Financial Information

PART I

Item 1. Business.

Other Activities

Credit Card Programs. At year-end 2016, we licensed 13 credit card programs in the United States, Canada, United Kingdom, United Arab Emirates, and Japan, which include Marriott Rewards, The Ritz-Carlton Rewards, and Starwood Preferred Guest (“SPG”) credit cards. We earn licensing fees based on card usage, and the cards are designed to encourage loyalty to our brands.

Loyalty Programs, Sales and Marketing, and Reservation Systems. Our customer loyalty programs, Marriott Rewards and The Ritz-Carlton Rewards, and SPG (collectively “Loyalty Programs”), have 30 participating brands. MVW, Vistana, and other program partners also participate in one or more of our Loyalty Programs. The Loyalty Programs yield repeat guest business by rewarding frequent stays with points toward free hotel stays and other rewards, or airline miles with any of 49 participating airline programs. We believe that our Loyalty Programs generate substantial repeat business that might otherwise go to competing hotels. In 2016, Loyalty Programs members purchased over 50 percent of our room nights. While we continue to run our Loyalty Programs in parallel, we encourage the linking of accounts between the Loyalty Programs, allowing instant elite status match, and enabling the transfer of points between the programs. We continue to enhance our Loyalty Program offerings and strategically market to this large and growing customer base. Our loyalty member base provides a low cost and high impact vehicle for our revenue generation efforts. See the “Loyalty Programs” caption in Footnote 2 “Summary of Significant Accounting Policies” for more information.

Marriott.com, Starwoodhotels.com, SPG.com, our international sites, and our mobile apps continued to grow significantly in 2016. Our web and mobile platforms allow for a seamless booking experience, and enable our guests to easily enroll in our Loyalty Programs and book our exclusive Member Rates. Our Look No Further^® Best Rate Guarantee ensures best rate integrity, strengthening consumer confidence in our brand, and gives customers access to the same rates when they book through our various direct channels. We also continue to grow engagement levels with millions of customers through our mobile guest services. In addition to existing mobile services like mobile check-in and check-out, in 2016 we expanded to add mobile service requests, now offered at many hotel brands around the globe, enabling guests to engage in a two-way chat with the hotel before their arrival and throughout their stay. Our digital strategy continues to focus on creating a simple and efficient digital booking experience, and to create a superior and memorable stay experience for our guests powered by digital guest services across our hotel portfolio.

At year-end 2016, we operated 24 hotel reservation centers, nine in the United States and Canada and 15 in other countries and territories, which handle reservation requests for our lodging brands worldwide, including franchised properties. We own two of the U.S. facilities and either lease the others or share space with an existing Marriott property. While pricing is set by our hotels, our reservation system manages inventory and allows us to utilize third party agents where cost effective. Economies of scale enable us to minimize costs per occupied room, drive profits for our owners and franchisees, and enhance our fee revenue.

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

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

Environmental Responsibility and Sustainable Hotels. Our sustainability strategy supports business growth, conservation of natural resources, and protecting our planet through wide-reaching environmental initiatives. Marriott’s environmental goals are to: (1) reduce energy and water consumption by 20 percent from 2007 to 2020; (2) empower our hotel development partners to build sustainable hotels; (3) green our multi-billion dollar supply chain; (4) educate and inspire associates and guests to conserve and preserve; and (5) address environmental challenges through innovative conservation initiatives including rainforest protection and water conservation.

We recognize our responsibility to reduce waste as well as water and energy consumption in our hotels and corporate offices. Our focus remains on continually integrating greater environmental sustainability throughout our business. In the year ahead, we intend to build upon our progress and launch our next generation of sustainability goals. We were the first major hotel chain to calculate our carbon footprint and launch a plan to improve energy efficiency, conserve water, and support globally significant projects that reduce deforestation. We use Energy and Environmental Action plans to help our properties achieve energy and water reduction goals. Working in partnership with the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED^®) certification, Marriott is empowering our hotel development partners to build sustainable hotels. Marriott has one of the largest portfolios of LEED-certified buildings in the hospitality industry with 111 certified properties and over 180 more in the development pipeline.

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