Financial Information

PART II

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

Cash from Financing Activities

Debt. Debt increased by $4,399 million in 2016, to $8,506 million at year-end 2016 from $4,107 million at year-end 2015, and primarily reflected $1,875 million from the Starwood Combination (much of which was subsequently canceled in exchange for our Series S through W Notes), $1,485 million ($1,500 million face amount) in Series Q and R Notes issuances, and $1,373 million increase in commercial paper borrowings, partially offset by $289 million in Series H Notes that matured in the 2016 second quarter and $24 million of repurchased Starwood senior notes in the 2016 fourth quarter. See Footnote 11 “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 2016, our long-term debt had an average interest rate of 2.9 percent and an average maturity of approximately 5.9 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 2016.

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

Share Repurchases. We purchased 8 million shares of our common stock in 2016 at an average price of $71.55 per share, 25.7 million shares in 2015 at an average price of $75.48 per share, and 24.2 million shares in 2014 at an average price of $62.09 per share. At year-end 2016, 31.4 million shares remained available for repurchase under authorizations from our Board of Directors. We purchase shares in the open market and in privately negotiated transactions.

Dividends. Our Board of Directors declared and paid the following quarterly cash dividends in 2016: (1) $0.25 per share declared on February 11, 2016 and paid March 31, 2016 to shareholders of record on February 25, 2016; (2) $0.30 per share declared on May 6, 2016 and paid June 30, 2016 to shareholders of record on May 20, 2016; (3) $0.30 per share declared on September 13, 2016 and paid September 30, 2016 to shareholders of record on September 23, 2016; and (4) $0.30 per share declared November 10, 2016 and paid December 30, 2016 to shareholders of record on November 24, 2016. Our Board of Directors declared a cash dividend of $0.30 per share on February 10, 2017, payable on March 31, 2017 to shareholders of record on February 24, 2017.

Contractual Obligations and Off Balance Sheet Arrangements

Contractual Obligations

The following table summarizes our contractual obligations at year-end 2016:

⁽¹⁾   Includes principal as well as interest payments.

The preceding table does not reflect unrecognized tax benefits at year-end 2016 of $400 million, including interest and net of deferred tax assets. See Footnote 7 “Income Taxes” for additional information.

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 2016:

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.

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

Letters of Credit

At year-end 2016, we also had $157 million of letters of credit outstanding (all outside the Credit Facility), the majority of which were for our self-insurance programs. Surety bonds issued as of year-end 2016 totaled $149 million, the majority of which federal, state, and local governments requested in connection with our self-insurance programs.