Financial Information

PART II

Item 8. Financial Statements and Supplementary Data.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. SHARE-BASED COMPENSATION

We award: (1) restricted stock units (“RSUs”) of our common stock; (2) stock appreciation rights (“SARs”) for our common stock; (3) stock options to purchase our common stock; and (4) deferred stock units. We also issue performance-based RSUs (“PSUs”) to named executive officers and some of their direct reports.

We recorded share-based compensation expense of $181 million in 2017, $212 million in 2016, and $113 million in 2015. Deferred compensation costs for unvested awards totaled $168 million at year-end 2017 and $192 million at year-end 2016. As of year-end 2017, we expect to recognize deferred compensation expense over a weighted average period of two years.

RSUs and PSUs

We granted RSUs in 2017 to certain officers, key employees, and non-employee directors, and those units vest generally over four years in equal annual installments commencing one year after the grant date. Upon vesting, RSUs convert to shares of our common stock which we distribute from treasury shares. We granted PSUs in 2017 to certain executive officers, subject to continued employment and the satisfaction of certain performance conditions based on achievement of pre-established targets for Adjusted EBITDA, RevPAR Index, room openings, and/or net administrative expense over, or at the end of, a three-year performance period.

We had deferred compensation costs for RSUs of approximately $164 million at year-end 2017 and $188 million at year-end 2016. The weighted average remaining term for RSUs outstanding at year-end 2017 was two years.

The following table provides additional information on RSUs for the last three fiscal years:

The following table presents the changes in our outstanding RSUs during 2017 and the associated weighted average grant-date fair values:

⁽¹⁾   Includes 0.2 million PSUs.

SARs

We may grant SARs to officers and key employees (“Employee SARs”) and to directors (“Director SARs”). Employee SARs expire ten years after the grant date and both vest and may be exercised in four equal annual installments commencing one year following the grant date. Director SARs generally expire ten years after the date of grant and vest upon grant; however, they are generally not exercisable until one year after grant. On exercise of SARs, holders receive the number of shares of our common stock equal to the number of SARs that are being exercised multiplied by the quotient of (a) the stock price on the date of exercise minus the exercise price, divided by (b) the stock price on the date of exercise.

We recognized compensation expense for Employee SARs and Director SARs of $9 million in 2017, $8 million in 2016, and $7 million in 2015. We had deferred compensation costs related to SARs of approximately $4 million in 2017 and $4 million in 2016.

The following table presents the changes in our outstanding SARs during 2017 and the associated weighted average exercise prices:

The following tables show the number of Employee SARs and Director SARs we granted in the last three fiscal years, the associated weighted average exercise prices, and the associated weighted average grant-date fair values:

Outstanding SARs had total intrinsic values of $329 million at year-end 2017 and $196 million at year-end 2016. Exercisable SARs had total intrinsic values of $289 million at year-end 2017 and $179 million at year-end 2016. SARs exercised during 2017 had total intrinsic values of $80 million, and SARs exercised in 2016 had total intrinsic values of $58 million.

We used the following assumptions to determine the fair value of the SARs we granted to employees and non-employee directors in 2017, 2016, and 2015:

In making these assumptions, we base expected volatility on the historical movement of the Company’s stock price. We base risk-free rates on the corresponding U.S. Treasury spot rates for the expected duration at the date of grant, which we convert to a continuously compounded rate. The dividend yield assumption takes into consideration both historical levels and expectations of future dividend payout. The weighted average expected terms for SARs are an output of our valuation model which utilizes historical data in estimating the time period that the SARs are expected to remain unexercised. We calculate the expected terms for SARs for separate groups of retirement eligible and non-retirement eligible employees and non-employee directors. Our valuation model also uses historical data to estimate exercise behaviors, which include determining the likelihood that employees will exercise their SARs before expiration at a certain multiple of stock price to exercise price.

Other Information

At year-end 2017, we had 32 million remaining shares authorized under the Stock Plan and Starwood LTIP.