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

A discussion regarding our financial condition and results of operations for year-end 2019 compared to year-end 2018 can be found in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC on February 27, 2020.

BUSINESS AND OVERVIEW

Overview

We are a worldwide operator, franchisor, and licensor of hotel, residential, and timeshare properties in 133 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 three reportable business segments: U.S. & Canada; Asia Pacific; and Europe, Middle East and Africa (“EMEA”). Our Caribbean and Latin America (“CALA”) operating segment does not meet the applicable accounting criteria for separate disclosure as a reportable business segment, and we include its results in “Unallocated corporate and other.” In January 2021, we modified our reportable segment structure as a result of a change in the way management intends to evaluate results and allocate resources within the Company. Beginning with the 2021 first quarter, we will report the following two operating segments: U.S. & Canada and International.

We earn base management fees and, under many agreements, 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. For our hotels in the Middle East and Africa and in the Asia Pacific region, 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”) less non-controllable expenses such as property insurance, real estate taxes, and capital spending reserves. Additionally, we earn franchise fees for use of our intellectual property, including fees from our co-brand credit card, timeshare, and residential programs.

Starwood 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”). The Starwood reservations database is no longer used for business operations.

In July 2019, the ICO issued a formal notice of intent under the U.K. Data Protection Act 2018 (the “U.K. DPA”) proposing a fine in the amount of £99 million against the Company in relation to the Data Security Incident. In October 2020, the ICO issued a final decision under the U.K. DPA, which includes a fine of £18.4 million. The Company did not appeal the ICO’s decision, but has made no admission of liability in relation to the decision or the underlying allegations. In 2019, we expensed $65 million for this loss contingency, in the “Restructuring and merger-related charges” caption of our Income Statements, based on the fine initially proposed by the ICO in July 2019 and the ongoing proceeding. In 2020, we recorded a $39 million reversal of expense, based on the ICO’s issuance of the final decision. We paid a portion of the ICO fine in the 2020 fourth quarter, and the remainder is payable over the next two years. Our accrual for this loss contingency, which we present in the “Accrued expenses and other” and “Other noncurrent liabilities” captions of our Balance Sheets, was $65 million at year-end 2019 and $17 million at year-end 2020. See Note 8 for additional information.

We are currently unable to estimate the range of total possible financial impact to the Company from the Data Security Incident in excess of the expenses already incurred. However, we do not believe this incident will impact our long-term financial health. Although our insurance program includes coverage designed to limit our exposure to losses such as those related to the Data Security Incident, that insurance may not be sufficient or available to cover all of our expenses or other losses (including fines and penalties) related to the Data Security Incident. As we expected, the cost of such insurance again increased for our current policy period, and the cost of such insurance could continue to increase for future policy periods. We expect to incur significant expenses associated with the Data Security Incident in future periods, primarily related to legal proceedings and regulatory investigations (including possible additional fines and penalties), increased expenses and capital investments for information technology and information security and data privacy, and increased expenses for compliance activities and to meet increased legal and regulatory requirements. See Note 8 for additional information related to expenses incurred in 2020 and 2019, insurance recoveries, and legal proceedings and governmental investigations related to the Data Security Incident.

Performance Measures

We believe Revenue per Available Room (“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, and should not be viewed as necessarily correlating with our fee revenue. 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 (including rooms in hotels temporarily closed due to issues related to COVID-19), 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. 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 that were open and operating under one of our brands since the beginning of the last full calendar year (since January 1, 2019 for the current period) and have not, in either the current or previous year: (1) undergone significant room or public space renovations or expansions, (2) been converted between company-operated and franchised, or (3) sustained substantial property damage or business interruption, with the exception of properties closed or otherwise experiencing interruptions related to COVID-19, which we continue to classify as comparable. For 2020 compared to 2019, we had 4,641 comparable U.S. & Canada properties and 1,340 comparable International properties.

Impact of COVID-19

COVID-19 continues to have a material impact on our business, our Company, and our industry. COVID-19 first impacted our business in Greater China beginning in January 2020, moved quickly into the rest of Asia Pacific and the European markets, and spread globally by March 2020. As the pandemic accelerated around the world, worldwide comparable systemwide constant dollar RevPAR fell sharply. Global occupancy levels and RevPAR have since improved compared to the extremely low levels reached in April 2020, but the pace of recovery generally slowed in most regions in the 2020 fourth quarter and into January 2021 due to the sharp rise in COVID-19 cases. As a result, our fee revenue and revenue from owned and leased properties declined significantly during 2020, and we expect that there will not be a significant rebound in travel and lodging demand until there is widespread distribution of effective vaccines.

Worldwide comparable systemwide constant dollar RevPAR declined 23 percent in the 2020 first quarter, 84 percent in the 2020 second quarter, 66 percent in the 2020 third quarter, and 64 percent in the 2020 fourth quarter, compared to the same periods in 2019. Worldwide, approximately six percent of our hotels were closed as of February 15, 2021, compared to the peak of more than 25 percent closed on April 26, 2020. However, the progress of recovery is uneven. The spread of COVID-19 has constrained and continues to constrain the speed of recovery and will continue to have a dampening impact on demand. Demand is still being primarily driven by leisure travelers, and we have not seen meaningful demand return from business and group travelers.

Of our geographic regions, Greater China experienced the greatest improvement in demand compared to the 2020 second quarter, driven initially by domestic leisure travel with business transient and group business improving through the year, while demand in the rest of Asia Pacific has generally improved at a much slower pace. In our Europe, Middle East, and Africa region, leisure demand drove RevPAR improvements in the 2020 third quarter compared to the 2020 second quarter, though increases in COVID-19 cases in Europe and resulting increases in government restrictions began anew in September 2020, which negatively impacted the recovery in the 2020 fourth quarter. In U.S. & Canada, demand improved during the remainder of 2020 from the lows seen in April 2020, primarily driven by leisure travel and by travelers within driving range of their destinations.

We continue to take substantial measures to mitigate the negative financial and operational impacts for our hotel owners and our own business. Business contingency plans have been implemented around the world, and we continue to adjust these in response to the global situation. At the corporate level, our actions to date have substantially reduced the monthly run rate of corporate general and administrative costs compared to the monthly costs initially budgeted for 2020, excluding our provision for credit losses. We reduced spending on capital expenditures and other investments, and as previously announced, we suspended share repurchases and cash dividends.

We have taken a number of steps to reorganize the Company in response to the decline in lodging demand caused by COVID-19. We implemented temporary furloughs and reduced work week schedules for both above-property and on-property associates, most of which ended in September 2020 for above-property associates. As part of the realignment of our organization, we implemented a voluntary transition program for certain associates, and we eliminated a significant number of positions. While we have substantially completed the programs related to our above-property organization, we are continuing to develop restructuring plans, which could result in additional on-property position eliminations, to achieve cost savings specific to each of our company-operated properties. See Note 3 for more information about our restructuring activities.

At the property level, we continue to work with owners and franchisees to lower their cash outlays. The steps we have taken to date include deferring renovations, certain hotel initiatives and brand standard audits for hotel owners and franchisees; reducing the amount of certain charges for systemwide programs and services; offering a delay in payment terms for certain charges in the 2020 second quarter; supporting owners and franchisees who are working with their lenders to utilize furniture, fixtures, and equipment (FF&E) reserves to meet working capital needs; and waiving required FF&E funding through 2021. We have significantly lowered the reimbursed expenses we incur on behalf of our owners and franchisees to provide centralized programs and services such as the Loyalty Program, reservations, marketing and sales, which we generally collect through cost reimbursement revenue on the basis of hotel revenue or program usage. In 2020, we applied for Employee Retention Tax Credit refunds from the U.S. Treasury under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) totaling $164 million. In the 2020 fourth quarter, we received $119 million, $94 million of which we passed through to the related hotels that we manage on behalf of owners. We expect to receive the remaining refund in 2021, the majority of which we expect will inure to the benefit of our hotel owners. We continue to evaluate the availability of credits and benefits under the CARES Act and other legislation.

The impact of COVID-19 on the Company remains fluid, as does our corporate and property-level response, and we expect to continue to assess and may implement additional measures to adapt our operations and plans as we continue to evaluate the implications of COVID-19 on our business. The overall operational and financial impact is highly dependent on

the breadth and duration of COVID-19, including the availability and distribution of effective vaccines or treatments, and could be affected by other factors we are not currently able to predict.

System Growth and Pipeline

In 2020, our system grew from 7,349 properties (1,380,921 rooms) at year-end 2019 to 7,642 properties (1,423,044 rooms) at year-end 2020, reflecting the addition of 399 properties (62,776 rooms) and the exit of 106 properties (20,416 rooms). Approximately 45 percent of added rooms are located outside U.S. & Canada, and 13 percent are conversions from competitor brands.

At year-end 2020, we had more than 498,000 rooms in our development pipeline, which includes hotel rooms under construction, hotel rooms under signed contracts, and roughly 20,000 hotel rooms approved for development but not yet under signed contracts. Over 229,000 rooms in our development pipeline were under construction at year-end 2020. Over half of the rooms in our development pipeline are outside U.S. & Canada. In 2020, we signed management and franchise agreements for 1,575 properties (248,660 rooms).

In 2021, we expect gross rooms growth of approximately 6.0 percent (3.0 to 3.5 percent, net of deletions).

Properties and Rooms

At year-end 2020, we operated, franchised, and licensed the following properties and rooms:

			Managed												Franchised/Licensed												Owned/Leased																		Total
			Properties						Rooms						Properties						Rooms						Properties						Rooms																		Properties						Rooms
U.S. & Canada			788						240,487						4,720						677,120						26						6,483																		5,534						924,090
Asia Pacific			698						199,040						143						37,597						2						407																		843						237,044
EMEA			485						108,185						407						72,827						24						5,561																		916						186,573
CALA			112						21,520						132						27,613						14						3,449																		258						52,582
Timeshare			—						—						91						22,755						—						—																		91						22,755
Total			2,083						569,232						5,493						837,912						66						15,900																		7,642						1,423,044

Lodging Statistics

The following tables present RevPAR, occupancy, and ADR statistics for comparable properties for 2020 and 2020 compared to 2019. Systemwide statistics include data from our franchised properties, in addition to our company-operated properties.

			RevPAR												Occupancy															Average Daily Rate
			2020						vs. 2019						2020						vs. 2019									2020						vs. 2019
Comparable Company-Operated Properties
U.S. & Canada			$	50.73					(67.3)		%				28.6		%				(47.2)		%	pts.						$	177.48					(13.4)		%
Asia Pacific			$	46.32					(53.7)		%				39.6		%				(31.7)		%	pts.						$	116.90					(16.7)		%
CALA			$	52.55					(60.0)		%				26.7		%				(37.8)		%	pts.						$	196.51					(3.6)		%
Europe			$	34.88					(76.8)		%				20.8		%				(53.3)		%	pts.						$	167.70					(17.3)		%
Middle East & Africa			$	48.97					(52.1)		%				34.9		%				(32.9)		%	pts.						$	140.34					(6.8)		%
EMEA (1)			$	41.11					(68.1)		%				27.0		%				(44.3)		%	pts.						$	152.08					(15.9)		%
International - All (2)			$	44.77					(60.6)		%				33.8		%				(37.0)		%	pts.						$	132.56					(17.4)		%
Worldwide (3)			$	47.53					(64.3)		%				31.4		%				(41.7)		%	pts.						$	151.51					(16.7)		%
Comparable Systemwide Properties
U.S. & Canada			$	48.28					(59.4)		%				37.2		%				(36.5)		%	pts.						$	129.96					(19.4)		%
Asia Pacific			$	46.51					(54.2)		%				38.8		%				(32.4)		%	pts.						$	119.89					(16.0)		%
CALA			$	38.81					(63.4)		%				24.4		%				(37.4)		%	pts.						$	159.12					(7.1)		%
Europe			$	32.53					(75.1)		%				21.7		%				(51.2)		%	pts.						$	149.58					(16.5)		%
Middle East & Africa			$	46.27					(52.5)		%				34.3		%				(33.2)		%	pts.						$	134.87					(6.5)		%
EMEA (1)			$	36.91					(69.2)		%				25.8		%				(45.4)		%	pts.						$	143.33					(14.9)		%
International - All (2)			$	41.51					(62.2)		%				31.5		%				(38.5)		%	pts.						$	131.63					(16.1)		%
Worldwide (3)			$	46.28					(60.2)		%				35.5		%				(37.1)		%	pts.						$	130.40					(18.5)		%

(1)Includes Europe and Middle East & Africa.

(2)Includes Asia Pacific, CALA, and EMEA.

(3)Includes U.S. & Canada and International - All.

CONSOLIDATED RESULTS

Our results declined in 2020 compared to 2019, primarily due to the impact of COVID-19. See the “Impact of COVID-19” section above for more information about the impact to our business during 2020, and the discussion below for additional analysis of our consolidated results of operations for 2020 and 2019.

Fee Revenues

($ in millions)			2020						2019												Change 2020 vs. 2019
Base management fees			$	443					$	1,180											$	(737)					(62)		%
Franchise fees			1,153						2,006												(853)						(43)		%
Incentive management fees			87						637												(550)						(86)		%
Gross fee revenues			1,683						3,823												(2,140)						(56)		%
Contract investment amortization			(132)						(62)												70						113		%
Net fee revenues			$	1,551					$	3,761											$	(2,210)					(59)		%

The decrease in base management and franchise fees primarily reflected lower RevPAR and lower co-brand credit card fees of $84 million primarily due to COVID-19, as well as lower fees from properties that left the system of $32 million. The decrease in franchise fees was partially offset by unit growth ($37 million).

The decrease in incentive management fees was primarily due to COVID-19. In 2020, we earned incentive management fees from 37 percent of our managed properties worldwide, compared to 72 percent in 2019. We earned incentive management fees from 3 percent of managed properties in U.S. & Canada and 56 percent of managed properties outside U.S. & Canada in 2020, compared to 57 percent in U.S. & Canada and 81 percent outside U.S. & Canada in 2019. In addition, 92 percent of our total incentive management fees in 2020 came from our managed properties outside U.S. & Canada, primarily in Asia Pacific, versus 65 percent in 2019.

Contract investment amortization increased primarily due to higher impairments of investments in management and franchise contracts, primarily due to COVID-19.

Owned, Leased, and Other

($ in millions)			2020						2019												Change 2020 vs. 2019
Owned, leased, and other revenue			$	568					$	1,612											$	(1,044)					(65)		%
Owned, leased, and other - direct expenses			677						1,316												(639)						(49)		%
Owned, leased, and other, net			$	(109)					$	296											$	(405)					(137)		%

Owned, leased, and other revenue, net of direct expenses decreased primarily due to lower demand at and the temporary closure of certain of our owned and leased hotels due to COVID-19, as well as net lower owned and leased profits attributable to hotels sold in the 2019 fourth and 2020 first quarters ($19 million).

Cost Reimbursements

($ in millions)			2020						2019												Change 2020 vs. 2019
Cost reimbursement revenue			$	8,452					$	15,599											$	(7,147)					(46)		%
Reimbursed expenses			8,435						16,439												(8,004)						(49)		%
Cost reimbursements, net			$	17					$	(840)											$	857					102		%

Cost reimbursements, net (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, primarily driven by our Loyalty Program. Over the long term, our centralized programs and services are not designed to impact our economics, either positively or negatively. See Note 2 for more information about the accounting for our Loyalty Program.

The increase in cost reimbursements, net in 2020 primarily reflects the performance of the Loyalty Program, which had lower program expenses and redemptions.

Other Operating Expenses

($ in millions)			2020						2019												Change 2020 vs. 2019
Depreciation, amortization, and other			$	346					$	341											$	5					1		%
General, administrative, and other			762						938												(176)						(19)		%
Restructuring and merger-related charges			267						138												129						93		%

Depreciation, amortization, and other expenses increased, primarily due to higher operating lease impairment charges ($16 million). See Note 9 for more information about the operating lease impairment charges.

General, administrative, and other expenses decreased primarily due to lower administrative costs due to our cost reduction measures and $20 million of lower legal expenses. The decrease was partially offset by a higher provision for credit losses and higher guarantee reserves primarily due to the negative current and expected economic impact of COVID-19 ($105 million).

Restructuring and merger-related charges increased primarily due to the increased put option liability discussed in Note 8 ($243 million) and 2020 restructuring charges ($56 million), partially offset by the ICO Fine discussed in Note 8 ($104 million, representing the 2019 accrual and the 2020 reversal), the 2019 impairment charge of a Legacy-Starwood office building ($34 million), and lower integration costs ($19 million).

Non-Operating Income (Expense)

($ in millions)			2020						2019												Change 2020 vs. 2019
Gains and other income, net			$	9					$	154											$	(145)					(94)		%
Interest expense			(445)						(394)												51						13		%
Interest income			27						26												1						4		%
Equity in (losses) earnings			(141)						13												(154)						(1,185)		%

Gains and other income, net decreased primarily due to the 2019 gains on our property sales ($134 million).

Interest expense increased primarily due to higher interest on Senior Note issuances, net of maturities ($93 million), partially offset by lower commercial paper and Credit Facility interest rates and aggregate average borrowings ($24 million) and net lower interest rates on floating rate debt ($22 million).

Equity in (losses) earnings decreased due to losses recorded by the investees and impairment charges ($77 million), primarily as a result of COVID-19.

Income Taxes

($ in millions)			2020						2019												Change 2020 vs. 2019
Benefit (provision) for income taxes			$	199					$	(326)											$	(525)					(161)		%

Our tax benefit in 2020, compared to our tax provision in 2019, primarily reflected the decrease in operating income ($336 million), the tax benefit from the release of tax reserves due to audit closures during 2020 ($100 million), the tax benefit from the Sheraton Grand Chicago put option reserve ($61 million), the year-over-year tax benefit from impairment charges ($39 million), and the prior year tax expense incurred for U.S. tax on Global Intangible Low-Taxed Income ($35 million). The decrease was partially offset by a shift in earnings to jurisdictions with higher tax rates ($36 million).

BUSINESS SEGMENTS

Our segment results declined in 2020 compared to 2019 primarily due to the impact of COVID-19. See the “Impact of COVID-19” section above for more information about the impact to our business during 2020 and the discussion below for additional analysis of the operating results of our reportable business segments. Segment revenues and profits for EMEA, a new reportable segment in 2020, did not change significantly in 2019 compared to 2018.

($ in millions)			2020						2019												Change 2020 vs. 2019
U.S. & Canada
Segment revenues			$	7,905					$	16,833											$	(8,928)					(53)		%
Segment profits			198						2,000												(1,802)						(90)		%
Asia Pacific
Segment revenues			612						1,189												(577)						(49)		%
Segment profits			1						369												(368)						(100)		%
EMEA
Segment revenues			758						1,932												(1,174)						(61)		%
Segment (loss) profits			(200)						318												(518)						(163)		%

			Properties																								Rooms
			December 31, 2020						December 31, 2019						vs. December 31, 2019												December 31, 2020						December 31, 2019						vs. December 31, 2019
U.S. & Canada			5,534						5,324						210						4		%				924,090						899,805						24,285						3		%
Asia Pacific			843						782						61						8		%				237,044						221,772						15,272						7		%
EMEA			916						893						23						3		%				186,573						184,091						2,482						1		%

U.S. & Canada

U.S. & Canada segment profits decreased primarily due to the following:

• $1,351 million of lower gross fee revenues (primarily reflecting lower comparable systemwide RevPAR and net house profits driven by decreases in both occupancy and ADR due to lower demand resulting from COVID-19, partially offset by unit growth of $32 million);

• $60 million of higher contract investment amortization costs (primarily reflecting higher contract impairment charges);

• $158 million of lower owned, leased, and other revenue, net of direct expenses (including $19 million from hotels sold in the 2019 fourth and 2020 first quarters);

• $22 million of higher general, administrative, and other expenses (primarily reflecting $75 million of higher provision for credit losses and reserves for guarantee funding, partially offset by $48 million of lower administrative costs due to our cost reduction measures);

• $141 million of lower gains and other income, net (primarily reflecting a $134 million gain on the sale of two properties in 2019);

• $101 million of lower equity in (losses) earnings due to impairment charges ($60 million) and losses recorded by investees, primarily as a result of COVID-19; and

• $27 million of higher restructuring and merger-related charges;

partially offset by:

• $49 million of higher cost reimbursement revenue, net of reimbursed expenses.

Asia Pacific

Asia Pacific segment profits decreased primarily due to the following:

• $294 million of lower gross fee revenues (primarily reflecting lower comparable systemwide RevPAR and net house profits driven by decreases in both occupancy and ADR due to lower demand resulting from COVID-19);

• $39 million of lower owned, leased, and other revenue, net of direct expenses;

• $9 million of lower cost reimbursement revenue, net of reimbursed expenses; and

• $25 million of lower equity in (losses) earnings;

partially offset by:

• $13 million of lower general, administrative, and other expenses (primarily reflecting lower expenses due to COVID-19).

EMEA

EMEA segment loss, compared to prior year profits, primarily reflects the following:

• $308 million of lower gross fee revenues (primarily reflecting lower comparable systemwide RevPAR and net house profits driven by decreases in both occupancy and ADR due to lower demand resulting from COVID-19);

• $171 million of lower owned, leased, and other revenue, net of direct expenses;

• $25 million of lower cost reimbursement revenue, net of reimbursed expenses; and

• $11 million of lower equity in (losses) earnings;

partially offset by:

• $13 million of lower general, administrative, and other expenses (primarily reflecting lower expenses due to COVID-19, partially offset by a $24 million higher provision for credit losses).

STOCK-BASED COMPENSATION

See Note 6 for more information.

NEW ACCOUNTING STANDARDS

See Note 2 for information on our adoption of new accounting standards.

LIQUIDITY AND CAPITAL RESOURCES

Our long-term 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 2020, our long-term debt had a weighted average interest rate of 3.7 percent and a weighted average maturity of approximately 6.0 years. Including the effect of interest rate swaps, the ratio of our fixed-rate long-term debt to our total long-term debt was 0.8 to 1.0 at year-end 2020.

In response to the negative impact COVID-19 had on our cash from operations in 2020, which we expect to continue to be negatively impacted as discussed above, we have taken numerous actions to preserve our financial flexibility and manage our debt maturities, which include:

• Substantially reducing our corporate general and administrative costs, reimbursed expenses we incur on behalf of our owners and franchisees, and our capital expenditures and other investment spending, and implementing restructuring plans, as we discuss under the “Impact of COVID-19” section above;

• Suspending share repurchases and dividends until conditions improve and until permitted under our Credit Facility;

• Drawing under the Credit Facility, as we discuss under the “Sources of Liquidity-Our Credit Facility” section below;

• Amending the Credit Facility to, among other things, waive the quarterly-tested leverage covenant in the Credit Facility through and including the fourth quarter of 2021, as we discuss under the “Sources of Liquidity-Our Credit Facility” section below;

• Issuing $3.6 billion aggregate principal amount of senior notes, and repurchasing and retiring approximately $853 million aggregate principal amount of the Company’s outstanding senior notes maturing in 2022, which we discuss under the “Sources of Liquidity - Senior Notes Issuances and Repurchases” section below; and

• Raising $920 million of cash by entering into amendments to the existing agreements for our U.S.-issued co-brand credit cards, which we discuss under the “Co-brand Credit Card Agreements” section below.

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 fund our liquidity needs. We currently believe the Credit Facility, our cash on hand, and our access to capital markets remain adequate to meet our liquidity requirements.

Sources of Liquidity

Our Credit Facility

Our Credit Facility provides for up to $4.5 billion of aggregate borrowings for general corporate needs, including to support our commercial paper program if and when we resume issuing commercial paper. 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. We classify outstanding borrowings under the Credit Facility and outstanding commercial paper 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 28, 2024. In 2020, we made borrowings of $4.5 billion and repayments of $3.6 billion, resulting in total outstanding borrowings under the Credit Facility of $0.9 billion as of December 31, 2020.

The Credit Facility contains certain covenants, including a financial covenant that limits our maximum Leverage Ratio (as defined in the Credit Facility, and generally consisting of the ratio of Adjusted Total Debt to EBITDA, each as defined in the Credit Facility, and subject to additional adjustments as described therein). On April 13, 2020, we entered into an amendment to the Credit Facility (the “First Credit Facility Amendment”) under which the covenant governing the permitted Leverage Ratio is waived through and including the first quarter of 2021 (the “Covenant Waiver Period”), which waiver period may end sooner at our election, and the required leverage levels for such covenant are adjusted once re-imposed at the end of the Covenant Waiver Period (starting at 5.50 to 1.00 when the leverage test is first re-imposed and gradually stepping down to 4.00 to 1.00 over the succeeding seven fiscal quarters, as further described in the Credit Facility). The First Credit Facility Amendment also imposes a monthly-tested minimum liquidity covenant for the duration of the Covenant Waiver Period and makes certain other amendments to the terms of the Credit Facility, including increasing the interest and fees payable on the Credit Facility for the duration of the Covenant Waiver Period, tightening certain existing covenants and imposing additional covenants for the duration of the Covenant Waiver Period, including restricting dividends and share repurchases.

On January 26, 2021, we entered into two more amendments to the Credit Facility (the “New Credit Facility Amendments,” and together with the First Credit Facility Amendment, the “Credit Facility Amendments”), which extend the

Covenant Waiver Period through and including the fourth quarter of 2021 (which waiver period may end sooner at our election), revise the required leverage levels for such covenant when it is re-imposed at the end of the Covenant Waiver Period (starting at 5.50 to 1.00 when the leverage test is first re-imposed and gradually stepping down to 4.00 to 1.00 over the succeeding five fiscal quarters, as further described in the Credit Facility), and increase the minimum liquidity amount under the liquidity covenant that is tested monthly for the duration of the Covenant Waiver Period. The New Credit Facility Amendments also make certain other amendments to the terms of the Credit Facility, including reducing the rate floor for the LIBOR Daily Floating Rate and the Eurocurrency Rate.

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, including the liquidity covenant under the Credit Facility.

Senior Notes Issuances and Repurchases

On April 16, 2020, we issued $1.6 billion aggregate principal amount of 5.750 percent Series EE Notes due May 1, 2025 (the “Series EE Notes”). We pay interest on the Series EE Notes in May and November of each year, commencing in November 2020. We received net proceeds of approximately $1.581 billion from the offering of the Series EE Notes, after deducting the underwriting discount and estimated expenses, which were made available for general corporate purposes.

On June 1, 2020, we issued $1.0 billion aggregate principal amount of 4.625 percent Series FF Notes due June 15, 2030 (the “Series FF Notes”). We pay interest on the Series FF Notes in June and December of each year, commencing in December 2020. We received net proceeds of approximately $985 million from the offering of the Series FF Notes, after deducting the underwriting discount and estimated expenses. We used the majority of these proceeds to repurchase Senior Notes with near term maturities, as discussed below and in Note 10.

In June 2020, we completed a tender offer (the “Tender Offer”) and retired $853 million aggregate principal amount of our Senior Notes consisting of:

• $351 million of our 2.3% Series Q Notes maturing January 15, 2022;

• $176 million of our 3.3% Series L Notes maturing September 15, 2022; and

• $326 million of our 2.1% Series DD Notes maturing October 3, 2022.

We used proceeds from our Series FF Notes offering to complete the repurchase of such notes, including the payment of accrued interest and other costs incurred.

On August 14, 2020, we issued $1.0 billion aggregate principal amount of 3.500 percent Series GG Notes due October 15, 2032 (the “Series GG Notes”). We will pay interest on the Series GG Notes in April and October of each year, commencing in April 2021. We received net proceeds of approximately $984 million from the offering of the Series GG Notes, after deducting the underwriting discount and estimated expenses, which were made available for general corporate purposes, including the repayment of a portion of our outstanding borrowings under the Credit Facility.

Commercial Paper

Due to changes to our credit ratings as a result of the impact of COVID-19 on our business, we currently are not issuing commercial paper. As a result, we have had to rely more on borrowings under the Credit Facility and issuance of senior notes, which carry higher interest costs than our commercial paper.

Co-brand Credit Card Agreements

In May 2020, we signed amendments to the existing agreements for our U.S.-issued co-brand credit cards associated with our Loyalty Program. These amendments provided the Company with $920 million of cash from the prepayment of certain future revenues, the early payment of a previously committed signing bonus, and the pre-purchase of Marriott Bonvoy points and other consideration. We recorded the amount of cash received primarily in the deferred revenue caption, and the remainder in the liability for guest loyalty program captions, on our Balance Sheet.

Uses of Cash

Cash, cash equivalents, and restricted cash totaled $894 million at December 31, 2020, an increase of $641 million from year-end 2019, primarily reflecting Senior Notes issuances, net of repayments ($1,797 million), Credit Facility borrowings, net of repayments ($900 million), net cash provided by operating activities ($1,639 million), and dispositions ($260 million). The following cash outflows partially offset these cash inflows: commercial paper repayments, net of borrowings ($3,190 million),

dividend payments ($156 million), purchase of treasury stock ($150 million), capital and technology expenditures ($135 million), other debt repayments, net of borrowings ($123 million), and financing outflows for employee stock-based compensation withholding taxes ($103 million).

Cash from Operations

Net cash provided by operating activities decreased by $46 million in 2020 compared to 2019, primarily due to the net loss that we recorded in 2020 (adjusted for non-cash items) due to COVID-19, partially offset by net cash inflows from our Loyalty Program, including the one-time cash payments as a result of the amendments to our co-brand credit card agreements discussed in Note 2, a cash benefit from working capital changes, and lower cash paid for income taxes. Working capital changes primarily reflect lower accounts receivable due to lower fee and cost reimbursement revenues and a higher allowance for credit losses, lower accounts payable due to lower purchasing activity, and lower bonus accruals.

Our ratio of current assets to current liabilities was 0.5 to 1.0 at both year-end 2020 and year-end 2019. We have significant borrowing capacity under our Credit Facility should we need additional working capital.

Investing Activities Cash Flows

Capital Expenditures and Other Investments. We made capital expenditures, including expenditures on technology, of $135 million in 2020 and $653 million in 2019. Capital expenditures in 2020 decreased by $518 million compared to 2019, primarily reflecting the net lower spending on owned and leased properties and our worldwide systems and the 2019 acquisitions of a U.S. & Canada property and Elegant Hotels Group plc (“Elegant”).

We expect spending on capital expenditures and other investments will total approximately $575 million to $650 million for 2021, including contract acquisition costs, equity and other investments, loan advances, and various capital expenditures (including approximately $220 million for maintenance capital spending and our new headquarters).

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 equity interests in various hotels, many of which we have sold or are seeking to sell. We have made, and expect to continue making, selective and opportunistic investments to add units to our lodging business, which may include property acquisitions and renovations (such as our 2019 acquisitions of the W New York - Union Square and Elegant), 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 management or franchise agreements.

Dispositions. Property and asset sales generated $260 million cash proceeds in 2020 and $395 million in 2019. See Note 4 for more information on dispositions.

Loan Activity. From time to time, we make loans to owners of hotels that we operate or franchise. Loan advances, net of loan collections, amounted to $33 million in 2020, compared to net collections of $21 million in 2019. At year-end 2020, we had $163 million of senior, mezzanine, and other loans outstanding, compared to $126 million outstanding at year-end 2019.

Financing Activities Cash Flows

Debt. Debt decreased by $564 million in 2020, to $10,376 million at year-end 2020 from $10,940 million at year-end 2019. See “Sources of Liquidity,” caption in this “Liquidity and Capital Resources” section and Note 10 for additional information on the Senior Note and Credit Facility transactions in 2020.

Share Repurchases. We purchased 1.0 million shares of our common stock in 2020 (in the 2020 first quarter) at an average price of $145.42 per share and 17.3 million shares in 2019 at an average price of $130.79 per share. At year-end 2020, 17.4 million shares remained available for repurchase under Board approved authorizations. We do not anticipate repurchasing additional shares until business conditions improve, and are prohibited from doing so for the duration of the Covenant Waiver Period under our Credit Facility, with certain exceptions. For additional information, see “Fourth Quarter 2020 Issuer Purchases of Equity Securities” in Part II, Item 5.

Dividends. On February 14, 2020, our Board of Directors declared a cash dividend of $0.48 per share payable to stockholders of record on February 28, 2020, which we paid on March 31, 2020. We do not anticipate declaring further cash dividends until business conditions improve and are prohibited from doing so for the duration of the Covenant Waiver Period under our Credit Facility.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

The following table summarizes our contractual obligations at year-end 2020:

									Payments Due by Period
($ in millions)			Total						Less Than 1 Year						1-3 Years						3-5 Years						After 5 Years
Debt (1)			$	12,453					$	1,542					$	2,143					$	4,281					$	4,487
Finance lease obligations (1)			206						13						27						28						138
Operating leases where we are the primary obligor			1,890						184						349						284						1,073
Purchase obligations			437						186						185						66						—
Other noncurrent liabilities			178						—						97						28						53
Total contractual obligations			$	15,164					$	1,925					$	2,801					$	4,687					$	5,751

(1)Includes principal as well as interest.

The preceding table does not reflect projected Deemed Repatriation Transition Tax payments totaling $395 million at year-end 2020 as a result of the U.S. tax legislation enacted on December 22, 2017, commonly referred to as the 2017 Tax Cuts and Jobs Act. In addition, the table does not reflect unrecognized tax benefits, including interest and penalties, at year-end 2020 of $508 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 or by working capital calls to the hotel owners, 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 2020:

($ in millions)			Total Amounts Committed						Less Than 1 Year						1-3 Years						3-5 Years						After 5 Years
Guarantee commitments (expiration by period)			$	279					$	35					$	81					$	40					$	123
Investment and loan commitments (expected funding by period)			22						12						7						3						—
Total other commitments			$	301					$	47					$	88					$	43					$	123

In conjunction with financing obtained for specific projects or properties owned by entities in which we have an equity investment, 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 entity.

Additionally, in 2017, we granted a hotel owner a one-time right, exercisable in 2022, to require us to purchase the leasehold interest in the land and hotel for $300 million in cash (the “put option”). If the owner exercises the put option, we have the option to purchase, at the same time the put transaction closes, the fee simple interest in the underlying land for an additional $200 million in cash (the “call option”). We also have the right to defer the closing on the put and call options, if exercised, to December 2024. We account for the put option as a guarantee and as of December 31, 2020, believe it is probable the hotel owner will exercise the put option and we will exercise the call option.

For further information, including the nature of the commitments and their expirations, see the “Commitments” caption in Note 8.

Letters of Credit

At year-end 2020, we had $156 million of letters of credit outstanding (all outside the Credit Facility, as defined in Note 10), most of which were for our self-insurance programs. Surety bonds issued as of year-end 2020 totaled $163 million, most of which state governments requested in connection with our self-insurance programs.

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 Note 2 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; 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.