Financial Information

PART II

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

International

2016 Compared to 2015

In 2016, across our International regions we added 789 properties (213,683 rooms), including 696 properties (191,841 rooms) from the Starwood Combination on the Merger Date, and 23 properties (4,082 rooms) left our system.

The table below presents the impact of the Starwood Combination starting from the Merger Date, with additional information on the factors attributable to our Legacy-Marriott brands discussed following the table.

The $4 million increase in segment profits for Legacy-Marriott operations, compared to 2015, consisted of $12 million of higher gains and other income, net, $7 million of higher incentive management fees, $1 million of higher base management and franchise fees, $1 million of higher owned, leased, and other revenue, net of direct expenses, and $1 million of higher equity in earnings, partially offset by $16 million of higher general, administrative, and other expenses, and $2 million of higher depreciation, amortization, and other expense.

Higher base management and franchise fees for Legacy-Marriott operations were due to $19 million of stronger RevPAR and unit growth, partially offset by the impact of $17 million in unfavorable foreign exchange rates. The increase in incentive management fees for Legacy-Marriott operations was primarily due to an $8 million increase in deferred fee recognition and $5 million from new managed properties, partially offset by the impact of $7 million in unfavorable foreign exchange rates.

Higher owned, leased, and other revenue, net of direct expenses for Legacy-Marriott operations largely reflected $13 million net stronger performance at several properties following renovations, partially offset by $9 million from a property that converted from owned to managed.

Higher general, administrative, and other expenses for Legacy-Marriott operations were primarily due to a $12 million increase in administrative costs to grow our brands globally and a $5 million increase in property expenses.

Higher gains and other income, net for Legacy-Marriott operations was primarily due to an $11 million prior year disposal loss for an International property.

Higher equity in earnings for Legacy-Marriott operations primarily reflected a net unfavorable variance to two adjustments recorded in 2015, which consisted of a reduction of an International investee’s liabilities ($5 million) and an impairment charge on an International joint venture ($6 million).

Cost reimbursements revenue and expenses for our Legacy-Marriott International properties totaled $1,344 million in 2016, compared to $1,282 million in 2015.

2015 Compared to 2014

In 2015, across our International regions we added 70 properties (16,490 rooms) and 20 properties (2,110 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 international properties increased by 5.1 percent to $124.13, occupancy for these properties increased by 2.1 percentage points to 72.5 percent, and average daily rates increased by 2.1 percent to $171.20.

The $3 million decrease in segment profits in 2015, compared to 2014, consisted of $12 million of lower gains and other income, net, $9 million of lower equity in earnings, $6 million of lower incentive management fees, and $4 million of higher general, administrative, and other expenses, partially offset by $18 million of higher base management and franchise fees, $8 million of higher owned, leased, and other revenue, net of direct expenses, and $2 million of lower depreciation, amortization, and other expense.

Base management and franchise fees increased due to stronger RevPAR, driven by both occupancy and rate, and unit growth, partially offset by the impact of $16 million in unfavorable foreign exchange rates. Lower incentive management fees reflected $15 million in unfavorable foreign exchange rates, partially offset by higher net house profit at managed hotels and unit growth.

Higher owned, leased, and other revenue, net of direct expenses largely reflected favorable operating results at several of our properties, including $4 million of lower lease payments for properties that moved to managed, franchised, or left our system, and $7 million of increased termination fees, partially offset by $4 million in lower branding fees and $2 million from a property that converted to managed.

Lower depreciation, amortization, and other expense was driven by amortization true-ups and lower depreciation from an International property sold in 2015, partially offset by $5 million of higher depreciation at several of our leased properties.

General, administrative, and other expenses increased primarily due to higher costs for branding and service initiatives to grow our brands globally.

Lower gains and other income, net primarily reflected an $11 million loss on the sale of an International property discussed in Footnote 3 “Acquisitions and Dispositions.”

Lower equity in earnings reflected an unfavorable variance to a $9 million benefit recorded in 2014 for two of our International investments, following the reversal of their liabilities associated with a tax law change in a country in which they operate, and a $6 million impairment charge relating to an International joint venture, partially offset by a $5 million benefit recorded in 2015 following an adjustment to an International investee’s liabilities.

Cost reimbursements revenue and expenses for our International properties totaled $1,282 million in 2015, compared to $1,305 million in 2014.