Item 1. Business.

Corporate Structure and Business

We are a worldwide operator, franchisor, and licensor of hotel, residential, and timeshare properties under numerous brand names at different price and service points. Consistent with our focus on management, franchising, and licensing, we own very few of our lodging properties. We were organized as a corporation in Delaware in 1997 and became a public company in 1998 when we were “spun off” as a separate entity by the company formerly named “Marriott International, Inc.”

We believe that our portfolio of brands, shown in the following table, is the largest and most compelling range of brands and properties of any lodging company in the world.

We discuss our operations in the following reportable business segments: North American Full-Service, North American Limited-Service, and Asia Pacific. Our Europe, Middle East and Africa, and Caribbean and Latin America operating segments do not individually meet the criteria for separate disclosure as reportable segments.

Acquisition of Starwood Hotels & Resorts Worldwide

On September 23, 2016 (the “Merger Date”), we completed the acquisition of Starwood Hotels & Resorts Worldwide, LLC, formerly known as Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”), through a series of transactions (the “Starwood Combination”), after which Starwood became an indirect wholly-owned subsidiary of Marriott. Our Financial Statements and related discussions in this report include Starwood’s results of operations only from the Merger Date through year-end 2018 and reflect the financial position of our combined company at December 31, 2018 and 2017 except where we specifically state otherwise, such as certain statistics described under the caption “Performance Measures” in Part II, Item 7. We refer to our business associated with brands that were in our portfolio before the Starwood Combination as “Legacy-Marriott” and to the Starwood business and brands that we acquired as “Legacy-Starwood.” See Footnote 3. Dispositions and Acquisitions for more information.

Starwood Reservations Database Security Incident

On November 30, 2018, we announced a data security incident involving unauthorized access to the Starwood reservations database (the “Data Security Incident”). We have completed the planned phase out of the operation of the Starwood reservations database, effective as of the end of 2018. For further information about the Data Security Incident, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Data Security Incident” in Footnote 7. Commitments and Contingencies in Part II, Item 8.

Company-Operated Properties

At year-end 2018, we had 2,020 company-operated properties (566,759 rooms), which included properties under long-term management or lease agreements with property owners (management and lease agreements together, the “Operating Agreements”), properties that we own, and home and condominium communities for which we manage the related owners’ associations.

Terms of our management agreements vary, but we earn a management fee that is typically composed of a base management fee, which is a percentage of the revenues of the hotel, and an incentive management fee, which is based on the profits of the hotel. Our management agreements also typically include reimbursement of costs of operations (both direct and indirect). Such agreements are generally for initial periods of 20 to 30 years, with options for us to renew for up to 50 or more additional years. Our lease agreements also vary, but may include fixed annual rentals plus additional rentals based on a specified percentage of annual revenues that exceed a fixed amount. Many of our Operating Agreements are subordinated to mortgages or other liens securing indebtedness of the owners. Many of our Operating Agreements also permit the owners to terminate the agreement if we do not meet certain performance metrics and financial returns fail to meet defined levels for a period of time and we have not cured those deficiencies. In certain circumstances, some of our management agreements allow owners to convert company-operated properties to franchised properties under our brands.

For the lodging facilities we operate, we generally are responsible for hiring, training, and supervising the managers and employees needed to operate the facilities and for purchasing supplies, and owners are required to reimburse us for those costs. We provide centralized reservation services and advertising, marketing, and promotional services, as well as various accounting and data processing services, and owners are also required to reimburse us for those costs.

Franchised, Licensed, and Unconsolidated Joint Venture Properties

We have franchising, licensing, and joint venture programs that permit hotel owners and operators and Marriott Vacations Worldwide Corporation (“MVW”), our former timeshare subsidiary that we spun off in 2011, to use many of our lodging brand names and systems. Under our hotel franchising programs, we generally receive an initial application fee and continuing royalty fees, which typically range from four to six percent of room revenues for all brands, plus two to three percent of food and beverage revenues for certain full-service hotels. We are a partner in unconsolidated joint ventures that manage and, in some cases, own hotels. Some of these joint ventures also provide services to franchised hotels. We recognize our share of these joint ventures’ net income or loss in the “Equity in earnings” caption of our Income Statements. Franchisees and certain joint ventures contribute to our marketing and advertising programs and pay fees for use of our centralized reservation systems.

We also receive royalty fees under license agreements with MVW and its affiliates for certain brands, including Marriott Vacation Club, Grand Residences by Marriott, The Ritz-Carlton Destination Club, Westin, Sheraton, and for certain existing properties, St. Regis and The Luxury Collection. We receive license fees from MVW consisting of a fixed annual fee, adjusted for inflation, plus certain variable fees based on sales volumes.

At year-end 2018, we had 4,735 franchised and licensed properties (729,413 rooms) and 151 unconsolidated joint venture properties (21,196 rooms).

Residential

We use or license our trademarks for the sale of residential real estate, often in conjunction with hotel development, and receive branding fees for sales of such branded residential real estate by others. Third-party owners typically construct and sell residences with limited amounts, if any, of our capital at risk. We have used or licensed our JW Marriott, The Ritz-Carlton, Ritz-Carlton Reserve, W, The Luxury Collection, St. Regis, EDITION, Bulgari, Marriott, Sheraton, Westin, Four Points, Delta and Autograph Collection brand names and trademarks for residential real estate sales. While the worldwide residential market is very large, we believe the luxurious nature of our residential properties, the quality and exclusivity associated with our brands, and the hospitality services that we provide, all serve to make residential properties bearing our trademarks distinctive.

Seasonality

In general, business at company-operated and franchised properties fluctuates only moderately with the seasons and is relatively stable. Business at some resort properties may be seasonal depending on location.

Relationship with Major Customer

We operate or franchise properties that are owned or leased by Host Hotels & Resorts, Inc. (“Host”). In addition, Host is a partner in several partnerships that own properties that we operate under long-term management agreements. See Footnote 19. Relationship with Major Customer for more information.

Intellectual Property

We operate in a highly competitive industry and our brand names, trademarks, service marks, trade names, and logos are very important to the sales and marketing of our properties and services. We believe that our brand names and other intellectual property have come to represent the highest standards of quality, care, service, and value to our customers, guests, and the traveling public. Accordingly, we register and protect our intellectual property where we deem appropriate and otherwise protect against its unauthorized use.

Brand Portfolio

We believe that our brand portfolio offers the largest and most compelling range of brands and properties in hospitality, with two overall styles of hotels -- Classic, offering time-honored hospitality for the modern traveler, and Distinctive, offering memorable experiences with a unique perspective -- each of which we group into three quality tiers: Luxury, Premium, and Select.

Luxury offers bespoke and superb amenities and services. Our Classic Luxury hotel brands include JW Marriott, The Ritz-Carlton, and St. Regis. Our Distinctive Luxury hotel brands include W Hotels, The Luxury Collection, EDITION, and Bulgari.

Premium offers sophisticated and thoughtful amenities and services. Our Classic Premium hotel brands include Marriott Hotels, Sheraton, Delta Hotels, Marriott Executive Apartments, and Marriott Vacation Club. Our Distinctive Premium hotel brands include Westin, Renaissance, Le Méridien, Autograph Collection, Gaylord Hotels, Tribute Portfolio, and Design Hotels.

Select offers smart and easy amenities and services with our longer stay brands offering amenities that mirror the comforts of home. Our Classic Select hotel brands include Courtyard, Residence Inn, Fairfield by Marriott, SpringHill Suites, Four Points, TownePlace Suites, and Protea Hotels. Our Distinctive Select hotel brands include Aloft, AC Hotels by Marriott, Element, and Moxy.

The following table shows the geographic distribution of our brands at year-end 2018:

		North America	Europe	Middle East & Africa	Asia Pacific	Caribbean & Latin America	Total
Luxury
JW Marriott®	Properties	28	6	4	33	13	84
Rooms	15,681	2,075	2,708	13,122	3,597	37,183
The Ritz-Carlton®	Properties	39	13	13	30	6	101
Rooms	11,398	3,079	3,867	7,520	1,786	27,650
W® Hotels	Properties	25	6	3	15	6	55
Rooms	7,474	1,253	1,221	4,021	1,074	15,043
The Luxury Collection®	Properties	17	44	7	30	12	110
Rooms	5,084	6,566	1,962	7,286	1,058	21,956
St. Regis®	Properties	10	6	4	18	3	41
Rooms	1,977	834	1,168	4,612	448	9,039
EDITION®	Properties	2	3	1	2	—	8
Rooms	567	375	255	671	—	1,868
Bulgari®	Properties	—	2	1	3	—	6
Rooms	—	143	120	260	—	523
Premium
Marriott Hotels®	Properties	341	94	24	80	28	567
Rooms	134,834	23,969	8,061	26,962	7,540	201,366
Sheraton®	Properties	190	61	31	123	36	441
Rooms	72,674	16,580	10,408	46,073	9,882	155,617
Westin®	Properties	129	19	7	56	12	223
Rooms	52,955	6,125	1,839	17,595	3,639	82,153
Renaissance® Hotels	Properties	88	36	4	39	8	175
Rooms	29,104	8,564	1,233	13,633	2,565	55,099
Le Méridien®	Properties	19	15	24	47	2	107
Rooms	3,987	5,010	6,612	12,154	271	28,034
Autograph Collection® Hotels	Properties	95	46	8	8	9	166
Rooms	20,218	6,466	1,738	2,167	4,313	34,902
Delta Hotels by MarriottTM (Delta Hotels®)	Properties	61	1	—	1	—	63
Rooms	14,905	223	—	339	—	15,467
Gaylord Hotels®	Properties	6	—	—	—	—	6
Rooms	9,918	—	—	—	—	9,918
Marriott Executive Apartments®	Properties	—	4	7	17	2	30
Rooms	—	361	823	3,016	240	4,440
Tribute Portfolio®	Properties	18	6	—	5	2	31
Rooms	4,285	697	—	882	57	5,921
Select
Courtyard by Marriott® (Courtyard®)	Properties	1,027	63	7	63	39	1,199
Rooms	143,389	11,828	1,487	15,306	6,428	178,438
Residence Inn by Marriott® (Residence Inn®)	Properties	789	9	3	—	2	803
Rooms	97,335	1,196	301	—	249	99,081
Fairfield by Marriott®	Properties	940	—	—	26	13	979
Rooms	88,052	—	—	4,403	1,833	94,288
SpringHill Suites by Marriott® (SpringHill Suites®)	Properties	414	—	—	—	—	414
Rooms	48,959	—	—	—	—	48,959
Four Points® by Sheraton (Four Points®)	Properties	152	20	12	67	20	271
Rooms	23,015	3,042	3,451	16,951	2,685	49,144
TownePlace Suites by Marriott® (TownePlace Suites®)	Properties	388	—	—	—	—	388
Rooms	39,231	—	—	—	—	39,231

		North America	Europe	Middle East & Africa	Asia Pacific	Caribbean & Latin America	Total
Aloft® Hotels	Properties	108	7	8	27	9	159
Rooms	16,296	1,310	2,012	6,240	1,494	27,352
AC Hotels by Marriott®	Properties	49	85	1	—	10	145
Rooms	8,447	10,589	188	—	1,553	20,777
Protea Hotels by Marriott® (Protea Hotels®)	Properties	—	—	80	—	—	80
Rooms	—	—	8,265	—	—	8,265
Element® Hotels	Properties	31	2	1	5	—	39
Rooms	4,388	293	168	1,085	—	5,934
Moxy® Hotels	Properties	11	23	—	3	—	37
Rooms	2,235	4,873	—	469	—	7,577
Residences and Timeshare
Residences	Properties	59	6	2	14	8	89
Rooms	6,959	256	197	2,144	401	9,957
Timeshare	Properties	70	5	—	5	9	89
Rooms	18,313	919	—	471	2,483	22,186
	Total Properties 1	5,106	582	252	717	249	6,906
Total Rooms 1	881,680	116,626	58,084	207,382	53,596	1,317,368

(1)	Excludes Design HotelsTM properties, which participate as partner hotels in our Loyalty Program and are available for booking through our reservation channels.

Other Activities

Loyalty Program, Sales and Marketing, and Reservation Systems. On August 18, 2018, Marriott launched one loyalty program with unified benefits under its three legacy loyalty brands — Marriott Rewards, The Ritz-Carlton Rewards, and Starwood Preferred Guest (“SPG”). On February 13, 2019, the combined program completed its integration under one name, Marriott BonvoyTM. Members have access to Marriott Bonvoy’s diverse brand portfolio, rich benefits, and travel experiences. We refer to Marriott Bonvoy throughout this report as our “Loyalty Program.”

Our Loyalty Program is a low cost and high impact vehicle for our revenue generation efforts. It rewards members with points toward free hotel stays, experiences and other benefits, or miles with participating airline programs. We believe that our Loyalty Program generates substantial repeat business that might otherwise go to competing hotels. In 2018, Loyalty Program members purchased approximately 50 percent of our room nights. We continually enhance our Loyalty Program offerings and strategically market to this large and growing guest base to generate revenue. See the “Loyalty Program” caption in Footnote 2. Summary of Significant Accounting Policies for more information.

Marriott.com, our international website, and our mobile apps continued to grow significantly in 2018. Our web and mobile platforms allow for a seamless booking experience and easy enrollment in our Loyalty Program to book our exclusive Member Rates. Our Look No Further® Best Rate Guarantee ensures best rate integrity, strengthening consumer confidence in our brand, and gives guests greater access to the same rates when they book hotel rooms through our various direct channels. We also continue to grow engagement levels with millions of guests through our mobile guest services - check-in, check-out, service requests, mobile key, and more - across our hotel portfolio. In 2018, we significantly expanded the number of hotels across our portfolio that offer mobile key, enabling guests to use their mobile devices as a keycard for room entry and amenity access. We also expanded our mobile food ordering at selected properties, enabling guests to order food and beverages on-demand from hotel outlets. Our digital strategy continues to focus on creating a simple and efficient digital booking experience, while elevating the service experience through mobile guest services and generating superior guest satisfaction and more memorable stays at our properties.

At year-end 2018, we operated 22 hotel reservation centers, eight in the U.S. and 14 in other countries and territories, which handle reservation requests for our lodging brands worldwide, including franchised properties. We own two of the U.S. facilities and either lease the others or share space with a company-operated property. While pricing is set by our hotels, our reservation system manages inventory and allows us to utilize third party agents where cost effective. Economies of scale enable us to minimize costs per occupied room, drive profits for our owners and franchisees, and enhance our fee revenue.

We believe our global sales and revenue management organizations are a key competitive advantage due to our unrelenting focus on optimizing our investment in people, processes, and systems. Our above-property sales deployment strategy aligns our sales efforts around how the customer wants to buy, reducing duplication of efforts by individual hotels and allowing us to cover a larger number of accounts. We also utilize innovative and sophisticated revenue management systems, many of which are proprietary, which we believe provide a competitive advantage in pricing decisions, increasing efficiency and producing higher property-level revenue for hotels in our portfolio. Most of the hotels in our portfolio utilize web-based programs to effectively manage the rate set-up and modification processes which provides for greater pricing flexibility, reduces time spent on rate program creation and maintenance, and increases the speed to market of new products and services.

As we further discuss in Part I, Item 1A “Risk Factors” later in this report, we utilize sophisticated technology and systems in our reservation, revenue management, and property management systems, in our Loyalty Program, and in other aspects of our business. We also make certain technologies available to our guests. Keeping pace with developments in technology is important for our operations and our competitive position. Furthermore, the integrity and protection of customer, guest, employee, and company data is critical to us as we use such data for business decisions and to maintain operational efficiency.

Credit Card Programs. We have multi-year agreements with JP Morgan Chase and American Express for our U.S.-issued, co-brand credit cards associated with our Loyalty Program. We also license credit card programs in Canada, the United Kingdom, United Arab Emirates, and Japan. We earn license fees based on card usage, and we believe that our co-brand credit cards contribute to the success of our Loyalty Program and reflect the quality and value of our portfolio of brands.

Sustainability and Social Impact. Guided by our 2025 Sustainability and Social Impact Goals, as well as the United Nations Sustainable Development Goals, we believe we have an opportunity to create a positive and sustainable impact wherever we do business. Our Sustainability and Social Impact Platform, Serve 360: Doing Good In Every Direction, is built around four focus areas: Nurture Our World; Sustain Responsible Operations; Empower Through Opportunity; and Welcome All and Advance Human Rights. Within each of these areas, we have identified a series of 2025 goals that we believe will help us to address the expectations of our stakeholders, increase our operational efficiency and excellence, and enhance our reputation while supporting the continued growth and resiliency of our business. Examples of these goals include commitments to volunteerism, building sustainably and striving to source responsibly while reducing carbon, water, and waste footprints, investing in our communities, and advancing human rights.

Global Design Division. Our Global Design division provides design, development, refurbishment, and procurement services to owners and franchisees of lodging properties on a voluntary basis outside the scope of and separate from our management or franchise contracts. Like third-party contractors, Global Design provides these services on a fee basis to owners and franchisees of our branded properties.

Competition

We encounter strong competition both as a lodging operator and as a franchisor. According to lodging industry data, there are over 1,400 lodging management companies in the U.S., including approximately 21 that operate more than 100 properties. These operators are primarily private management firms, but also include several large national and international chains that own and operate their own hotels, operate hotels on behalf of third-party owners, and also franchise their brands. Management contracts are typically long-term in nature, but most allow the hotel owner to replace the management firm if it does not meet certain financial or performance criteria.

We also compete for guests with large companies that offer online travel services as part of their business model, search engines such as Google and Bing, and online services including Airbnb and HomeAway that allow travelers to book short-term rentals of homes and apartments as an alternative to hotel rooms. We compete against lodging operators and other competitors for guests in many areas, including brand recognition and reputation, location, guest satisfaction, room rates, quality of service, amenities, quality of accommodations, security, and the ability to earn and redeem Loyalty Program points.

During the last recession, demand for hotel rooms declined significantly, particularly in 2009, and we took steps to reduce operating costs and improve efficiency. Due to the competitive nature of our industry, we focused these efforts on areas that had limited or no impact on the guest experience. While demand trends globally have improved since 2009, cost reductions could again become necessary if demand trends reverse. We would expect to implement any such efforts in a manner designed to maintain guest loyalty, owner preference, and associate satisfaction, to help maintain or increase our market share.

Affiliation with a national or regional brand is common in the U.S. lodging industry, and we believe that our brand recognition assists us in attracting and retaining guests, owners, and franchisees. In 2018, approximately 71 percent of U.S. hotel rooms were brand-affiliated. Most of the branded properties are franchises, under which the owner pays the franchisor a fee for use of its hotel name and reservation system. In the franchising business, we face many competitors that have strong

brands and guest appeal, including Hilton, Intercontinental Hotels Group, Hyatt, Wyndham, Accor, Choice, Radisson, Best Western, and others.

Outside the U.S., branding is much less prevalent and most markets are served primarily by independent operators, although branding is more common for new hotel development. We believe that chain affiliation will increase in many overseas markets as local economies grow, trade barriers decline, international travel accelerates, and hotel owners seek the economies of centralized reservation systems and marketing programs.

Based on lodging industry data, we have an approximately 15 percent share of the U.S. hotel market (based on number of rooms) and we estimate less than a four percent share of the hotel market outside the U.S. We believe that our hotel brands are attractive to hotel owners seeking a management company or franchise affiliation because our hotels typically generate higher Revenue per Available Room (“RevPAR”) than our direct competitors in most market areas. We attribute this performance premium to our success in achieving and maintaining strong guest preference. We believe that the location and quality of our lodging facilities, our marketing programs, our reservation systems, and our emphasis on guest service and guest and associate satisfaction contribute to guest preference across all our brands.

Properties that we operate, franchise, or license are regularly upgraded to maintain their competitiveness. Most of our management agreements provide for the allocation of funds to be set aside, generally a fixed percentage of revenue, for periodic refurbishment and replacement of furnishings, fixtures, and equipment. These ongoing refurbishment programs, along with periodic brand initiatives, are generally adequate to preserve or enhance the competitive position and earning power of the properties. Properties converting to one of our brands typically complete renovations as needed in conjunction with the conversion.

Employee Relations

At year-end 2018, we had approximately 176,000 employees, approximately 22,000 of whom were represented by labor unions. These numbers do not include hotel personnel employed by our owners, franchisees, and management companies hired by our franchisees. Although we experienced labor disruptions in certain U.S. markets in 2018 in connection with our contract negotiations with unions representing certain of our organized associates in those markets, those contract negotiations and labor disruptions have been resolved and we believe relations with our employees are positive.

Environmental Compliance

The properties we operate or develop are subject to national, regional, state or provincial, and local laws and regulations that govern the discharge of materials into the environment or otherwise relate to protecting the environment. Those environmental provisions include requirements that address health and safety; the use, management, and disposal of hazardous substances and wastes; and emission or discharge of wastes or other materials. We believe that our operation and development of properties complies, in all material respects, with environmental laws and regulations. Compliance with such provisions has not materially impacted our capital expenditures, earnings, or competitive position, and we do not anticipate that it will have a material impact in the future.

Internet Address and Company SEC Filings

Our primary Internet address is Marriott.com. On the investor relations portion of our website, Marriott.com/investor, we provide a link to our electronic filings with the U.S. Securities and Exchange Commission (the “SEC”), including our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to these reports. We make all such filings available free of charge as soon as reasonably practicable after filing. The information found on our website is not part of this or any other report we file with or furnish to the SEC.