Financial Information

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

International includes properties, regardless of brand, that are located outside the United States and Canada.

Financials

2014 Compared to 2013

In 2014, across our International segment we added 170 properties (26,737 rooms) and 16 properties (3,130 rooms) left the system.

For the twelve months ended December 31, 2014, compared to the twelve months ended December 31, 2013, RevPAR for comparable systemwide international properties increased by 5.1 percent to $133.37, occupancy for these properties increased by 2.0 percentage points to 71.9 percent, and average daily rates increased by 2.1 percent to $185.39. See “Business and Overview” for a discussion of results in the various International segment regions.

The $67 million increase in segment profits in 2014, compared to 2013, primarily consisted of $22 million in higher incentive management fees, $21 million of higher base management and franchise fees, $17 million of higher equity in earnings, and $11 million of higher owned, leased, and other revenue, net of direct expenses, partially offset by $6 million higher general, administrative, and other expenses.

The increase in base management and franchise fees was driven by unit growth and higher RevPAR, partially offset by the impact of $3 million in unfavorable foreign exchange rates and $4 million from terminated units. Increased incentive management fees were primarily driven by higher net house profit at managed hotels and unit growth, partially offset by the impact of $4 million in unfavorable foreign exchange rates.

The increase of equity in earnings was driven by a $9 million reversal of deferred tax liabilities associated with a tax law change in a country in which two of our International joint ventures operate and $7 million in increased earnings at three of our joint ventures.

The increase in owned, leased, and other revenue, net of direct expenses largely reflected $10 million from Protea Hotels programs and leases acquired in the 2014 second quarter, $5 million in higher costs in 2013 related to three leases we terminated, $5 million of pre-opening costs in 2013, $4 million from new units, and $4 million of favorable operating profits, partially offset by an unfavorable variance of $12 million in termination fees recognized in 2013, and $6 million in earnings from properties that converted to managed or franchised.

The increase in general, administrative, and other expenses was primarily due to $5 million related to the Protea Hotels acquisition and $5 million in higher compensation, partially offset by a $5 million performance cure payment for one property in 2013.

Cost reimbursements revenue and expenses for our International segment properties totaled $1,305 million in 2014, compared to $1,071 million in 2013.

2013 Compared to 2012

In 2013, across our International segment we added 45 properties (9,817 rooms) and 11 properties (2,199 rooms) left the system.

For the twelve months ended December 31, 2013, compared to the twelve months ended December 31, 2012, RevPAR for comparable systemwide international properties increased by 3.4 percent to $126.72, occupancy for these properties increased by 1.3 percentage points to 70.7 percent, and average daily rates increased by 1.4 percent to $179.28.

The $23 million decrease in segment profits in 2013, compared to 2012, predominantly reflected $17 million of higher general, administrative, and other expenses, $9 million of higher depreciation, amortization, and other expense, $5 million of lower owned, leased, and other revenue, net of direct expenses, $3 million of lower incentive management fees, and $3 million of increased joint venture equity losses, partially offset by $15 million of higher base management and franchise fees.

The increase in base management and franchise fees largely reflected new unit growth and higher RevPAR due to increased demand. The decrease in incentive management fees was primarily driven by a $3 million unfavorable impact from a contract revision for a property, a $2 million unfavorable variance from the 2012 recognition of previously deferred fees in conjunction with a property’s change in ownership, and a $3 million unfavorable foreign exchange rate impact. These were partially offset by higher property-level revenue which resulted in higher property-level income and margins and net new unit growth.

The decrease in owned, leased, and other revenue, net of direct expenses largely reflected $7 million in costs related to three International segment leases we terminated, $5 million in weaker earnings at one leased property in London, and $5 million of pre-opening expenses for The London EDITION, partially offset by $12 million of higher termination fees principally associated with three properties.

Higher depreciation, amortization, and other expense resulted primarily from $4 million of assets written off at two properties and $3 million due to new unit growth and renovations at two properties.

The increase in general, administrative, and other expenses primarily reflected $14 million of increased expenses for initiatives to enhance and grow our brands globally, $7 million of higher accounts receivable reserves primarily related to two properties, and a $5 million performance cure payment for one property, partially offset by a favorable variance from a $5 million guarantee accrual for one property in 2012.

Higher joint venture equity losses were primarily driven by a renovation at a hotel in one joint venture and lower earnings at two other joint ventures.

Cost reimbursements revenue and expenses for our International segment properties totaled $1,071 million in 2013, compared to $882 million in 2012.

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