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

BUSINESS AND OVERVIEW

Overview

We are a worldwide operator, franchisor, and licensor of hotel, residential, and timeshare properties in 130 countries and territories under 30 brand names. Under our asset-light business model, we typically manage or franchise hotels, rather than own them. 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.

We earn base management fees and in many cases incentive management fees from the properties that we manage, and we earn franchise fees on the properties that others operate under franchise agreements with us. In most markets, base management and franchise fees typically consist of a percentage of property-level revenue, or certain property-level revenue in the case of franchise fees, while incentive management fees typically consist of a percentage of net house profit after a specified owner return. In our Middle East and Africa and Asia Pacific regions, incentive management fees typically consist of a percentage of gross operating profit without adjustment for a specified owner return. Net house profit is calculated as gross operating profit (also referred to as “house profit,” which we discuss under the “Performance Measures” section below) less non-controllable expenses such as insurance, real estate taxes, and capital spending reserves.

Our emphasis on long-term management contracts and franchising tends to provide more stable earnings in periods of economic softness, while adding new hotels to our system generates growth, typically with little or no investment by the Company. This strategy has driven substantial growth while minimizing financial leverage and risk in a cyclical industry. In addition, we believe minimizing our capital investments and adopting a strategy of recycling our investments maximizes and maintains our financial flexibility.

We remain focused on doing the things that we do well; that is, selling rooms, taking care of our guests, and making sure we control costs both at company-operated properties and at the corporate level (“above-property”). We provide our guests new and memorable experiences through our portfolio of brands, innovative technology, personalized guest recognition, and access to travel experiences through our Marriott Bonvoy Moments program. Our brands remain strong due to our skilled management teams, dedicated associates, superior guest service with an emphasis on guest and associate satisfaction, significant distribution, our Loyalty Program, multichannel reservation systems, and desirable property amenities. We strive to effectively leverage our size and broad distribution.

We, along with owners and franchisees, continue to invest in our brands by means of new, refreshed, and reinvented properties, new room and public space designs, and enhanced amenities, technology offerings, and guest experiences. We address, through various means, hotels in our system that do not meet our standards. We continue to enhance the appeal of our proprietary, information-rich, and easy-to-use websites, and of our associated mobile smartphone applications, through functionality and service improvements.

Our profitability, as well as that of owners and franchisees, has benefited from our approach to property-level and above-property productivity. Managed properties in our system continue to maintain tight cost controls. We also control above-property costs, some of which we allocate to hotels, by remaining focused on systems, processing, and support areas.

Data Security Incident

On November 30, 2018, we announced a data security incident involving unauthorized access to the Starwood reservations database (the “Data Security Incident”). Working with leading security experts, we determined that there was unauthorized access to the Starwood network since 2014 and that an unauthorized party had copied information from the Starwood reservations database and taken steps towards removing it. The information copied from the Starwood reservations database over time included information about guests who made a reservation at a Starwood property, including names, mailing addresses, phone numbers, email addresses, passport numbers, payment card numbers and expiration dates, Starwood Preferred Guest account information, dates of birth, gender, arrival and departure information, reservation dates, and communication preferences. The combination of information varied by guest. Based on our analysis as of the date of this filing, we believe that the upper limit for the total number of guest records involved in this incident is approximately 383 million records. In many instances, there appear to be multiple records for the same guest, so we have concluded with a fair degree of certainty that information for fewer than 383 million unique guests was involved, although we are currently unable to quantify that lower number because of the nature of the data in the database. Based on our analysis as of the date of this filing, we believe that the information accessed by an unauthorized third party included approximately 5.25 million unencrypted passport numbers, approximately 18.5 million encrypted passport numbers and approximately 9.1 million encrypted payment card numbers (approximately 385,000 of which cards were unexpired as of September 2018). Certain data analytics work continues, including by the investigative firm engaged on behalf of the payment card networks, and based on the preliminary information we have as of the date of this filing, we believe that the information accessed by an unauthorized third party could include several thousand unencrypted payment card numbers.

Upon receiving information that an alert from an internal security tool was related to an attempt to access the Starwood reservations database, we quickly engaged leading security experts to conduct a comprehensive forensic review to determine the scope of the intrusion, including the specific data impacted, and assist with containment measures. While that forensic review of the incident is now complete, certain data analytics work continues. We reported this incident to law enforcement and continue to support their investigation. We have completed the planned phase out of the operation of the Starwood reservations database, effective as of the end of 2018.

Following the Data Security Incident, we began a guest outreach effort and offered certain services to help guests monitor and protect their information. Promptly following our announcement of the incident, we began sending emails on a rolling basis directly to various Starwood guests whose email addresses were in the Starwood reservations database, and we completed sending these emails on December 21, 2018. We also established a multi-language dedicated website and multi-language call center to answer guests’ questions about the incident. The dedicated website provides guests details of the incident, the information affected, the steps being taken to investigate, FAQs and information about how guests can monitor and protect their information. We are offering free web monitoring solutions for affected guests in certain jurisdictions where the monitoring services are available.

To date, we have not seen a meaningful impact on demand as a result of the Data Security Incident.

We are currently unable to estimate the range of total possible financial impact to the Company from the Data Security Incident. However, we do not believe this incident will impact our long-term financial health. We maintain insurance designed to limit our exposure to losses such as those related to the Data Security Incident. We expect that the cost of such insurance will increase significantly in 2019 and future years. We expect to incur significant expenses associated with the Data Security Incident in future periods, primarily related to legal proceedings and regulatory investigations, increased expenses and capital investments for IT and information security, incident response and customer care, and increased expenses for insurance, compliance activities, and to meet increased legal and regulatory requirements. See Footnote 7. Commitments and Contingencies for information related to expenses incurred in 2018, insurance recoveries, and legal proceedings and governmental investigations related to the Data Security Incident.

Performance Measures

We believe RevPAR, which we calculate by dividing room sales for comparable properties by room nights available for the period, is a meaningful indicator of our performance because it measures the period-over-period change in room revenues for comparable properties. RevPAR may not be comparable to similarly titled measures, such as revenues. We also believe occupancy and average daily rate (“ADR”), which are components of calculating RevPAR, are meaningful indicators of our performance. Occupancy, which we calculate by dividing occupied rooms by total rooms available, measures the utilization of a property’s available capacity. ADR, which we calculate by dividing property room revenue by total rooms sold, measures average room price and is useful in assessing pricing levels.

Our RevPAR statistics for 2018, 2017, and 2016, include Legacy-Starwood comparable properties for each of the full years even though Marriott did not own the Legacy-Starwood brands before the Merger Date. Therefore, our RevPAR statistics

include Legacy-Starwood properties for periods during which fees from the Legacy-Starwood properties are not included in our Income Statements. We provide these RevPAR statistics as an indicator of the performance of our brands and to allow for comparison to industry metrics, and they should not be viewed as necessarily correlating with our fee revenue. Comparisons to the prior year period are on a constant U.S. dollar basis. We calculate constant dollar statistics by applying exchange rates for the current period to the prior comparable period.

We define our comparable properties as our properties, including those that we acquired through the Starwood Combination, that were open and operating under one of our Legacy-Marriott or Legacy-Starwood brands since the beginning of the last full calendar year (since January 1, 2017 for the current period) and have not, in either the current or previous year: (i) undergone significant room or public space renovations or expansions, (ii) been converted between company-operated and franchised, or (iii) sustained substantial property damage or business interruption. For 2018 compared to 2017, we had 4,109 comparable North American properties and 1,173 comparable International properties. For 2017 compared to 2016, we had 3,883 comparable North American properties and 1,030 comparable International properties.

We also believe company-operated house profit margin, which is the ratio of property-level gross operating profit to total property-level revenue, is a meaningful indicator of our performance because this ratio measures our overall ability as the operator to produce property-level profits by generating sales and controlling the operating expenses over which we have the most direct control. House profit includes room, food and beverage, and other revenue and the related expenses including payroll and benefits expenses, as well as repairs and maintenance, utility, general and administrative, and sales and marketing expenses. House profit does not include the impact of management fees, furniture, fixtures and equipment replacement reserves, insurance, taxes, or other fixed expenses.

Business Trends

Our 2018 full-year results reflected a year-over-year increase in the number of properties in our system, favorable demand for our brands in many markets around the world, and generally favorable economic conditions. Comparable worldwide systemwide RevPAR for 2018 increased 2.6 percent to $117.37, ADR increased 2.0 percent on a constant dollar basis to $160.37, and occupancy increased 0.4 percentage points to 73.2 percent, compared to 2017.

In North America, RevPAR increased in 2018, driven by both higher transient and group demand. RevPAR growth was partially constrained by new lodging supply in certain markets and comparisons to 2017 natural disasters. In our Asia Pacific segment in 2018, RevPAR grew in most markets, led by China, Indonesia and India. Our Europe region experienced higher demand in 2018, led by strong transient business in most countries and demand from the World Cup, partially constrained by lower RevPAR in Spain. In our Middle East and Africa region, RevPAR decreased due to geopolitical instability and supply growth in the Middle East, partially offset by strong growth in Africa. RevPAR grew across our Caribbean and Latin America region, driven by higher ADR, partially due to lower supply following 2017 hurricane activity in the Caribbean.

For our company-operated properties, we continue to focus on enhancing property-level house profit margins and making productivity improvements. In 2018 compared to 2017 at comparable properties, worldwide company-operated house profit margins increased by 40 basis points, primarily reflecting RevPAR growth, improved productivity, procurement cost savings, and synergy savings from the Starwood Combination. International company-operated house profit margins increased by 70 basis points, and North American company-operated house profit margins increased by 10 basis points.

System Growth and Pipeline

In 2018, we added 494 properties with 80,255 rooms around the world across our portfolio of brands. Approximately 45 percent of the added rooms are located outside North America, and 12 percent are conversions from competitor brands. In 2018, 107 properties (21,176 rooms) exited our system.

At year-end 2018, our development pipeline grew to a record 478,000 rooms, with more than half located outside of North America. The pipeline includes hotel rooms under construction and under signed contracts, and nearly 23,000 hotel rooms approved for development but not yet under signed contracts. In 2018, we signed management and franchise agreements for 816 properties (125,000 rooms), setting company records for rooms signings in Europe and Middle East and Africa and hotel signings in Asia Pacific. Contracts signed in 2018 also reflected the Company’s strength in the industry’s highest tier, with 29 properties (6,200 rooms) signed across six luxury brands.

In 2019, we expect the number of our open hotel rooms will increase approximately 5.5 percent net, reflecting room exits of 1.0 to 1.5 percent.

Properties and Rooms

At year-end 2018, we operated, franchised, and licensed the following properties and rooms:

	Managed						Franchised/Licensed						Owned/Leased						Other (1)						Total
	Properties			Rooms			Properties			Rooms			Properties			Rooms			Properties			Rooms			Properties			Rooms
North American Full-Service	413			184,541			705			202,204			9			5,275			—			—			1,127			392,020
North American Limited-Service	408			64,372			3,432			395,522			20			3,006			49			8,447			3,909			471,347
Asia Pacific	612			179,243			98			27,258			2			410			—			—			712			206,911
Other International	524			121,508			411			82,243			32			8,404			102			12,749			1,069			224,904
Timeshare	—			—			89			22,186			—			—			—			—			89			22,186
Total	1,957			549,664			4,735			729,413			63			17,095			151			21,196			6,906			1,317,368

(1)	Other represents unconsolidated equity method investments, which we present in the “Equity in earnings” caption of our Income Statements.

Lodging Statistics

The following lodging statistics present RevPAR, occupancy, and ADR for comparable properties 2018, 2018 compared to 2017, 2017, and 2017 compared to 2016, including Legacy-Starwood comparable properties for the full years even though Marriott did not own the Legacy-Starwood brands before the Merger Date. Systemwide statistics include data from our franchised properties, in addition to our company-operated properties.

2018 Compared to 2017

Comparable Company-Operated Properties
	RevPAR							Occupancy							Average Daily Rate
	2018				vs. 2017			2018			vs. 2017				2018				vs. 2017
North American Luxury (1)	$	258.71			3.3	%		76.9	%		(0.5	)%	pts.		$	336.58			3.9	%
North American Upper Upscale (2)	$	151.44			1.9	%		76.0	%		—	%	pts.		$	199.35			1.9	%
North American Full-Service (3)	$	169.44			2.2	%		76.1	%		(0.1	)%	pts.		$	222.60			2.3	%
North American Limited-Service (4)	$	109.72			0.3	%		74.9	%		(0.4	)%	pts.		$	146.55			0.8	%
North American - All (5)	$	150.42			1.8	%		75.7	%		(0.2	)%	pts.		$	198.66			2.0	%
Greater China	$	94.54			7.6	%		72.3	%		2.6	%	pts.		$	130.77			3.7	%
Rest of Asia Pacific	$	129.25			7.3	%		75.6	%		1.6	%	pts.		$	170.99			5.0	%
Asia Pacific	$	107.43			7.5	%		73.5	%		2.2	%	pts.		$	146.14			4.2	%
Caribbean & Latin America	$	131.52			8.6	%		64.8	%		0.1	%	pts.		$	202.84			8.5	%
Europe	$	151.86			4.8	%		74.0	%		0.7	%	pts.		$	205.15			3.8	%
Middle East & Africa	$	102.39			(1.8	)%		66.4	%		2.4	%	pts.		$	154.17			(5.3	)%
International - All (6)	$	118.86			5.2	%		71.6	%		1.7	%	pts.		$	165.91			2.7	%
Worldwide (7)	$	134.58			3.3	%		73.7	%		0.8	%	pts.		$	182.67			2.2	%

Comparable Systemwide Properties
	RevPAR							Occupancy							Average Daily Rate
	2018				vs. 2017			2018			vs. 2017				2018				vs. 2017
North American Luxury (1)	$	245.35			3.5	%		77.0	%		(0.3	)%	pts.		$	318.54			3.8	%
North American Upper Upscale (2)	$	132.64			1.8	%		73.5	%		(0.1	)%	pts.		$	180.54			1.9	%
North American Full-Service (3)	$	143.64			2.1	%		73.8	%		(0.1	)%	pts.		$	194.59			2.2	%
North American Limited-Service (4)	$	99.29			0.9	%		74.3	%		—	%	pts.		$	133.61			1.0	%
North American - All (5)	$	118.51			1.5	%		74.1	%		(0.1	)%	pts.		$	159.94			1.6	%
Greater China	$	93.96			7.5	%		71.7	%		2.7	%	pts.		$	131.07			3.5	%
Rest of Asia Pacific	$	128.40			7.0	%		75.3	%		1.6	%	pts.		$	170.43			4.7	%
Asia Pacific	$	109.14			7.2	%		73.3	%		2.2	%	pts.		$	148.90			4.0	%
Caribbean & Latin America	$	104.77			7.4	%		63.2	%		0.1	%	pts.		$	165.71			7.3	%
Europe	$	134.10			5.8	%		73.0	%		1.4	%	pts.		$	183.74			3.7	%
Middle East & Africa	$	98.38			(1.6	)%		66.1	%		2.0	%	pts.		$	148.87			(4.6	)%
International - All (6)	$	114.56			5.5	%		70.9	%		1.7	%	pts.		$	161.48			3.0	%
Worldwide (7)	$	117.37			2.6	%		73.2	%		0.4	%	pts.		$	160.37			2.0	%

(1)	Includes JW Marriott, The Ritz-Carlton, W Hotels, The Luxury Collection, St. Regis, and EDITION.

(2)	Includes Marriott Hotels, Sheraton, Westin, Renaissance, Autograph Collection, Delta Hotels, Gaylord Hotels, and Le Méridien. Systemwide also includes Tribute Portfolio.

(3)	Includes North American Luxury and North American Upper Upscale.

(4)	Includes Courtyard, Residence Inn, Fairfield by Marriott, SpringHill Suites, TownePlace Suites, Four Points, Aloft, Element,

and AC Hotels by Marriott. Systemwide also includes Moxy.

(5)	Includes North American Full-Service and North American Limited-Service.

(6)	Includes Asia Pacific, Caribbean & Latin America, Europe, and Middle East & Africa.

(7)	Includes North American - All and International - All.

2017 Compared to 2016

Comparable Company-Operated Properties
	RevPAR							Occupancy							Average Daily Rate
	2017				vs. 2016			2017			vs. 2016				2017				vs. 2016
North American Luxury (1)	$	244.19			2.5	%		77.5	%		1.1	%	pts.		$	314.90			1.0	%
North American Upper Upscale (2)	$	149.68			2.3	%		76.2	%		0.6	%	pts.		$	196.46			1.5	%
North American Full-Service (3)	$	166.28			2.4	%		76.4	%		0.7	%	pts.		$	217.56			1.4	%
North American Limited-Service (4)	$	107.99			1.4	%		75.2	%		0.2	%	pts.		$	143.65			1.1	%
North American - All (5)	$	148.40			2.2	%		76.0	%		0.5	%	pts.		$	195.15			1.4	%
Greater China	$	90.26			8.4	%		71.5	%		6.0	%	pts.		$	126.33			(0.7	)%
Rest of Asia Pacific	$	119.10			6.1	%		75.4	%		3.1	%	pts.		$	158.02			1.6	%
Asia Pacific	$	100.39			7.4	%		72.8	%		5.0	%	pts.		$	137.85			0.1	%
Caribbean & Latin America	$	130.48			3.9	%		66.5	%		2.6	%	pts.		$	196.31			(0.2	)%
Europe	$	138.70			6.9	%		73.5	%		2.0	%	pts.		$	188.69			3.9	%
Middle East & Africa	$	106.33			1.9	%		65.7	%		1.5	%	pts.		$	161.95			(0.5	)%
International - All (6)	$	113.32			6.0	%		71.2	%		3.5	%	pts.		$	159.14			0.8	%
Worldwide (7)	$	131.14			3.8	%		73.7	%		2.0	%	pts.		$	178.02			1.0	%

Comparable Systemwide Properties
	RevPAR							Occupancy							Average Daily Rate
	2017				vs. 2016			2017			vs. 2016				2017				vs. 2016
North American Luxury (1)	$	232.19			2.8	%		77.3	%		1.2	%	pts.		$	300.34			1.2	%
North American Upper Upscale (2)	$	131.11			2.0	%		73.7	%		0.3	%	pts.		$	177.87			1.5	%
North American Full-Service (3)	$	141.70			2.1	%		74.1	%		0.4	%	pts.		$	191.25			1.6	%
North American Limited-Service (4)	$	98.29			2.0	%		74.6	%		0.7	%	pts.		$	131.74			1.0	%
North American - All (5)	$	117.56			2.1	%		74.4	%		0.6	%	pts.		$	158.05			1.3	%
Greater China	$	90.37			8.5	%		70.9	%		6.0	%	pts.		$	127.47			(0.7	)%
Rest of Asia Pacific	$	118.36			5.1	%		74.8	%		2.5	%	pts.		$	158.21			1.6	%
Asia Pacific	$	102.27			6.8	%		72.6	%		4.5	%	pts.		$	140.94			0.2	%
Caribbean & Latin America	$	104.10			4.0	%		64.3	%		2.1	%	pts.		$	161.91			0.6	%
Europe	$	123.44			7.2	%		71.9	%		2.7	%	pts.		$	171.72			3.2	%
Middle East & Africa	$	101.98			2.0	%		65.4	%		1.5	%	pts.		$	155.90			(0.4	)%
International - All (6)	$	108.78			5.9	%		70.3	%		3.2	%	pts.		$	154.71			1.1	%
Worldwide (7)	$	115.02			3.1	%		73.2	%		1.4	%	pts.		$	157.12			1.2	%

(1)	Includes JW Marriott, The Ritz-Carlton, W Hotels, The Luxury Collection, St. Regis, and EDITION.

(2)	Includes Marriott Hotels, Sheraton, Westin, Renaissance, Autograph Collection, Delta Hotels, Gaylord Hotels, Le Méridien, and Tribute Portfolio.

(3)	Includes North American Luxury and North American Upper Upscale.

(4)	Includes Courtyard, Residence Inn, Fairfield by Marriott, SpringHill Suites, Four Points, TownePlace Suites, and AC Hotels by Marriott. Systemwide also includes Aloft and Element.

(5)	Includes North American Full-Service and North American Limited-Service.

(6)	Includes Asia Pacific, Caribbean & Latin America, Europe, and Middle East & Africa.

(7)	Includes North American - All and International - All.

CONSOLIDATED RESULTS

The following discussion presents an analysis of our consolidated results of operations for 2018, 2017, and 2016. In accordance with U.S. generally accepted accounting principles (“GAAP”), our Income Statements include Legacy-Starwood’s results of operations from the Merger Date. All references to the effect of Legacy-Starwood operations on our 2017 results refer to the incremental amounts contributed by Legacy-Starwood operations in 2017 over the effect of Legacy-Starwood operations on our results for the period from the Merger Date through December 31, 2016.

The following discussion also reflects our adoption of several new accounting standards. See the “New Accounting Standards Adopted” caption in Footnote 2. Summary of Significant Accounting Policies for additional information.

Our 2017 results were favorably impacted by the non-recurring gain on the disposition of our ownership interest in Avendra, discussed in Footnote 3. Dispositions and Acquisitions. We committed to the owners of the hotels in our system that the benefits derived from Avendra, including any dividends or sale proceeds above our original investment, would be used for the benefit of the hotels in our system. Accordingly, in 2018 we used $115 million ($85 million after-tax) of the net proceeds, and we intend to use the remainder of the net proceeds, for the benefit of our system of hotels. Spending under those plans is, and will be, expensed in the “Reimbursed expenses” caption of our Income Statements, causing a reduction in our profitability in the periods it is expensed.

Fee Revenues

($ in millions)	2018				2017				2016				Change 2018 vs. 2017							Change 2017 vs. 2016
Base management fees	$	1,140			$	1,102			$	806			$	38			3	%		$	296			37	%
Franchise fees	1,849				1,586				1,157				263				17	%		429				37	%
Incentive management fees	649				607				425				42				7	%		182				43	%
Gross fee revenues	3,638				3,295				2,388				343				10	%		907				38	%
Contract investment amortization	(58		)		(50		)		(40		)		8				16	%		10				25	%
Net fee revenues	$	3,580			$	3,245			$	2,348			$	335			10	%		$	897			38	%

2018 Compared to 2017

The $38 million increase in base management fees primarily reflected $29 million from unit growth, $28 million from RevPAR growth, and $8 million from net favorable foreign exchange rates, partially offset by lower fees of $17 million from properties that converted from managed to franchised and $14 million from properties that were terminated.

The $263 million increase in franchise fees primarily reflected $143 million of higher branding fees, driven by $138 million of higher fees from our co-brand credit card agreements, $82 million from unit growth, $21 million from RevPAR growth, $15 million from properties that converted from managed to franchised, and $6 million of higher relicensing and application fees, partially offset by lower fees of $9 million from properties that were terminated.

The $42 million increase in incentive management fees primarily reflected net higher profits at managed hotels and $14 million from unit growth.

In 2018, we earned incentive management fees from 72 percent of our managed properties worldwide versus 71 percent in 2017. We earned incentive management fees from 59 percent of managed properties in North America and 82 percent of managed properties outside North America in 2018, compared to 60 percent in North America and 80 percent outside North America in 2017. In addition, 63 percent of our total incentive management fees in 2018 came from our managed properties outside North America versus 62 percent in 2017.

2017 Compared to 2016

The $296 million increase in base management fees primarily reflected $273 million of higher Legacy-Starwood fees, $18 million from stronger sales at Legacy-Marriott comparable properties primarily driven by RevPAR growth, and $14 million from Legacy-Marriott unit growth, partially offset by $6 million of lower fees from Legacy-Marriott properties that converted from managed to franchised and $4 million from Legacy-Marriott net unfavorable exchange rates.

The $429 million increase in franchise fees primarily reflected $341 million of higher Legacy-Starwood fees, $54 million from Legacy-Marriott unit growth, $18 million from Legacy-Marriott RevPAR growth, $14 million of higher Legacy-Marriott branding fees, and $7 million of higher fees from Legacy-Marriott properties that converted from managed to franchised.

The $182 million increase in incentive management fees primarily reflected $159 million of higher Legacy-Starwood fees and $22 million from higher net house profits at Legacy-Marriott managed hotels.

The $10 million increase in contract investment amortization primarily reflected $5 million of higher contract write-offs related to terminated contracts at Legacy-Marriott hotels.

Owned, Leased, and Other

($ in millions)	2018				2017				2016				Change 2018 vs. 2017							Change 2017 vs. 2016
Owned, leased, and other revenue	$	1,635			$	1,752			$	1,125			$	(117	)		(7	)%		$	627			56	%
Owned, leased, and other - direct expenses	1,306				1,411				901				(105		)		(7	)%		510				57	%
	$	329			$	341			$	224			$	(12	)		(4	)%		$	117			52	%

2018 Compared to 2017

Owned, leased, and other revenue, net of direct expenses decreased by $12 million, primarily due to $81 million of lower owned and leased profits attributable to properties sold, partially offset by $51 million of higher termination fees and $17 million of net stronger results at our remaining owned and leased properties.

2017 Compared to 2016

Owned, leased, and other revenue, net of direct expenses increased by $117 million, primarily due to $140 million of higher Legacy-Starwood owned and leased profits, partially offset by $15 million of lower Global Design profits and $7 million of net lower Legacy-Marriott owned and leased profits, primarily driven by lower RevPAR in Brazil and properties under renovation.

Cost Reimbursements

($ in millions)	2018				2017				2016				Change 2018 vs. 2017							Change 2017 vs. 2016
Cost reimbursement revenue	$	15,543			$	15,455			$	11,934			$	88			1	%		$	3,521			30	%
Reimbursed expenses	15,778				15,228				11,834				550				4	%		3,394				29	%
	$	(235	)		$	227			$	100			$	(462	)		(204	)%		$	127			127	%

Cost reimbursement revenue, net of reimbursed expenses, varies due to timing differences between the costs we incur for centralized programs and services and the related reimbursements we receive from hotel owners and franchisees. Over the long term, our centralized programs and services are not designed to impact our economics, either positively or negatively.

2018 Compared to 2017

Cost reimbursement revenue, net of reimbursed expenses, decreased $462 million, primarily due to lower Loyalty Program revenues net of expenses, spending funded by the proceeds from the 2017 sale of our interest in Avendra, and higher expenses for reservations and marketing.

2017 Compared to 2016

Cost reimbursement revenue, net of reimbursed expenses, increased $127 million, primarily due to $285 million of higher Legacy-Starwood activity, partially offset by $158 million of lower Legacy-Marriott cost reimbursement revenue, net of reimbursed expenses primarily driven by higher expenses for reservations and IT systems initiatives and lower Marriott Rewards revenue net of expenses.

Other Operating Expenses

($ in millions)	2018				2017				2016				Change 2018 vs. 2017							Change 2017 vs. 2016
Depreciation, amortization, and other	$	226			$	229			$	119			$	(3	)		(1	)%		$	110			92	%
General, administrative, and other	927				921				743				6				1	%		178				24	%
Merger-related costs and charges	155				159				386				(4		)		(3	)%		(227		)		(59	)%

2018 Compared to 2017

General, administrative, and other expenses increased by $6 million, primarily due to $51 million of company-funded supplemental retirement savings plan contributions in 2018 and $20 million of higher professional fees, partially offset by

administrative cost savings largely due to synergies associated with the Starwood Combination. Company-funded supplemental retirement savings plan contributions represent an additional one-time contribution of up to $1,000 per eligible associate.

Merger-related costs and charges decreased by $4 million, primarily due to $17 million of 2017 transaction costs that did not occur in 2018 and $6 million of lower employee termination costs, partially offset by $19 million of higher integration costs.

2017 Compared to 2016

Depreciation, amortization, and other expenses increased by $110 million, primarily reflecting higher depreciation and amortization on Legacy-Starwood assets.

General, administrative, and other expenses increased by $178 million, primarily due to the Starwood Combination, $14 million of higher litigation expenses, $10 million of higher compensation expenses, and $10 million from net unfavorable foreign exchange rates.

Merger-related costs and charges decreased by $227 million, primarily due to lower employee termination and transaction costs, partially offset by $39 million of higher integration costs.

Non-Operating Income (Expense)

($ in millions)	2018				2017				2016				Change 2018 vs. 2017							Change 2017 vs. 2016
Gains and other income, net	$	194			$	688			$	5			$	(494	)		(72	)%		$	683			13,660	%
Interest expense	(340		)		(288		)		(234		)		52				18	%		54				23	%
Interest income	22				38				35				(16		)		(42	)%		3				9	%
Equity in earnings	103				40				9				63				158	%		31				344	%

2018 Compared to 2017

Gains and other income, net decreased by $494 million, primarily due to the 2017 gain on the disposition of our ownership interest in Avendra, net of a 2018 true-up ($653 million) and the 2017 gain on the sale of the Charlotte Marriott City Center ($24 million), partially offset by 2018 gains on our property sales ($132 million), sales of our interest in four equity method investments ($46 million), and modification of a ground lease at one of our offices ($6 million).

Interest expense increased by $52 million, primarily due to higher commercial paper interest rates and average borrowings and higher interest on Senior Note issuances, net of maturities ($6 million).

Interest income decreased by $16 million, primarily due to lower outstanding loan balances.

Equity in earnings increased by $63 million, primarily due to our share of the gains on the sales of two properties held by equity method investees ($65 million), partially offset by our $6 million share of the 2017 gain on an equity method investee’s sale of a property.

2017 Compared to 2016

Gains and other income, net increased by $683 million, primarily due to the gain on the disposition of our ownership interest in Avendra and the gain on the sale of the Charlotte Marriott City Center. See the “Dispositions” caption of Footnote 3. Dispositions and Acquisitions for more information.

Interest expense increased by $54 million, primarily due to an increase in debt as a result of the Starwood Combination and higher commercial paper borrowings, partially offset by $18 million of lower interest due to Senior Note maturities and a $13 million favorable variance to the bridge term loan facility commitment costs that we incurred in 2016.

Interest income increased by $3 million, primarily due to issuances of new loans, partially offset by $7 million of lower interest income on a repaid loan.

Equity in earnings increased by $31 million, primarily due to higher earnings by Legacy-Starwood investees.

Income Taxes

($ in millions)	2018				2017				2016				Change 2018 vs. 2017							Change 2017 vs. 2016
Provision for income taxes	$	(438	)		$	(1,523	)		$	(431	)		$	(1,085	)		(71	)%		$	1,092			253	%

2018 Compared to 2017

Provision for income taxes decreased by $1,085 million, primarily due to the nonrecurring net tax expense in 2017 related to the 2017 Tax Act and the reduction of the U.S. federal tax rate in 2018 ($744 million), the prior year gain on the sale of our interest in Avendra ($257 million), increased earnings in jurisdictions with lower tax rates ($57 million), lower operating income ($46 million), reduction of our one-time net tax charge related to the 2017 Tax Act transition tax and the remeasurement of deferred income taxes ($41 million), the release of tax reserves due to the completion of certain examinations ($34 million), and the income tax consequences of an intercompany transaction ($18 million). The decrease was partially offset by the current period’s provisional estimate of tax for global intangible low-taxed income (“GILTI”) under the 2017 Tax Act ($34 million), tax expense incurred for uncertain tax positions relating to Legacy-Starwood operations ($30 million), an unfavorable comparison to a 2017 benefit due to tax law changes adopted in non-U.S. jurisdictions in 2017 ($18 million), the 2017 reversal of tax reserves related to interest accrued for previous periods ($15 million), net tax expense on dispositions ($13 million), and the 2017 release of a tax reserve due to the favorable settlement of a tax position ($12 million).

See Footnote 6. Income Taxes for further information on the 2017 Tax Act.

2017 Compared to 2016

Provision for income taxes increased by $1,092 million, primarily due to the 2017 Tax Act ($586 million), higher earnings due to the inclusion of Legacy-Starwood operations for the full year 2017 ($275 million), the gain on the sale of our interest in Avendra ($259 million), lower merger-related costs ($86 million), an unfavorable comparison to the 2016 release of a valuation allowance ($15 million), the gain on the disposition of a North American Full-Service property ($9 million), and a change in judgment regarding the realizability of certain deferred tax assets in certain states and foreign jurisdictions ($7 million). The increase was partially offset by tax benefits from the adoption of ASU 2016-09 ($72 million), change in the jurisdictional mix of earnings ($25 million), tax law changes in non-U.S. jurisdictions ($22 million), the reversal of tax reserves related to interest accrued for previous periods ($15 million), and adjustments resulting from finalizing prior years’ returns ($10 million).

BUSINESS SEGMENTS

The following discussion presents an analysis of the results of operations of our 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, and accordingly we have not included those operations in this discussion of our Business Segments. See Footnote 17. Business Segments to our Financial Statements for other information about each segment, including revenues and a reconciliation of segment profits to net income.

Our 2016 results in this section do not include any Legacy-Starwood results for the period between the Merger Date and the end of the 2016 third quarter, as we did not allocate any Legacy-Starwood results to our segments for the eight days ended September 30, 2016.

North American Full-Service

($ in millions)	2018				2017				2016				Change 2018 vs. 2017							Change 2017 vs. 2016
Segment revenues	$	13,072			$	12,909			$	9,424			$	163			1	%		$	3,485			37	%
Segment profits	$	1,153			$	1,238			$	801			$	(85	)		(7	)%		$	437			55	%

2018 Compared to 2017

In 2018, across our North American Full-Service segment, we added 44 properties (10,454 rooms) and 20 properties (6,923 rooms) left our system.

North American Full-Service segment profits decreased by $85 million, primarily due to the following:

•	$119 million of lower cost reimbursement revenue, net of reimbursed expenses;

•	$45 million of higher base management and franchise fees, primarily reflecting $23 million from unit growth, $18 million from RevPAR growth, and $5 million of higher residential branding fees, partially offset by $10 million of lower fees from properties that were terminated;

•	$8 million of higher incentive management fees, primarily driven by net higher profits at managed hotels;

•	$24 million of lower owned, leased, and other revenue, net of direct expenses, primarily reflecting $60 million of lower owned and leased profits attributable to properties sold, partially offset by $24 million of higher termination fees and $15 million of net stronger results at our remaining owned and leased properties;

•	$13 million of lower general, administrative, and other expenses, primarily due to administrative cost savings largely due to synergies associated with the Starwood Combination;

•	$1 million of lower gains and other income, net, primarily due to the 2017 gain on the sale of the Charlotte Marriott City Center of $24 million, partially offset by the 2018 gain on the sale of two properties of $22 million; and

•	$1 million of higher equity in earnings, primarily due to our $10 million share of the 2018 gain on an equity method investee’s sale of a property, partially offset by our $6 million share of the 2017 gain on an equity method investee’s sale of a property.

2017 Compared to 2016

In 2017, across our North American Full-Service segment we added 55 properties (13,056 rooms) and 12 properties (2,912 rooms) left our system.

North American Full-Service segment profits increased by $437 million, primarily due to the following:

•	$38 million of higher cost reimbursement revenue, net of reimbursed expenses;

•	$301 million of higher base management and franchise fees, primarily reflecting $292 million of higher Legacy-Starwood fees, $14 million from Legacy-Marriott unit growth, and $8 million of stronger RevPAR at Legacy-Marriott hotels, partially offset by $17 million of lower Legacy-Marriott residential branding fees;

•	$45 million of higher incentive management fees, primarily driven by $31 million of higher Legacy-Starwood fees and higher net house profits at Legacy-Marriott managed hotels;

•	$60 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting $67 million of higher Legacy-Starwood owned and leased profits;

•	$39 million of higher depreciation, amortization, and other expenses, primarily reflecting higher depreciation and amortization on Legacy-Starwood assets;

•	$22 million of higher gains and other income, net, primarily due to the gain on the sale of a North American Full-Service hotel in the 2017 second quarter; and

•	$16 million of higher equity in earnings, primarily due to higher earnings by Legacy-Starwood investees.

North American Limited-Service

($ in millions)	2018				2017				2016				Change 2018 vs. 2017							Change 2017 vs. 2016
Segment revenues	$	3,217			$	3,219			$	2,894			$	(2	)		—	%		$	325			11	%
Segment profits	$	786			$	827			$	702			$	(41	)		(5	)%		$	125			18	%

2018 Compared to 2017

In 2018, across our North American Limited-Service segment we added 281 properties (33,418 rooms) and 38 properties (3,415 rooms) left our system.

North American Limited-Service segment profits decreased by $41 million, primarily due to the following:

•	$100 million of lower cost reimbursement revenue, net of direct expenses; and

•	$63 million of higher base management and franchise fees, primarily reflecting $56 million from unit growth, $7 million from RevPAR growth, and $5 million of higher relicensing and application fees, partially offset by $6 million of lower fees from properties that were terminated.

2017 Compared to 2016

In 2017, across our North American Limited-Service segment we added 270 properties (33,128 rooms) and 26 properties (2,875 rooms) left our system.

North American Limited-Service segment profits increased by $125 million, primarily due to the following:

•	$22 million of higher cost reimbursement revenue, net of reimbursed expenses;

•	$102 million of higher base management and franchise fees, primarily reflecting $50 million of higher Legacy-Starwood fees, $42 million from Legacy-Marriott unit growth, and $11 million of stronger RevPAR at Legacy-Marriott hotels; and

•	$6 million of lower incentive management fees, primarily driven by softer performance and a change in the specified owner return at a Legacy-Marriott portfolio of managed hotels.

Asia Pacific

($ in millions)	2018				2017				2016				Change 2018 vs. 2017							Change 2017 vs. 2016
Segment revenues	$	1,118			$	1,054			$	631			$	64			6	%		$	423			67	%
Segment profits	$	456			$	361			$	160			$	95			26	%		$	201			126	%

2018 Compared to 2017

In 2018, across our Asia Pacific segment we added 82 properties (19,661 rooms) and 11 properties (3,399 rooms) left our system.

Asia Pacific segment profits increased by $95 million, primarily due to the following changes:

•	$26 million of higher base management and franchise fees, primarily reflecting $16 million from unit growth and $10 million from RevPAR growth;

•	$22 million of higher incentive management fees, primarily driven by net higher profits at managed hotels and $10 million from unit growth;

•	$1 million of higher owned, leased, and other revenue, net of direct expenses, primarily due to $14 million of higher termination fees, partially offset by $13 million lower owned and leased profits attributable to properties sold;

•	$1 million of higher general, administrative, and other expenses, primarily due to $6 million of higher bad debt reserves partially offset by administrative cost savings largely due to synergies associated with the Starwood Combination;

•	$71 million of higher gains and other income, net, primarily reflecting a $57 million gain on the sale of two properties and $13 million from gains on sales of our interest in two equity method investments; and

•	$29 million of lower cost reimbursement revenue, net of reimbursement expenses.

2017 Compared to 2016

In 2017, across our Asia Pacific segment we added 77 properties (18,035 rooms) and 10 properties (3,961 rooms) left our system.

Asia Pacific segment profits increased by $201 million, primarily due to the following:

•	$45 million of higher cost reimbursement revenue, net of reimbursement expenses;

•	$108 million of higher base management and franchise fees, primarily due to $88 million of higher Legacy-Starwood fees, $9 million of higher Legacy-Marriott branding fees, $6 million from Legacy-Marriott unit growth, and $5 million from stronger RevPAR at Legacy-Marriott hotels;

•	$92 million of higher incentive management fees, primarily due to $80 million of higher Legacy-Starwood fees, $8 million from higher net house profits at Legacy-Marriott managed hotels, and $4 million from Legacy-Marriott unit growth;

•	$4 million of higher owned, leased, and other revenue, net of direct expenses, primarily due to $11 million of higher Legacy-Starwood owned and leased profits, partially offset by $5 million of lower Legacy-Marriott Global Design profits;

•	$24 million of higher depreciation, amortization, and other expenses, primarily reflecting higher depreciation and amortization on Legacy-Starwood assets;

•	$31 million of higher general, administrative, and other expenses, primarily due to the Starwood Combination; and

•	$8 million of higher equity in earnings, primarily due to higher earnings by Legacy-Starwood investees.

SHARE-BASED COMPENSATION

See Footnote 5. Share-Based Compensation for more information.

NEW ACCOUNTING STANDARDS

See Footnote 2. Summary of Significant Accounting Policies for information on our anticipated adoption of recently issued accounting standards.

LIQUIDITY AND CAPITAL RESOURCES

Cash Requirements and Our Credit Facility

We are party to a multicurrency revolving credit agreement (the “Credit Facility”) that provides for up to $4 billion of aggregate effective borrowings to support our commercial paper program and general corporate needs, including working capital, capital expenditures, share repurchases, letters of credit, and acquisitions. Borrowings under the Credit Facility generally bear interest at LIBOR (the London Interbank Offered Rate) plus a spread, based on our public debt rating. We also pay quarterly fees on the Credit Facility at a rate based on our public debt rating. While any outstanding commercial paper borrowings and/or borrowings under our Credit Facility generally have short-term maturities, we classify the outstanding borrowings as long-term based on our ability and intent to refinance the outstanding borrowings on a long-term basis. The Credit Facility expires on June 10, 2021.

The Credit Facility contains certain covenants, including a single financial covenant that limits our maximum leverage (the ratio of Adjusted Total Debt to EBITDA, each as defined in the Credit Facility) to not more than 4 to 1. The Credit Facility defines EBITDA as net income less cost reimbursement revenue, plus reimbursed expenses, plus the sum of interest expense, income taxes, depreciation, amortization, and non-recurring non-cash charges.

Our outstanding public debt does not contain a corresponding financial covenant or a requirement that we maintain certain financial ratios. We currently satisfy the covenants in our Credit Facility and public debt instruments, including the leverage covenant under the Credit Facility, and do not expect the covenants will restrict our ability to meet our anticipated borrowing and guarantee levels or increase those levels should we decide to do so in the future.

We believe the Credit Facility and our access to capital markets, together with cash we expect to generate from operations, remain adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, meet debt service, and fulfill other cash requirements.

We issue commercial paper in the U.S. We do not have purchase commitments from buyers for our commercial paper; therefore, our ability to issue commercial paper is subject to market demand. We reserve unused capacity under our Credit Facility to repay outstanding commercial paper borrowings if the commercial paper market is not available to us for any reason when outstanding borrowings mature. We do not expect that fluctuations in the demand for commercial paper will affect our liquidity, given our borrowing capacity under the Credit Facility.

At year-end 2018, our available borrowing capacity amounted to $2,067 million and reflected borrowing capacity of $1,751 million under our Credit Facility and our cash balance of $316 million. We calculated that borrowing capacity by taking $4 billion of effective aggregate bank commitments under our Credit Facility and subtracting $2,249 million of outstanding commercial paper (there being no outstanding letters of credit under our Credit Facility).

We monitor the status of the capital markets and regularly evaluate the effect that changes in capital market conditions may have on our ability to execute our announced growth plans and fund our liquidity needs. We expect to continue meeting part of our financing and liquidity needs primarily through commercial paper borrowings, issuances of Senior Notes, and access to long-term committed credit facilities. If conditions in the lodging industry deteriorate, or if disruptions in the capital markets take place as they did in the immediate aftermath of both the 2008 worldwide financial crisis and the events of September 11, 2001, we may be unable to place some or all of our commercial paper on a temporary or extended basis and may have to rely more on borrowings under the Credit Facility, which we believe will be adequate to fund our liquidity needs, including repayment of debt obligations, but which may carry a higher cost than commercial paper. Since we continue to have ample flexibility under the Credit Facility’s covenants, we expect that undrawn bank commitments under the Credit Facility will remain available to us even if business conditions were to deteriorate markedly.

Cash from Operations

Cash from operations and non-cash items for the last three fiscal years are as follows:

($ in millions)	2018				2017				2016
Cash from operations	$	2,357			$	2,227			$	1,619
Non-cash items (1)	287				1,397				514

(1)	Includes depreciation, amortization, share-based compensation, deferred income taxes, and contract investment amortization.

Our ratio of current assets to current liabilities was 0.4 to 1.0 at year-end 2018 and 0.5 to 1.0 at year-end 2017. We minimize working capital through cash management, strict credit-granting policies, and aggressive collection efforts. We also have significant borrowing capacity under our Credit Facility should we need additional working capital.

Investing Activities Cash Flows

Acquisition of a Business, Net of Cash Acquired. Cash outflows of $2,392 million in 2016 were due to the Starwood Combination. See Footnote 3. Dispositions and Acquisitions for more information.

Capital Expenditures and Other Investments. We made capital expenditures of $556 million in 2018, $240 million in 2017, and $199 million in 2016. Capital expenditures in 2018 increased by $316 million compared to 2017, primarily reflecting the acquisition of the Sheraton Grand Phoenix, improvements to our worldwide systems, and net higher spending on several owned properties. Capital expenditures in 2017 increased by $41 million compared to 2016, primarily due to improvements to our worldwide systems and improvements to hotels acquired in the Starwood Combination.

We expect spending on capital expenditures and other investments will total approximately $500 million to $700 million for 2019, including acquisitions, loan advances, equity and other investments, contract acquisition costs, and various capital expenditures (including approximately $225 million for maintenance capital spending).

Over time, we have sold lodging properties, both completed and under development, subject to long-term management agreements. The ability of third-party purchasers to raise the debt and equity capital necessary to acquire such properties depends in part on the perceived risks in the lodging industry and other constraints inherent in the capital markets. We monitor the status of the capital markets and regularly evaluate the potential impact of changes in capital market conditions on our business operations. In the Starwood Combination, we acquired various hotels and joint venture interests in hotels, most of which we have sold or are seeking to sell, and in 2018, we acquired the Sheraton Grand Phoenix, which we expect to renovate and sell subject to a long-term management agreement. We also expect to continue making selective and opportunistic investments to add units to our lodging business, which may include property acquisitions, new construction, loans, guarantees, and noncontrolling equity investments. Over time, we seek to minimize capital invested in our business through asset sales subject to long term operating or franchise agreements.

Fluctuations in the values of hotel real estate generally have little impact on our overall business results because: (1) we own less than one percent of hotels that we operate or franchise; (2) management and franchise fees are generally based upon hotel revenues and profits rather than current hotel property values; and (3) our management agreements generally do not terminate upon hotel sale or foreclosure.

Dispositions. Property and asset sales generated $479 million cash proceeds in 2018 and $1,418 million in 2017. See Footnote 3. Dispositions and Acquisitions for more information on dispositions.

Loan Activity. From time to time, we make loans to owners of hotels that we operate or franchise. Loan collections, net of loan advances, amounted to $35 million in 2018, compared to net collections of $94 million in 2017. At year-end 2018, we had $131 million of senior, mezzanine, and other loans outstanding, compared to $149 million outstanding at year-end 2017.

Equity Method Investments. Cash outflows of $72 million in 2018, $62 million in 2017, and $13 million in 2016 for equity method investments primarily reflect our investments in several joint ventures.

Financing Activities Cash Flows

Debt. Debt increased by $1,109 million in 2018, to $9,347 million at year-end 2018 from $8,238 million at year-end 2017, primarily due to the issuance of our Series X, Y, Z, and AA Notes, partially offset by the maturity of our Series S Notes ($330 million) and lower outstanding commercial paper ($126 million). See Footnote 10. Long-Term Debt for additional information on the debt issuances.

Our financial objectives include diversifying our financing sources, optimizing the mix and maturity of our long-term debt, and reducing our working capital. At year-end 2018, our long-term debt had a weighted average interest rate of 3.3 percent and a weighted average maturity of approximately 4.8 years. The ratio of our fixed-rate long-term debt to our total long-term debt was 0.7 to 1.0 at year-end 2018.

See the “Cash Requirements and Our Credit Facility,” caption in this “Liquidity and Capital Resources” section for more information on our Credit Facility.

Share Repurchases. We purchased 21.5 million shares of our common stock in 2018 at an average price of $130.67 per share, 29.2 million shares in 2017 at an average price of $103.66 per share, and 8.0 million shares in 2016 at an average price of $71.55 per share. At year-end 2018, 10.7 million shares remained available for repurchase under Board approved authorizations, and on February 15, 2019, our Board of Directors further increased our common stock repurchase authorization by 25 million shares. For additional information, see “Fourth Quarter 2018 Issuer Purchases of Equity Securities” in Part II, Item 5.

Dividends. Our Board of Directors declared the following quarterly cash dividends in 2018: (1) $0.33 per share declared on February 9, 2018 and paid March 30, 2018 to shareholders of record on February 23, 2018, (2) $0.41 per share declared on May 4, 2018 and paid June 29, 2018 to shareholders of record on May 18, 2018, (3) $0.41 per share declared on August 9, 2018 and paid September 28, 2018 to shareholders of record on August 23, 2018, and (4) $0.41 per share declared on November 8, 2018 and paid December 31, 2018 to shareholders of record on November 21, 2018. Our Board of Directors declared a cash dividend of $0.41 per share on February 15, 2019, payable on March 29, 2019 to shareholders of record on March 1, 2019.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

The following table summarizes our contractual obligations at year-end 2018:

					Payments Due by Period
($ in millions)	Total				Less Than 1 Year				1-3 Years				3-5 Years				After 5 Years
Debt (1)	$	10,483			$	1,074			$	4,392			$	2,054			$	2,963
Capital lease obligations (1)	230				13				26				26				165
Operating leases where we are the primary obligor	2,073				171				315				292				1,295
Purchase obligations	286				153				116				17				—
Other noncurrent liabilities	136				3				28				20				85
Total contractual obligations	$	13,208			$	1,414			$	4,877			$	2,409			$	4,508

(1)	Includes principal as well as interest payments.

The preceding table does not reflect Transition Tax payments totaling $507 million as a result of the 2017 Tax Act. In addition, the table does not reflect unrecognized tax benefits at year-end 2018 of $559 million.

In addition to the purchase obligations noted in the preceding table, in the normal course of business we enter into purchase commitments to manage the daily operating needs of the hotels that we manage. Since we are reimbursed from the cash flows of the hotels, these obligations have minimal impact on our net income and cash flow.

Other Commitments

The following table summarizes our guarantee, investment, and loan commitments at year-end 2018:

($ in millions)	Total Amounts Committed				Less Than 1 Year				1-3 Years				3-5 Years				After 5 Years
Guarantee commitments (expiration by period)	$	346			$	53			$	78			$	123			$	92
Investment and loan commitments (expected funding by period)	19				8				9				2				—
Total other commitments	$	365			$	61			$	87			$	125			$	92

In conjunction with financing obtained for specific projects or properties owned by joint ventures in which we are a party, we may provide industry standard indemnifications to the lender for loss, liability, or damage occurring as a result of our actions or the actions of the other joint venture owner.

In addition, we granted a hotel owner a one-time right to require us to purchase the leasehold interest in the land and hotel for $300 million in cash, exercisable in 2022. See Footnote 7. Commitments and Contingencies for more information.

For further information, including the nature of the commitments and their expirations, see the “Commitments” caption in Footnote 7. Commitments and Contingencies.

Letters of Credit

At year-end 2018, we had $136 million of letters of credit outstanding (all outside the Credit Facility, as defined in Footnote 10. Long-Term Debt), most of which were for our self-insurance programs. Surety bonds issued as of year-end 2018 totaled $152 million, most of which state governments requested in connection with our self-insurance programs.

RELATED PARTY TRANSACTIONS

Equity Method Investments

We have equity method investments in entities that own properties for which we provide management services and receive fees. In addition, in some cases we provide loans, preferred equity, or guarantees to these entities.

Other Related Parties

We provide management services for and receive fees from properties owned by JWM Family Enterprises, L.P., which is beneficially owned and controlled by J.W. Marriott, Jr., Deborah Marriott Harrison, and other members of the Marriott family.

For more information, including the impact to our financial statements of transactions with these related parties, see Footnote 18. Related Party Transactions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting policy and estimate to be critical if: (1) we must make assumptions that were uncertain when the estimate was made; and (2) changes in the estimate, or selection of a different estimate methodology could have a material effect on our consolidated results of operations or financial condition. Management has discussed the development and selection of its critical accounting policies and estimates with the Audit Committee of our Board of Directors.

While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate or assumption was made. Actual results may differ significantly. Additionally, changes in our assumptions, estimates or assessments due to unforeseen events or otherwise could have a material impact on our financial position or results of operations.

See Footnote 2. Summary of Significant Accounting Policies for further information related to our critical accounting policies and estimates, which are as follows:

Loyalty Program, including how we estimate the breakage of hotel points, credit card points, and free night certificates, the volume of points and free night certificates that will be issued under our co-brand credit card agreements, the amount of consideration to which we will be entitled under our co-brand credit card agreements, and the stand-alone selling prices of goods and services provided under our co-brand credit card agreements;

Goodwill, including how we evaluate the fair value of reporting units and when we record an impairment loss on goodwill;

Intangibles and Long-Lived Assets, including how we evaluate the fair value of intangibles and long-lived assets and when we record impairment losses on intangibles and long-lived assets;

Investments, including information on how we evaluate the fair value of investments and when we record impairment losses on investments;

Loan Loss Reserves, including information on how we measure impairment on senior, mezzanine, and other loans of these types;

Income Taxes, including information on how we determine our current year amounts payable or refundable, our estimate of deferred tax assets and liabilities, and the impacts of the 2017 Tax Act; and

Business Combinations, including the assumptions that we make to estimate the fair values of assets acquired and liabilities assumed related to discount rates, royalty rates, and the amount and timing of future cash flows.