Financial Information

PART II

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

North American Full-Service includes The Ritz-Carlton, EDITION, JW Marriott, Autograph Collection Hotels, Renaissance Hotels, Marriott Hotels, Delta Hotels and Resorts, and Gaylord Hotels located in the United States and Canada.

2015 Compared to 2014

In 2015, across our North American Full-Service segment we added 57 properties (15,345 rooms), including 37 properties (9,590 rooms) from the Delta Hotels and Resorts acquisition, and five properties (1,398 rooms) left our system.

For the twelve months ended December 31, 2015, compared to the twelve months ended December 31, 2014, RevPAR for comparable systemwide North American Full-Service properties increased by 4.6 percent to $136.95, occupancy for these properties increased by 0.6 percentage points to 73.1 percent, and average daily rates increased by 3.8 percent to $187.40.

The $37 million increase in segment profits, compared to 2014, was driven by $44 million of higher base management and franchise fees and $10 million of higher incentive management fees, partially offset by $6 million of lower owned, leased, and other revenue, net of direct expenses, $4 million of higher general, administrative, and other expenses, $4 million of lower gains and other income, net, and $3 million of higher depreciation, amortization, and other expense.

Base management and franchise fees were higher due to stronger RevPAR driven by rate and unit growth, partially offset by $5 million of contract modifications and terminations. Increased incentive management fees were primarily driven by higher net house profits at managed hotels.

Lower owned, leased, and other revenue, net of direct expenses primarily reflected $8 million of weaker performance at a North American Full-Service property under renovation.

General, administrative, and other expenses were higher due to $5 million from the Delta Hotels and Resorts acquisition and $2 million in higher reserves for guarantee funding, partially offset by $3 million of other property expenses incurred in 2014.

Cost reimbursements revenue and expenses for our North American Full-Service segment properties totaled $7,911 million in 2015, compared to $7,465 million in 2014.

2014 Compared to 2013

In 2014, across our North American Full-Service segment we added 23 properties (5,093 rooms) and no properties (zero rooms) left our system.

For the twelve months ended December 31, 2014, compared to the twelve months ended December 31, 2013, RevPAR for comparable systemwide North American Full-Service properties increased by 6.4 percent to $132.44, occupancy for these properties increased by 1.5 percentage points to 72.8 percent, and average daily rates increased by 4.1 percent to $182.00.

The $34 million increase in segment profits, compared to 2013, was driven by $30 million of higher base management and franchise fees, $17 million of higher incentive management fees, and $5 million of lower depreciation, amortization, and other expense, partially offset by $11 million of lower owned, leased, and other revenue, net of direct expenses, and $8 million of higher general, administrative, and other expenses.

Base management and franchise fees were higher due to stronger RevPAR as a result of increased demand and unit growth, partially offset by $7 million from terminated units. The increase in incentive management fees was primarily driven by higher net house profit at managed hotels, partially offset by $5 million in deferred fees recognized in 2013.

The decrease in depreciation, amortization, and other expense primarily reflected $11 million of accelerated amortization related to contract terminations in 2013, partially offset by $3 million of higher depreciation for a property that we acquired in the 2013 fourth quarter and $2 million in higher accelerated amortization related to contract terminations in 2014.

The decrease in owned, leased, and other revenue, net of direct expenses primarily reflected $7 million of lower termination fees, $6 million of lower branding fees, and $6 million of pre-opening costs, partially offset by $10 million in revenue, net of direct expenses, for a property we acquired in the 2013 fourth quarter.

General, administrative, and other expenses increased primarily due to a $4 million increase in guarantee funding and $3 million of other property expenses.

Cost reimbursements revenue and expenses for our North American Full-Service segment properties totaled $7,465 million in 2014, compared to $7,190 million in 2013.