by a third party.

The acquisition of U.S. Franchise Systems, Inc. ("USFS"), which included its Microtel Inns & Suites and Hawthorn Suites brands, contributed incremental net revenues and EBITDA of $6 million and $4 million, respectively. Excluding the impact of this acquisition, net revenues declined $32 million reflecting (i) an $18 million decrease in domestic royalty, marketing and reservation revenues primarily due to a RevPAR decline of 14%, (ii) a $4 million decrease in international royalty, marketing and reservation revenues resulting from a RevPAR decrease of 27%, or 18% excluding the impact of foreign exchange movements, partially offset by a 13% increase in international rooms,
(iii) $3 million of lower reimbursable revenues earned by our property management business and (iv) a $7 million net decrease in other revenue. The RevPAR decline was largely driven by industry-wide occupancy declines as well as price reductions. The $3 million of lower reimbursable revenues earned by our property management business primarily relates to payroll costs that we incur and pay on behalf of property owners, for which we are entitled to be fully reimbursed by the property owner. As the reimbursements are made based upon cost with no added margin, the recorded revenue is offset by the associated expense and there is no resultant impact on EBITDA. Such amount decreased as a result of a reduction in variable labor costs at our managed properties due to lower occupancy, as well as a reduction in the number of hotels under management.

In addition, EBITDA was positively impacted by a decrease of $14 million in marketing and related expenses primarily due to lower spend across our brands as a result of a decline in related marketing fees received, as well as the timing of spend. Such decrease was partially offset by the absence of $2 million of income associated with the assumption of a credit card marketing program obligation by a third party.

As of June 30, 2009, we had 7,024 properties and approximately 590,200 rooms in our system. Additionally, our hotel development pipeline included 1,000 hotels and approximately 110,700 rooms, of which 41% were international and 50% were new construction as of June 30, 2009.

Vacation Exchange and Rentals

Net revenues decreased $34 million (11%) and EBITDA increased $2 million (4%) during the second quarter of 2009 compared with the second quarter of 2008. Net revenue and expense decreases include $31 million and $26 million, respectively, of currency impacts from a stronger U.S. dollar compared to other foreign currencies. The decrease in net revenues reflects a $16 million decrease in net revenues from rental transactions and related services, an $11 million decrease in ancillary revenues and a $7 million decrease in annual dues and exchange revenues. EBITDA further includes the net impact of $14 million in cost savings from overhead reductions and benefits related to organizational realignment initiatives, partially offset by $7 million of losses from foreign exchange transactions and the unfavorable impact from foreign exchange hedging contracts.

Net revenues generated from rental transactions and related services decreased $16 million (10%) during the second quarter of 2009 compared with the second quarter of 2008. Excluding the unfavorable impact of foreign exchange movements, net revenues generated from rental transactions and related services increased $7 million (5%) during the second quarter of 2009 driven by a 3% increase in the average net price per rental primarily resulting from premium holiday pricing at our Landal Greenparks business for Easter, which fell during the second quarter of 2009 as compared to the first quarter of 2008. Rental transaction volume increased 2% primarily driven by increased volume at our Landal business, which benefited from enhanced marketing programs and the favorable impact on revenue from the Easter holiday.

Annual dues and exchange revenues decreased $7 million (6%) during the second quarter of 2009 compared with the second quarter of 2008. Excluding the unfavorable impact of foreign exchange movements, annual dues and exchange revenues declined $1 million (1%) driven by a 4% decline in revenue generated per member, partially offset by a 3% increase in the average number of members primarily due to the enrollment of approximately 135,000 members at the beginning of 2009 resulting from our Disney Vacation Club affiliation. The decrease in revenue per member was due to lower exchange transactions and subscription fees, partially offset by the impact of higher exchange transaction pricing. We believe that the lower revenue per member reflects: (i) recent heightened economic uncertainty, (ii) lower subscription fees primarily due to member retention programs offered at multiyear discounts and (iii) recent trends among timeshare vacation ownership developers to enroll members in private label clubs, whereby the members have the option to exchange within the club or through RCI channels. Such trends have a positive impact on the average number of members but an offsetting effect on the number of exchange transactions per member.

A decrease in ancillary revenues of $11 million was driven by (i) $5 million from various sources, which include fees from additional services provided to transacting members, fees from our credit card loyalty program and fees generated from programs with affiliated resorts, (ii) $4 million in travel revenue primarily due to our termination of a low margin travel service contract and (iii) $2 million due to the unfavorable translation effects of foreign exchange movements.

In addition, EBITDA was positively impacted by a decrease in expenses of $36 million (14%) primarily driven by (i) the favorable impact of foreign currency translation on expenses of $26 million and (ii) $16 million in cost savings primarily from overhead reductions and benefits related to organizational realignment initiatives. Such decreases were partially offset by
(i) $7 million of losses from foreign exchange transactions and the unfavorable impact from foreign exchange hedging contracts and (ii) $2 million of costs relating to organizational realignment initiatives (see Restructuring Plan for more details).

Vacation Ownership

Net revenues and EBITDA decreased $154 million (25%) and $5 million (4%), respectively, during the second quarter of 2009 compared with the second quarter of 2008.

During October 2008, in response to an uncertain credit environment, we announced plans to (i) refocus our vacation ownership sales and marketing efforts, which resulted in fewer tours, and (ii) concentrate on consumers with higher credit quality beginning in the fourth quarter of 2008. As a result, operating results for the second quarter of 2009 reflect decreased gross VOI sales, decreased employee-related and marketing expenses, lower cost of VOI sales and the recognition of previously deferred revenue as a result of continued construction of resorts under development.

Gross sales of VOIs at our vacation ownership business decreased $205 million (39%) during the second quarter of 2009, driven principally by a 48% decrease in tour flow, partially offset by an increase of 17% in VPG. Tour flow was negatively impacted by the closure of over 85 sales offices since October 1, 2008 related to our organizational realignment initiatives.

VPG was positively impacted by (i) a favorable tour flow mix resulting from the type of sales offices closed as part of the organizational realignment and
(ii) a higher percentage of sales being upgrades to existing owners during the second quarter of 2009 as compared to the second quarter of 2008 as a result of changes in the mix of tours. Our provision for loan losses increased $9 million during the second quarter of 2009 as compared to the second quarter of 2008 primarily related to a higher estimate of uncollectible receivables as a percentage of VOI sales financed. Such results were partially offset by
(i) $11 million of incremental property management fees primarily as a result of growth in the number of units under management and (ii) a $5 million increase in ancillary revenues associated with the usage of bonus points/credits, which are provided as purchase incentives on VOI sales.

Under the percentage-of-completion method of accounting, a portion of the total revenue associated with the sale of a vacation ownership interest is deferred if the construction of the vacation resort has not yet been fully completed. Such revenue will be recognized in future periods as construction of the vacation resort progresses. During the second quarter of 2009, we continued construction on resorts where VOI sales were primarily generated during 2008, resulting in the recognition of $37 million of revenue previously deferred under the percentage-of-completion method of accounting compared to $5 million of deferred revenue during the second quarter of 2008. Accordingly, net revenues and EBITDA comparisons were positively impacted by $37 million (including the impact of the provision for loan losses) and $20 million, respectively, as a result of the net increase in the recognition of revenue previously deferred under the percentage-of-completion method of accounting.

Our net revenues comparison was favorably impacted by $5 million and our EBITDA comparison was negatively impacted by $3 million, respectively, during the second quarter of 2009 due to net interest income of $74 million earned on contract receivables during the second quarter of 2009 as compared to $77 million during the second quarter of 2008. Such decrease was primarily due to higher interest costs during the second quarter 2009, partially offset by growth in the portfolio. We incurred interest expense of $35 million on our securitized debt at a weighted average rate of 7.4% during the second quarter of 2009 compared to $27 million at a weighted average rate of 4.9% during the second quarter of 2008. Our net interest income margin decreased from 74% during the second quarter of 2008 to 68% during the second quarter of 2009 due to a 246 basis point increase in interest rates, partially offset by growth in the portfolio, which increased at a slower rate than our debt costs.

In addition, EBITDA was positively impacted by $174 million (36%) of decreased expenses, exclusive of incremental interest expense on our securitized debt, primarily resulting from (i) $75 million of lower employee-related expenses primarily due to lower sales commission and administration costs as well as cost savings related to organizational realignment initiatives, (ii) $65 million of decreased marketing expenses due to the reduction in our sales pace and
(iii) $56 million of decreased cost of VOI sales due to the expected decline in . . .