Financial Information

PART II

Item 8. Financial Statements and Supplementary Data.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. INCOME TAXES

The components of our earnings before income taxes for the last three fiscal years consisted of:

Our provision for income taxes for the last three fiscal years consists of:

Our current tax provision does not reflect the following benefits attributable to us for the vesting or exercise of employee share-based awards: $34 million in 2015, $89 million in 2014, and $66 million in 2013. The preceding table includes tax credits of $4 million in 2015, $4 million in 2014, and $3 million in 2013. We had tax applicable to other comprehensive income of $2 million in 2015, $5 million in 2014, and $2 million in 2013.

We have made no provision for U.S. income taxes or additional non-U.S. taxes on the cumulative unremitted earnings of non-U.S. subsidiaries ($1,109 million as of year-end 2015). We consider the earnings for substantially all non-U.S. subsidiaries to be indefinitely reinvested. These earnings could become subject to additional taxes if the non-U.S. subsidiaries dividend or loan those earnings to a U.S. affiliate or if we sell our interests in the non-U.S. subsidiaries. We cannot practically estimate the amount of additional taxes that might be payable on the unremitted earnings.

Unrecognized Tax Benefits

The following table reconciles our unrecognized tax benefit balance for each year from the beginning of 2013 to the end of 2015:

These unrecognized tax benefits reflect the following year-over-year changes: (1) a $14 million increase in 2015, largely attributable to a U.S. federal tax issue regarding transfer pricing; (2) a $24 million decrease in 2014, largely attributable to the favorable settlements reached with taxing authorities on both federal and international positions taken in prior years; and (3) a $5 million increase in 2013, primarily due to a U.S. federal tax issue, offset by a settlement with international taxing authorities.

Our unrecognized tax benefit balances included $15 million at year-end 2015, $7 million at year-end 2014, and $12 million at year-end 2013 of tax positions that, if recognized, would impact our effective tax rate.

We file income tax returns, including returns for our subsidiaries, in various jurisdictions around the world. The Internal Revenue Service (“IRS”) has examined our federal income tax returns, and we have settled all issues for tax years through 2013. We participate in the IRS Compliance Assurance Program, which accelerates IRS examination of key transactions with the goal of resolving any issues before the taxpayer files its return. As a result, our 2014 tax year audit is complete, pending the resolution of one issue. Our 2015 tax year audit is currently ongoing. Various foreign, state, and local income tax returns are also under examination by the applicable taxing authorities. We believe it is reasonably possible that we will resolve a transfer pricing issue for 2014 and 2015 during the next 12 months for which we have an unrecognized tax balance of $15 million.

Deferred Income Taxes

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss and tax credit carry-forwards. We state those balances at the enacted tax rates we expect will be in effect when we actually pay or recover the taxes. Deferred income tax assets represent amounts available to reduce income taxes we will pay on taxable income in future years. We evaluate our ability to realize these future tax deductions and credits by assessing whether we expect to have sufficient future taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies to utilize these future deductions and credits. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized.

We had the following total deferred tax assets and liabilities at year-end 2015 and year-end 2014:

The following table presents the tax effect of each type of temporary difference and carry-forward that gave rise to a significant portion of our deferred tax assets and liabilities as of year-end 2015 and year-end 2014:

At year-end 2015, we had approximately $34 million of tax credits that expire through 2025 and $77 million of tax credits that do not expire. We recorded $5 million of net operating loss benefits in 2015 and $10 million in 2014. At year-end 2015, we had approximately $961 million of primarily state and foreign net operating losses, of which $413 million expire through 2035.

Reconciliation of U.S. Federal Statutory Income Tax Rate to Actual Income Tax Rate

The following table reconciles the U.S. statutory tax rate to our effective income tax rate for the last three fiscal years:

We paid cash for income taxes, net of refunds of $218 million in 2015, $172 million in 2014, and $77 million in 2013.